The U.S. District Court for the Western District of Washington recently ruled in favor of policyholder Omeros Corp. (“Omeros”) regarding insurance coverage under the company’s D&O and EPL coverage in connection with an employee’s allegations that the company had violated the False Claims Act (“FCA”). Carolina Casualty Ins. Co. v. Omeros Corp., No. 12-00287 (W.D. Wash. Mar. 11, 2013) (order denying plaintiff’s motion for partial summary judgment). In 2009, Omeros’ former chief financial officer, Richard Klein, filed suit against the company. Klein alleged wrongful termination following his internal reports of various financial irregularities, including false reports to the National Institute of Health (“NIH”) concerning a federal grant that NIH supervised. Klein claimed that his termination constituted a retaliatory act in violation of the anti-retaliation provisions of the FCA. In 2010, Klein amended his suit to add an additional qui tam claim in connection with the alleged violations of the FCA. Carolina Casualty agreed to defend Omeros subject to a reservation of rights for both the original anti-retaliation claim and the subsequent qui tam claim, but later sought a declaratory judgment that the D&O coverage did not apply to the qui tam claim. The insurer argued that while the original anti-retaliation claim had been noticed during the policy period, the subsequent qui tam claim had not been added until after the expiration of the policy period, thereby excluding it from coverage. According to Carolina Casualty, the two claims did not constitute “related claims” first made at the time of the original notice. In the alternative, Carolina Casualty asserted that if the two claims were “related” and treated as a single claim, an Employment Relationship Exclusion nonetheless precluded coverage. The court rejected each of Carolina Casualty’s arguments. It found that the anti-retaliation claim and the qui tam claim arose from “Related Wrongful Acts” to constitute a single claim first reported within the policy period at the time Omeros gave notice of the original anti-retaliation claim. In addition, the court held that the claims should be treated as a single claim only for purposes of applying the notice provisions in the policy – not the exclusions.
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Federal court interprets D&O policy to permit coverage for False Claims Act and qui tam actions
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