HSE LEGALcurrents

Government investigations impose tremendous costs on organizations. In simply responding to a subpoena, organizations may incur substantial attorneys’ fees and electronic discovery fees, ranging from many thousands to many millions of dollars. Organizations sometimes overlook their insurance policies as a source to recoup these costs. Moreover, even organizations that review their policies may misconstrue the full scope of coverage under common policy terms. A recent appellate decision in New York serves as a useful reminder that organizations should always review their directors and officers policies, as those D&O policies may cover the costs of responding to government subpoenas.


In 2011, allegations surfaced in the media that associate basketball coach Bernie Fine had sexually abused two former ball boys in Syracuse University’s basketball program. Federal and state prosecutors served six grand jury subpoenas on the University beginning in late 2011 to investigate these allegations. The University forwarded the subpoenas to its D&O insurance carrier.

The University’s D&O policy included common coverage terms. Like many D&O policies, the policy was not limited to claims against directors or officers. Instead, the policy covered claims against the University itself -- and associated defense costs -- for “any actual or alleged wrongful act of the organization.” The policy broadly defined a wrongful act as “any breach of duty, neglect, error, misstatement, misleading statement, omission or act by or on behalf of the organization.” With these definitions, the D&O policy provided the University broad coverage for alleged violations of law.

Also like many D&O policies, the University’s policy defined “claims” to include not only a “written demand for monetary, non-monetary or injunctive relief,” but also a “civil, criminal, administrative, regulatory or arbitration proceeding for monetary or non-monetary relief” commenced by “service of a complaint or similar pleading” or the “return of an indictment, information or similar document (in the case of a criminal proceeding).”

The insurance carrier took the position that this policy did not cover the University’s substantial costs in responding to the grand jury subpoenas because the subpoenas neither related to a “wrongful act” nor constituted “claims” under the policy definitions. The University disagreed and sued.

The Decision

On December 27, 2013, a New York appellate court upheld the University’s reading of the D&O policy.
The court adopted a lower court’s reasoning, concluding that the D&O policy covered the University’s costs in responding to the government subpoenas. In construing the policy, the court was mindful to read the policy terms in light of common speech and reasonable business expectations and to resolve any ambiguity against the insurance company, as required by New York law.

With that perspective, the court readily determined that the investigation triggered “wrongful act” coverage.
Under New York law, the duty to defend is broad and arises when there are any facts or allegations bringing the claim even potentially within the purchased protection. The court rejected the carrier’s argument that the University had to be a target of the investigations to trigger the “wrongful act” coverage. Rather, the fact that the University could face vicarious, supervisory, or derivative liability for Fine's actions was sufficient to trigger “wrongful act” coverage.

The court also concluded that the subpoenas were “claims” under each of two claim definitions within the policy. The court first held that a government subpoena is a “written demand . . . for non-monetary relief” covered by the policy. The court reasoned that the subpoenas were written demands for documents or testimony, and that the plain meaning of “relief” includes the obligation to produce documents or testimony. This holding was sufficient to establish coverage as a “claim” under the policy.

Yet, the court went further and held that the government subpoena fell within the second definition of “claim” within the policy. In particular, the grand jury subpoena was a “criminal . . . proceeding for . . .non-monetary relief . . . commenced by . . . return of an indictment, information or similar document.”
The court found the subpoena sufficiently similar to an indictment or information as to trigger coverage for two reasons. As an initial matter, the court reasoned that subpoenas are the primary tool used in government investigations, and a sensible businessperson would understand subpoenas to commence criminal proceedings as set out in the policy. Moreover, the court noted that the service of grand jury subpoenas triggers proceedings in the grand jury, just as the service of a complaint would commence a civil proceeding.

For these reasons, the court found that the subpoenas triggered “wrongful act” coverage as defined by the policy, and were “claims” under either policy “claim” definition.


The court’s decision clarifies that common D&O policies may cover an organization’s costs in defending a government investigation, even during the initial phase of subpoena response. As many organizations forget, D&O policies typically extend coverage beyond directors and officers to include organizational liability. This recent decision illustrates that such coverage may include the costs of responding to government subpoenas. The “wrongful act” and “claims” definitions considered in the University’s case are similar to definitions used in many D&O policies. In light of the significant costs often incurred in responding to government subpoenas, organizations should look closely at their D&O policies for possible coverage in accordance with this decision.


Organizations responding to government subpoenas should carefully review their D&O policies, both to claim all available coverage and to ensure compliance with policy notification requirements. If you would like assistance, or if you have any questions about this LEGALcurrents, please contact any member of our Government and Internal Investigations practice group at (585) 232-6500.

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