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Insurer Looks to Dodge OxyContin Pain

Jul 15, 2007

By Soule, Alexander

An insurance company hopes to avoid covering millions of dollars in fines gainst the former CEO of Purdue Pharma L.P. after his misdemeanor conviction last month of misleading customers about the company's OxyContin pain relief medication.

Federal Insurance Co. seeks a ruling that the directors and officers (D&O) liability policy it issued to Purdue was voided after the Stamford company did not include the insurance carrier in negotiations for a legal settlement. At publishing deadline, Purdue Pharma had yet to issue a response.

Both Federal Insurance and parent Chubb Group of Insurance Companies are based in New Jersey.

Purdue Pharma reached a $635 million settlement in May with federal prosecutors. Former CEO Michael Friedman pleaded guilty to a misdemeanor charge of fraud, as did general counsel Howard Udell and former chief technology officer Paul Goldenheim, who now lives in Massachusetts.

In late June, Purdue Pharma named John Stewart acting president, taking on Friedmnan's duties until a permanent replacement is named. Stewart is president of Purdue Pharma's Canadian operations.

Under the settlement agreement, Friedman must pay $19 million to the state of Virginia, while Udell and Goldenheim are on the hook for $8 million and $7.5 mil-lion, respectively. The men are scheduled to be formally sentenced July 20, and have the option of retracting their guilty pleas if their sentence does not match the agreement. In late June, the presiding judge asked prosecutors for additional information on why the plea agreement did not include a jail sentence. The D&O policy issued by Federal Insurance provided up to $15 million for each instance of a wrongful act covered under the definition of the policy.

Federal Insurance says the defendants negotiated a legal settlement without its input, and asserts that the Purdue Pharma policy absolved it from any fines reached without its consent. The policy prohibits Federal Insurance from holding up an agreement over unreasonable demands.

D&O coverage remains an area of property and casualty insurance in which companies still can exercise substantial influence over policy terms, said Edward McCreery, an attorney in the Bridgeport office of Pullman & Comley L.L.P.

"If you took your auto insurance policy and put it side by side with mine, they are going to look pretty similar," McCreery said. "But D&O policies ... take one thing off of shelf A, another thing off shelf B, and so on. If a General Electric Co. wants this policy term or that, (insurance carriers) are generally going to have to give into it."

Copyright Westfair Communications Jul 16, 2007

(c) 2007 Fairfield County Business Journal. Provided by ProQuest Information and Learning. All rights Reserved.

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