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Merck Insurance Carriers Jump Ship Over Vioxx Disaster

By       Message Evelyn Pringle       (Page 1 of 4 pages)     Permalink

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According to Merck's August 7, 2006, SEC filing, "At this time, the Company believes that its insurance coverage with respect to the Vioxx Lawsuits will not be adequate to cover its defense costs and any losses."

In addition, Merck says it has not established any reserves for potential liability relating to the Vioxx lawsuits or investigations, including for those cases in which a verdict has been entered against the company, and are now in post-verdict proceedings or on appeal.

According to the filing, Merck has product liability insurance for claims brought in the Vioxx Product Liability Lawsuits with upper limits of about $630 million after deductibles and co-insurance. This insurance provides coverage for legal defense costs and potential damage amounts that have been or will be incurred in connection with the Vioxx Product Liability Lawsuits.

The company says it has Directors and Officers insurance coverage applicable to the Vioxx Securities Lawsuits and Vioxx Derivative Lawsuits with stated upper limits of about $190 million and fiduciary and other insurance for the Vioxx ERISA Lawsuits with stated upper limits of approximately $275 million.

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However, the filing states, the amounts actually recovered under the policies may be less than the amounts specified. It seem there are now disputes with certain insurers about the availability of some or all of this coverage and there are likely to be more disputes, according to Merck.

In fact, the company's upper level excess insurers, which provide excess insurance potentially applicable to all Vioxx lawsuits, have commenced an arbitration seeking to cancel those policies, to void all obligations under those policies, and to raise other coverage issues with respect to Vioxx lawsuits.

But not to worry. "Merck intends to contest vigorously the insurers' claims and will attempt to enforce its rights under applicable insurance policies," the filings says.

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For its part, as of December 31, 2004, Merck had established a reserve of $675 million solely for its future legal defense costs related to Vioxx. During 2005, according to the SEC filing, the company spent $285 million in legal defense costs related to Vioxx (i) Product Liability Lawsuits, (ii) Shareholder Lawsuits, (iii) Foreign Lawsuits, and (iv) Investigations.

In the fourth quarter of 2005, Merck recorded a charge of $295 million to increase the reserve for Vioxx legal defense costs to $685 million at December 31, 2005.

"Unfavorable outcomes in the Vioxx Litigation," the SEC filing concludes, "could have a material adverse effect on the Company's financial position, liquidity and results of operations."

Being insurers are fighting against payment of damages before even one case is settled, it does not take a financial genius to figure out that Merck is in for big trouble.

According to the SEC filing, as of June 30, 2006, Merck has been served or is aware that it has been named as a defendant in approximately 14,200 lawsuits, which include approximately 27,100 plaintiff groups, alleging personal injuries resulting from the use of Vioxx .

Of these cases, Merck says, approximately 5,700 lawsuits representing approximately 16,100 plaintiff groups are or are slated to be in the federal Multidistrict Litigation (MDL), and approximately 7,100 lawsuit representing approximately 7,100 plaintiff groups are included in a coordinated proceeding in New Jersey Superior Court before Judge Carol Higbee.

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These lawsuits include allegations related to cardiovascular events, thrombotic events, gastrointestinal bleeding or kidney damage.

Merck has also been named as a defendant in close to 200 putative class actions alleging personal injuries or seeking (1) medical monitoring due to class members' use of Vioxx , (2) disgorgement of profits under unjust enrichment theories, and (3) remedies under state consumer fraud and fair business practice statutes, including recovery for the cost of Vioxx purchased by individuals and third-party payors such as union health plans.

The lawsuits filed in the state courts of New Jersey, California, Texas, and Pennsylvania, have all been transferred to a single judge in each state for coordinated proceedings.

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Evelyn Pringle is a columnist for OpEd News and investigative journalist focused on exposing corruption in government and corporate America.

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