The Seventh Circuit recently held in Astellas US Holding, Inc. v. Federal Insurance Company, No. 21-3075 WL 3221737 (7th Cir. 2023) (“Astellas”) that insurance policies may need to cover settlements designed to compensate a party and make them whole, including settlements paid the United States government, and the cost of defense in False Claims Act cases.
Background
In Astellas, the Department of Justice investigated Astellas’ contributions to patient assistance plans in connection with its androgen receptor inhibitors which were used to treated metastatic prostate cancer.
In 2012, Astellas created and launched a new androgen receptor inhibitor used to treat metastatic prostate cancer that did not respond to surgical intervention. Over several years, Astellas contributed almost $130 million to targeted and general patient assistance funds. Throughout the government’s investigation, Astellas’ marketing executive acknowledged that he “hoped” and “expected” that Astellas’ contributions would result in financial benefits for the company. That said, he maintained that the key purpose of these donations was charitable and clarified that Astellas had made no effort to calculate “a return on investment.”
Astellas’ Settlement with the Government
Eventually, the parties entered into a settlement agreement in which Astellas paid the government $100 million. Of this $100 million, $50 million was labeled “restitution to the United States” for tax purposes. Once this settlement was reached, Astellas’ contacted its liability insurers, including Federal Insurance Company (“Federal Insurance”), for coverage of this settlement. This particular policy with Federal Insurance was limited to $10 million. Federal Insurance later denied Astellas coverage, and Astellas filed suit.
Liability Insurance Coverage of Settlement Payments
The District Court held that Federal Insurance was required to pay the $10 million policy limit to Astellas. In affirming this holding, the Seventh Circuit reasoned that compensation to make an injured party whole would be covered by the terms of an insurance policy such as the one Federal Insurance issued to Astellas. This may also result in an insurance company’s obligation to cover the cost of defense. However, the $50 million portion of the settlement that served as a penalty was not eligible for coverage. This case was decided under Illinois law, which distinguishes between money paid to a party to make them whole and money paid to a party to penalize the other party’s actions.
Practical Takeaways
Insurance liability policies may need to cover settlement payments designed to make a party whole, and such coverage may include the cost of defense. Insurance liability policies may extend to coverage of False Claims Act cases and their settlements, but this coverage likely would not extend to penalties or disgorgement.
Health care providers should work with counsel to carefully review liability policies and examine language within the policies to ensure it extends to False Claims Act matters and possible settlements. These policies must be read alongside applicable state laws because these laws may further define or limit coverage depending on the reasoning or classification of portions of the settlement payment.
If you have any questions, please contact:
- David Honig at (317) 977-1447 or dhonig@hallrender.com;
- Jessica Biondo at (248) 519-3093 or jbiondo@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
