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Practice notes: Insurance coverage for FIFA-related kickback investigations

Bribes of $40,000 stuffed in envelopes, a flight to Europe solely to retrieve a briefcase full of cash, and a $10 million payoff to secure votes for choosing the World Cup host country are among the allegations in the recent indictment against FIFA representatives and related business associates.

The indictment includes allegations about the involvement, whether knowingly or unknowingly, of sportswear companies, sports-marketing companies, banks and other financial companies. Likewise, a variety of corporate sponsors that collectively pay tens of millions of dollars to FIFA have issued statements about the charges. Many of these companies are likely to receive government inquiries related to the indictment.

Part of the U.S. Attorney’s investigation “will look at the conduct of the financial institutions to see whether they were cognizant of the fact they were helping launder these bribe payments.” And a major sponsor said it had been “cooperating, and will continue to cooperate, with the authorities.” Undoubtedly, these companies will incur substantial costs in responding to government inquiries.

Responding to governmental inquiries can involve collecting, reviewing, and providing large amounts of documents. It can include gathering necessary facts from employees and third parties. And it can consist of legal fees incurred in those endeavors.

For example, Walmart spent $273 million in 2013 and 2014 in connection with government inquiries and investigations, into potential Foreign Corrupt Practices Act violations. Given the potentially staggering costs associated with such investigations, businesses should examine their insurance policies to identify potentially applicable coverage, including directors & officers policies, fiduciary liability policies and similar policies.

For instance, a university successfully obtained coverage for the costs of responding to state and federal subpoenas related to criminal allegations against an assistant basketball coach. See Syracuse Univ. v. Nat’l Union Fire Ins. Co., 975 N.Y.S.2d 370 (N.Y. Sup. Ct. Mar. 7, 2013), aff’d 112 A.D.3d 1379 (N.Y. App. Div. 2013).

Similarly, a bond insurer obtained coverage for costs for responding to SEC and New York attorney general subpoenas and document requests. See MBIA Inc. v. Fed. Ins. Co., 652 F. 3d 152 (2d Cir. 2011). Coverage for such costs may turn on whether the relevant investigations constituted a “claim” as defined in the relevant policy.

Coverage may also depend on other policy provisions, including whether any exclusions apply. See, e.g., PSI Strategies, Inc. v. Starr Indem. & Liab. Co., No. 1:13-cv-763, 2014 WL 1655370 (Apr. 23, 2014 E.D. Va.), aff’d No. 14-1972, 2015 WL 3396812 (4th Cir. May 27, 2015) (finding that policy did not cover costs of responding to subpoena and warrant after officers pled guilty to fraud and bribery, which were excluded from coverage); Office Depot, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 453 F. App’x 871 (11th Cir. 2011) (finding that costs for responding to SEC inquiry were not covered where policy specifically did not cover investigations).

Another significant issue to consider is how the cross-border nature of the investigations will impact insurance coverage. The FIFA allegations involve actions and actors throughout the world. Whether coverage applies may very well depend on policy provisions regarding the “coverage territory.” It can also turn on where the “damages,” “injury” or “wrongful act” occurred, as well as other issues such as who is an “insured” or “insured person,” timely notice, and choice of law. Companies with foreign operations or subsidiaries should consider whether locally and globally issued policies cover costs for responding to cross-border investigations.

Businesses that find themselves facing government inquiries and investigations, should carefully examine their insurance policies to determine whether coverage may be available for the costs of responding to such inquiries and investigations.

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Sergio F. Oehninger is counsel in the insurance recovery and Latin America practice groups at Hunton & Williams. He can be contacted here.

Walter J. Andrews is a partner in Hunton & Williams’ insurance recovery practice group. He can be contacted here.

The authors thank Patrick M. McDermott for his contribution to this post. He’s an associate in Hunton & Williams and practices in the insurance coverage group among others.

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