Kaiser Permanente Files Lawsuit Against D&O Insurers Over Settlement Claims

Kaiser Permanente has initiated legal action against nine of its directors and officers liability (D&O) insurers, seeking resolution over an unsettled claim tied to a significant financial settlement. The lawsuit, filed on February 20 in the U.S. District Court for the Northern District of California, includes defendants such as National Union Fire Insurance Company of Pittsburgh, Pa. (AIG), Federal Insurance Company (Chubb), and others.

The dispute centers on a 2026 settlement regarding a False Claims Act case initiated by the U.S. Department of Justice and several whistleblowers. Allegations involved improper risk-adjusted Medicare Advantage claims dating back to 2009, accusing Kaiser of presenting false claims and conspiring to violate the False Claims Act. The government sought treble damages, civil penalties, and related costs.

Kaiser's D&O insurance program includes $95 million in coverage, with AIG's primary policy providing $10 million after a $10 million self-insured retention. Eight excess carriers collectively contribute an additional $85 million in coverage. These policies cover a range of losses, including damages, settlements, and defense costs, where legally permissible.

While AIG acknowledged that Kaiser’s claim falls within policy coverage, it limited its payment obligations through an endorsement titled "Governmental Funding Defense Cost Coverage." This endorsement caps defense costs at $1 million and excludes the return of government funds and related penalties. Following AIG’s stance, the excess carriers also denied further payouts.

Kaiser argues that the exclusion should not apply to the treble damages portion of its settlement, as these differ from returning government funds. The healthcare organization asserts similar logic for whistleblower claims and relator payments. This case presents a critical issue in the D&O insurance sector concerning governmental funding exclusions and indemnification scope in complex settlements.

Currently, Kaiser seeks full indemnification according to the policy limits, alongside a legal declaration of involved parties' rights and obligations, interest, and costs. The proceedings remain in preliminary stages, awaiting substantive rulings from the court.