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In the Government’s Crosshairs? Government Investigations and Your D&O Coverage - PowerPoint PPT Presentation

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In the Government’s Crosshairs? Government Investigations and Your D&O Coverage. Introductions. MODERATOR: Nancy D. Adams, Esq., CPCU, Partner, Mintz , Levin, Cohn, Ferris, Glovsky and Popeo PC PANELISTS : Kieran Hughes, JD, Vice President, Financial Lines Claims, Chartis Insurance

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In the government s crosshairs government investigations and your d o coverage

In the Government’s Crosshairs?Government Investigations and Your D&O Coverage



  • Nancy D. Adams, Esq., CPCU, Partner, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC


  • Kieran Hughes, JD, Vice President, Financial Lines Claims, Chartis Insurance

  • Mary E. McCutcheon, Esq., Partner, Farnella Braun

  • Carl E. Metzger, Esq., Partner, Goodwin Proctor LLP

  • Susan Miner, MS, Senior Vice President & Partner, Woodruff Sawyer & Company


  • The Anatomy of an SEC Investigation

  • Coverage Issues Arising from Investigations

  • The D&O Policy and Investigations Coverage

  • The Legal Authority

  • New Investigation Products

Polling Question:

  • Which category do you fall into?:

    • Insurer

    • Broker

    • Attorney

    • In-House Counsel

    • Risk Manager

    • Other

Anatomy of an sec investigation in three easy steps
Anatomy of an SECInvestigation in Three Easy Steps

  • Types of SEC Investigations

  • Types of SEC Enforcement Proceedings

  • Key Issues in SEC Enforcement Cases

Types of sec investigations
Types of SEC Investigations

  • Inspections of Regulated Firms

  • Preliminary Inquiries

  • Informal Investigations

  • Formal Investigations

  • Criminal Referrals and Investigations

Types of sec enforcement proceedings
Types of SECEnforcement Proceedings

  • Injunctive Actions

  • Administrative Proceedings

  • Civil Claims Brought in Federal Court

  • Criminal Referrals and Actions

Key issues in sec enforcement practice
Key Issues in SECEnforcement Practice

  • Self-reporting to the government

  • Cooperation with the government

  • Legal representation of interested parties

  • Selective waiver (or not) of the attorney-client privilege

  • Available sanctions

  • Settlement, including amounts characterized as fines, penalties or disgorgement

  • “Neither admit nor deny” issues

Polling Question:

  • On behalf of a client, have you ever been involved in an investigation?:

    • Yes

    • No

  • If yes, was the investigation:

    • Informal

    • Formal

Coverage issues
Coverage Issues

  • When is coverage triggered for the individual D&O?

    • Informal inquiry

    • Company internal investigation

    • Subpoena

    • Formal investigation

    • Wells notice

    • Complaint

  • When is coverage triggered for the Company?

  • Is the Company insured for the costs of its internal investigation?

  • Can pre-claim work be covered if it benefits defense of a later-filed claim?

  • Notice issues - traps for the unwary



Does Definition of “Claim” Include Investigation?

  • Expressly or by implication?

  • Against individuals (named)?

  • Against company?

  • What types of investigation are covered?

    • Internal v. external

    • How initiated

  • Does investigation “allege” a “Wrongful Act”?

  • What happens if “Claim” made but not noticed?

D o coverage historic standard for regulatory investigations
D&O Coverage: Historic Standardfor Regulatory Investigations

  • Traditional D&O policies only cover individuals for formalinvestigative costs, not the entity

  • Some policies will cover the entity if named & maintained throughout investigation with an Insured (doesn’t happen!)

  • Definition of Claim

    • Formal regulatory investigations against individual Ds and Os, but only if the D or O is specifically identified as the target of the formal investigation, or when a subpoena is served on the individual

    • “Claim” includes criminal investigations (once D or O is indicted)

    • Dedicated Broad Form A-side policies sometimes cover informal investigation when the company can’t indemnify

D o coverage current standard includes pre claim inquiry
D&O Coverage: Current Standard Includes Pre-Claim Inquiry

  • What is a Pre-Claim Inquiry?

