Insurers Say Da Vinci Surgical Robot Maker Hid Liability Claims

It’s health insurers’ cardinal rule: disclose pre-existing conditions.

Now comes a case in which that familiar decree involves not a patient, but rather a $1.5 million surgical robot known as the da Vinci system.

Two insurance companies say da Vinci’s maker,  Intuitive Surgical Inc., failed to reveal more than 700 injury claims when it applied for liability coverage. Intuitive says that’s nonsense.

If a federal judge concludes the insurers are right and rescinds policies providing $25 million in coverage, one of the fastest-growing medical device manufacturers would be left with only self-insurance for a one-year period. Intuitive, meanwhile, accuses Illinois Union Insurance Co. and Navigators Specialty Insurance Co. of acting deceitfully and breaking their contracts.

Intuitive’s profits have been on the rise since surviving scrutiny by regulators over its disclosures. Sales have rebounded since a 2013 slump when regulators queried surgeons about an increase in adverse event reports and the Food and Drug Administration warned about the company’s transparency on product corrections. U.S. hospitals used Intuitive’s robot-assisted surgery in 176,000 operations during the first three months of this year, a 17 percent increase from the same period a year earlier.

Still, even as Intuitive shares have risen 18 percent this year while Chief Executive Officer Gary Guthart pushes to expand the da Vinci’s international sales, the company is dogged by patients blaming surgery complications on its devices. The company said in 2014 there were about 3,000 claims, many of which it says have been settled.

Patient Lawsuits

Intuitive is fighting about 86 lawsuits in 22 states after setting aside about $100 million to resolve an unspecified number of claims from 2014 through early this year without admitting wrongdoing, it said in an April regulatory filing. Many of the patient lawsuits against it are in the early stages, according to the filing.

Intuitive robots help perform hysterectomies, gall bladder removals, prostate cancer treatment and many other soft tissue operations.

In the insurance dispute, Illinois Union says Intuitive’s disclosure of just 24 claims and failure to reveal 734 others when it applied for coverage in 2013 “is a massive concealment of claims from an insurer, potentially the most egregious in history.”

The insurer said that if it had known Intuitive had entered into hundreds of so-called tolling agreements with patients’ lawyers to suspend litigation deadlines during settlement negotiations, it would have withdrawn its offer for the liability coverage.

Court fights have become increasingly common in recent years when insurers seek to void coverage, through a process called rescission, over alleged misconduct by corporate policyholders, said Jim Murray, an insurance lawyer at Blank Rome LLP in Washington. The lawsuits turn often on allegations that crucial information about legal risks was withheld from the insurers.

“I could take any applications for any Fortune 500 company and will find something that’s wrong with it; that’s just the nature of the beast,” Murray said in a phone interview. “Most companies answer the questions they’re asked. That’s it.”

Illinois Union and Navigators are set to ask U.S. District Judge Jon Tigar in San Francisco Thursday to rule in their favor on the rescission request without a trial.

‘Substantial Risk’

Intuitive contends it be would premature to rescind its 2013 policy because there are too many factual issues in dispute. It says there’s evidence the insurers knew of the tolling agreements before issuing their policies, and took the “substantial risk” of going ahead anyway because they wanted Intuitive’s business.

The device maker also argues that the policy application asked only about incidents “likely to result in a claim.” Intuitive says the tolling agreements didn’t fit that definition because they involved only “potential claims.”

Intuitive’s spokesman and its lawyers declined to comment on the insurance fight and litigation with patients. Representatives of Navigators, a unit of Navigators Group Inc., and Illinois Union, a unit of Pacific Employers Insurance Co., didn’t respond to requests for comment.

The company countersued both insurers in October after they refused to cover losses related to da Vinci claims. Intuitive seeks a court order forcing Illinois Union to provide coverage for 860 claims and Navigators to handle 111 claims. The insurers deny Intuitive’s allegations, though Tigar last month rejected their request for dismissal for most of the counterclaims.

Illinois Union provided Intuitive with $15 million in coverage, subject to a limit of $5 million per occurrence, after the company spends $5 million, while Navigators issued a policy for $10 million in excess product liability coverage, according to the judge’s summary of the coverage in a court filing.

The case is Illinois Union Insurance v. Intuitive Surgical, 13-cv-04863, U.S. District Court, Northern District of California (San Francisco).