Insurance Coverage for SEC Investigations

Insurance Coverage for SEC Investigations

   By Gregory S. Wright and Richard A. Kirby, Partners, K&L Gates

In their article appearing in the November/December 2010 issue of Coverage, Insurance Coverage for SEC Investigations, Gregory S. Wright and Richard A. Kirby report that in several recent court decisions coverage has been found under D&O and/or E&O liability policies for the significant costs policyholders have spent defending investigations by the SEC or other regulatory agencies.  A caveat is that court decisions vary in this area based on the specific policy language and facts at issue. Depending on the circumstances, policyholders of Professional Liability Policies may have a strong case for coverage even prior to the entry of a Formal Order of Investigation.  If an insurer issues policy language that is potentially ambiguous in the context of well-known SEC practices and policies, then under canons of constructing insurance policies, policyholders may have strong arguments that such ambiguities should be resolved in favor of coverage. The authors examine pertinent court decisions, some of which have held as follows:

   SEC investigations are “proceedings” for purposes of triggering coverage;

   Given that SEC investigations may evolve over time, coverage does not necessarily turn on the specific language in the Formal Order;

   For purposes of triggering coverage, subpoenas and Formal Orders allege “wrongful acts”;

   Coverage may be available for investigations prior to the entry of a Formal Order; and

   Insurers should not withhold reimbursement of defense costs prior to a judicial ruling on potential coverage decisions.

The authors conclude that policyholders facing SEC investigations should carefully evaluate whether they have coverage under existing Professional Liability Policies. Moreover, those who are renewing their policies or newly purchasing Professional Liability Policies should seek appropriate coverage for SEC investigations.

Access the full article on

Purchase Coverage in the LexisNexis Store