Pharmaceutical Company Faced with a DOJ Subpoena Will Find Coverage from Its Insurers

After a lengthy court battle, three insurers are required to cover pharma company Astellas for health care fraud and other false claims wrongdoing.
By: | November 16, 2018

A U.S. district judge in the northern district of Illinois denied three insurers’ motions to dismiss a pharmaceutical company’s action in seeking legal coverage for costs associated with a U.S. Department of Justice (DOJ) subpoena.

According to a release by the Morgan Lewis law firm, the case involved a health care fraud and false claims investigation against Astellas Pharma Inc. The DOJ conducted an ongoing investigation into whether the firm made donations to nonprofits with the intent that the underprivileged patients would buy the firm’s products.

The three defendants, Starr Indemnity and Liability Co., Beazley Insurance Co. and Federal Insurance Co., argued their policies “cover losses from claims for wrongful acts” and that the costs associated with responding to the DOJ subpoena and a tolling agreement between Astellas do not constitute “covered claims” under the policies.

According to Morgan Lewis, the judge ruled the DOJ subpoenas to Astellas can fall under coverage for a “written demand for plaintiffs to appear before government officials and to produce specific documents. This is a demand for non-monetary relief.”

The judge went on to state, “The broad definition of a claim, which includes overlapping subparts, indicates that the policy was designed to cover something like the subpoena—which is a demand for relief in response to an accusation of wrongdoing.”

Morgan Lewis attorneys point out a trend is emerging that under certain circumstances, courts will accept subpoenas as a “demand for non-monetary relief” and will require that D&O insurers cover the often significant costs companies incur when they face allegations they violated federal law.

On the other hand, Morgan Lewis attorneys point out courts may hold that in cases where there is no allegation of wrongdoing, carriers may not have to cover instances where an insured is subpoenaed.

Scorecard: Starr, Federal and Beazley need to pay for Astellas costs in responding to a subpoena where there is an allegation of wrongdoing.

Takeaway: Given current trends, insurers may want to specifically word D&O policies in the areas of what constitutes a claim or insured exposure. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected].

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