Delaware Court Rules on Insurance Coverage for False Claims Act Proceedings

U.S. court ruling bolsters insurance coverage for government investigations, potentially saving companies millions in legal costs when responding to civil investigative demands from the Department of Justice.

A landmark Delaware Superior Court decision has strengthened the position of companies seeking insurance reimbursement for costs incurred while responding to government investigations. The ruling in “The Cigna Group v. XL Specialty Insurance Co.” determined that a Department of Justice (DOJ) Civil Investigative Demand (CID) constitutes a covered “Claim” under certain insurance policies, obligating insurers to reimburse defense expenses.

The case centered on Cigna’s request for reimbursement of millions of dollars spent responding to a DOJ investigation into alleged “one-way chart reviews” in its Medicare Advantage operations. These reviews were allegedly conducted to identify opportunities to increase reimbursements without seeking avenues to decrease payments—potentially violating the False Claims Act (FCA).

Cigna’s insurers initially denied coverage, arguing that a CID merely represented a “Governmental Investigation” rather than a formal “Claim” under the policy language. This distinction was crucial, as only “Claims” triggered full defense cost reimbursement under the policy terms.

The Delaware court rejected this narrow interpretation, focusing instead on the substance and context of the government’s demand rather than its label. The court determined that what matters is whether the CID seeks to hold the recipient responsible for alleged wrongdoing—not simply how it is categorized in policy language.

“This decision represents a significant shift in how courts evaluate insurance coverage for government investigations,” said Joshua Martin, an insurance coverage attorney not involved in the case. “It looks beyond technical distinctions to recognize the real-world impact these investigations have on companies.”

The ruling builds on the court’s previous decision in “Conduent State Healthcare LLC v. AIG Specialty Ins. Co.” (2019), which established that coverage determinations should be based on the specific language and context of government demands rather than rigid categorizations.

In its analysis, the court noted several key factors that transformed the CID from a mere investigation into a covered claim: it identified specific conduct (one-way chart reviews), linked that conduct to statutory violations (the FCA), and carried the force of government enforcement authority. Importantly, failure to comply with the CID could result in judicial enforcement and sanctions.

The decision has particular significance for heavily regulated industries such as healthcare, financial services, and government contracting, where DOJ investigations have increased substantially over the past decade. According to recent DOJ statistics, FCA enforcement actions have resulted in over $5.6 billion in settlements and judgments in 2021 alone, with healthcare cases representing the majority.

“Companies in regulated sectors should review their insurance portfolios in light of this ruling,” advised Sarah Johnson, a risk management consultant. “The ability to secure coverage for the often substantial costs of responding to government investigations could significantly impact financial planning and risk management strategies.”

For companies already facing CIDs, the ruling provides strategic considerations when seeking insurance coverage. Policyholders should carefully analyze whether the government’s demand indicates an intent to hold the company accountable for alleged wrongdoing, rather than simply requesting neutral information.

Insurance industry observers note that carriers may respond by modifying policy language to more explicitly exclude coverage for certain types of government investigations. However, such changes would likely face market resistance as companies increasingly seek protection from regulatory and enforcement risks.

The Cigna decision comes at a time when DOJ enforcement under the FCA continues to expand, particularly in healthcare and Medicare Advantage matters. With CIDs often representing the first—and most expensive—stage of the enforcement process, the ruling strengthens policyholders’ ability to shift at least part of that financial burden to insurers.

As government investigations become more common across industries, this decision may prove to be a watershed moment in how investigation-related costs are allocated between companies and their insurers.