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Excess Liability Insurer Not Responsible For Punitive Damages Award - Insurance Coverage

Insurance Coverage

Posted on: Jul 11, 2021

By RJ Proie, Taylor DeVore & Padgett PC 

A Georgia jury returned a $17.5 million punitive damages award against pharmaceutical manufacturer Akorn Inc. regarding “grandfathered” drug methylene blue (not regulated by the FDA) that was known to interact poorly with serotonergic psychiatric medications. Akorn declined to add a warning label to the medication. This caused a patient to be placed into a medically induced coma for 18 days and caused permanent impairment after a severe interaction with another drug, which interaction was unknown to the treating surgeon.

Primary insurer Chubb Inc. had $10 million in coverage, inclusive of defense costs  Ironshore Specialty Insurance Co. filed a declaratory judgment action in Illinois, the corporate domicile of Akorn, seeking a declaration that punitive damages are not insurable under Illinois law as a matter of public policy, and that the damages are not covered in any event by the policy.

The District Court for the Northern District of Illinois first determined that Illinois law controlled, because Akorn’s corporate headquarters and nerve center are located in Illinois and therefore its insurance policies were delivered there. Under Illinois law, insurance coverage for punitive damages is not available as a matter of public policy. Therefore, Ironshore was not liable for the portion of the verdict that exceeded primary coverage. The choice of law question was particularly important in this matter, as punitive damages may be covered by insurance pursuant to Georgia law.

The judgment was satisfied in full between payments by Chubb and Akorn. Read the Order here.

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