Regulatory Exclusion Bars Coverage for False Claims Act Action Pursued By Qui Tam Relator

A New York intermediate appellate court has held that a policy exclusion barring coverage in connection with claims “brought by or on behalf of . . . any federal [or] state . . . governmental entity, in such entity’s regulatory or official capacity” precludes coverage for a False Claims Act action pursued by a qui tam relator. Certain Underwriters at Lloyd’s, London Subscribing to Policy No. QK0903325 v. Huron Consulting Group, Inc., et al., No. 650339/11 (N.Y. App. Div. Apr. 30, 2015).

The policyholder was sued for alleged violations of the federal False Claims Act and the New York False Claims Act in connection with purportedly excessive Medicare and Medicaid billing.  The government declined to intervene, and the suit was pursued on its behalf by a qui tam relator.  The insurer denied coverage because, inter alia, the regulatory exclusion in the policy at issue precluded coverage.

In the ensuing coverage action, the appellate court, reversing the trial court, held that the regulatory exclusion barred coverage.  The appellate court disagreed with the notion that the exclusion was inapplicable because the underlying action was pursued by a qui tam relator. The appellate court explained that, “[w]hile relators indisputably have a stake in the outcome of False Claims Act qui tam cases that they initiate, ‘the Government remains the real party in interest in any such action.’”  The court also noted that, in False Claims Act actions, the injury and the right to bring the claim belong to the government.  As such, because the government is the real party in interest in a qui tam action under the False Claims Act, the regulatory exclusion barred coverage.