The outcome of a most interesting case was reported last month involving Reglan claims. It was reported that Alaven Pharmaceutical LLC settled its claims that First Specialty Insurance Corp. (FSIC) should pay $5 million of excess coverage relating to the defense of litigation involving Alaven’s brand versions of Reglan, the digestion medication. U.S. District Judge Amy Totenberg was notified that the parties had reached a settlement in principle and would file the final settlement documentation with the court at a later date. Judge Totenberg administratively closed the case awaiting that filing.

As we have previously reported, there have been a large number of Reglan lawsuits filed around the country. Alaven, a defendant in many of these lawsuits, filed its own lawsuit in 2012, challenging the decision of FSIC and primary carrier Columbia Casualty Co. to deny a combined $10 million in liability insurance coverage. That decision was based on the insurers’ conclusion that, when the policies were issued in 2009, Alaven had reason to know it would become involved as a defendant in thousands of claims based on Reglan.

As previously reported, Reglan has been linked to the neurological disorder tardive dyskinesia and carries other serious side effects. It was reported that Columbia settled with Alaven in April. Alaven says the Columbia policy provided $15 million in defense and indemnity coverage, consisting of a $10 million loss limit and a $5 million each-claim limit which was added by endorsement. Alaven also contended that FISC’s policy furnished an additional $5 million excess layer of coverage.

Shortly before Alaven exhausted the first $10 million of coverage under the Columbia policy, the insurer gave notice that it would not provide the additional $5 million. That was said to have been because Alaven misrepresented its probable exposure to Reglan injury suits when it purchased the policy. It was alleged further that FSIC subsequently informed Alaven that it would adopt the same position and disclaim its obligations on the $5 million excess layer.

Alaven contended that the position taken by the insurers was unsupported by the facts, the policy language and by Georgia insurance law. Alaven filed suit against Columbia for breach of contract and bad faith. It reserved its rights to sue FSIC as well once the $10 million Columbia limit was exhausted and its claim against FSIC became ripe. In addition, Alaven sought a reformation of the FSIC policy, which it contended was issued with a definition of “ultimate net loss” that mistakenly failed to include the costs of defending any claim or suit covered under the policy.

It was alleged by Alaven in the complaint that as a result of the “mutual” error of Alaven and FSIC, the incorrectly worded policy would never be triggered if the underlying Columbia policy paid even a single dollar in defense costs. Alaven maintained this outcome was prohibited under state law because it would render the policy coverage illusory. Columbia settled with Alaven and was dismissed from the lawsuit in April, but Alaven continued with its claim against FSIC. In August, FSIC issued a subpoena to Alaven’s insurance broker BB&T Insurance Services Inc. for documents, notes and phone logs related to Alaven’s policy purchases. The case went to mediation in October and a settlement was reached.

Alavan, which became part of Sweden-based Meda AB in 2010, acquired the rights to manufacture and distribute brand-name Reglan in 2008 from Schwarz Pharma Inc. As you may recall from previous reports, that company had obtained the rights in 2001 from Wyeth LLC, the original developer of Reglan. As a matter of interest, it should be noted that the Judicial Panel on Multidistrict Litigation declined in 2009 to create a centralized Reglan injury case. This case is an example of the tangled web of insurer-insured litigation involving coverage issues.

Sources: Andrew Scurria and Law360.com

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