Applying Iowa law, a federal district court has held that an insured’s failure to give notice of a letter seeking information in connection with a government investigation did not preclude coverage for claims that later arose out of the investigation because the initial letter did not assert a “Fiduciary Claim” for a “Wrongful Act” under the terms of the policy.  Telligen, Inc. v. Atlantic Specialty Ins. Co., 2019 WL 4804646 (S.D. Iowa Aug. 2, 2019).

The insurer issued two claims-made policies to the insured.  The policies required the insured to report any “Fiduciary Claim” for a “Wrongful Act.”  The policies defined “Wrongful Act” to include “any breach of the responsibilities, duties or obligations imposed by ERISA” or “any other matter claimed against an Insured solely by reason of the Insured’s service as a fiduciary.”  The policies further obligated the insured to provide notice of any “Fiduciary Claims,” including information about the time, place, and nature of the “Wrongful Act.”

In 2015, the insured received a letter from the U.S. Department of Labor (the DOL) requiring it to produce documents and to permit an inspection relating to its Employee Stock Ownership Plan for inspection.  The insured did not notify the insurer of this letter.  In 2016, the insured’s former employee filed a lawsuit related to the insured’s Employee Stock Ownership Plan.  In 2017, the DOL issued a letter alleging that the insured had violated its fiduciary duties under ERISA relating to the Employee Stock Ownership Plan.  The insured tendered both the 2016 lawsuit and the 2017 DOL letter for coverage.  The insurer denied coverage on the grounds that the 2015 DOL letter was a “Fiduciary Claim” that the insured failed to timely report, and that the later matters related back to the unreported claim.

On cross motions for summary judgment, the district court held that the 2015 DOL letter was not a “Fiduciary Claim” under the policies because it did not allege that the insured had committed a “Wrongful Act.”  In so holding, the court found that the 2015 DOL letter did not identify any specific bad acts or actors or otherwise allege that the insured had violated ERISA or any other legal obligation.  Rather, the letter merely informed the insured of the DOL’s statutory authority to conduct investigations and notified the insured of the DOL’s plan to conduct an on-site examination.  Moreover, the court found that the 2015 DOL letter did not provide the insured with information that would trigger the insured to report a “Fiduciary Claim,” such that the insured could not have complied with the policies’ reporting requirements after receiving the 2015 DOL letter.  Because the 2015 DOL letter was not a “Fiduciary Claim,” the court concluded that the insurer could not deny coverage based on the insured’s failure to report the 2015 DOL letter.