The continued expansion of the False Claims Act (FCA) as a governmental enforcement mechanism presents growing liability and insurance coverage challenges for companies and their insurers. In the current environment, a September 29, 2026, federal district court decision represents a significant policyholder victory in a coverage dispute arising from a DOJ investigation, Civil Investigative Demands (CIDs), and a related FCA qui tam action. The court held that coverage was available to public-sector consulting company Guidehouse, Inc., under its Technology and Professional Liability policy for defense costs, a $7.6 million settlement, and expenses incurred in responding to CIDs.
The D&O Diary has closely followed the growing use of FCA enforcement beyond its traditional healthcare and government-contracting roots into areas such as tariff compliance, cybersecurity, data privacy, and DEI-related certifications. Recent FCA settlements involving IBM, Deloitte, and Accenture underscore both the breadth of the government’s enforcement priorities and the growing significance of FCA-related exposures. Against that backdrop, the Guidehouse decision is particularly noteworthy because the court emphasized that coverage analysis should focus on the conduct alleged and the policy language at issue, rather than on the fact that the allegations were asserted through the FCA. The ruling also adds to the developing body of authority recognizing that CIDs can trigger significant coverage obligations under claims-made policies.
A copy of the district court’s order can be found here. Our thanks to Geoff Fehling of Hunton Andrews Kurth for bringing this decision to our attention.
Background
The coverage dispute arose after Guidehouse, the technology contractor responsible for the software platform used to administer New York’s Emergency Rental Assistance Program (ERAP), became the subject of a DOJ investigation and related FCA qui tam litigation. According to the underlying allegations, deficiencies in the design, implementation, security, and maintenance of the platform resulted in cybersecurity vulnerabilities and the exposure of sensitive applicant information.
During its investigation, the DOJ issued multiple CIDs and ultimately intervened in the qui tam action. The matter later settled for $7.6 million. Guidehouse subsequently sought coverage under its technology and professional liability policy for defense costs, the settlement payment, and expenses incurred in responding to the CIDs and government investigation.
The insurer denied coverage, arguing, among other things, that the underlying allegations involved intentionally fraudulent conduct, that the settlement constituted an uncovered fine or penalty, and that the CIDs did not fall within the policy’s investigation coverage provisions. The coverage litigation followed.
Relevant Policy Language and the Court’s Analysis
The Guidehouse policy’s Technology and Professional Liability Coverage Section provided coverage for Loss arising from Claims alleging covered Wrongful Acts. “Wrongful Act” was broadly defined to include actual or alleged acts, errors, omissions, misstatements, neglect, and similar conduct committed in the rendering of Technology Services or Professional Services. The policy’s definition of covered “Damages” expressly included multiplied damages where insurable by law. It also provided coverage for certain governmental investigations, including Privacy Regulation Investigations and related Investigation Expenses. The insurer principally relied on a deliberate misconduct exclusion, but that exclusion applied only following a final, non-appealable adjudication establishing fraudulent or intentionally wrongful conduct.
The court first rejected the insurer’s argument that the underlying FCA allegations did not involve covered wrongful acts. Rather than focusing on the relator’s legal theories, the court examined the underlying conduct alleged, including claims that Guidehouse failed to properly design, implement, test, operate, and secure software used in connection with the ERAP program. According to the court, those allegations plainly implicated covered Technology Services. The court further emphasized that coverage depended on the policy language and the conduct alleged, not on the fact that the claims were asserted under the FCA.
The court also rejected the insurer’s contention that the qui tam action sought only uncovered penalties. The complaint sought recovery of the government’s alleged losses, as well as treble damages, and the policy specifically included multiplied damages within its definition of covered Damages. Similarly, the court declined to characterize the company’s $7.6 million settlement as an uncovered penalty, noting that the settlement agreement contained no allocation among damages, penalties, restitution, or other forms of relief.
Finally, the court held that the insurer was required to cover costs incurred in responding to DOJ Civil Investigative Demands. In doing so, the court focused on the nature of the conduct under investigation, rather than the FCA procedures used to investigate it, concluding that the allegations fell within the policy’s investigation coverage provisions. The court likewise found that the deliberate misconduct exclusion did not apply because there had been no final adjudication establishing fraudulent or intentional wrongdoing.
Discussion
It is important to note that the court was interpreting a Technology and Professional Liability Coverage Section rather than a D&O liability policy. For that reason, the decision does not directly address whether similar FCA-related investigative costs, settlements, or defense expenses would be covered under a D&O policy. Nevertheless,D&O Diary readers may recall that Delaware courts have previously held that DOJ CIDs may constitute covered claims under certain claims-made liability policies. Although these decisions involve different policy forms and wording, they collectively demonstrate courts’ increasing focus on the investigative demands themselves and the specific policy language at issue, rather than on the mere fact that the inquiry arises under the FCA.
From an insurance underwriting perspective, the Guidehouse decision highlights the potential disconnect between the expanding scope of FCA enforcement and the availability of insurance coverage for FCA-related claims. The court repeatedly emphasized that coverage must be determined by the policy language and the conduct alleged, not by the statutory framework through which the government chooses to pursue its claims. That approach may make it more difficult for insurers to rely on broad arguments that FCA allegations necessarily involve fraudulent or intentionally wrongful conduct falling outside the scope of coverage.
The Guidehouse ruling further recognizes the practical reality that a CID is often the beginning, not the end, of the claims process. For many companies, significant costs arise during the investigative phase, long before a complaint is filed or a settlement is reached. By requiring coverage for CID-related expenses, at least under the type of insurance involved in this coverage dispute, the court reinforced the importance of investigation coverage at a time when DOJ FCA enforcement appears to be expanding into an increasingly diverse range of compliance and operational risks.
Insurance underwriters may want to further consider how the DOJ’s expanding use of the FCA in areas such as cybersecurity, data privacy, trade compliance, and DEI-related certifications create exposures that do not fit neatly within traditional coverage lines. A cybersecurity-related FCA investigation, for example, may not fall squarely within a company’s cyber policy, particularly where the claim is based on alleged misrepresentations, compliance certifications, or regulatory failures rather than a traditional network security event.
Likewise, FCA investigations arising from DEI-related certifications or employment practices may implicate multiple forms of management liability and professional liability coverage. As the DOJ continues to deploy the FCA in these and other areas, questions regarding which insurance policies may respond to investigative costs, settlements, and related losses are likely to become increasingly important, making policy wording and investigation-related coverage provisions an area of heightened focus for insurers and policyholders alike.
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