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Working with Outside Counsel During Government Investigations Under Directors and Officers (D&O) Liability Insurance

When a company in the United States — whether headquartered in New York City, San Francisco, or Houston — faces a government investigation, coordination between in-house teams, outside counsel, and D&O insurers is critical. This article explains practical steps, negotiation points, billing expectations, privilege and cooperation issues, and insurer interactions that preserve D&O coverage and minimize corporate and personal exposure for directors and officers.

Why outside counsel matters (and when to retain them)

  • Regulatory experience: Government investigations (DOJ, SEC, state attorneys general) require counsel with specific enforcement experience and relationships in the relevant jurisdiction (e.g., federal prosecutors in the Southern District of New York).
  • Privilege and independence: Outside counsel can establish and maintain attorney‑client and work product protections separate from in‑house counsel.
  • Claims and coverage navigation: Counsel will coordinate with D&O insurers to obtain advancement, explain potential exclusions, and structure defense strategies to preserve coverage.

Key stages of coordination

1. Early notification and insurer engagement

  • Provide timely notice to the D&O insurer per the policy’s notice provisions.
  • Ask the insurer whether advance consent is required before retaining outside counsel or incurring fees for certain litigation/investigation tasks.
  • Document all notices and insurer responses in writing.

2. Selecting outside counsel: what to look for

  • Enforcement track record with the DOJ, SEC, and state regulators.
  • Experience with D&O claims and insurer coordination.
  • Local presence when the investigation is regionally focused (e.g., New York or California).
  • Ability to staff quickly and manage forensic and regulatory specialists.

Typical outside counsel hourly rate ranges in U.S. markets (estimates):

  • New York City partners: $800–$1,500+ / hour; associates: $300–$600 / hour
  • San Francisco partners: $750–$1,400 / hour
  • Houston partners: $600–$1,000 / hour
    (Source: industry billing surveys and attorney cost summaries; see external sources below.)

3. Privilege management and investigation structure

  • Use engagement letters that specify privilege expectations and that outside counsel controls privilege assertions.
  • Consider separate counsel for individuals vs. the company to avoid conflicts (and be mindful of D&O coverage implications).
  • Maintain limited distribution of investigative documents; mark privileged drafts and legal analyses.

4. Billing, advancement, and reimbursement

  • Confirm whether D&O policies provide advancement for investigative-defense costs or only reimbursements after final adjudication.
  • Negotiate billing arrangements: blended rates, caps, retainers, or fixed-fee phases (e.g., document search and privilege review).
  • Insurers may require prior approval for large retainers or the retention of particular experts.

See practical guidance on payment mechanics and disagreements in: Paying for Investigative Costs: Advancement and Reimbursement Issues in Directors and Officers (D&O) Liability Insurance

Coverage and cooperation — how behavior affects D&O protection

  • Self-reporting and cooperation with regulators can influence both prosecutorial decisions and insurer assessments of coverage (some policies consider cooperation when determining reasonableness of defense costs).
  • Avoid obstructions, fail-to-disclose, or non-cooperation that insurers might cite to deny claims.
  • Coordinate with counsel to craft cooperative strategies that preserve privilege and avoid unnecessary admissions.

See deeper analysis: How Self‑Reporting and Cooperation Affect Coverage Under Directors and Officers (D&O) Liability Insurance

Common insurer concerns during investigations

  • Whether the claim meets the policy’s definition (e.g., “investigation” vs. “wrongful act”).
  • Exclusions for intentional fraud, criminal conduct, or regulatory fines and penalties.
  • Allocation disputes where defense costs relate partially to uninsured exposures (e.g., fines).

For examples of triggers and typical insurer positions: Subpoenas, DOJ Enforcements and SEC Probes: What Triggers Coverage Under Directors and Officers (D&O) Liability Insurance

Negotiating counsel selection and insurer consent

  • Policy language varies: some D&O policies give the insured the right to choose counsel, others give the insurer the right to appoint; many require insurer consent for counsel outside an approved panel.
  • Recommended practice:
    • Provide the insurer a shortlist of vetted firms with experience in the specific regulator and geography.
    • Include hourly rate caps or blended-rate proposals in the request for consent.
    • Escalate refusals promptly and document insurer rationale if they disapprove counsel.

Managing costs — realistic expectations and examples

  • D&O insurance premium ranges (U.S. market, illustrative):

    • Small private companies (typical $1M–$5M limit): $2,000–$25,000 / year for primary D&O depending on risk profile (revenue, industry, claims history).
    • Mid-sized private companies: $15,000–$50,000 / year.
    • Public companies: starting at $50,000 and often $100,000–$1M+ for larger, higher-risk public entities.
      (Sources: Hiscox, The Hartford — see links below.)

  • Carrier examples:

    • Chubb, AIG, Travelers, The Hartford, Hiscox are major D&O carriers operating widely across U.S. markets such as New York, California, and Texas. See their D&O product pages for program specifics (links below).

  • Investigation cost examples:

    • A formal SEC inquiry or DOJ subpoena for a midsize public company often yields legal and forensic costs in the hundreds of thousands to several million dollars depending on document volumes and interview scope.
    • Smaller administrative or state inquiries may be resolved for tens of thousands with targeted counsel and prompt cooperation.

Table — Roles, typical decision points, and who pays

Role Typical responsibilities during an investigation Who usually authorizes/pay?
Outside counsel Lead interviews, negotiate with regulators, manage privilege, draft responses Company directs; D&O insurer often funds via advancement or reimbursement per policy
In-house counsel Day-to-day coordination, privileged communications, policyholder liaison Company
D&O insurer Coverage determinations, advancement decisions, potential appointment of panel counsel Insurer (subject to policy terms)
Forensic vendors Data collection, ESI review, expert reports Usually expense approved by company or insurer; pre-approval often required

Practical checklist for corporate boards and executives

  • Notify counsel and D&O insurer immediately per policy timing requirements.
  • Retain outside counsel with enforcement and D&O experience in the relevant U.S. jurisdiction.
  • Seek written insurer consents/approvals for counsel, experts, and large expenditures.
  • Implement privilege protocols and document privilege logs.
  • Consider individual counsel for relevant directors/officers and understand coverage implications.
  • Negotiate billing structures and request periodic budget updates and reasonableness reviews.

Conclusion

Effective collaboration with outside counsel during government investigations is essential to preserve D&O coverage and minimize exposure for directors and officers. Prompt notification, careful counsel selection, clear privilege management, and proactive insurer coordination — especially in high-stakes markets like New York City, San Francisco, and Houston — protect corporate interests and reduce the chance of coverage disputes.

Sources and further reading

Internal resources

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