A federal district court Thursday affirmed an earlier order stating a Hiscox PLC unit must pay legal costs under a directors and officers liability policy it issued to a bankrupt pharmaceutical distributor accused of unlawful distribution of opioids.

With the lawsuits set to go to trial on March 20, the U.S. District Court in Rochester, New York, issued a preliminary injunction on Feb. 25 in favor of Rochester, New York-based Rochester Drug Co-Operative Inc., according to the decision and order in Rochester Drug Co-operative Inc. v. Hiscox Insurance Co. Inc. The trial has since been postponed because of the pandemic.

Rochester Drug has been sued, along with other drug distributors, in more than 31 state and federal actions throughout the state of New York over the past two years for its alleged involvement in the unlawful distribution of opioids, according to the decision.

Hiscox had issued the company a private company management liability insurance policy that provided up to $5 million in defense costs and an additional $1 million executive limit of liability to a $25,000 retention.

In April 2019, Rochester entered into a deferred prosecution agreement with the U.S. Attorney for the Southern District of New York and stipulated to a civil settlement, according to the decision.

In May 2019, Rochester’s former compliance chief, William Pietruszewski, pleaded guilty to conspiracy to distribute narcotics, among other charges. Similar charges also remain pending against Rochester’s former chief executive officer, Laurence Doud.

Hiscox refused to pay defense costs, citing an illegal conduct exclusion in the policy, and Rochester filed suit in January.  The court’s February order granting the company’s motion for a preliminary injunction was subject to Rochester posting a $500,00 bond. The company filed for bankruptcy in March.

The decision states that while Rochester seeks coverage for 29 or more legal actions against it, the current motion involves just three cases.

The parties disagree as to whether the illegal conduct exclusion, as well as a prior knowledge exclusion and a consent to settlement provision, exclude or preclude coverage under the policy, the decision said.

The court “finds that Plaintiff has at least raised sufficiently serious question with respect to the applicability of each of the exclusions and provisions relied on by Defendant,” the decision said.

In discussing the illegal conduct exclusion, the policy states the exclusion applies if there is “any final adjudication” but does not define the term, the decision said.

“Additionally, the parties have not cited to any case addressing whether a deferred prosecution agreement constitutes a final adjudication in the context of an insurance policy, nor has the Courts research found any such case.

“However, the Court finds that neither the purpose nor the execution of a deferred prosecution agreement comports with the plain meaning of ‘final adjudication,’” the decision said in granting Rochester’s preliminary injunction but refusing its request to waive the bond requirement and denying Hiscox’s request to dismiss the case.

Attorneys in the case had no comment or did not respond to a request for comment.

New York state filed civil charges on Wednesday accusing Endo International PLC of insurance fraud for misrepresenting the safety and efficacy of its opioid drugs, adding fuel to the nation's opioid crisis.