californiaThe federal False Claims Act imposes liability on those who defraud the government. The law also allows third-parties to bring so-called qui tam actions in the form liability claims under the Act; if the qui tam actions are successful, the third-party can receive a portion of the recovery. When a third-party files a qui tam action, the Act requires that the complaint remain under seal for at least sixty days and that it “not be served on the defendant until the court so orders,” so that the government can decide whether it wants to intervene and pursue the action. Even if the government declines to intervene, “the person who initiated the action shall have the right to conduct the action.”


The practical effect of these procedural requirements is that there is sometime a protracted lag between the date the qui tam action complaint is filed and the date it is served. These procedural aspects of the qui tam action process fit awkwardly with the standard management liability insurance policy provisions. Indeed, the coverage questions these kinds of cases present are recurring issues.


As discussed in a recent decision from the Northern District of California, the qui tam action process can raise basic questions about whether and when the qui tam action is a “claim” within the meaning of the policy, and, if it is a claim, when the claim is “first made.” In an April 3, 2015 decision, Judge Jon S. Tigar held that a qui tam action complaint that had been filed but not yet served represented a “claim” but had not yet been “first made,” and therefore that the defendant company’s management liability insurer’s duty to advance defense expenses had not yet been triggered.  NOTE: The link to the opinion  has been removed. The court’s docket state’s that the opinion is currently under seal and not available to the general public.



In February 2012, the Department of Justice issued subpoenas to Braden Partners, LP, doing business as Pacific Pulmonary Services, requesting documentation related to Braden’s sales practices and claims for payment from federally funded healthcare programs. In August 2013, Branden obtained a redacted copy of a qui tam complaint that had been filed against it. The complaint alleged violations of the federal and California False Claims Act. The underlying complaint remains under seal and the court has not yet entered an order authorizing service of the complaint on Braden.


At the times Braden obtained the various subpoenas and later when it obtained the redacted complaint, Braden submitted them to its management liability insurer, which had issued a general partners’ liability policy to Braden for the policy period August 15, 2011 to June 1, 2012. The insurer denied that it had an obligation to advance Braden’s costs of responding to the subpoenas and in connection with the redacted complaint on a number of grounds, including its contention that the neither the subpoenas nor the unserved redacted complaint represented “claims” and that in any event the claim if any has not yet been “first made.”


In April 2014, Braden filed an action alleging that the insurer had breached the policy by refusing to advance the defense costs for the subpoenas and the underlying complaint. In an earlier ruling, Judge Tigar granted the insurer’s motion with respect to the subpoena-related costs. The insurer moved for judgment on the pleading with respect to Branden’s claims related to the underlying complaint.


The Relevant Policy Provisions

The policy at issue provided that the insurer “will pay on behalf of the Partnership all Loss which the Partnership shall become legally obligated to pay as a result of a Claim first made against the Partnership and reported to the Insurer during the Policy Period.”


The policy defines a “Claim” as:


(a) A judicial or other proceeding against a General Partner for a Wrongful Act in which such General Partners could be subject to a binding adjudication or liability for compensatory monetary damages or other civil relief, including an appeal therefrom, or (b) a written demand against a General Partner for compensatory money damages or other civil relief on account of a Wrongful Act.


Section (IV)(G) of the policy provide further that a “Claim shall be deemed to have been first made against a General Partner on the date a summons or similar document is first served upon such General Partner.”


The policy’s notice of claim provision provides, among other things, that


If during the Policy Period the General Partners or the Partnership become aware of a specific Wrongful Act that may reasonably be expected to give rise to a Claim against any General Partner… then any Claim subsequently arising from such Wrongful Act duly reported in accordance with this paragraph shall be deemed under this Policy to be a Claim made during the Policy Period.


The April 3 Decision 

In his April 3, 2015 Order, Judge Tigar granted the insurer’s motion for judgment on the pleadings, holding that while the underlying complaint is a “Claim” within the meaning of the policy, because it has not yet been served on Braden the claim has not yet been “first made,” and accordingly the insurer has no duty to advance defense expenses.


In ruling that the underlying complaint is a “Claim,” Judge Tigar rejected the insurer’s argument that because the complaint had not yet been served, it is merely a “threatened claim” and that Braden may never face liability. Judge Tigar said that “the Policy’s plain language merely requires the possibility of liability by adjudication, rather than absolute certainty.” He noted also that the policy “only references ‘service’ with regard to when a ‘Claim’ is deemed to have been ‘first made’ – not to determine whether the definition of ‘Claim’ is met.”


With respect to the “first made” question, Judge Tigar said that the policy’s provisions “unambiguously require service of summons or similar document to trigger coverage of a claim,” adding that “The Policy explicitly requires either service of summons or a similar document for a Claim under subpart (a) of the Policy definition to be deemed ‘first made’” Because the underlying complaint remains sealed and unserved, the “Claim” has not been “first made.”


Finally, Judge Tigar rejected Braden’s argument that the notice provision alters the requirement of a service of a summons for a claim to be “first made.” Judge Tigar said that “nothing in the language of the notice provision indicates that it functions to nullify, contradict or serve as an exception to the requirement that a ‘Claim’ be ‘first made’ by service of summons in order to qualify for coverage.”


Judge Tigar dismissed Braden’s complaint wihtout prejudice, noting that Braden may refile its complaint if necessary after service of the complaint in the underlying suit.



As a noted in an earlier post discussing a coverage dispute involving a False Claims Act case, the qui tam case procedures are an uncomfortable fit with the typical management liability policy provision. The fact that a qui tam complaint can be filed but remain sealed and unserved for an extended period of time can be a particular problem, as the lag can extend across several policy periods – during which, as here, the company that is the target of the complaint is incurring legal expenses.


