On December 2, 2016, a Texas federal court ruled that the insurer for the predecessor of CVS Caremark Corp., Revco D.S. Inc. (Revco), must pay $15 million toward a $100 million settlement of a class action lawsuit for the injuries and deaths allegedly caused by a toxic vitamin solution, E-Ferol. Pursuant to the settlement, the plaintiffs received an assignment of Revco’s rights to pursue indemnity insurance coverage from the company’s excess insurer, Federal Insurance Co. (Federal). The Court granted, in part, the plaintiffs’ motion for summary judgment seeking indemnity, by declaring that Revco’s excess insurance policy covered the negligence claims based on its manufacturing and distributing of E-Ferol.
In 2003, the plaintiffs filed a class-action lawsuit claiming that E-Ferol killed or permanently injured children from November 1983 through April 1984. The plaintiffs sued, among others, Revco and its wholly owned subsidiary, Carter-Glogau Laboratories Inc. (now Retrac), alleging negligence. From June 1983 through June 1984, Revco was insured under an excess policy issued by Federal. Carter-Glogau was an additional insured.
In October 2009, the plaintiffs reached a $100 million settlement with Retrac and sought coverage from its excess insurance insurers. Revco and Retrac assigned to the plaintiffs their right to coverage from Federal.
Federal denied that it had a duty to indemnify Revco, arguing that the plaintiffs’ release of their claims through the terms of the settlement effectively negated any liability that could rise to coverage. The Court disagreed, ruling that the settlement only released plaintiffs’ claims against Revco’s successor, CVS. Thus, the plaintiffs were still entitled to seek indemnity under Revco’s insurance policies, including the excess policies triggered by Revco’s alleged negligence. Consequently, the Court granted summary judgment on the plaintiffs’ claim for the excess policy’s $15 million limit, plus interest. The Court declined, however, to grant the plaintiffs’ bid for attorneys’ fees, which were not appropriate under the applicable law.
This decision illustrates how the terms of settlement can have a potentially significant impact on the availability of insurance coverage. For example, a settlement may result in the dismissal of claims against one party, which could then inadvertently negate potential liability and thereby remove the predicate basis for any insurance coverage. Here, if the parties’ settlement eliminated liability for both CVS and Revco, then there could be no indemnity coverage under the excess policy because the predicate grounds for coverage – the negligence claims – would have been eliminated. The case is Klein v. Federal Ins. Co., No. 7:03-CV-102-D (N.D. Tex. Dec. 2, 2016).