Host Jonathan Porter welcomes back Husch Blackwell partner Lorinda Holloway to tackle a question executives ask constantly: can insurance actually cover the costs of a False Claims Act investigation and settlement? Many assume the answer is no, since insurers routinely point to fraud exclusions. A recent federal court decision involving government contractor Guidehouse challenges that assumption, and Lorinda explains what the ruling means for companies that receive federal funds.
Host Jonathan Porter welcomes back Husch Blackwell partner Lorinda Holloway to tackle a question executives ask constantly: can insurance actually cover the costs of a False Claims Act investigation and settlement? Many assume the answer is no, since insurers routinely point to fraud exclusions. A recent federal court decision involving government contractor Guidehouse challenges that assumption, and Lorinda explains what the ruling means for companies that receive federal funds.
We begin with the basics. Lorinda outlines the three types of policies to look at first (directors and officers, errors and omissions, and management or enterprise liability policies) and explains the two categories of costs at stake: defense costs, which insurers are more willing to pay, and settlement payments, which are harder to recover.
Next, we walk through the Guidehouse story. Guidehouse administered New York’s federally funded COVID rental assistance program, and a data exposure on the program’s portal led to a sealed qui tam complaint, two civil investigative demands (CIDs), and a $7.6 million FCA settlement. Lorinda explains how Guidehouse notified its insurer early and filed a declaratory judgment action. We discuss how a federal court in Virginia ultimately required the insurer to pay the settlement above the policy’s $5 million deductible, along with defense costs and the costs of responding to both CIDs.
We then examine why the fraud exclusion did not defeat coverage. Lorinda explains that the FCA’s definition of “knowing” includes reckless disregard, so liability does not require intentional fraud. Because an insurer must defend a case if even one theory in it is potentially covered, an FCA allegation does not automatically trigger a fraud exclusion.
We close with practical steps for listeners. Lorinda recommends reviewing policies now for three key provisions: final adjudication requirements, imputation of knowledge limited to executive officers, and multiplied damages language. She also urges listeners to notify carriers early and often, to raise these provisions with their brokers at renewal, and to be careful with settlement terms, since avoiding admissions of knowing conduct and using lump-sum payments can affect coverage. Jonathan notes the added complications for companies facing investigation in the District of Massachusetts. With FCA enforcement growing and insurers likely to tighten policy terms in response to Guidehouse, Lorinda explains why the window to negotiate favorable language may be closing, and why checking your coverage before a CID arrives matters.
Jonathan Porter | Full Biography
Jonathan helps health systems, physician groups, healthcare companies, and their leaders respond to False Claims Act investigations and whistleblower allegations, and advises on compliance and arrangements before problems arise. A trial lawyer and former federal prosecutor, he has seen these cases from the government’s side. At the Department of Justice, he led False Claims Act investigations, tried cases to verdict, and worked on multiple international healthcare fraud investigations. In private practice, he helps clients engage with prosecutors and regulators early, often resolving matters without charges, litigation, or a public settlement. Chambers USA recognizes his healthcare fraud work, and he teaches white-collar crime at Mercer Law. His aim is to help leaders make decisions they can stand behind.
Lorinda Holloway | Full Biography
Based in Austin, Texas, Lorinda is a member of Husch Blackwell’s Healthcare, Life Sciences and Education industry team and counsels clients on matters concerning government investigations and disputes. For more than 25 years, she has advised and represented clients in and out of the courtroom with a particular focus on the healthcare industry, including False Claims Act, Texas Medicaid Fraud Prevention Act, and qui tam-related investigations and lawsuits, audits, as well as business disputes in state and federal court. Lorinda’s experience in healthcare has also led to the education field, including a focus on the legal challenges faced in academic medicine.