No Coverage for Whistleblower Action or Subpoena Noticed to Insurer After End of Policy Reporting Period

The United States District Court for the Central District of California, applying California law, has held that coverage is unavailable for a whistleblower action and subpoena noticed after the end of the reporting period of a claims-made policy.  PAMC, Ltd. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 2019 WL 666726 (C.D. Cal. Feb. 12, 2019).

In June 2013, a whistleblower action was filed under seal against the insured.  The court unsealed the operative complaint in December 2015.  On June 9, 2015, before the whistleblower action was unsealed, the insured received a cover letter with a subpoena from the Department of Justice.  The cover letter stated that the DOJ “requests that you not disclose the existence of or compliance with the subpoena for an indefinite period of time or until the Office notifies you that the investigation has been completed or until a court orders disclosure. . . .  We request that you give this Office advance notice if you plan to disclose the existence of or compliance with the subpoena.”  On January 5, 2017, the insured received a letter from the DOJ stating that it had completed the criminal investigation.

On April 20, 2017, the insured sought coverage for the whistleblower action and subpoena under its directors and officers policy with a policy period from March 29, 2017 to March 29, 2018.  The insurer denied coverage, asserting that the lawsuit and subpoena constituted claims first made during a prior policy period because the insured was served with the subpoena on June 9, 2015 and allegedly first learned of the lawsuit on March 14, 2016, and the insured had failed to comply with the earlier policy’s reporting provision.  The policy provided that “as a condition precedent to the obligations of the Insurer under this policy,” the insurer must “give written notice to the Insurer of any Claim made against an Insured” “as soon as practicable” but “in all events a Claim must be reported no later than . . . within ninety (90) days after the end of the Policy Period[.]”  The insured sued for coverage.  The insurer moved to dismiss the lawsuit.

The court granted the motion to dismiss, holding that no coverage was available for the whistleblower action and subpoena because the policy language “unambiguously required [the insured] to report any claims of which [the insured] first became aware within the applicable Policy Period plus ninety days,” and the insured failed to satisfy the requirement since it had first become aware of the whistleblower action and subpoena during the February 28, 2015 to March 29, 2016 policy period of the earlier policy.  The court rejected the insured’s argument that, because it had purchased successive policy renewals, the policy periods should be treated as one contiguous policy period.  The court stated that “courts applying California law have consistently recognized that, absent an agreement to the contrary, the renewal of a policy does not extend a policy’s reporting period.”

The court also rejected the insured’s argument that notice was timely because the claims were not first made until January 5, 2017, the date the DOJ sent a letter stating that the criminal investigation was concluded.  The court reasoned that the cover letter enclosing the subpoena “did not affirmatively prohibit” disclosure to the insurer, rather it “merely ‘request[ed]’” that the insured “not disclose the existence of the Subpoena.”  The court stated that the insured “could have sought the DOJ’s permission to provide notice” to the insurer, but “did not do so.”  The court also noted that the whistleblower action was made public in December 2015, and the insured had “not articulated a reason why the DOJ’s cover letter would have precluded” disclosure of the whistleblower action to the insurer.

Wiley Executive Summary

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