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Astellas U.S. Holding, Inc. v. Starr Indemnity and Liability Co.

United States District Court, N.D. Illinois, Eastern Division

May 30, 2018

Astellas U.S. Holding, Inc., and Astellas Pharma US, Inc., Plaintiffs,
v.
Starr Indemnity and Liability Company, Beazley Insurance Company, Inc., and Federal Insurance Company, Defendants.

          MEMORANDUM OPINION AND ORDER

          Manish S. Shah United States District Judge.

         The government issued a subpoena to Astellas Pharma, Inc., demanding the production of documents, and later entered into an agreement with Astellas Pharma U.S. to toll the statute of limitations on possible violations of criminal law. Plaintiffs Astellas U.S. Holding and Astellas Pharma U.S. bring this action against their insurers, Starr Indemnity and Liability Company, Beazley Insurance Company, and Federal Insurance Company, for denying coverage for the expenses incurred in response to the government's investigation. Each of the defendants move to dismiss plaintiffs' amended complaint because, they say, the policies cover losses from claims for wrongful acts and neither the subpoena nor the tolling agreement count as covered claims. For the following reasons, those motions are denied.

         I. Legal Standards

         A motion to dismiss under Rule 12(b)(1) challenges the court's subject-matter jurisdiction. Fed.R.Civ.P. 12(b)(1). The plaintiff bears the burden of establishing the elements necessary for subject-matter jurisdiction. Scanlan v. Eisenberg, 669 F.3d 838, 841-42 (7th Cir. 2012). By contrast, a Rule 12(b)(6) motion “tests whether the complaint states a claim on which relief may be granted.” Richards v. Mitcheff, 696 F.3d 635, 637 (7th Cir. 2012). The complaint must contain factual allegations that plausibly suggest a right to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). When analyzing a motion under Rule 12(b)(1) or Rule 12(b)(6), the court accepts all well-pleaded factual allegations as true and draws all reasonable inferences in favor of the plaintiff. Scanlan, 669 F.3d at 841; Virnich v. Vorwald, 664 F.3d 206, 212 (7th Cir. 2011). The court need not accept legal conclusions or conclusory allegations, however. Virnich, 664 F.3d at 212.

         II. Background

         Historically, pharmaceutical companies sponsored patient assistance programs that subsidized the purchase of drugs for certain Medicare beneficiaries. [39] ¶ 19.[1] For example, plaintiffs made charitable contributions to organizations that assisted financially needy patients, and some of those patients may have taken drugs sold by plaintiffs. Id. ¶ 26. The Department of Health and Human Services, Office of Inspector General, announced that these programs risked violating the anti-kickback statute, and beginning January 1, 2006, Medicare Part D beneficiaries would no longer be eligible to participate in patient assistance programs. Id.¶ 19. In May 2014, the OIG issued a supplemental bulletin to provide additional guidance regarding patient assistance programs that were operated by independent charities and that provided cost-sharing assistance for prescription drugs. Id. ¶ 20.

         On March 3, 2016, the United States Department of Justice issued a subpoena to plaintiffs demanding certain documents relating to the DOJ's industrywide investigation of pharmaceutical companies for alleged “Federal health care offenses.” Id. ¶ 21. The subpoena commanded plaintiffs to appear before government officials and to produce documents about plaintiffs' payments to charitable organizations that provided financial assistance to patients taking plaintiffs' drugs. Id. ¶ 24; [39-4]. It advised plaintiffs that failure to comply exposed them to liability in judicial enforcement proceedings and punishment for disobedience. [39-4]. Although the DOJ formally addressed the subpoena to Astellas Pharma, Inc., plaintiffs' Japanese parent company, the subpoena also used the term “You, ” which the subpoena defined as including the parent company's subsidiaries. [39] ¶ 22; see also [39-4]. Astellas Pharma US, the U.S.-based subsidiary, was the only relevant entity for purposes of the subpoena because plaintiffs' parent company never provided charitable contributions to the patient assistance programs at issue in the subpoena.[2] [39] ¶ 22.

         Although the government's position is not stated in the subpoena, the DOJ alleged that plaintiffs' contributions to independent charity patient assistance programs violated applicable law. Id. ¶¶ 27-29. The investigation is ongoing; and the DOJ has subpoenaed additional documents from plaintiffs. Id. ¶ 30. On October 26, 2017, the DOJ entered into a “Limited Tolling Agreement on Statute of Limitations” with Astellas Pharma US, which states that the DOJ “is currently conducting a joint criminal and civil investigation of [] Astellas, and its officers, employees, and agents, ” and that “[t]he conduct being investigated includes, without limitation, the possible violation by Astellas . . . of various federal criminal statutes . . . in connection with Astellas's payments to ‘501(c)(3)' organizations that provide financial assistance to Medicare beneficiaries.” Id. ¶ 31; see also [21-4]. The parties agreed to toll the applicable statutes of limitation for Astellas's possible violations of law in making payments to organizations that gave financial assistance to Medicare beneficiaries. [21-4].

