66 F.4th 1055
7th Cir.2023Background
- Astellas funded narrowly targeted patient-assistance funds for Xtandi (a high-cost cancer drug); DOJ investigated possible Anti‑Kickback Statute and False Claims Act violations.
- Astellas settled the government investigation for $100 million in 2019; the settlement labeled $50 million as "restitution to the United States" (partly for tax/IRS reasons).
- Astellas sought indemnity under a $10 million directors-and-officers excess liability policy issued by Federal Insurance; Federal denied coverage.
- The policy’s definition of “Loss” included settlements but carved out amounts "uninsurable under applicable law"; it also contained "final adjudication" exclusions that apply only after a nonappealable adjudication.
- The district court granted summary judgment for Astellas; the Seventh Circuit affirmed, holding Federal failed to show the settlement payment was uninsurable restitution under Illinois law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Illinois public policy bars coverage for Astellas’ settlement | Astellas: settlement compensated government losses (insurable) and was not shown to be restitutionary | Federal: settlement disgorged Astellas’ ill‑gotten gains and is restitution (uninsurable) | Held: insurer failed to prove the settlement was restitutionary; coverage permitted under Illinois law |
| Whether mere investigation/allegations under the FCA/AKS make a settlement uninsurable | Astellas: allegations alone are insufficient; scienter and disgorgement must be shown | Federal: FCA/AKS require knowing/willful conduct, so settlement resolving such allegations is restitutionary | Held: allegations/investigation do not suffice; insurer must produce record evidence supporting fraud/disgorgement |
| Effect of the policy’s “final adjudication” language on coverage for settlements | Astellas: clause shows parties intended coverage for settlements absent final adjudication | Federal: policy reserves coverage for only insurable liabilities | Held: final‑adjudication exclusions do not preclude coverage here and show the policy was written to extend coverage to the limits of law |
| Burden and proof required to treat an undifferentiated settlement as uninsurable | Astellas: Federal bears the burden to show which portion (if any) is restitutionary | Federal: settlement label and facts imply disgorgement of profits; insurer should deny coverage | Held: burden on insurer; Federal did not present sufficient objective evidence of disgorgement or scienter to allow a reasonable juror to find the settlement wholly restitutionary; $10M policy limit owed |
Key Cases Cited
- Level 3 Communications, Inc. v. Federal Ins. Co., 272 F.3d 908 (7th Cir. 2001) (distinguishes compensatory damages from restitution and bars insurance for restitutionary disgorgement)
- Ryerson Inc. v. Federal Ins. Co., 676 F.3d 610 (7th Cir. 2012) (settlement that refunded inflated purchase price was restitutionary and uninsurable)
- Rosalind Franklin Univ. of Med. & Sci. v. Lexington Ins. Co., 8 N.E.3d 20 (Ill. App. 2014) (when settled claims sought both compensatory and disgorgement relief, settlement can be treated as nonrestitutionary)
- United States Gypsum Co. v. Admiral Ins. Co., 643 N.E.2d 1226 (Ill. App. 1994) (court may examine underlying record to determine whether settlement was entered to obtain coverage for uninsurable liability)
- Gulliver's East, Inc. v. California Union Ins. Co., 455 N.E.2d 264 (Ill. App. 1983) (insurer’s suspicion of arson insufficient to defeat coverage absent criminal conviction)
- United States v. Bornstein, 423 U.S. 303 (1976) (False Claims Act’s multipliers intended to make government whole; discussion of remedies does not convert FCA damages into mandatory restitution)
- Santa’s Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339 (7th Cir. 2010) (insurer must show the settled claims were not even potentially covered; undifferentiated settlements analyzed for "primary focus")
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016) (explains FCA scienter definitions and elements)