Simon Glairy is a recognized expert in the fields of insurance and Insurtech, with a specialized focus on risk management and AI-driven risk assessment. His insights are frequently sought on high-stakes coverage disputes that shape the future of the industry. Today, we’re exploring a landmark $25.5 million battle between health insurer Cigna and its carriers, a case that hinges on the seemingly simple definition of a “claim.” We will delve into how a government inquiry can be interpreted in conflicting ways within the same policy, why courts prioritize judicial process over quick appeals, and what this cautionary tale means for underwriters drafting the next generation of professional liability policies in an era of heightened regulatory scrutiny.
A professional liability policy can define a “claim” broadly while also specifically excluding government investigations. How can a civil investigative demand be considered both? Please elaborate on the key contractual elements that led a court to side with the policyholder in this type of dispute.
It’s a fascinating and costly contradiction that gets right to the heart of contract interpretation in insurance law. You have two competing clauses seemingly pointing in opposite directions. On one hand, Cigna’s policy had a very broad, all-encompassing definition of a “claim”—essentially any written notice that someone intends to hold them responsible for a wrongful act. When the Department of Justice sends you a formal demand for information as part of a False Claims Act probe, it’s hard to see it as anything other than a notice of potential liability. The court certainly saw it that way. On the other hand, you have a specific exclusion for costs related to government investigations, even explicitly naming civil investigative demands. The court, in this instance, prioritized the broad granting of coverage in the “claim” definition over the specific exclusion. It’s a classic example of contractual ambiguity, where the language that confers coverage is given significant weight, often to the policyholder’s benefit. The insurers lost because the demand fit the definition of a claim so squarely that the exclusion couldn’t fully carve it out.
Insurers facing an unfavorable lower court ruling tried to appeal immediately, arguing the issue was novel. Why would a state Supreme Court reject this? Explain the court’s reasoning on legal efficiency and what this signals about its view of future contract interpretation disputes.
The Supreme Court’s rejection was a powerful statement about judicial process and efficiency. The insurers argued that because these specific policy terms hadn’t been interpreted in Delaware before, it was a “novel” issue deserving immediate review. The court found that argument incredibly unpersuasive. Their response was, in essence, that if they accepted that logic, nearly every single insurance coverage dispute could be framed as a novel question, because every policy has slightly different wording. It would create a procedural nightmare, allowing parties to jump the line and appeal mid-case, disrupting trials and clogging the appellate system. The court emphasized that this was a straightforward application of Delaware insurance law to a contract, not a moment to break new legal ground. It signals that the judiciary sees these as contract disputes to be fully worked out at the trial level first. They aren’t interested in piecemeal appeals unless there are truly exceptional circumstances, like irreparable harm, which they simply didn’t see here.
Responding to a federal inquiry can result in tens of millions of dollars in expenses. What specific activities and services typically make up such a large sum? Could you break down the kinds of defense-related costs a company might incur when facing a Justice Department investigation?
That $25.5 million figure really puts the stakes into perspective, doesn’t it? It feels staggering, but when you’re dealing with a False Claims Act investigation into Medicare and Medicaid submissions, the costs snowball with frightening speed. The lion’s share of that sum is almost certainly tied to e-discovery and legal counsel. You’re talking about hiring teams of highly specialized attorneys who bill at premium rates. They have to first understand the scope of the government’s demand, which can be massive. Then comes the monumental task of identifying, collecting, and reviewing potentially millions of documents, emails, and data points from across the company. This involves forensic technology experts, document review platforms, and armies of attorneys to ensure nothing privileged is handed over. Beyond that, you have costs for internal investigations, interviewing employees, and retaining outside experts to analyze the claims data at the heart of the probe. Every step is a massive logistical and financial undertaking, and that $25.5 million is a stark reminder of how expensive it is to defend yourself against the federal government.
This case has been called a cautionary tale for insurers. What concrete steps can underwriters take when drafting professional liability policies for healthcare companies to avoid ambiguity over government inquiries, and what language is critical to preventing these multi-million dollar coverage fights?
This is absolutely a wake-up call for underwriters. The key lesson is that a broad definition of “claim” can undermine a specific exclusion. To avoid this, insurers need to draft with surgical precision. Instead of just having a general exclusion for “government investigations,” they should tie it directly to the definition of a “claim.” For example, the policy could explicitly state, “For the avoidance of doubt, a ‘Claim’ does not include any civil, criminal, or administrative investigation, inquiry, or subpoena, including but not limited to a Civil Investigative Demand.” By placing the limitation inside the core definition, it becomes much harder for a court to ignore. Another strategy is to sub-limit coverage for these specific events. The policy could state that while a civil investigative demand is not a “Claim,” the policy will provide a much smaller amount of coverage—say, $250,000 instead of millions—for the costs of responding. This acknowledges the reality of the expense while protecting the carrier from a runaway, multi-million dollar defense bill for what they view as a pre-claim event.
What is your forecast for professional liability coverage disputes, particularly as regulators increase their scrutiny of the healthcare industry?
I believe we are on the cusp of an explosion in these types of coverage battles. The regulatory environment for healthcare is only getting more aggressive, especially concerning billing practices for programs like Medicare and Medicaid. The government sees massive potential for recouping funds through False Claims Act enforcement, and they are using data analytics to find and pursue even minor irregularities. This means more investigations, more civil investigative demands, and therefore more policyholders turning to their insurers to cover these astronomical costs. Insurers will respond by tightening their policy language, as we just discussed, but that will lead to more litigation as policyholders and their attorneys find new ways to argue for coverage. This Cigna case will become a critical touchstone, and we’ll see its logic tested repeatedly. The financial pressures are simply too high for either side to back down easily, making this a very dynamic and contentious area of insurance law for the foreseeable future.