    • Request for an Insured Person to (a) appear at a meeting or interview; or (b) produce documents that concerns the business of the Organization or the Insured Person’s insured capacities but only if the request came from:

      • Any Enforcement Body – federal, state, local or foreign law enforcement authority or other governmental investigative authority or the enforcement unit of any securities or commodities exchange or other self-regulatory organization

      • The Organization (investigating shareholder derivative demands)

D o coverage current standard includes pre claim inquiry1
D&O Coverage: Current Standard Includes Pre-Claim Inquiry

  • What Pre-Claim costs are covered?

    • Reasonable and necessary fees, costs and expenses incurred by an Insured Person solely in connection with his/her preparation for and response to a Pre-Claim Inquiry

  • What is not covered?

    • Document Production. Note some insurers will add an endorsement to allow for costs associated with producing documents that are in the possession of the Insured Person

Enhanced d o policies might be worth additional premium
Enhanced D&O Policies Might beWorth Additional Premium

  • Enforcement Body is Broadly Defined

    • Not limited to the SEC, any governmental investigative authority (EPA, FDA)

    • Note- routine regulatory or internal supervision, inspection, compliance, review, production or audit conduction in an Enforcement Body’s normal review or compliance process ≠ a Pre-Claim Inquiry

    • Review your language carefully, particularly as to requirements for a Wrongful Act or notice

    • Consider new triggers such as search warrant

Enhanced d o policies might be worth additional premium1
Enhanced D&O Policies Might be Worth Additional Premium

  • Dodd-Frank whistleblower provisions may change the landscape – could lead to heightened activity and potential earlier identification of Insured Person targets of the SEC

Polling Question:

  • For those of you who have been involved in an investigation, did the insurer pay the insured’s defense expenses?

    • Yes, no reservation

    • Yes, under a reservation of rights

    • No

The legal authority
The Legal Authority …

Each side can cite to a “supporting” case – but look at the policy language

  • MBIA Inc. v. Fed. Ins. Co., 2011 U.S. App. LEXIS 13402 (2d. Cir. July 1, 2011)

    • Coverage for investigation costs triggered by State A.G. subpoena, oral request by SEC, SLC investigation.

    • Policy covered “formal or informal investigation order” and “similar documents.”

The legal authority1
The Legal Authority …

  • Office Depot, Inc. v. Nat’l Union Fire Ins. Co. 734 F.Supp.2d 1304 (S.D. Fla. 2010) aff’d 2011 WL 4840951 (11th Cir. Oct. 14, 2011) (unpublished)

    • No coverage for costs incurred by Company in voluntarily responding to SEC investigation or for internal investigation costs.

    • Policy only covered proceedings also maintained against an Insured Person.

Other cases worth considering
Other Cases Worth Considering

  • National Stock Exchange v. Federal Ins. Co., 2007 WL 1030293 (N.D. Ill. 2007)

    • An investigation “alleges” a “Wrongful Act.”

  • Hansen Natural Corp. v. St. Paul Mercury Ins. Co., CV 08-5067-VBF (C.D. Cal. 2009)

    • Costs to respond to SEC request for documents not a “Claim.”

Other cases cont d
Other Cases (cont’d)

  • Diamond Glass Companies, Inc. v. Twin City Fire Ins. Co. 2008 WL 4613170 (S.D.N.Y.)

    • No coverage for the Company based on an ongoing federal grand jury investigation where the Policy expressly required “the return of an indictment, filing of a notice of charges or similar document” as a condition of coverage for criminal proceedings.  




Many thanks to
Many thanks to …

  • Nancy Adams

  • Kieran Hughes

  • Mary McCutcheon

  • Carl Metzger

  • Susan Miner