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Purdue Pharma seeks to set up captive as insurance dries up

Purdue Pharma seeks to set up captive as insurance dries up

Troubled OxyContin maker Purdue Pharma LP is seeking to secure some $10 million in required product liability insurance and up to $27 million in general liability coverage by creating a captive insurer.

Purdue asked for permission to set up the captive insurer in a court “motion to maintain insurance” lodged in federal court on Monday as part of the firm’s filing for bankruptcy protection.

“A commercial solution to the debtors’ product and general liability coverage requirements has been challenging to obtain with a third-party insurer.  The debtors are therefore in the process of evaluating captive options to insure the debtors’ product and general liability risks,” said attorneys for Stamford, Connecticut-based Purdue in the motion to maintain insurance filed in the U.S. Bankruptcy Court for the Southern District of New York.

Options being considered include creating a captive insurer that would be a wholly owned, non-debtor subsidiary of the company, or alternately creating a segregated account within a licensed insurer, the filing stated.

“The debtors request the authorization, but not the direction, to secure the required product and general liability insurance, including by creating and capitalizing the product and general liability captive,” the filing said.

“We’ve had situations in the past where an operating company has gone bankrupt but the captive insurer which it has previously set up was fully solvent, continued to operate and pay claims notwithstanding the bankruptcy and the disposition of the company,” said Charles J. Lavelle, senior partner at Bingham Greenebaum Doll LLP in Louisville, Kentucky, who is not involved in the Purdue captive.

More than 20 insurance policies which renew on various dates throughout the year, are listed in Purdue’s motion to maintain insurance, which names Marsh LLC’s U.S. unit Marsh USA Inc. as Purdue’s broker.

Major commercial insurers that provide coverage to Purdue include units of American International Group Inc., Chubb Ltd., Liberty Mutual Insurance Co., FM Global, Zurich Insurance Co. Ltd., and Tokio Marine HCC. Isosceles Insurance Ltd., a captive insurer is also listed.

Aggregate annual insurance premiums under the policies total about $3.2 million, the motion stated.

“The debtors require various liability, casualty, property and other insurance programs in the ordinary course of their businesses…, which they maintain through several private insurance carriers, and a segregated account within a Bermuda licensed insurer,” the motion stated.

The policies include coverage for umbrella liability, workers compensation, property damage, products liability, operation of automobiles, crime, business interruption, directors and officers liability, employment practices liability, fiduciary liability, transport/cargo and various other property-related and general liability coverages.

Purdue faces more than 2,600 lawsuits alleging that it helped fuel the U.S. opioid epidemic.