For so many reasons, we don’t usually blog about insurance coverage issues. First, it’s not really our area of expertise. Second, because of point number 1 we tend to find the issue a little dull. Third, most tort litigators – on both sides of the v. – aren’t all that fond of insurance companies. On the defense side, it is our clients who are often pitted against insurers who deny coverage. And as our client’s advocates, from time to time we have concerns with insurance company’s micromanagement which can lead to conflicts regarding the best way to defend cases. This is certainly an over-generalization and we don’t mean to lump all insurers in the same boat. But, the disputes are what make it to the courtroom.
Disputes such as an insurer who declines to cover, under a “wrongful employment acts” policy, a qui tam False Claims Act action alleging off-label promotion. If you’re thinking we couldn’t have just plucked that example out of thin air, you are correct. It was the disputed issue in Eisai, Inc. v. Zurich American Insurance Co., 2014 U.S. Dist. LEXIS 90305 (D.N.J. Jul. 1, 2014). And, with a favorable result for the insured pharmaceutical manufacturer from a fairly significant jurisdiction, we decided to make an exception today and talk insurance.
We’ll start, as the court did, with the insurance policy. Zurich insured Eisai under an Employment Practices Liability Policy. Id. at *2. Covered under the policy were “Wrongful Employment Acts.” Id. at *3. The scope of that term is at the heart of the dispute. The court summarized the key policy language defining “wrongful employment acts” as follows:
(1) any error, misstatement, misleading statement, act, omission, neglect, or breach of duty actually or allegedly committed or attempted (2) in connection with (3) any one of nineteen employment acts, including wrongful discipline, failure to adopt adequate workplace or employment policies and procedures, illegal retaliatory treatment of employees and negligent evaluation of employees.
Id. at *23. Because Zurich contended that the qui tam action was not a covered “wrongful employment act,” the court had to examine the allegations of the qui tam suit with the terms of the policy.
The qui tam action of course alleges that Eisai violated the federal False Claims Act, as well as similar state law statutes, “by causing health care providers to submit false claims for reimbursement for off-label uses.” Id. at *16. The suit appears to have been largely based on representations by a former Eisai sales representative regarding off-label marketing of the drug at issue, including allegations such as: the sales representative did not receive training on FDA prohibitions against off-label marketing; sales representatives were provided off-label marketing materials to distribute; sales representatives were encouraged to distribute off-label medical articles; sales quotas included off-label sales; and sales representatives complained to their superiors about the pressure to achieve sales quotas which were inflated because they included a high percentage of off-label sales. Id. at *27-29.
Applying New Jersey law, the court concluded that thequi tam allegations fell squarely under the definition of “wrongful employment acts” in the Zurich policy. The court analyzed each of the three key provisions of the policy set forth above.
The parties were in agreement that the only claim in thequi tam complaint was that Eisai “allegedly caused false health care reimbursement claims to be filed.” Id. at *23. The court found that that claim met the first element of the “wrongful employment acts” definition, namely – an act or omission allegedly committed or attempted by the insured. Id. at *24. The second part of the definition – in connection with – was not defined in the policy. Under New Jersey law, however, “in connection with” has been interpreted broadly to mean “some tangential link or association that is broader than a causal relationship.” Id. Finally, the allegations of the former sales representative fall under several of the employment acts identified in the policy such as “failure to adopt adequate workplace or employment policies and procedures.” Id. at *30.
Put that all together and you have:
Thus, in the Qui Tam Action, Eisai allegedly committed the causing of false or fraudulent claims to be submitted in connection with certain acts such as "failure to adopt adequate workplace or employment policies and procedures" and "negligent evaluation of employees."
Accordingly, the Court finds that the scope of the "Wrongful Employment Act"--interpreted according to its plain and ordinary meaning--corresponds to the allegations in the operative complaint of the Qui Tam Action. Thus, Zurich has a duty to defend.. . .
Id. (citations omitted).
In reaching this conclusion, the court considered and rejected as inconsistent with the policy language, Zurich’s argument that the allegations of the former sales representative “merely provide color and background information . . . and do not point to a theory of recovery.” Id. at 31. Zurich urged that to be covered the claim itself must be for one of the employment acts enumerated in the third section of the definition of (i.e. a claim by an employee for illegal retaliatory treatment). But that interpretation omits the first two sections of the definition which provide that a covered claim includes an act or omission in connection with one of those identified employment acts – such as the alleged causing of false claims to be filed related to inadequate workplace policies. Id. at *32-33.
Zurich’s final argument was that to be covered, the employee (former sales representative) must be a “real party in interest” and that in the qui tam action the plaintiff was the government and the sales representative was only the relator. Id.at 33. The court was unpersuaded. First, there is nothing in the policy that links the duty to defend to who the real party in interest is. Id. at *34. Moreover, what the policy does state is that the insurer will pay for claims made “by or on behalf of a past, present or prospective Employee.” Id. And, since the False Claims Act allows a private individual to prosecute FCA actions, the qui tam suit was brought by and on behalf of both the sales representative and the United States. Therefore, the fact that the claim was brought as a qui tam action did not abrogate Zurich’s duty to defend under the policy.
Now of course, based on our defense bias we view the underlying qui tam action with much cynicism. But the merits of that suit were not at issue here and we're sure Eisai will put up a vigorous defense. The good news is that Eisai won’t be standing alone.