A particular problem here could be that even if Braden is eventually served with the qui tam complaint, the claim will be “first made” at the time of service. The policy under which Braden is seeking coverage had a 2011-2012 policy period. On its face, it might look like the claim was not “first made” during the policy period of the claims made policy. That is point where the “deemer” language in the policy’s notice provision would become relevant. Under the notice provision, when the complaint is finally served, it will be deemed to have been first made at the time of Braden’s initial notice, which did take place during the policy period. Judge Tigar’s opinion states that “the parties do not dispute that the requirements of the notice provision were met,” so it would seem that by that point, the insurer’s advancement obligations would finally be triggered.


Unlike the insurer in the coverage dispute discussed in the prior blog post to which I linked above, the insurer here would not be able to argue that coverage for the claim would be precluded by the prior and pending litigation exclusion, because the qui tam action had not been “filed or commenced on or before … the effective date of this policy.” The Braden qui tam action was “filed or commenced” after the policy period commenced. But while Braden might not have to fight over the prior and pending litigation exclusion, it could have other battles; Judge Tigar’s opinion recites that when Braden first submitted the redacted complaint to the insurer, the insurer denied coverage “based on several policy exclusions.” The policy exclusions on which the carrier was relying are not identified in the opinion.


Even if the policyholder here were able to overcome all of the hurdles and the insurer were to agree to advance defense expenses, the policyholder likely will still be stuck with all of the defense expenses that have and that will have accrued before the complaint was served. In more recent management liability policies, the definition of claim expressly references the service of a subpoena as a claim under a policy; in a policy with this more contemporary wording, an insured might be able to advance to an earlier time the point at which the carrier will start picking up the defense expenses.


Based on the case decisions that have come across my desk dealing with the issue, it looks as if the carriers are pretty invested in fighting coverage for qui tam actions. At one level, I understand this – as I noted at the outset, the qui tam action procedures are an awkward fit with many of the basic management liability insurance policy provisions. But it is not as if the carriers are coming right out and saying — as I think they should if they really don’t intend to cover these kinds of claims — “this policy provides no coverage from Loss arising from claims alleging violations of the federal False Claims Act or its state equivalents.” If the carriers are not taking the position that qui tam actions are simply not covered, then I think the industry needs to do a better job addressing the recurring issues qui tam actions present – particularly since we are basically talking about defense cost coverage here. There may need to be a specific policy provision addressing qui tam claims — for example, specifying modified definitions of the terms “Claims” and “first made” for purposes of claims alleging violations of the federal False Claims Act or state equivalents, and also making sure that prior and pending litigation issues are addressed as well.


Of course, it could be that the carriers feel that their policies simply do not cover False Claims Act claims, but if that is their position they should say so in an express policy exclusion, rather than depend on a thicket of miscellaneous policy provisions to deny coverage.


About the Judge — and His Father: Northern District of California Judge Jon S. Tiger has been a U.S. District Court Judge since January 2013. Before that, he was a state court judge in California. He is the son of the prominent criminal defense attorney,  Michael Tigar. When I was a very young attorney, I had the opportunity to meet Michael Tigar and to see him in action in the courtroom. The experience has stayed with me, because Michael Tigar was teriffic.


There is an interesting story about Michael Tigar. In 1966, after his graduation from U. Cal Berkeley law school, he had been hired to work as a law clerk for Justice William Brennan of the United States Supreme Court. However, after only a week, Brennan fired him  following complaints made by conservative columnists and FBI director J. Edgar Hoover, because of Tigar’s activist background as an undergraduate and law student at Berkeley. Despite this early setback, Tigar went on to have a very successful legal career (including a stint as a partner at Williams & Connolly). He eventually become a law professor at the University of Texas law school, among other things. The elder Tigar’s criminal defense clients included Angela Davis, Lynne Stewart, Terry Nichols, and John Demjanjuk.


In a March 12, 1990 New Yorker article about Justice Brennan entitled “The Constitutionalist” (here), the article’s author, Nat Hentoff, recounts asking Brennan about what happened with Tigar’s clerkship. The article quotes Brennan as saying about Tigar and the clerkship that “That was a very sad occasion for both of us at the time. Mike and I have remained good friends. He’s a great guy, a wonderful lawyer. What actually happened was a deluge. The right wing deliberately set up a program—a system of pressure—that involved Abe Fortas, who was on the Court then; J. Edgar Hoover; and, more particularly, Hoover’s right-hand man, Clyde Tolson. They bombarded me with all kinds of letters—all having to do with Mike’s participation in the Helsinki youth meeting. Probably, if I had just continued to face it down, the investigation would never have happened. But they had twenty-eight or more congressmen protesting Mike’s appointment. Clyde Tolson came over to see Fortas, and Fortas came in to see me to tell me that if I went through with this there might well be an inquiry, which would be most embarrassing to Tigar and to me—and to the Court.”


The interview recounted in the article continues as follows, with Brennan speaking first and Hentoff asking  responding questions and commenting:  

“I must say I’ve had a number of second thoughts,” he said. “I suppose I should have treated it as something that would go away, but I didn’t. I was very much concerned that—in the atmosphere of those days—if we got into this kind of thing it certainly would not have done the Court any good. That’s what I said in the discussion I had with Mike at the time. A clerkship simply could not have that much significance—if it was going to hurt the institution.”

“Did Tigar understand that?”

“Oh, Mike understood it perfectly.” Brennan paused. “That’s the only instance of anything like that I’ve had in all my years here.”

All that Professor Tigar will say is “I have enormous respect for Justice Brennan.”