Delaware Court Expands Insurance Coverage for False Claims Act Investigative Demands

A recent ruling by the Delaware Superior Court reinforces Delaware’s reputation as a favorable forum for companies seeking insurance protection tied to regulatory enforcement, particularly regarding investigations under the False Claims Act (FCA).

In The Cigna Group v. XL Specialty Insurance Co. et al., the court’s ruling confirms that certain government investigative demands qualify as covered claims, according to an article from Hunton. This decision continues the state court’s policyholder-friendly framework for claims-made liability insurance.

The ruling held that a Department of Justice civil investigative demand (CID) may trigger coverage under a managed care errors and omissions policy, even when the policy separately addresses governmental investigation expenses.

Cigna sought reimbursement for costs incurred responding to a CID issued by the Department of Justice in connection with a FCA inquiry.

The policy defined a “Claim” as any written notice indicating an intent to hold the company responsible for a wrongful act and defined “Governmental Investigation” to include civil investigative demands, without covering investigation response costs.

The insurers argued the CID fell only within the uncovered investigation category and did not allege responsibility for wrongdoing.

The Superior Court rejected that position and concluded that the CID constituted a covered claim. The court reasoned that a demand seeking information about specific conduct and referencing potential statutory violations demonstrates intent to hold the recipient responsible. The existence of a separate governmental investigation definition did not foreclose coverage where the elements of a claim were met.

The court said that some CIDs may fall outside claim coverage. The ruling established coverage but required further review of the reasonableness of defense costs.

The decision affects legal analysis of Directors & Officers (D&O) coverage in transactions, restructuring, and regulatory risk assessments. Due diligence should scrutinize claim definitions, investigation provisions, and governing law clauses. It also reinforces the importance of aligning insurance programs with expanding government investigations and FCA enforcement trends.