Fifth Circuit Concludes That FCA Claim Was Not Covered By Insurance Policy
The U.S. Court of Appeals for the Fifth Circuit recently rejected a shipbuilder’s claim against its insurance company seeking defense and indemnification from a False Claims Act suit. See XL Spec. Ins. Co. v. Bollinger Shipyards, Inc., No. 14-31283, 2015 WL 5052504, 2015 U.S. App. LEXIS 15160 (5th Cir. Aug. 27, 2015). Over a decade ago, shipbuilder Bollinger Shipyards, Inc. retrofitted patrol boats under contract with the United States Coast Guard as part of the Coast Guard’s “Deepwater” modernization program. In short, Bollinger made the boats longer—extending 110-foot patrol boats to become 123-foot patrol boats.
Throughout, the Coast Guard expressed concerned the boats’ hulls could not support the additional length. Bollinger repeatedly assured the Coast Guard that they could. The Coast Guard claims that wasn’t true and that Bollinger concealed two strength analyses showing the hulls were not strong enough to support the conversion. After the hull buckled on one of the refitted boats, the Coast Guard removed all of the retrofitted boats from service, and eventually the United States brought an FCA suit against Bollinger. The suit remains unresolved.
Bollinger tendered a claim to its general maritime liability insurer days before the government filed suit. Litigation ensued, and the trial court granted summary judgment for the insurer, holding it had no duty to defend or indemnify Bollinger. The Fifth Circuit affirmed.
Bollinger’s insurance policy excluded coverage for:
“Actual or alleged liability arising out of or incidental to any alleged violation(s) of any federal or state law regulating, controlling, and governing antitrust or the prohibition of monopolies, activities in restraint of trade, unfair methods of competition or deceptive acts and practices in trade and commerce, including, without limitation, the Sherman Act, the Clayton Act, the Robinson–Patman Act, the Federal Trade Commission Act and the Hart–Scott–Rodino Antitrust Improvements Act.”
That was enough for the Fifth Circuit to rule for the insurer. In the court’s view, Bollinger’s claim was barred because the FCA is a “federal law … regulating … deceptive acts and practices in trade and commerce.” It didn’t matter that the FCA wasn’t listed in the exclusion; those were just examples. It also was irrelevant whether the alleged FCA violation was itself “deceptive.” The exclusion embraced laws that regulate deceptive acts, not just allegations of deceptive acts. As the government’s tool for seeking compensation for deceptive practices targeted at the public fisc, the FCA was a law regulating deceptive acts, the exclusion did not trigger coverage under the insurance policy.