Insurance Trends & Hot Topics -- Universities & Colleges: False Claims Act/Whistleblower Claims & Scope of Coverage

March 31, 2014

On March 13, 2014, In Oberg v Pennsylvania Higher Education Assistance Agency, et al., No. 12-2513, the Fourth Circuit Court of Appeals considered whether defendant student loan agencies each constituted an “arm-of-the-state” and, therefore, state agencies who were not subject to suit under the Federal False Claims Act, 31 U.S.C. §§ 3279 et seq. (“FCA”).  The action alleged that the defendant entities defrauded the U.S. Department of Education (“DOE”) by submitting false claims for Special Allowance Payments (“SAP”), a federal student loan subsidy, in violation of the FCA.  The Fourth Circuit applied the four-part “arm-of-the-state” analysis and found that at least one of the defendants was not an “arm-of-the-state”, in part due to such factors as the entity’s segregation of funds from state funds and actual independence from state control, and thus was subject to suit under the FCA.

Insurance coverage & claim tip:  Colleges and universities can face FCA claims for activities that implicate any public grants or government procurement programs.  The Oberg Court’s four-part arm-of-the-state analysis can be equally applicable to state colleges and universities that apply for and receive these government payments.  Insurance coverage for these types of suits may differ widely between policies:  such a claim may not be covered at all or may be covered but subject to a carve back for defense costs, coinsurance, or an FCA sublimit.

See the full post at B&D's Insurance Litigation Blog.