A recent ruling from the Delaware Superior Court has provided some clarity in a legal battle involving Medtronic Sofamor Danek USA, Inc. The case centers around a contract dispute related to over 100 lawsuits that arose from a recalled biologic product. While the court granted Medtronic a partial victory, it also left unresolved issues that may require further legal proceedings.
The case, titled Elutia Inc. v. Medtronic Sofamor Danek USA, Inc., originated from a supply agreement signed on January 24, 2019. Under this agreement, Elutia was to supply a bone matrix product called FiberCel to Medtronic. In June 2021, a recall was issued for a specific lot of FiberCel after concerns emerged that it could cause tuberculosis in patients. Of the 154 units recalled, Medtronic had distributed 136, which were implanted in 113 patients. This led to a wave of lawsuits starting in September 2021, with both Elutia and Medtronic named as defendants.
Elutia’s insurers have already spent over $17 million on legal defense and settlements related to these lawsuits. As the insurance coverage began to dwindle, Elutia sought Medtronic’s assistance in covering ongoing legal costs. When Medtronic refused, Elutia took legal action on June 7, 2024.
The court examined two main sections of the supply agreement. The first, Section 5.3, required both parties to maintain specific insurance coverage and to provide proof of that insurance before shipping products. Elutia complied, but Medtronic opted to self-insure and did not provide the necessary documentation. The court dismissed Elutia’s claim regarding this issue, stating it was too late to pursue since the statute of limitations had expired.
However, the court allowed Elutia’s claims related to Section 2.10, which includes an indemnity clause. This clause requires Medtronic to defend Elutia in certain lawsuits and to cover losses stemming from Medtronic’s breach of contract. The court found that there was enough evidence to suggest Medtronic might have breached its contractual obligations, allowing these claims to proceed.
Additionally, the court rejected Medtronic’s argument that public policy should prevent indemnification, noting that the contract already addressed concerns about Elutia’s potential fault.
This ruling serves as a reminder of the importance of indemnity and insurance provisions in supplier agreements. It highlights how courts can differentiate between insurance obligations, which may have time limits, and ongoing indemnity responsibilities, especially in cases involving joint defense strategies. As the legal landscape evolves, both insurers and risk professionals will be closely watching how this case unfolds.