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Stamford-based Purdue Pharma’s “take no prisoners” defense in hundreds of OxyContin product liability lawsuits so far has been amazingly effective. The company has yet to pay out a single dime to any plaintiff, either through settlements or judgments. But for at least one insurer, Purdue’s blanket refusal to settle any of the claims has it litigating for a way out of its obligation to pay the massive legal bills piling up as a result of the aggressive defense tactics — costs that Purdue says are now in excess of $250 million. In a first-impression ruling in Connecticut, Stamford Complex Litigation Docket Judge Taggart D. Adams has blocked Schaumburg, Ill.-based Steadfast Insurance Co.’s bid to get out of an indemnification agreement to cover Abbott Laboratories Inc.’s defense costs for a mere $2 million. Abbott, based in Abbott Park, Ill., markets and promotes OxyContin, the controversial painkiller subject to nearly 300 state and federal suits across the country. In a motion for partial summary judgment, Steadfast had asked Adams to declare that it owes Purdue no more than the $2 million liability limit specified in the insurance binder that Steadfast issued to Purdue. Abbott has an indemnification agreement with Purdue for its defense costs, and although Abbott isn’t liable for any money damage awards, its costs of litigation have topped $2 million. It sought payment for its legal expenses from Purdue, pursuant to their “Co-Promotion Agreement.” Purdue, in turn, forwarded the bills to Steadfast, which sent back a check for $2 million, cautioning Purdue that the payment represented the full indemnity limit and terminated its obligation to indemnify and defend Purdue. Purdue refused to cash the check, and Steadfast filed suit in late 2002. The question for Adams, who ruled Sept. 1, was whether an indemnitee’s (in this case, Abbott’s) defense costs are considered damages, which are subject to liability limits. Steadfast never issued an actual insurance policy to Purdue. However, the binder that it gave to the pharmaceutical company refers to an “Insuring Agreement in a Products Liability Coverage Form.” In that agreement, Steadfast promised to pay, as indemnification payments, “those sums that the insured [Purdue] becomes legally obligated to pay as damages” for injuries or property damage related to OxyContin. Purdue’s indemnification of Abbott’s defense costs were characterized by Steadfast as indemnification “damages” incurred by Purdue relating to the drug litigation, in which the plaintiffs’ main allegations are that they have become hooked on the prescription drug in part because of misrepresentations and hyped marketing. The limit on Steadfast’s indemnification liability was $2 million, so according to the insurer, Purdue’s claim for $2 million exhausted its duty to indemnify Purdue. Their agreement also said that Steadfast’s duty to defend Purdue in the OxyContin lawsuits ended when the liability limit was reached. Steadfast claimed in its summary judgment motion that payment of Purdue’s claim freed the insurance company from any further payments to Purdue for defense costs. A court ruling in Steadfast’s favor would have meant that it was off the hook for more of Purdue’s exorbitant OxyContin legal expenses. Unfortunately for Steadfast, Adams ruled against it. Agreeing with Purdue, the judge pointed to language in the parties’ coverage agreement that obligated Steadfast to defend “any suit” seeking damages from Purdue relating to OxyContin. Since Purdue was obligated to pay Abbott’s legal expenses, Steadfast was obligated to assume those expenses for Purdue, he said. But Steadfast’s payments to Purdue were not indemnification payments, the court ruled. Instead, they were made pursuant to Steadfast’s duty to defend any suit relating to Purdue’s losses due to OxyContin. That obligation included the duty to defend the OxyContin suits against Abbott by paying the company’s legal bills. Adams also noted that the agreement called for the termination of Steadfast’s duty to defend only when it paid out the liability limit “in the payment of judgments and settlements.” There have been no unfavorable judgments or settlements in any of the OxyContin cases and there was no evidence of any settlement of an adversarial dispute between Purdue and Abbott. Adams observed that upholding Steadfast’s position would allow any “insurer, faced with defense costs exceeding the indemnity limits, to cut off any further obligations to its insured by paying defense costs up to the indemnity limit.”

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