Insurer on “Hook” for Insured’s Costs in Responding Investigation Subpoenas

Syracuse Univ. v. Nat’l Union Fire Ins. Co.  N.Y.  Sup. Ct., March 7, 2013

Syracuse University
, as the named insured under the policy, sought coverage for the costs it incurred in responding to the state and federal investigative subpoenas relating to the allegations of sexual abuse by Bernie Fine, the former University’s Associate Basketball Coach.

The insuring agreement provided that the insurer shall pay for “loss arising from a claim … for any actual or alleged wrongful act of the organization” and defined claim as “(1) A written demand for monetary, non-monetary or injunctive relief; or (2) A civil, criminal, administrative, regulatory or arbitration proceeding for monetary or non-monetary relief which is commenced by: (i) service of a complaint or similar pleading; or (ii) return of an indictment, information or similar document (in the case of a criminal proceeding); or (iii) receipt or filing of a nice of charges.” The policy defined wrongful act as “any breach of duty, neglect, error misstatement, misleading statement, omission or act by or on behalf of the organization.”

The court found that the grand jury’s investigations and subpoenas constitute a “written demand … for non-monetary relief” and the investigations are “criminal proceedings for monetary or non-monetary relief which are commenced by (ii) return of an indictment, information or similar document (in the case of a criminal proceeding).” The court cited to a Texas case for the proposition that government issued subpoenas and other document requests are demands for non-monetary relief under the plain policy language thereby constituting a “claim” under the policy. The court explained that when a district attorney serves a subpoena, a proceeding is instituted in the grand jury, just as by analogy a civil action is commenced by a service of summons.

The court also held that the University did not have to prove that it was a named target of the investigation. The court cited the broad duty to defend requirement that facts or allegations be “potentially” within the protections of the policy and found that questions seeking information concerning acts which occurred after Fine’s suspension and departure were seeking information relating to a potential cover-up and a breach of duty by the University. As such they were sufficient to trigger the duty to defend and likewise an obligation to pay defense costs.