One of the perennial D&O insurance coverage questions is the issue of whether or not the D&O policy provides coverage for costs incurred in responding to a subpoena, as I have discussed in prior posts (refer here and here). Increasingly these days, policies expressly address the issue through language specifying that a subpoena is a “claim” within the meaning of the policy. However, other policies do not includes this language, and even when the policy’s definition of the term “claim” expressly addresses subpoenas, other questions may arise, as discussed below.


These issues relating to the question of the D&O insurance coverage for the costs of responding to a subpoena are discussed in an interesting September 18, 2017 Law 360 article entitled “Standard Insurance Policy May Cover Government Subpoena” (here), written by Daniel Wolf of the Gilbert LLP law firm. As Wolf notes with respect to the often substantial costs associated with responding to a government subpoena, “existing insurance policies might provide coverage for these defense costs – even if these policies do not expressly address subpoenas.”


There are three recurring issues that arise when the question of insurance coverage for the costs of responding to a subpoena comes up. That is, does the subpoena represent a “Claim”? Does the subpoena involve an actual or alleged “Wrongful Act”? And has the policy’s notice requirements been satisfied? The consideration of these issues will of course vary according to the specific policy wording involved, but it will also vary according to who has been subpoenaed and in what capacity, what government agency or authority has presented the subpoena, and depending on whether the insurance coverage is written on a private company form or a public company form.


First, with respect to the question of whether or not a subpoena is a claim, Wolf notes that courts generally recognize that a subpoena is a Claim. As another author noted in discussion of these issues (as noted in a prior post, here), there is an “emerging consensus” that a subpoena comes within the D&O insurance policy’s definition of “claim” because it represents a “demand for non-monetary relief.”


Even if the subpoena satisfies the policy’s definition of “Claim” there is still the policy’s requirement in order for coverage to apply that the claim involve an actual or alleged “Wrongful Act.” Wolf suggests that it is sufficient to satisfy this requirement that the person seeking coverage show that that he or she is the “target” of a governmental investigation; he suggests further that it may not even be necessary for the subpoenaed person to show they were a target in order to satisfy this requirement so long as the information is sought “pursuant to an ongoing investigation of [an insured’s] activities.”


Wolf may well be correct that persons seeking insurance coverage for the costs of responding to a subpoena by arguing on this basis that the “Wrongful Act” requirement has been satisfied, but insurers may well attempt to take a contrary position. Indeed, Wolf himself takes pains to note in his discussion of the “Wrongful Act” issue that “as with any insurance coverage issue, the precise terms of each policy control.” Wolf does make the useful observation that in light of the Department of Justice’s policy embodied in the Yates Memo to focus on individuals in the course of corporate criminal investigations that “any individual receiving a subpoena should presume (regardless of their conduct) that they may already be (or soon become) a ‘target,’ and should investigate insurance coverage.”


With respect to the issue of notice of claim, Wolf makes the important point that “when an insured receives government subpoenas that may be covered by D&O insurance, providing timely notice to insurers is critical to avoid the risk of late notice arguments.” In discussing the significance of timely notice of claim in connection with subpoenas, it is important to note that the failure to provide timely notice of claim may not only undermine an insured’s ability to obtain insurance for the costs of responding to the investigation, it could undermine coverage for any subsequent investigative costs or costs associated with defending an enforcement action.


As discussed here, a federal court held that because a subpoena is a claim, and because a subpoena was served on the policyholder during a prior policy period but no notice of the subpoena was provided to the insurer during that prior period, there was no coverage for the subsequent SEC enforcement action which was made during a subsequent policy period. The point here is that if a subpoena is a claim, then it is a claim for all purposes under the policy, including for purposes of determining the claims made date. The usual scenario is that an insured is seeking to establish that a subpoena is a claim in order to be able to establish coverage. In this dispute, the fact that a subpoena is a claim and that service of a subpoena established the claims made date wound up precluding coverage for the policyholder involved.


One specific point that Wolf makes is that for public company policyholders, insurance coverage for the insured entity’s costs of responding to a subpoena may not be available; however, some public company D&O policies include language that expands coverage to include investigations against the company so long as the investigation is simultaneously maintained against any individual insureds. In addition, many public company primary D&O insurance carriers will now offer some form of entity investigative cost coverage (providing coverage for some types of governmental investigations) subject to the payment of additional premium.


In addition to these points that Wolf discusses in his article, other questions may arise. Among other things, questions may arise depending on who has been subpoenaed in what capacity. For example, an individual may be subpoenaed in their individual capacity or in their capacity based on their association with another entity. The insurer involved may dispute coverage when these kinds of questions arise. Another question has to do with the question of what costs are covered. For example, the insurer may well concede that costs of responding to the subpoena are covered, but dispute coverage with respect to the organization’s costs of an internal investigation. Questions may also arise about whether ancillary costs, such as the costs associated with hiring a crisis management firm, are covered.


Another issue that may come up has to do with the subpoena itself and the governmental authority that issued the subpoena; the wording of some policies may limit coverage for subpoenas to specific kinds of subpoenas or only to subpoenas issued by certain specified governmental authorities.


Wolf concludes his article with an omnibus precaution, worth noting here, that “it is important to remember that the scope of coverage under any policy is driven by that policy’s exact wording (including endorsements) and that many policies contain language that, either by expressly addressing subpoenas or altering the general scope of coverage, provides broader or narrower coverage” that is discussed in his article.


Indian Summer in Northern Michigan: Breathe deeply, it is a long way until next spring.