The Delaware Superior Court recently held, in Conduent State Healthcare, LLC v. AIG Specialty Insurance Company, et al., that a government-conducted civil investigation constitutes a “Claim” sufficient to trigger coverage under a professional liability insurance policy. Conduent State Healthcare, LLC (“Conduent”) alleged that Defendant AIG Specialty Insurance Company (“AIG”) breached its obligations by refusing to defend and indemnify Conduent for costs incurred in connection with a Medicaid fraud investigation.
Conduent sued AIG after the insurer denied coverage, alleging that AIG’s duty to defend and/or indemnity was triggered by the Civil Investigation Demand (“CID”) issued to Conduent by the Texas Attorney General. The CID stated that the Texas Attorney General was “investigating the possibility of Medicaid fraud,” and that the investigators had “reason to believe [Conduent] may have information relevant to its investigation.” AIG moved to dismiss Conduent’s claim, arguing that the CID did not constitute a “Claim alleging a Wrongful Act,” as required by the policy’s Insuring Agreement.
The Delaware Superior Court denied AIG’s motion to dismiss, finding in favor of Conduent, based on its consideration of two issues. First, the Court considered whether the CID was a “Claim” under the policy. The Court noted a split of authority regarding the meaning of “Claim” under similar policy language (defining “Claim” as: “(1) a written demand for money, services, non-monetary relief or injunctive relief; or (2) a Suit”). After considering cases reaching differing conclusions, the Court found the decisions finding a governmental investigation to constitute a “Claim” to be more persuasive. The Court concluded, therefore, that the CID was a “Claim” because it stated a “demand for . . . non-monetary relief” targeted at the insured.
The Court then considered whether the CID alleged a “Wrongful Act,” as required by the policy, in light of the Texas Attorney General’s statement that it was investigating the “possibility” of Medicaid fraud. The Court found no material distinction between an investigation of an alleged unlawful act and an allegation of an unlawful act, concluding that this was merely a “distinction without a difference.”
The Conduent decision serves as a reminder that courts continue to broadly construe the duty to defend and find that coverage is owed where the factual allegations raise the possibility of covered liability. The decision is also an important reminder that mere investigations, which can cause an insured to incur substantial response costs and attorneys’ fees, should be covered under liability insurance policies insuring against claims alleging so-called “wrongful acts.” Policyholders should thus stand ready to demand coverage from their insurers, even where the investigation does not materialize into formal charges or liability.