Astellas presented the question of whether a False Claims Act investigation and settlement were insurable under Illinois law. The Department of Justice alleged that Astellas, a pharmaceutical manufacturer, had made improper donations to various charitable patient assistance programs causing false Medicare claims to be submitted to the federal government in violation of the False Claims Act and federal Anti-Kickback Statute.
Astellas settled those claims for a payment of $100 million, plus interest, to the United States. The settlement labeled $50 million of that total as “restitution to the United States,” consistent with the Department of Justice’s standard form False Claims Act release. That label – “restitution to the United States” – is designed to satisfy the requirements for tax deductibility under the Tax Cuts and Jobs Act of 2017. That statute provides that amounts paid in settlement to the government are only tax deductible if the payment is “identified as restitution or as an amount paid to come into compliance with such law” in the settlement agreement.
Astellas demanded that its excess insurer, Federal Insurance Company (a Chubb company), provide its $10 million coverage limits to reimburse Astellas for that $50 million payment. Federal denied coverage, and the litigation ensued.
At summary judgment, Federal attempted to avoid liability by arguing the settlement was uninsurable disgorgement of an ill-gotten gain, under the Seventh Circuit’s decision in Level 3 Commc’ns, Inc. v. Fed. Ins. Co., 272 F.3d 908 (7th Cir. 2001). In support, Federal relied primarily on the label “restitution to the United States” in the settlement agreement and cases describing False Claims Act damages as “restitution to the government of money taken from it by fraud.” After a thoughtful and lengthy examination of the issues raised, the court granted Astellas’ motion, holding “the Settlement Payment constitutes a Loss under the Federal Policy, and public policy does not bar coverage.”