High court rules against Chubb in US False Claims Act case

The Delaware Supreme Court has affirmed a lower court ruling in favour of a residential mortgage company in litigation with a Chubb unit over its management liability coverage. Legal experts said the ruling is good news for policyholders across the US. Chicago-based Guaranteed Rate Inc (GRI) had a management liability policy with Chubb unit Ace American Insurance that provided up to $5m in coverage subject to a $2.5m self-insured retention, according to the unanimous ruling by a three-judge panel of the state’s high court in Ace American Insurance Co. v. Guaranteed Rate Inc. The company also had a professional liability policy that is not a focus of litigation, according to the ruling. In 2017, a former GRI employee filed a whistleblower lawsuit against the firm alleging it had violated the US’s False Claims Act (FCA) by falsely certifying to the government that loans it endorsed were eligible for government insurance, according to the ruling. GRI settled the FCA claims with the government and whistleblower in 2020 for $15m. GRI admitted in the settlement agreement that it underwrote and originated government-insured loans that were not eligible under the Fair Housing Administration and US Department of Veterans Affairs programmes. This was “despite representing that they complied with applicable programme requirements”, the ruling said, citing the settlement agreement. After Ace refused to provide coverage based on a professional services exclusion in the management liability policy, GRI sued the insurer in Delaware Superior Court, which ruled in the policyholder’s favour. “Where the parties disagree is whether the FCA claims arose out of GRI’s loan originating and underwriting services, which triggers the professional services exclusion under the managing liability policy,” the Supreme Court ruling said. “GRI’s alleged misconduct arose out of the false certifications, not the professional services GRI provided to borrowers,” it added. “Thus, the FCA charges and eventual settlement did not fall within the professional services exclusion on the management liability policy,” it said, in affirming the lower court. Lilit Asadourian, a partner with Barnes & Thornburg, who represented GRI, said in a statement: “We believe the Delaware Supreme Court ruled clearly and consistently with the law, and look forward to finally collecting the insurance proceeds due to our client.” “This case carries substantial precedential significance for policyholders across the nation. The court made it clear that FCA claims by the government are separate from the ‘professional services’ that a company provides to its customers and, as such, coverage is available for FCA claims under a management liability (D&O) policy,” she added. Chubb did not respond to a request for comment. Dominic Rupprecht, a partner with Reed Smith who represents policyholders and is not involved in the case, said: “This is a straightforward, rational application of the policy language that comports with the policyholder’s reasonable expectations of what should be covered under these types of insurance policies.” It is “an important win for policyholders seeking coverage for False Claims Act cases”, he added. This article first appeared on our sister website Business Insurance. For further news from Business Insurance, please click here.

High court rules against Chubb in US False Claims Act case

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