United States: Yes, Your D&O Policies Cover FCPA Defense - Save Your Company Millions By Positioning It To Recover Insurance Proceeds

You are general counsel of a global manufacturing company and sit down at your desk one morning to find that your company has received letters from the U.S. Department of Justice and the Securities and Exchange Commission. A whistleblower alerted the agencies that improper payments had been made to foreign officials by employees of your company's foreign subsidiary. The agencies are conducting an investigation into whether these payments violate the Foreign Corrupt Practices Act (FCPA) and federal securities laws. The agencies want your company to enter into a tolling agreement and voluntarily produce documents as part of the investigation. They also want to interview various directors and officers of your company.

The steps you take next could save your company and its shareholders millions of dollars by positioning your company to recover insurance proceeds for the costs of responding to the government's inquiries and the follow-on civil litigation that may ensue once news of the FCPA investigation is made public.

First Steps

Initially, provide prompt notice of the FCPA investigation to your D&O insurance company. The best way to give notice is through your insurance broker, who should make sure that all insurance companies that issued insurance policies in all potentially applicable policy periods are put on notice. As part of the notice, the broker should provide copies of the letters you received from the government concerning the FCPA investigation and should work to comply with reasonable requests for information made by your insurance companies.

Government FCPA investigations and follow-on civil litigation can continue for several years. To the extent reasonable, keep the insurance companies informed of defense counsel arrangements and the status of the FCPA investigation and the civil litigation. Provide regular updates of litigation filings to avoid the insurance companies making improper arguments concerning cooperation. Propose that the insurance companies enter into confidentiality agreements to facilitate information sharing, particularly where nonpublic information is at issue. Consider scheduling periodic calls with insurance company representatives to provide status updates concerning civil litigation as well, and to give insurance company representatives the opportunity to ask questions of defense counsel concerning the defense of the litigation pertaining to alleged FCPA violations.

Provide advance notice of potential civil litigation settlements to those insurance companies whose limits may be tapped by a settlement, and invite those insurance companies to attend an upcoming mediation where a settlement might be reached. Your policy may require written consent to enter into a settlement agreement as a condition of coverage, but consent cannot be unreasonably withheld, especially where the insurance company has associated with the policyholder in settlement negotiations.

Also, consider providing your insurance companies with prompt notice of any potential settlements resulting from the government's FCPA inquiry, even though, in reality, the company may have very little choice when it comes to entering into a consent order. Frequently, D&O insurance companies argue that there is no coverage for settlements that involve supposed "disgorgement" of so-called "improperly" obtained profits. While cases have reached differing results, to the extent that anyone other than the organization itself profited from the "improperly" obtained funds addressed by the settlement – for example, if the "improper" profits actually benefitted the organization's customers, as in J.P. Morgan Sec. Inc. v. Vigilant Ins. Co., 21 N.Y.3d 324 (N.Y. 2013) – such amounts should be covered.

Be Prepared to Provide Defense Invoices

Your primary policy may contain a consent clause concerning defense counsel arrangements for your company and for individual directors and officers. Although it is often the case that several firms are preapproved by the insurance company to represent your company in securities litigation, the insurance company should not withhold consent concerning the reasonable retention of defense counsel for the company or for directors and officers. Bear in mind, however, that insurance companies often improperly challenge the reasonableness of defense counsel's rates.

In civil litigation where both the company and individual directors and officers are named as defendants – or where the company is named as a nominal defendant, as in derivative actions – the individual director or officer should be entitled to retain their own defense counsel separate from the company when there is a potential conflict of interest between the company and an individual director or officer. For example, a potential conflict of interest between the company and individual directors and officers may arise after a motion to dismiss has been denied because the company may be more inclined to pursue any potential claims against the directors and officers at that time.

With respect to an investigation, individual directors and officers who are interviewed or subpoenaed as part of a government FCPA inquiry are entitled to retain their own defense counsel regardless of whether there is a potential conflict of interest. However, it is usually good practice to alert the insurance company to defense counsel retentions so as to keep the insurance company informed.

Be Aware of Coverage Issues

Policyholders frequently find themselves in a difficult position when it comes to disclosing defense counsel's invoices to their insurance companies. Insurance companies often add not-agreed-upon and unreasonable conditions to coverage not found in the insurance policy. Policyholders must be alert to such improper gamesmanship when it comes to the advancement of defense costs.

