A Delaware Superior Court has delivered a partial win for Medtronic Sofamor Danek USA, Inc. in a contract dispute over insurance and indemnity obligations tied to over 100 lawsuits stemming from a recalled biologic product. But the court also left the door open for further litigation—keeping Medtronic in the hot seat over whether it must contribute to defense and settlement costs already paid by its former supplier’s insurer.
The case, Elutia Inc. v. Medtronic Sofamor Danek USA, Inc., stems from a January 24, 2019, Tissue Product Supply Agreement. Under the contract, Elutia agreed to supply FiberCel, a bone matrix product, to Medtronic for distribution. In June 2021, a single lot of the product was recalled after allegations that it caused patients to contract tuberculosis. Of the 154 units recalled, Medtronic had distributed 136, which were implanted in 113 patients. Beginning in September 2021, more than 100 lawsuits followed, naming both companies as defendants in many of the cases.
Elutia’s insurers have spent over $17 million defending and settling the FiberCel lawsuits on behalf of both Elutia and Medtronic. As insurance coverage neared exhaustion, Elutia requested that Medtronic contribute to the ongoing legal costs and commit to future indemnity. When Medtronic declined, Elutia filed suit on June 7, 2024, in the Delaware Superior Court.
At issue were two key provisions in the supply agreement. Section 5.3 required both parties to maintain commercial general liability insurance of $1 million per claim and $5 million in the aggregate, and to provide a certificate of insurance before the first product shipment. Elutia complied with this requirement, but Medtronic chose to self-insure and did not provide the required certificate. The court dismissed Elutia’s claim on this issue, finding it time-barred under Delaware’s three-year statute of limitations. The court held that the obligation arose when the contract took effect in January 2019 and that the parties’ tolling agreement, executed in January 2024, came too late.
However, Elutia’s claims under Section 2.10—the agreement’s indemnity clause—were allowed to proceed. That clause required Medtronic to defend Elutia in certain third-party suits and to indemnify Elutia for losses arising from Medtronic’s material breach of its contractual representations, provided the losses weren’t caused by Elutia’s own breach or gross negligence. The court found that the complaint sufficiently alleged Medtronic’s conduct may have breached such representations and that the defense and loss provisions remained viable, even in the absence of a final court judgment. Claims under the provision requiring indemnity following a “final judgment” were dismissed without prejudice, as none of the FiberCel lawsuits had reached that stage.
The court also declined to accept Medtronic’s argument that public policy barred indemnification. It pointed to contract language that explicitly limited indemnity where Elutia itself was at fault—meaning the agreement had already accounted for that concern.
For insurers and risk professionals, the decision illustrates the real-world impact of indemnity and insurance clauses in supplier agreements. It also highlights how courts may distinguish between contractual duties to insure, which can expire under statute of limitations rules, and ongoing indemnification obligations, especially where settlements and joint defense efforts are involved.