         After receiving the first subpoena, plaintiffs provided each of the defendants-the insurance companies-timely written notice of the subpoena. [39] ¶ 34. Plaintiffs' primary insurance policy came from Starr; that policy had a $5 million limit of liability excess of a $500, 000 self-insured retention, id. ¶ 11, and it provided: “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, ” [39-1] at 18. In addition to its primary policy with Starr, plaintiffs also had excess insurance policies with Beazley and Federal Insurance. Beazley's policy provided a $5 million limit of liability excess of the Starr policy's $5 million limit of liability and the applicable $500, 000 self-insured retention. [39] ¶ 17. In order for the Beazley policy to apply, all of the underlying limits had to have been exhausted through payments of amounts covered under the Starr policy. Id. Federal provided a $10 million limit of liability excess of the Starr policy's and the Beazley policy's combined limits of $10 million and the applicable $500, 000 self-insured retention. Id. ¶ 18. The Federal policy only covers a loss if all of the underlying limits have been exhausted through payments of amounts covered under the Starr and Beazley policies. Id.

         In response to plaintiffs' notice of the subpoena, Beazley reserved its rights, noting that “[a]s an excess carrier, Beazley cannot have any coverage obligations until the underlying layer is exhausted, ” id. ¶ 35, and Federal acknowledged receipt of the notice, but stated that “it must reserve the right to raise all of the defenses available to it under the policy and the law, ” id. ¶ 36. Starr denied coverage, asserting that “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.” Id. ¶ 37. Beazley and Federal both adopted Starr's coverage positions, reservations of rights, and defenses. Id. ¶ 38.

         Plaintiffs incurred defense costs that exceed the retention in the Starr policy. Id. ¶ 45. While plaintiffs have complied with all of the applicable conditions of Starr's policy, Starr has refused to pay the amounts owed under that policy. Id. ¶¶ 46-47. After deducting the self-insured retention, plaintiffs' defense costs have exceeded the limits of liability of the Beazley policy and the underlying limits of the Federal policy. Id. ¶ 50. Plaintiffs seek a declaration that Beazley and Federal must pay all reasonable and necessary costs of investigating and defending “this Claim, ” up to the respective limits of liability. Id. ¶ 54.

         Starr moved to dismiss plaintiffs' complaint. [21]. Both Beazley and Federal Insurance joined that motion. [24] at 2; [26] at 2. Additionally, Beazley filed its own motion to dismiss plaintiffs' amended complaint, [24], and Federal Insurance joined that motion, [26] at 2. After the parties completed briefing defendants' motions to dismiss, plaintiffs moved for leave to file an amended complaint. [36] at 1 (citing Fed.R.Civ.P. 15(a)(2), 19). In that motion, plaintiffs explained their intention to address the issues defendants raised in their motions to dismiss by adding certain factual allegations. Id. at 2. I granted plaintiffs' motion for leave to file an amended complaint, and I permitted defendants to adopt the arguments they had raised in their motions to dismiss as well as in their responses to plaintiffs' motion for leave to amend the complaint. [40]. Plaintiffs filed a first amended complaint, [39], and defendants moved to dismiss the amended complaint, adopting their previous arguments, [41]; [42]; [43].

         III. Analysis

         Plaintiffs brought this action against Starr for breaching its duty under the policy to pay for a loss plaintiffs suffered. Starr's policy provides: “The Insurer shall pay on behalf of the Company the Loss arising from a Claim . . . against the Company for any Wrongful Act.” [39-1] at 18. The parties dispute whether there was: (1) a “Claim” (2) that was asserted against the “Company” (3) for a “Wrongful Act.” Courts must interpret the terms of an insurance policy in the context of the entire policy and the parties' intentions. Emp'rs Ins. of Wausau v. James McHugh Constr. Co., 144 F.3d 1097, 1104 (7th Cir. 1998); Travelers Ins. Co. v. Eljer Mfg., Inc., 197 Ill.2d 278, 292 (2001). If the policy language is unambiguous, as it is here, courts ascertain the parties' ...


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