News

Insurance Coverage for False Claims Act Exposure

By Grant E. Brown and Seán McCabe

According to the Department of Justice (DOJ), 2025 was a record-breaking year under the False Claims Act (FCA). FCA settlements and judgments exceeded $6.8 billion, more than doubling the $3.1 billion total for 2024 and far above the previous record of $6.2 billion collected in 2014. Whistleblowers filed 1,297 qui tam lawsuits, which also was a record, far exceeding the 980 suits filed in 2024. These amounts represent a significant upward trajectory from previous years, and we expect these trends to continue as Attorney General Todd Blanche has remarked that the DOJ “will continue to aggressively deploy” the FCA to achieve policy goals.

A large portion of the settlements and judgments—approximately $5.7 billion—related to the health care industry. Health care providers paid to resolve claims of managed care fraud, including the submission of invalid diagnosis codes under Medicare Advantage programs. Health care providers also faced allegations that practitioners performed medically unnecessary care to increase costs billed to Medicare, as well as allegations of negligent care in nursing homes and treatment facilities. Pharmacies and drug manufacturers also faced significant exposure, including claims for price fixing, kickbacks, and dispensing drugs without prescriptions. Even a consulting firm paid a significant settlement in connection with purported advice to “turbocharge” sales of OxyContin. As those facing FCA exposure know, the costs and burden associated with FCA investigations or defending qui tam actions are substantial. Fortunately, companies targeted under the FCA may have insurance coverage to protect against the various types of exposures.

Coverage for Incurred Costs
One large expense policyholders face in connection with the FCA is the costs incurred responding to civil investigation demands (CIDs). CIDs are formal demands for information from the DOJ to compel the production of documents, answers to interrogatories, or oral testimony. Unlike standard discovery practice in civil litigation, a company’s objective when responding to a CID is to convince the DOJ that it acted reasonably and in compliance with the law. Companies receiving CIDs therefore spare no expense to perform extensive internal investigations, consisting of document review, privilege checks, hiring outside vendors, and retaining counsel to interface with the DOJ. While the company must pay for all these expenses, it may look to its insurance program to help cover the costs.

One type of policy that may respond to CID investigation costs is errors & omissions (E&O), or professional liability, insurance. Coverage for CIDs under such insurance often turns on whether a CID is a “claim” as defined in the insurance policy at issue. While the operative language varies among policies, recent case law demonstrates that in some scenarios CIDs are claims and the costs associated with responding to CIDs are covered. In Cigna Group vs XL Specialty Insurance Company,¹ for example, the policyholder, Cigna, sought coverage under its managed care E&O policies for a CID issued in connection with the DOJ’s investigation into the policyholder’s purported practice of performing “one-way chart reviews.” The policies at issue defined a claim as “any written notice received by [the policyholder] that a person or entity intends to hold [the policyholder] responsible for a wrongful act.” The insurance companies contended that the CID was not a claim, arguing that the CID did not intend to hold the policyholder responsible. Rather, the insurance companies asserted that the CID was a “governmental investigation” for which the policies did not indemnify expenses.

The Cigna Group Court rejected the insurance companies’ arguments and concluded the CID was a covered claim. It explained that when the government demands information as part of an investigation under the FCA, the party receiving the CID cannot simply refuse to cooperate without risking liability or sanctions. Accordingly, the CID at issue in Cigna Group represented an attempt by the DOJ to hold the policyholder responsible for one-way chart reviews. The court further explained that its ruling did not render the policies’ provision concerning governmental investigations superfluous because there were still instances where a governmental investigation would not constitute a claim, such as when a governmental body requests information from a third party without seeking to hold the third party liable for a potential violation of the law. In sum, Cigna Group demonstrates not only that CIDs can constitute claims, but that full coverage for CIDs may exists under policies providing limited coverage for governmental investigations.

Coverage for Qui Tam Actions
Companies that are accused of violating the FCA may also face qui tam actions brought by private individuals (called relators), who may seek a percentage of the recovered funds. Insurance coverage may be available for the costs incurred defending against qui tam actions. For example, in Eisai Inc vs Zurich American Insurance Company,² the policyholder, a pharmaceutical company, faced a qui tam action initiated by its former employee, concerning the policyholder’s purported filing of false health care reimbursement claims. The action contained allegations concerning employment practices, including the company’s purported failure to adopt appropriate employment practices and negligent evaluation of employees. Such allegations were tied into the policyholder’s purported efforts to market a certain drug off label.

The Eisai Court determined there was coverage for the qui tam action under the policyholder’s employment practices liability (EPL) insurance policy, explaining that the policy provided broad coverage for alleged acts by the pharmaceutical company “in connection with” certain enumerated employment actions (such as wrongful discipline, retaliation, failure to establish proper workplace practices, etc). The court emphasized that coverage existed, even though the qui tam action was not necessarily for an employment act, because all that was required was for the alleged wrongful acts to be connected to employment acts. Given the broad policy language, the court ruled that the insurance company had a duty to defend the qui tam action.

Other types of insurance may also respond to qui tam actions, though outcomes are claim-specific and policy-specific. For example, in My Left Foot Children’s Therapy vs Certain Underwriters at Lloyd’s London,³ the Ninth Circuit recognized coverage for a qui tam action under a professional liability insurance policy, ruling that a $25,000 sublimit for “billing errors” did not limit the policyholder’s recovery, because the policy was ambiguous as to whether the liabilities in question might be deemed “claims expenses,” which had a $2 million limit.

Assess Insurance Options
FCA enforcement remains a top priority of the current administration. Policyholders who face such FCA exposure should turn to their insurance program to help cover costs. As Cigna Group, Eisai, and My Left Foot Children’s Therapy show, coverage may exist under E&O and EPL policies—and there are other types of insurance that could also respond to FCA liabilities. For example, Directors and Officers insurance may provide coverage for claims alleging wrongful acts under the FCA. Representations and Warranties insurance could also be available for a company that acquired another business facing undisclosed FCA exposure. Coverage for any given CID or qui tam action will ultimately depend on the insurance policies’ fine print, as well as the sort of alleged misconduct under the FCA. But policyholders should never accept their insurance companies’ coverage denial at face value and should consult with insurance experts or coverage counsel to evaluate coverage and assess any coverage denials.

— Grant E. Brown, JD, is a shareholder in the New York office of Anderson Kill, PC, and cochairs the firm’s Professional Liability and Disasters groups. Brown dedicates his practice to representing policyholders in coverage disputes. Brown can be reached at 212-278-1352 or gbrown@andersonkill.com.
 
— Seán McCabe, JD, is a New York-based attorney at Anderson Kill. McCabe concentrates his practice in insurance recovery and white-collar defense. McCabe can be reached at 212-278-1029 or smccabe@andersonkill.com.

References
1. Delaware Superior Court, C.A. No. N23C-03-009 SKR CCLD.
2. United States District Court for the District of New Jersey, No. 12-cv-7208.
3. United States Court of Appeals for the Ninth Circuit, No. 17-15748.