A Chubb Ltd. unit owes a drug company $10 million under its directors’ and officers’ liability insurance in connection with the company’s $100 million settlement with the U.S. government over potential claims, a federal appeals court said Wednesday, upholding a lower court ruling .
Astellas US Holdings Inc., a Tokyo-based drug company whose U.S. headquarters are in Northbrook, Illinois, had made contributions to “patient assistance plans” to cover the cost of treatment with Xtandi, a drug that originally cost $7,800 to treat metastatic prostate cancer that had not responded to surgery, according to the ruling of the 7th US Circuit Court of Appeals in Chicago i Astellas US Holding Inc. and Astellas Pharma US Inc. v. Federal Insurance Co.
The US Department of Justice opened an investigation into whether Astella̵
7;s contributions to these plans violated the False Claims Act, the Anti-Kickback Statute and the criminal fraud provisions of the Health Insurance Portability and Accountability Act.In April 2019, Astellas settled with the government for $100 million, $50 million of which was labeled “restitution for the United States” for tax purposes.
After agreeing to the settlement, Astellas approached several liability insurers, including Chubb unit Federal Insurance, to cover parts of the settlement. When the insurance companies denied coverage, Astellas sued them in US District Court in Chicago. Settlements with other insurance companies left Federal as the sole defendant.
The district court ruled in Astella’s favor, and it was upheld by a three-judge panel of the Court of Appeal. “The many issues raised on appeal are whether Illinois public policy prohibits the liability insurer from covering a portion of its insured’s payment to settle the federal government’s potential claim,” the ruling said.
It said it agreed with the district court that while a party may not obtain liability insurance for “true restitution” it owes to the victim for its intentional wrongdoing, “a party may obtain insurance for compensatory damages that it may owe.
“Further, in cases of ambiguity and uncertainty, Illinois favors settlement and freedom of contract, and Federal wrote its policy to attempt to extend policy coverage to the limit of what Illinois law would allow in such cases,” it said.
Federal has not met its burden of showing that the portion of the settlement payment for which Astellas is seeking coverage is uninsured reimbursement, it said, affirming the lower court.
Astellas said in a statement, “We are pleased with the court’s decision.” A Chubb attorney did not respond to a request for comment.
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