An appellate court held that coverage for two mortgage fee class actions was not available due to the policy’s Fee Exclusion and Deemer Clause. 

The two class actions arose from claims made against the insured for violations of a federal statute that prohibited charging unlawful mortgage fees. The insured argued that it was not derivatively liable for any mortgage fees charged by banks it purchased the mortgage loans from. However, the court rejected this argument holding that the Insured carried legal responsibility for the rendering of its professional services which included the banks’ prior unlawful acts.

The Insured purchased mortgage loans from various banks and later sold those loans to investors. The class actions alleged that the originating banks collected unlawful fees and because the Insured purchased those loans, it was derivatively liable for the bank’s misconduct. The court focused largely on the Fee Exclusion and Deemer Clause’s use of the term “Assured”. Under the policy, the Insured was considered an “Assured” and when read together, coverage was excluded for claims related to fees paid to the Assured and included any person or entity for which the Assured was legally responsible in rendering professional services.

The court held that although there were claims alleging illegal kickbacks and non-disclosures, both class actions were for “fees” as defined by the Fee Exclusion because the classes requested damages relating to the fee payments made to the banks. Additionally, the court held that the Deemer Clause was applicable because the insured was legally responsible for the banks’ conduct. Even though the insured did not have a legal duty to supervise the banks and did not engage in charging the unlawful fees, it nonetheless stepped into the banks’ shoes when it purchased the mortgages and became liable for its actions. Lastly, the court held that the plain reading of the Deemer Clause made it applicable to the Insured for its rendering of professional services. Both the class actions allege that the insured’s business model, the resale of the mortgages, and its relationships with the banks facilitated its professional services

A court held that a D&O policy’s Insured versus Insured Exclusion (“IvI exclusion”) barred coverage for a lawsuit brought by a former board member and that the exclusion’s carve backs did not apply. A cooperative company (the “Insured”) was sued by a former board member who had opposed the sale of the Insured because they believed the company had been undervalued in the transaction. As a cooperative, board members were considered the equivalent of security holders of a private company, and the lawsuit was filed on behalf of the board member and as a representative of a class of similarly situated individuals. The lawsuit included claims for breaches of fiduciary duties, voting irregularities, and violation of bylaws, and conspiracy to defraud and deceive, as well as securities fraud.

The Insured noticed the lawsuit to its D&O carrier, which denied coverage based on the policy’s IvI exclusion. The IvI exclusion included a Security Holder Exception which provided that the exclusion did not apply to “a civil proceeding by a security holder of an Insured Entity, in their capacity as such, that is brought and maintained without solicitation, assistance, or active participation of any Insured Entity or Manager,” and a Former Manager Exception, which carved back:

[A] civil proceeding by or on behalf of a former Manager who has not served in such capacity for at least on year prior to such Claim being made, provided that such Claim is made without the assistance, participation or solicitation of any current Manger or any former Manager who has served in such capacity during the one year prior to such Claim being made.

The Insured argued that the lawsuit was brought by the former board member solely in their capacity as a shareholder and was no longer a Manager. The court disagreed and did not accept the Insured’s capacity argument. The former board member met the policy’s definition of Manager and had filed suit within one year of his resignation. Therefore, the lawsuit did not fit the Former Manager Exception and was not brought independently or “maintained without solicitation, assistance, or active participation of any Insured Entity or Manager.” None of the carve backs precluded the application of the IvI, and the entire suit was excluded from coverage

The Department of Justice (the “DOJ”) has announced an unprecedented False Claims Act (the “FCA”) enforcement reconciliation for the past fiscal year with settlements and judgments reaching a 120% increase from the prior year. This update marks the statute’s growing importance as an enforcement tool for the federal government. 

Despite recent federal litigation surrounding the constitutionality of the whistleblower-initiated qui tam provisions of the FCA, qui tam actions drove the surge, representing a substantial rise from the prior year’s case filings. Qui tam cases accounted for three-quarters of all pending FCA actions nationwide. Notably, the majority of total recoveries stemmed from private whistleblowers-initiated actions rather than government-initiated actions. Also, the pandemic relief fraud actions—external whistleblower actions based on public data about pandemic relief program recipients—attributed to the spike in qui tam actions.  

Healthcare fraud continued to dominate the FCA’s enforcement actions, more than doubling the prior year and marking the highest FCA recoveries ever recorded. Cyber security fraud also tripled from the prior year. 

Finally, customs and tariff avoidance cases became a top enforcement focus with actions breaking records for custom fraud settlements. Enforced by the FCA’s Trade Fraud Task Force launched in the past year, whistleblowers were encouraged to report customs duty evasion schemes in alignment with the current administration’s customs and trade priorities. 

The FCA’s new focus also centers civil investigative demands targeting diversity, equity, and inclusion programs, signaling deployment to advance administration policy objectives beyond fraud enforcement. The highlighted trends signal the FCA’s diversified enforcement and redirection in the coming year. 

The Department of Justice (the “DOJ”) has announced an unprecedented False Claims Act (the “FCA”) enforcement reconciliation for the past fiscal year with settlements and judgments reaching a 120% increase from the prior year. This update marks the statute’s growing importance as an enforcement tool for the federal government. 

Despite recent federal litigation surrounding the constitutionality of the whistleblower-initiated qui tam provisions of the FCA, qui tam actions drove the surge, representing a substantial rise from the prior year’s case filings. Qui tam cases accounted for three-quarters of all pending FCA actions nationwide. Notably, the majority of total recoveries stemmed from private whistleblowers-initiated actions rather than government-initiated actions. Also, the pandemic relief fraud actions—external whistleblower actions based on public data about pandemic relief program recipients—attributed to the spike in qui tam actions.  

Healthcare fraud continued to dominate the FCA’s enforcement actions, more than doubling the prior year and marking the highest FCA recoveries ever recorded. Cyber security fraud also tripled from the prior year. 

Finally, customs and tariff avoidance cases became a top enforcement focus with actions breaking records for custom fraud settlements. Enforced by the FCA’s Trade Fraud Task Force launched in the past year, whistleblowers were encouraged to report customs duty evasion schemes in alignment with the current administration’s customs and trade priorities. 

The FCA’s new focus also centers civil investigative demands targeting diversity, equity, and inclusion programs, signaling deployment to advance administration policy objectives beyond fraud enforcement. The highlighted trends signal the FCA’s diversified enforcement and redirection in the coming year.