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Intuitive Surgical Insurer Alleges Legal Claims Hidden

Nov. 1 (Bloomberg) -- Intuitive Surgical Inc., the maker of robotic-surgery devices targeted by patient lawsuits, was sued by an insurer alleging the company hid the number of legal claims it might face when buying product-liability insurance.

Illinois Union Insurance Co. seeks to rescind an Intuitive insurance policy, saying the maker of the $1.5 million da Vinci robot system concealed material facts about its legal risks.

The insurer said it was told Intuitive was confronting 25 claims during the policy application process earlier this year. Intuitive didn’t disclose that it had entered into agreements with plaintiffs’ lawyers to suspend deadlines for additional legal claims over the da Vinci system, according to an Oct. 21 complaint filed in federal court in San Jose, California.

“Had plaintiff been informed of the tolling agreements and the increasing number of claimants during the application process, plaintiff would not have proceeded with the application process and would have withdrawn any quote for the policy,” Illinois Union said in the complaint.

Intuitive is facing scrutiny over the marketing, cost effectiveness and safety of its robotic devices. Bloomberg News reported in February U.S. regulators were surveying surgeons about the robots after a rise in patient adverse-event reports. In July, Intuitive received a warning letter from the Food and Drug Administration after an inspection found the company hadn’t adequately reported product corrections or such events.

Tolling Agreements

A tolling agreement allows a claimant extra time to pursue legal action under the statute of limitations, a law limiting the time in which a suit can be filed, should settlement negotiations fail.

The existence of the agreements “has been repeatedly disclosed” in Intuitive’s Securities and Exchange Commission filings, Angela Wonson, a spokeswoman for the company, said in an e-mail. The Illinois Union policy provides $15 million in coverage after Intuitive spends $5 million, according to the complaint.

In an Oct. 18 regulatory filing, the Sunnyvale, California-based company said it’s fighting about 50 product-liability lawsuits brought by patients who allege injures linked to robotic surgery.

U.S. hospitals used robot-assisted surgery in more than 350,000 operations last year. The robots help perform hysterectomies, gall bladder removals, prostate cancer treatment and many other soft tissue operations.

Robotic Operations

Robotic operations haven’t been proven in randomized trial to offer significant health benefits compared with standard, less-invasive surgery and multiple studies show they can cost thousands of dollars more. The growth of the procedures has been fueled by heavy marketing from doctors, hospitals and the company.

In the regulatory filing, Intuitive said it has seen “a substantial increase” in claims from attorneys alleging patient injuries linked to robotic surgery and “has entered into tolling agreements with certain plaintiffs’ counsel acting on behalf of such claimants.”

Intuitive’s third-quarter profit declined on lower sales. Net income in the quarter decreased to $156.8 million, or $3.99 a share, from $183.3 million, or $4.46, a year earlier, the company said Oct. 17. Sales decreased 7.2 percent to $499 million, missing the average of $525.9 million of 18 analysts’ estimates compiled by Bloomberg.

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

To contact the reporters on this story: Karen Gullo in federal court in San Francisco at kgullo@bloomberg.net; Robert Langreth in New York at rlangreth@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Reg Gale at rgale5@bloomberg.net

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