Arbitration: Merck's insurers send Vioxx coverage to early ADR (Web)
March 17, 2005
In a March 11 Securities and Exchange Commission filing, Whitehouse Station, N.J.-based Merck & Co. revealed that its excess insurers have demanded arbitration over coverage for litigation over Vioxx, an anti-inflammatory medicine that the pharmaceutical giant voluntarily pulled from worldwide drug markets last fall.
The insurers are balking at coverage in the wake of potentially massive litigation in the wake of the company’s Sept. 30, 2004, sales halt. The arbitration demand is over excess coverage, but Merck’s filing warns that it expects similar disputes over other policies.
In its recent 10-K SEC filing, the company says that there have been “numerous” Vioxx-related product liability suits and “putative class actions” have been filed in state and federal courts. There also are securities and Employee Retirement Income Security Act suits, shareholder derivative suits against officers and directors, and actions overseas.
Merck says it is being investigated by the SEC, the U.S. Justice Department, Congress, and a Munich, Germany, district attorney’s office. The company disclosed that as of Jan. 31, 850 suits representing more than 2400 “plaintiff groups” had been filed for injuries due to the drug, as well as 90 class actions.
The company is making the disclosure because of the matter’s potential material adverse effect on its earnings. “The Company has stated that it is reasonably possible that its insurance coverage will not be adequate to cover its defensive costs and any losses,” Merck says in the filing.
The drug company says that its “upper level excess insurers,” which provide “excess insurance potentially applicable to all of the Vioxx” suits, had filed for arbitration. The 10-K disclosure says that the insurers want to cancel the policies, and “to void all of their obligations under those policies. . . .”
Merck adds that the arbitration notice “also purports to reserve the right of the insurers to raise other coverage defenses, including with respect to the application of exclusions, the definition of loss, compliance with policy conditions, exhaustion of applicable underlying and upper coverage limits, and satisfactory proof of loss.”
The company expects that this arbitration is just the beginning of coverage disputes. The filing continues: “As most of those insurers also issued lower level excess policies to Merck, it is likely that such insurers will also dispute their obligation to provide coverage under other policies. Merck intends to contest vigorously the insurers’ claims and will attempt to enforce its rights under applicable insurance policies.”
Merck did not disclose the current procedural posture of the arbitration. It says that one or more of the product liability suits could go to trial in 2005’s first half. Merck noted that it has set aside $675 million for Vioxx litigation.
The filing says that its coverage amounts include product liability insurance of up to about $630 million after deductibles and co-insurance. The insurance, according to Merck, provides coverage for legal defense costs and potential damage amounts related to the product liability suits, including, in the company’s view, future product liability filings.
Merck also says “it has at least approximately $190 million of Directors’ and Officers’ insurance coverage” for the Vioxx securities and derivative suits, as well as “fiduciary and other insurance . . . with stated upper limits of $275 million” for the Erisa suits.
The arbitration demand applies to the additional, upper level excess policies that cover a variety of risks.
Vioxx was approved for use against arthritis and pain by the U.S. Food and Drug Administration in 1999. It suspended sales last fall after a study indicated that use for more than 18 months increases patients’ risks for heart attacks and strokes. In November 2004, an FDA official testified about Vioxx studies and concerns about the drugs before a Senate committee. Last month, two FDA committees, on arthritis and drug safety, held a join meeting to discuss Vioxx risks and benefits, and narrowly voted to support continued U.S. marketing of the withdrawn drug.
Merck has posted a Vioxx information page at
www.merck.com/newsroom/vioxx_withdrawal . The FDA has posted an information page at www.fda.gov/cder/drug/infopage/vioxx/default.htm.