False Claims Act Insurance Coverage: Court Rejects Exclusion for $7.6 Million Settlement
An insurer cannot escape coverage for a False Claims Act settlement simply because the underlying allegations involve fraud.
In Guidehouse Inc. v. Continental Casualty Co., No. 1:25-cv-1601 (RDA/IDD), slip op. (E.D. Va. Sept. 29, 2026), a Virginia federal court held that an insurer was obligated to cover a $7.6 million False Claims Act settlement, subject to a $5 million retention.
Guidehouse helped administer New York's COVID-era rental-assistance program, whose online portal was shut down just 12 hours after launch when applicants' personal information was exposed. A whistleblower alleged that Guidehouse misrepresented the system's cybersecurity compliance, leading to a DOJ investigation and a $7.6 million settlement without any admission of wrongdoing.
Continental Casualty denied indemnity coverage, arguing that the allegations involved intentional fraud and knowing contractual violations excluded by the policy's deliberate-acts exclusion, and that the settlement constituted an uninsurable penalty.
The court found that the alleged cybersecurity failures fell within the policy's technology and professional liability coverage because, as it explained, “The legal theory professed does not displace the underlying conduct.” The court also rejected the deliberate-acts exclusion, explaining that False Claims Act liability can be based on reckless disregard rather than intentional fraud, and that the allegations did not establish excluded misconduct under the policy's executive-officer knowledge-imputation provision. The court separately enforced the exclusion's final-adjudication condition for defense expenses and rejected the insurer's attempt to characterize the unallocated settlement as an excluded penalty, particularly where the policy expressly covered multiplied damages.
The court also found coverage for qualifying costs of responding to two DOJ civil investigative demands under the policy's privacy-regulation investigation coverage.
Given the potentially enormous costs of defending and resolving False Claims Act claims, businesses should evaluate their insurance coverage early and resist the assumption that False Claims Act suits are beyond the reach of insurance.
