law libraryAs I have previously noted on this blog, a recurring insurance coverage issue is whether or not the costs incurred in responding to a regulatory or enforcement subpoena represent covered defense under a D&O insurance policy. In an interesting March 27, 2014 memo entitled “D&O Coverage for Subpoena Response Costs: An Emerging Consensus?” (here), Benjamin D. Tiersky of the Orrick law firm takes a closer look at the recent case law and concludes that “there is a general trend emerging to recognize broad coverage for subpoena response costs under D&O policies.”


The costs of responding to an administrative, regulatory or grand jury subpoena can be very substantial, particularly in this era when so many documents are electronic or stored electronically. Given the magnitude of subpoena response costs, it is hardly surprising that those responding to the subpoenas seek to find insurance to pay for their incurred costs.


The principle point of dispute when questions arise as to whether or not a D&O insurance policy covers subpoena response costs are covered is the question of whether or not a subpoena is a “Claim” within the meaning of the policy. In contending that there is an “emerging consensus” that subpoena response costs are covered, Tievsky cites several recent cases in which courts have found that these a subpoena comes with the D&O insurance policy’s definition of “claim” because it represents a “demand for non-monetary relief.”


The author  refers in particular to the 2013 New York appellate court decision in a case involving Syracuse University and its costs incurred in responding to various subpoenas involved with investigations surrounding allegations against a former assistant basketball coach. The appellate court affirmed the trial court’s ruling that the insurer was liable for the university’s costs of responding to the subpoenas. The author also cites other cases where courts have found that a D&O insurance policy provides coverage for subpoena response costs, including at least case where a federal district court cited the Syracuse University case in finding coverage for the costs of responding to a NASA subpoena.


The author does note that while there may be a trend in the case law on the question of whether or not a subpoena is a claim within the meaning of the D&O insurance policy, questions may remain depending on the issue of who the subpoena’s target is and whether or not the subpoena is directed to an insured person or is directed to that person in an insured capacity.


The author also notes that issues may arise about which costs are covered. The author notes that insurers may take the position that they are only obligated to cover legal costs incurred in responding to the subpoena, but may dispute whether they must also cover indirect costs such as internal investigations relating to the subject matter of a subpoena, or costs relating to informal information requests relating to the subject matter of a subpoena.


In noting that “policyholders must be wary that with specific reference to D&O coverage of subpoena response costs” because “two leading cases come out opposite ways” on the question whether the policy must also cover indirect costs such as internal investigations relating to the subject matter of the subpoena or the costs of informal investigative responses. In support of this statement, the authors cites to the 2011 decision in the MBIA case (about which refer here), in which the Second Circuit held that costs incurred in voluntarily complying with investigative requests, as well as special litigation committee costs, are covered under a D&O insurance policy. The author contrasts the MBIA decision with the 2012 decision in the Office Depot case (about which refer here), in which the Eleventh Circuit held that the insured’s costs of responding to an informal inquiry were not covered under its D&O insurance policy.


Finally, the author notes that questions also remain as to whether “ancillary costs” that may arise when a company is subpoenaed – such as the costs associated with hiring a crisis management firm – are covered under the D&O insurance policy.




The author’s analysis is interesting and certainly there are grounds on which it may be argued that a consensus is emerging on the question of whether or not a subpoena is a claim for purposes of determining D&O insurance coverage. However, I think there are several important points that should be kept in mind when considering these issues.


First, the wordings of the policy definition of the term “Claim” vary substantially between policies and the precise wording used can be crucial. Often seemingly minor differences can be coverage-determinative.


Second, in addition to the wording of the policy, the nature of the subpoena involved may also be important. A court may well have a different perception of, say, a grand jury subpoena, compared to an administrative subpoena, for example.


Third, the typical D&O policy provides coverage for loss arising from a “Claim” based on an “actual or alleged Wrongful Act.” Whether or not a subpoena represents a “Claim,” there may still be a question whether an actual or alleged Wrongful Act is involved.


Fourth, the author is correct that the MBIA and Office Depot cases may represent contrasting reference points on the question of whether or not various investigative response expenses are or are not covered. However, the cases were not directly related to the specific question of whether or not subpoena response costs as such are or are not covered. In addition, as discussed here, while the MBIA case undoubtedly is helpful to policyholders, its usefulness may be limited by the case-specific and somewhat unusual fact that all of the disputed costs at issue in the case were incurred after the SEC had issued a formal order of investigation. Accordingly, the case may be less helpful in those circumstances when a formal order of investigation has not yet been issued.


Special thanks to the several readers who sent me a copy of the author’s memo.