Geoffrey B. Fehling

Subscribe to Geoffrey B. Fehling's Posts
Contact: Read more about Geoffrey B. Fehling

The False Claims Act continues to make headlines. The DOJ announced earlier this year that its fiscal-year recoveries—across 351 settlements and judgments—exceeded $2.2 billion, which was the second-highest number of settlements recorded in a single year. More recently, the US Supreme Court heard oral argument and is poised to issue a decision in a closely-watched FCA case that could radically change the balance of power between the government and industry.…

Continue Reading Drugmaker Wins (Again) in False Claims Act Coverage Dispute Over DOJ Settlement

An insurer for University of Southern California recently filed suit in California federal court against the university and a former gynecologist at USC’s Student Health Center seeking to rescind USC’s insurance policy.  The dispute concerns North American Capacity Insurance Company’s coverage obligations for hundreds of sexual abuse-based lawsuits brought against USC.  NACIC seeks, among other things, to rescind a policy it sold to USC based on alleged failures by USC to disclose material facts during the policy application process.  NACIC is also seeking to avoid its coverage obligations under the policy’s “Prior Known Acts” exclusion.…

Continue Reading Coverage Lawsuit Against USC Highlights How Prior Events Can Impact Coverage

A New York Federal judge recently ordered a directors and officers liability insurer to pay $4.5 million that an investment firm had spent defending an arbitration proceeding brought by a former executive. The court found that allegations of constructive termination and related retaliation triggered an exception to the D&O policy’s insured-versus-insured exclusion for employment-related wrongful acts, rejecting the insurer’s argument that, notwithstanding the former executive’s count for constructive termination, his status as an “Insured Person” triggered the exclusion where the majority of counts in the arbitration related to alleged breaches of the firm’s operating agreement.  …
Continue Reading Recent Policyholder Win Highlights Exception to the Insured v. Insured Exclusion in D&O Policies

As discussed in a recent client alert, a Delaware court issued a significant opinion in a directors and officers liability claim involving a special purpose acquisition company. In an issue of first impression in Delaware, the Superior Court in Clover Health Investments Corp. v. Berkley Insurance Co. held that directors and officers of the post-merger entity were “Insured Persons” under the SPAC’s D&O policy because they were acting in “functionally equivalent” roles to directors and officers of the SPAC when the alleged pre-merger wrongful conduct took place. The court’s pro-policyholder rulings on coverage for government investigations, based on an ambiguous definition of “Claim,” and allocation of defense costs under the Larger Settlement Rule also have potential ramifications on future D&O claims in Delaware outside of SPAC deals.
Continue Reading Delaware Court Finds Broad D&O Coverage for Directors and Officers in SPAC Claim

Earlier this month, the US District Court for the Northern District of Illinois ruled that Call One Inc., a tele-communications company, must litigate a claim by its insurer, Berkley Insurance Company, seeking to rescind coverage based on the information provided by the policyholder in its application for insurance. The coverage dispute is illustrative of insurers’ increased scrutiny of the answers to all policy application questions—including where no response is provided—to identify new or additional grounds to avoid coverage, even if it requires rescission of the policy. Policyholders should thus carefully consider all questions and requirements during the policy application process (including during renewal) to avoid potential disclosure disputes should a claim arise.…

Continue Reading Recent Decision Highlights the Importance of Avoiding Disclosure Pitfalls

The Delaware Chancery Court recently held that the duty of oversight extended to corporate officers. The important decision came after McDonald’s shareholders sued the company’s former head of human resources, alleging that the officer breached his duty of oversight by “allowing a corporate culture to develop that condoned sexual harassment and misconduct.” In that same decision, Vice Chancellor Laster also determined that acts of sexual harassment can constitute a breach of fiduciary duty. Officers are rightly focused on the potential ramifications on their personal liability following the ruling. But that potential increased exposure also raises several insurance implications for companies to consider while procuring and renewing directors and officers insurance coverage.…

Continue Reading Increased Risks, D&O Insurance Considerations, Following Delaware’s Extended Oversight Duties

On November 23, 2022, a federal court in Minnesota highlighted the importance of strategically approaching product liability claims, both in terms of their underlying defense and their insurability. In Federal Insurance Company v. 3M Company, No. 21-2093 (JRT/DTS), 2022 WL 17176889 (D. Minn. Nov. 23, 2022), the court rejected the insurer’s attempt to treat each underlying lawsuit as a separate occurrence, thereby maximizing per-occurrence deductibles, and instead found that the manufacture of the allegedly defective medical devices was the sole occurrence responsible for each of the lawsuits. 3M, therefore, was only required to pay a single deductible.…

Continue Reading Court Holds that Design and Manufacture of Allegedly Injurious Product is Only One Occurrence, In Win for Policyholders

A New York federal court recently held that an insurance company was entitled to recoup legal fees paid under a directors and officers liability policy in defense of a criminal action against an ex-CEO who was convicted of bribery. On a motion for reconsideration, the court affirmed its earlier ruling that the CEO’s conduct fell within the policy’s “Dishonest and Willful Acts Exclusion,” reasoning that the criminal case had been finally adjudicated despite a pending appeal. Because there was no coverage, the insurer could seek repayment of all defense costs it had paid to date. Not only is the court’s recoupment decision potentially inconsistent with New York law, but it also raises thorny questions regarding just when a judgment is “final” for the purpose of triggering D&O policy exclusions.…

Continue Reading New York Court Holds Insurer Can Recoup Defense Costs, Appealable Conviction of Former Bank CEO Is “Final” Adjudication of D&O Claim

Last week, Kim Kardashian settled with the SEC after the SEC announced charges against the social-media and reality TV star for promoting a crypto-currency token called EthereumMax, on her Instagram account, where she boasts more than 330 million followers, without disclosing that she received payment for the promotion. Kardashian agreed to pay $1.26 million in penalties, including the $250,000 EthereumMax paid her for promoting its crypto-tokens to potential investors. SEC Chair Gary Gensler stated that Kardashian’s case is “a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote investing in securities.”…
Continue Reading Kardashian Coverage Conundrums

A Delaware court recently granted summary judgment to a mortgage broker targeted in a federal government investigation for alleged False Claims Act violations, holding that the company’s directors and officers liability (“D&O”) insurer was required to indemnify more than $15 million in settlement costs with the U.S. Department of Justice. Guaranteed Rate, Inc. v. ACE American Insurance Company, No. N20C-04-268 MMJ CCLD (Del. Super. Ct. Sept. 6, 2021). We previously reported on the policyholder’s earlier victory in this case, in which the court held that a Civil Investigative Demand (“CID”) from federal authorities triggered the insurer’s obligation to pay defense costs under the D&O policy.
Continue Reading D&O Insurer Must Cover Mortgage Broker’s $15 Million Settlement of Alleged False Claims Act Violations