2022 has kicked off with several new whistleblower awards, as the SEC announced earlier this week that it had awarded more than $4 million to whistleblowers who provided information and assistance in two government actions—one for misconduct occurring overseas and a second where the whistleblower’s assistance directly led to the success of the covered action.

Since the inception of the program in 2012, the SEC has awarded approximately $1.2 billion to 241 individuals for providing information that led to successful enforcement actions by the SEC and other agencies. Despite challenges due to COVID-19, the last fiscal year set new records (both in terms of dollars and individual awards), had the largest number of whistleblower tips, and resulted in more awards than in all other prior years combined.

Many D&O policies respond to a variety of government activity, ranging from informal interviews and requests for information to subpoenas and enforcement actions. However, policyholders may be surprised to learn (usually upon receipt of a denial letter) that the involvement of a whistleblower in the government’s investigation has the potential to negate coverage under an “Insured vs. Insured” exclusion—a common provision barring coverage for claims by or on behalf of one insured against another insured–if the whistleblower assisting, participating in, or soliciting the claim is considered an “insured” person under the D&O policy. Because the persons most likely to take advantage of the whistleblower program are employees (or even directors or officers), the risk of whistleblower claims being brought by or supported by the cooperation of an “insured” employee or executive is high.

To avoid this potential coverage gap, policyholders should request a specific kind of carve out from the Insured vs. Insured exclusion for whistleblower claims. And even if the standard Insured vs. Insured exclusion has a carve out, it may not be enough. Some provisions, for example, may only add back coverage for claims involving employee whistleblowers, not for those made by directors and officers. They also may not contemplate equivalent director positions in foreign countries, which the recent $2.6 million award for “misconduct occurring overseas” shows may pose significant issues for multi-national companies. Others may only apply to whistleblowers under Sarbanes-Oxley, which will not provide protection for Dodd-Frank or other types of whistleblower claims.

Engaging experienced coverage counsel to carefully review and, if need, modify D&O coverages (and exclusions) to protect against these coverage gaps is paramount for mitigating the risk of uninsured losses if regulators come knocking, armed with information and assistance from a whistleblower. The whistleblower program continues to hold an important role in the SEC’s enforcement efforts, and companies and their officers and directors should make sure that their D&O liability policies will step up and protect them in the event of a whistleblower claim.