Purdue Pharma bankruptcy judge suspends insurance lawsuit in favor of arbitration

A pharmacist holds a bottle of OxyContin made by Purdue Pharma at a pharmacy in Provo, Utah. REUTERS / George Frey

  • Judge says policies are not ‘fundamental’ to opioid settlement
  • Purdue Says Insurance Policies Make Over $ 3.3 Billion
  • Insurers say claimants will get paid anyway

(Reuters) – A group of insurers has convinced the judge overseeing the bankruptcy of Purdue Pharma LP to end disputes over the scope of the manufacturer’s OxyContin insurance policies so that the case can instead be referred to the arbitration.

U.S. bankruptcy judge Robert Drain in White Plains, New York, said he would stay the case in a virtual hearing on Monday. He determined that the company’s insurance coverage is not essential to his proposal reorganization which includes a regulation which resolves numerous lawsuits accusing it of fueling the national opioid crisis through deceptive marketing.

“The insurance dispute here, while clearly important, in the context of these Chapter 11 cases, is not so fundamentally important as to warrant its centralization in the court presiding over bankruptcy cases,” said Drain.

Insurers include AIG Specialty Insurance Co, represented by Willkie Farr & Gallagher, and Liberty Mutual Insurance Europe SE, represented by Abrams Gorelick Friedman & Jacobson. Arbitration, which can begin now, is unlikely to end until well after Purdue’s bankruptcy ends.

Purdue, represented in the bankruptcy by Davis Polk & Wardwell and in the insurance lawsuit by Reed Smith, argued that the arbitration would interfere with his efforts to move forward with the proposed settlement because the insurance policies are a key asset of the company. A Purdue spokesperson made no comment.

Purdue sued several insurers in January to obtain a declaratory judgment finding that he is entitled to coverage for opioid-related claims. The lawsuit was filed in connection with the bankruptcy case more than a year after the Chapter 11 proceedings began. The insurers moved to stay the trial, citing arbitration clauses in their respective contracts in April.

Purdue, who was joined in his attempt to keep the insurance lawsuit alive by his committee of unsecured creditors and an ad hoc group of states that support his settlement, said the 113 insurance policies at issue offer coverage of over $ 3.3 billion. The company said the timing and allocation of payments to opioid claimants would be affected by the outcome of the insurance dispute.

But in its Monday ruling, Drain felt the arbitration is appropriate in part because the currently proposed reorganization plan is not really contingent on Purdue’s ability to access insurance products. If the court ultimately approves the plan, bodily injury claimants will receive $ 300 million on the day the plan goes into effect, followed by an additional $ 400 million over the next several years, regardless of the outcome of the plan. insurance litigation.

“Insurance collection isn’t even mentioned as a risk factor,” Willkie’s Mitchell Auslander said during Monday’s hearing in documents related to the Purdue plan.

The plan incorporates a proposed settlement that the company says is worth more than $ 10 billion to resolve lawsuits filed by states, local governments and individuals that led to its bankruptcy. As part of this framework, trusts will be set up to distribute funds to support opioid reduction programs across the country. Members of the Sackler family who own the business said they would contribute $ 4.275 billion in return for protection from opioid litigation.

The colony is supported by dozens of states as well as a large number of municipalities, local government entities, Native American tribes, and hospitals, among others. Critics of the deal, which include about 24 U.S. states, believe members of the Sackler family should pay more.

Purdue recently obtained approval from Drain for start soliciting votes for his proposed plan. A hearing on the plan itself is scheduled for August 9 and could last several days.

The case is In re Purdue Pharma LP, US Bankruptcy Court, Southern District of New York, No. 19-bk-23649.

For Purdue: Marshall Huebner, Benjamin Kaminetzky, Timothy Graulich, Eli Vonnegut and James McClammy of Davis Polk & Wardwell; and Paul Breene, Ann Kramer, Anthony Crawford and Lisa Szymanski of Reed Smith

For AIG: Mitchell Auslander of Willkie Farr & Gallagher

For Liberty Mutual: Michael Gorelick and Thomas Maeglin d’Abrams, Gorelick, Friedman & Jacobson

Read more:

Purdue Pharma Prepares Voting Process For Proposed Restructuring Agreement

Purdue Pharma to Use Public Trusts and Sackler’s Money to Settle Opioid Litigation

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