Notice of A Subpoena Counts as Notice of A Claim
June 25, 2018
The United States District Court for the Northern District of Illinois has held that government subpoenas seeking documents constitute “claims” under standard D&O policy language. The case is Astellas US Holding, Inc. v. Starr Indem. & Liab. Co., No. 17 CV 8220, 2018 U.S. Dist LEXIS 89725 (N.D. Ill. May 30, 2018).
In the past, pharmaceutical companies have sponsored patient assistance programs that subsidized the purchase of drugs for certain Medicare beneficiaries. In this case, the plaintiffs made charitable contributions to some organizations that assisted financially needy patients. Some of those patients took drugs that were sold by the plaintiffs. The Department of Health and Human Services, Office of the Inspector General announced that these programs risked violating the anti-kickback statute, and that in the future Medicare Part D beneficiaries would no longer be eligible to participate in patient assistance programs. In 2014 the OIG issued a supplemental bulletin for additional guidance for patient assistance programs that were operated by independent charities and that provided cost-sharing assistance for prescription drugs.
In 2016 the Department of Justice issued a subpoena to Astellas demanding a production of documents relating to an industry wide investigation of pharmaceutical companies. After receiving the first subpoena, the plaintiffs provided each of the insurance company's timely written notice of the subpoena. The primary insurance policy came from Starr, and had a $5 million limit of liability, excess of a $500,000 self-insured retention. In the policy, there is a provision that states “The Insurer shall pay on behalf of the Company the Loss arising from a Claim first made during the Policy Period. . . against the Company for any Wrongful Act, and reported to the Insurer in accordance with the terms of this policy”.
Starr denied coverage, asserting, “the Subpoena does not currently fall within the scope of coverage afforded by the Policy” because “the definition of Claim requires. . . a written demand for monetary, non-monetary or injunctive relief made against an insured. Here, there has been no written demand for relief made against any Insured. . . The Subpoena simply requests that certain documents be produced.” The other insurers, Beazley and Federal, both adopted Starr's coverage positions, reservations of rights, and defenses.
Astellas racked up expense costs that exceeded their retention in the Starr policy. Astellas contends that they have complied with all of the applicable conditions of Starr's policy and Starr still refuses to pay the amounts owed under that policy. After deduction of the self-insured retention, Astellas defense costs have exceeded the limits of the Beazley policy and the underlying limits of the Federal policy. Astellas argues that Beazley and Federal must pay all reasonable and necessary costs of investigating and defending the claim up to the limits of liability.
The three insurance companies moved to dismiss the complaint. Astellas sued Starr for breaching its duty under the policy to pay for a loss the plaintiffs suffered. The court denied the motion to dismiss, and ultimately held that the definition of a “Claim” is very broad, indicating that the policy was designed to include something like a subpoena, and that its holding was “precisely what the policy intended.”
Editor's Note: Other federal judges have found that a governmental subpoena counts as a claim under a D&O policy. The decision here was unique though, due to the fact that the court relied on the pleadings in the declaratory judgment action to affirm that the subpoena counted as a claim, instead of just relying solely on the subpoena. The policy here defined claim as a demand for monetary or non-monetary relief, a relatively broad definition. The court determined that although the subpoena did not discuss any violation of law or impending enforcement action, the complaint in the declaratory judgment action alleged that the “DOJ has determined that the plaintiffs violated health care laws, and it is reasonable to infer that enforcement proceedings would swiftly follow any non-compliance by plaintiffs in response to the subpoena.” So the court determined that the subpoena should be considered a demand for non-monetary relief because “it was not distinct from the potential enforcement proceedings – it defined the scope of the judicial enforcement.”
In response to an increased number of judges deciding that subpoenas may constitute a claim, some insurers have amended their policy forms to specifically include subpoenas within the definition of a claim. Adding in this clarification will help to prevent actions similar to this one in the future.