566 F.Supp.3d 879
N.D. Ill.2021Background
- Astellas donated to two independent charity patient assistance programs (PANF and CDF) that ran ARI-specific co-pay funds for Xtandi patients; DOJ investigated whether those donations caused false Medicare claims by subsidizing Xtandi co‑pays (AKS/FCA theories).
- DOJ issued a subpoena and later a tolling request (treated by Astellas as a Claim during the Federal Policy period); Astellas retained counsel and engaged in settlement talks.
- On April 25, 2019 Astellas paid a Settlement Payment of $102,370,890.41 to resolve DOJ claims; the agreement labeled $50 million as "restitution to the United States."
- Federal Insurance had an excess D&O policy (April 1, 2015–Apr.1, 2016) with a $10 million limit (excess of $10.5M underlying) and a definition of Loss that excludes “matters which may be deemed uninsurable under applicable law” and contains Final Adjudication exclusions for fraud only if established by a final non‑appealable adjudication.
- Federal denied Astellas’s claim for coverage of the Settlement Payment; Astellas sued for breach of contract and declaratory relief.
- The court treated the disputed policy language excluding uninsurable matters as an insurer‑borne exclusion, found the FCA settlement to be compensatory (not uninsurable disgorgement), and denied Federal’s cross‑motion for summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Settlement Payment is a "Loss" under the policy | The payment is compensatory FCA damages (including multiplied portion) for government loss and falls within the policy's definition of Loss | The payment primarily effects restitution/disgorgement of Astellas's ill‑gotten gains and thus is uninsurable and excluded from Loss | The court held the Settlement Payment is a covered Loss; FCA damages here were compensatory, not uninsurable disgorgement; Federal failed to prove the exception applies |
| Who bears burden to show the "uninsurable under applicable law" exception | Astellas: insurer bears burden to prove any exclusion; insured has met prerequisites for coverage | Federal: Astellas must prove settlement covers covered loss amounts | Court: treated the phrase as an exclusion and placed the burden on Federal to prove it applies; Federal did not meet that burden |
| Whether the policy's Final Adjudication Exclusions bar coverage | Astellas: no final adjudication exists, so exclusions are not triggered | Federal: settlement and DOJ theories show intent to deprive Astellas of net benefit; exclusion should preclude coverage | Court: no final, non‑appealable adjudication occurred; Final Adjudication Exclusions do not apply; they imply only finally adjudicated fraud is excluded |
| Whether public policy bars coverage for fraud‑based settlements | Astellas: Illinois public policy does not categorically bar coverage for damages paid to third parties for alleged fraud; parties may contract for coverage absent a clear public policy | Federal: public policy disfavors insuring intentional/willful wrongdoing or disgorgement of ill‑gotten gains | Court: public policy does not bar coverage here; no Illinois authority mandates prohibition, and the policy language controls absent a final adjudication |
Key Cases Cited
- Level 3 Commc'ns, Inc. v. Federal Ins. Co., 272 F.3d 908 (7th Cir.) (settlement constituting disgorgement of ill‑gotten gains is uninsurable)
- Santa's Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339 (7th Cir.) (insurer must cover settlement when a covered claim was a primary focus; court applies ‘‘primary focus/reasonable anticipation’’ test)
- Ryerson Inc. v. Federal Ins. Co., 676 F.3d 610 (7th Cir.) (returns of fraud proceeds treated as uninsurable restitution)
- Bornstein v. United States, 423 U.S. 303 (U.S.) (FCA remedies aim to make the government whole; characterization of damages/restitution under FCA)
- United States v. Rogan, 517 F.3d 449 (7th Cir.) (when AKS conditions are not satisfied, government payments may be considered not due)
- Raintree Homes, Inc. v. Village of Long Grove, 807 N.E.2d 439 (Ill.) (distinguishes damages (measured by plaintiff's loss) from restitution (measured by defendant's unjust gain))