On Coverage for Financial Investigations, and an Echo from the Past

Little time to blog today - plus I still have to get up the latest chapter of our on-going serialization of Robert Plotkin’s book, The Genie in the Machine - but I did want to pass along, with a couple of brief comments, this excellent article on the question of whether there is coverage for governmental investigations under directors and officer or professional liability insurance. The article focuses really on two points. First of all, that there may be such coverage, but the time to determine that is not after a claim is made; the time to do so is in advance, when you are negotiating for the policy. This is a basic point I frequently make in seminars - a company needs to survey its potential exposures in advance, and structure the insurance it is purchasing to make sure that, to the extent the market will allow it, coverage is acquired in advance for those potential exposures. This is work your insurance broker and/or your outside coverage lawyers can help with, and it will cost a lot less than fighting later over whether or not there is coverage for an exposure that, with foresight, could have been anticipated and explicitly insured against. Second, the article discusses in depth the question of whether the investigation notice constitutes a claim that would trigger insurance coverage. This is a very interesting and subtle point, and the outcome can vary depending both on the jurisdiction involved and the particular language used to define the word claim in the particular policy at issue. On a more philosophical level, this point is interesting to me because it references back to something I have discussed elsewhere on this blog, namely the idea that all modern insurance coverage law harkens back to the doctrinal shifts that occurred as part of the large dollar insurance battles over coverage for asbestos and environmental exposures a quarter century ago; in this particular instance, the question of when notice from a government agency qualifies as a claim - which is discussed in this article with regard to an investigation into financial behavior - was first really developed in case law considering whether environmental clean up demand letters and notices constituted a claim that could trigger insurance coverage.