Sixth Circuit: No Coverage for Defense Costs Resulting from Qui Tam Action
The United States Court of Appeals for the Sixth Circuit, applying Kentucky law, has held that a D&O insurer did not need to cover its insured’s significant legal fees that stemmed from a whistleblower lawsuit and related subpoena.
In 2016, the insured, a behavioral care provider, was sued by a whistleblower for alleged violations of the False Claims Act. A year after suit was filed (under seal), the company received a subpoena from a governmental entity as part of its investigation of the whistleblower complaint. The company informed its D&O insurer of the subpoena and sought coverage under that policy. The insurer denied coverage, advising that the subpoena did not constitute a “Claim” and that it did not allege a “Wrongful Act.” The trial court determined coverage was unavailable, and the Sixth Circuit affirmed that ruling.
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