Insurance Coverage for Fcpa Investigations

Many companies faced with an FCPA investigation will have to rely on their Directors and Officers liability coverage. Other policies (e.g., Errors and Omissions) also could apply, depending on policy language. In general, D&O policies cover defense costs and civil damages arising from alleged “wrongful acts.” When a company’s policy contains restrictive language, substantial portions of FCPA-related losses that could be covered may go uncovered, in some cases amounting to tens of millions of dollars.

Many D&O policies define the “Insured” to include all directors, officers and employees, while others are more restrictive, even failing to capture a company’s general counsel. Review all policies carefully and obtain an expansive definition of “Insured.”

Even with broad coverage terms, D&O insurers limit their exposure through exclusions. Variations in exclusionary language operate in much the same way as definitions of the insured and can substantially impact coverage.
D&O policies typically exclude coverage for intentionally fraudulent, dishonest or criminal acts or omissions. Insurers argue that FCPA claims involve purposeful misconduct and such exclusions thus apply.

Companies should accept only policies providing that the dishonest conduct of one employee is not imputed to other insureds. Such “severability provisions” also should include language providing that one person’s mistake or misrepresentation in the application does not provide a defense with regard to other officers, directors or employees. In addition, a policy should include the even broader protection of a non-rescission provision.