Defense counsel generally should avoid putting attorney-client privileged information in their invoices, since an aggressive plaintiff's counsel may argue that the attorney-client privilege has been waived when attorney-client communications in defense invoices are disclosed to a D&O insurance company. Plaintiffs have been known to aggressively press this issue even though there are good arguments against the position. For one, it can be argued that an insurance company and its policyholder have a common interest in the defense of the underlying litigation that mitigates waiver of the attorney-client privilege when attorney-client communications in defense-cost invoices are provided to the insurance company. In addition, generally, attorney work product is only waived when it is disclosed to an adversary or a conduit to an adversary.

Ultimately, when the company is facing high-stakes litigation, the possibility of waiver and whether and how to provide invoices to your D&O insurance company must be weighed in the context of the defense.

Obtain Consent For Defense Counsel

Insurance companies often raise several purported coverage issues in the context of a claim for costs pertaining to an FCPA investigation and follow-on civil litigation. Many insurance companies argue over whether notice of an investigation constitutes a "notice of circumstance" that might lead to a "claim" or a "notice of claim" that triggers coverage under the policy. (A "notice of circumstance" can be used to anchor a future "claim" made during a subsequent policy period into an earlier policy period.)

The definition of "claim" or "securities claim" may include any "formal or informal administrative or regulatory proceeding or inquiry commenced by the filing of a notice of charges, formal or informal investigative order or similar document." See MBIA Inc. v. Federal Ins. Co., 652 F. 3d 152, 155 (2d Cir. 2011). By contrast, your policy may define these terms as a more formal "administrative or regulatory proceeding" instituted against the company. See Office Depot, Inc. v. Nat'l Union Fire Ins. Co., 453 Fed. Appx. 871, 875 (11th Cir. 2011). Some policies may contain exclusions for investigations involving only the company.

The scope of coverage for investigation costs in a D&O policy may include an individual director or officer's costs in responding to a government interview request or government subpoena. However, even where the policy purports to exclude the company's costs incurred in responding to an investigation, a portion of the company's costs very likely are "reasonably related" to the representation of its directors and officers, and there is a good argument that any company costs that are "reasonably related" to the representation of individual directors and officers should be covered because they are "reasonably related" to a covered claim.

In the context of an FCPA claim, insurance companies often assert the personal profit or financial advantage exclusion and the deliberate criminal or fraudulent acts exclusion. Many D&O insurance policies require that there be a non-appealable final adjudication in the underlying litigation in order for these exclusions to apply, in which case even settlements do not trigger the exclusion. Thus, although this exclusion may potentially come into play if a case is litigated to a final resolution, the insurance companies must advance defense costs until that time.

Your company will steadfastly and aggressively defend a government inquiry into alleged FCPA violations. Government inquiries often lead to substantial defense costs as well as follow-on civil litigation in the form of shareholder derivative suits and class actions alleging violations of securities laws and breach of fiduciary duty, among other things. Like an investigation, civil litigation can last years and lead to substantial defense costs. A key part of your company's defense strategy should include positioning the company to recover these defense costs from the insurance assets already purchased by your company.

Originally published by Metropolitan Corporate Counsel.

William G. Passannante is a shareholder in Anderson Kill's New York office and is co-chair of the firm's insurance recovery group. Carrie Maylor DiCanio is an attorney in Anderson Kill's New York office.

About Anderson Kill

Anderson Kill practices law in the areas of Insurance Recovery, Commercial Litigation, Environmental Law, Estates, Trusts and Tax Services, Corporate and Securities, Antitrust, Banking and Lending, Bankruptcy and Restructuring, Real Estate and Construction, Foreign Investment Recovery, Public Law, Government Affairs, Employment and Labor Law, Captive Insurance, Intellectual Property, Corporate Tax, Hospitality, and Health Reform. Recognized nationwide by Chambers USA for Client Service and Commercial Awareness, and best-known for its work in insurance recovery, the firm represents policyholders only in insurance coverage disputes - with no ties to insurance companies and has no conflicts of interest. Clients include Fortune 1000 companies, small and medium-sized businesses, governmental entities, and nonprofits as well as personal estates. Based in New York City, the firm also has offices in Philadelphia, PA, Stamford, CT, Washington, DC, Newark, NJ and Los Angeles, CA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Anderson Kill
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Anderson Kill
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions