A Chubb Ltd. unit owes a pharmaceutical company $10 million under its directors and officers liability insurance policy in connection with the company’s $100 million settlement with the U.S. government for potential claims, a federal appeals court said Wednesday, in affirming a lower court ruling.

Astellas US Holdings Inc., a Tokyo-based pharmaceutical company whose U.S. headquarters are in Northbrook, Illinois, had made contributions to “patient assistance plans” to cover the costs of treatment with Xtandi, a drug initially priced at $7,800 that was used to treat metastatic prostate cancer that had not responded to surgery, according to the ruling by the 7th U.S. Circuit Court of Appeals in Chicago in Astellas US Holding Inc. and Astellas Pharma US Inc. v. Federal Insurance Co.

The U.S. Department of Justice began an investigation into whether Astellas’ contributions to these plans violated the False Claims Act, the anti-Kickback Statue and the criminal fraud provision of the Health Insurance Portability and Accountability Act. 

In April 2019, Astellas settled with the government for $100 million, $50 million of which was labeled as “restitution for the United States” for tax reasons.

After agreeing to the settlement, Astellas turned to several liability insurers, including Chubb unit Federal Insurance, to cover portions of the settlement. When the insurers denied coverage, Astellas sued them in U.S. District Court in Chicago. Settlements with other insurers left Federal as the only defendant.

The district court ruled in Astellas’ favor, and was affirmed by a three-judge appeals court panel. “The many questions raised in the appeal boil down to whether Illinois public policy forbids the liability insurer from covering part of its insured’s payment to settle the federal government’s potential claims,” the ruling said.

It said it agreed with the district court that while a party may not obtain liability insurance for “genuine restitution” it owes the victim of its intentional wrongdoing, “a party may obtain insurance for compensatory damages it may owe.

“Further, in cases of ambiguity and uncertainty, Illinois favors settlements and freedom of contract, and Federal wrote its insurance policy to try to extend insurance coverage to the very limit of what Illinois law would allow in such cases,” it said.

Federal has not carried its burden of showing that the portion of the settlement payment for which Astellas seeks coverage is uninsurable restitution, it said, in affirming the lower court.

Astellas said in a statement, “We are pleased with the court’s decision.” A Chubb attorney did not respond to a request for comment.