| In This Article: Learn how GovCon D&O insurance helps manage False Claims Act risks and protect government contractors from liability and financial exposure. |
The False Claims Act (FCA) is more than just another legal concern that may never come to fruition; it is an active enforcement tool that can have a significant impact on a business.
With the Department of Justice recovering nearly $3 billion in FCA judgments and settlements in fiscal year 2024 alone and whistleblowers filing hundreds of qui tam lawsuits, it is a serious mistake to think it could never happen to you.
In fact, the government has collected more than $78 billion in FCA recoveries overall since 1986. For GovCon leadership, it is important to keep in mind that executives can be named personally in FCA investigations.
If you lack proper coverage when this happens, your personal assets and professional reputation could suffer just as much as your business’s financial future.
Why FCA Investigations Target Executives, Not Just Companies
Anyone who knowingly submits a fraudulent or false claim to the federal government could be held liable under the False Claims Act. In fact, the Department of Justice has been ramping up its pursuit of individuals alongside corporate entities. In fiscal year 2024, there was a noticeable uptick in cases brought against individual decision-makers and executives.
Billing irregularities, procurement overcharges, inaccurate certifications, and cybersecurity misrepresentations can all trigger investigations. In addition, the FCA has qui tam provisions that allow former and current employees to file a lawsuit on behalf of the government and receive a share of any funds recovered. Having the right insurance can help manage this exposure.
What Standard D&O Policies Often Miss for Government Contractors
Directors and officers (D&O) insurance protects executives from personal liability stemming from decisions they make in their professional capacity, but these policies were not created with government contracting exposures in mind.
Under most standard D&O policies, there are broad exclusions for government investigations. Some policies exclude regulatory proceedings, while others might limit coverage to securities-related claims, which is uncommon in privately held GovCon firms. Defense costs can also be a gray area.
Bear in mind that FCA-related matters can take several years to resolve, and legal fees can accumulate rather quickly during this time. When policies do not cover defense costs from the date the investigation opens, the business could rack up substantial out-of-pocket expenses.
Government contractor D&O insurance is designed with these realities in mind. This is not just a D&O policy with clever GovCon marketing; it has specific triggers, exclusions, and coverage structures that can make a substantive difference.
What GovCon D&O Insurance Should Be Designed To Cover
Are you wondering whether your current D&O program is sufficient for managing False Claims Act risks? Here are some coverage elements you should consider:
- Defense costs from the beginning of the investigation: Some coverage kicks in upon the initiation of formal litigation, but many FCA issues begin as DOJ civil investigations rather than lawsuits. Therefore, it is best to choose a policy that triggers at investigation.
- Individual and entity coverage: The company and its executives could be named, so you might be creating unnecessary exposure by choosing coverage that focuses only on the entity or on individuals rather than both.
- Government contracting liability coverage: This should include the specific activities that pose FCA risk, such as certifications, billing practices, compliance representations, and contract performance.
- Compliance risk insurance provisions: As cybersecurity requirements under CMMC 2.0 and the Federal Acquisition Regulation grow increasingly complex, the Department of Justice has been pursuing contractors who misrepresent their security posture. Keep in mind that FCA exposure now encompasses your IT compliance structure, and your D&O program must reflect this.
- Whistleblower-initiated action coverage: Most FCA recoveries stem from qui tam actions, so your coverage should explicitly address claims that are initiated by relators, including former employees.
Steps To Assess Whether Your Current Coverage Actually Matches Your Risk
Although reviewing all your policies each year is useful, you need to take a more deliberate, frequent approach to reviewing GovCon D&O insurance so you can spot gaps before they lead to investigations.
Begin by mapping your areas of exposure, then review your billing processes, contract types, compliance self-assessments, and security certifications.
Next, review your current D&O policy and read all exclusions, rather than focusing only on the declarations page. Be on the lookout for government investigations and fraud exclusions, along with any language that conditions your coverage on final adjudication. If your defense costs are not covered from the moment an inquiry opens, be sure to address this right away.
Consider working with a benefits and insurance consultant experienced in managing GovCon-specific risk. The difference between a policy customized for your industry and a general policy that has simply been adapted for it can be substantial, especially when a claim is made.
Finally, determine whether your coverage limits actually reflect the current FCA settlement values. GovCon settlements can run into the tens of millions of dollars, so a limit structured for a smaller-exposure environment might not provide meaningful protection when you need it most.
Work With Business Benefits Group To Protect Your Organization
Are you ready to evaluate your current D&O coverage? The benefits consultants at Business Benefits Group (BBG) work with government contractors to assess executive liability exposures and identify coverage gaps before they become costly problems. Reach out today to schedule a consultation.