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Judy Greenwald

Insurers to pay $29M toward proposed settlement in meningitis outbreak

May 7, 2014 - 4:02pm

Meningitis Outbreak Settlement

This photo provided Oct. 9, 2012, by the Minnesota Department of Health shows shows vials of the injectable steroid product made by New England Compounding Pharmacy Inc. that implicated in a 2012 fungal meningitis outbreak that killed at least 64 people.


Insurers will contribute $29 million to the total $100 million proposed settlement in connection with the 2012 meningitis outbreak, in which at least 64 people died and 751 individuals fell ill, according to court documents.

The proposed settlement with Framingham, Massachusetts-based New England Compounding Pharmacy Inc., which did business as New England Compounding Center, was submitted to the U.S. Bankruptcy Court for the District of Massachusetts on Monday, although final court approval is not expected for at least 30 days, said Paul D. Moore, a partner with Duane Morris L.L.P. in Boston who is the company's bankruptcy trustee.

As of March 4, 322 separate lawsuits have been filed in connection with the outbreak, which was allegedly caused by fungus-contaminated steroids distributed by the center, according to court records. A total of about 3,300 claims asserting injury from the steroid injunctions had been submitted to the trustee's agent as of January 2014, according to court papers

The $100 million settlement will be put in a compensation fund for those who died or suffered significant injuries after receiving the injections. Under terms of the proposed settlement, primary insurer Pharmacists Mutual Insurance Co., based in Algona, Iowa, will contribute $15 million to the total settlement, and excess insurer Maxum Indemnity Co., based in Alpharetta, Georgia, will contribute $10.2 million, according to court documents.

In addition, Norwich, New York-based Preferred Mutual Insurance Co. will contribute another $3.75 million to the settlement.

Preferred had insured GDC Properties Management L.L.C. based in Framingham, Massachusetts, which was New England Compounding Center's landlord and owned by pharmacy insiders, according to court papers.

Owners contribute to settlement

Additional funding of the settlement will come from New England Compounding Center's owners, who will contribute $47.8 million to the compensation fund victim's fund. Those cash payments are expected to entitle the owners to tax refunds of more than $20 million, and substantially all of those refunds will go toward the compensation fund, according to a statement jointly issued by the attorneys involved on both sides. The sale of a related business is expected to provide an additional $10 million to the fund as well, the statement said.

The proposed settlement is “a significant step towards funding a Chapter 11 plan that will furnish a mechanism to provide meaningful compensation to personal injury claimants with allowed claims who have suffered death, grievous injuries and illnesses from the administration of allegedly contaminated medications compounded” by New England Compounding Center, court papers say.

The settlement with the insurers was a compromise, court papers show. Pharmacists Mutual, which had issued a special business owner’s policy to the compounder, as well as a commercial umbrella/excess coverage policy, contended that its liability was at most $6 million.

Maxum, whose excess policy was above the Pharmacists Mutual policies, contended it was liable for no more than $5 million, according to court papers.

Similarly, Preferred Mutual contended that under its commercial general liability policies it was liable for only up to $1 million, according to court papers.

James Dolan, general claims counsel for Preferred, said, “After considering our policyholders’ potential liability and the costs associated with obtaining a final determination of that liability we believe it was in the best interest of our policyholders to settle the case.” A spokeswoman for Maxum had no comment while a spokesman for Pharmacists Mutual could not be reached.

 



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