Kemper Indemnity Files Lawsuit Against Chattem

August 13, 2003

Chattem, Inc., a marketer and manufacturer of branded consumer products, announced that Kemper Indemnity Insurance Company (“Kemper”) has filed a lawsuit against the company in federal court in Chattanooga, Tenn., seeking to rescind the excess product liability insurance policy issued to the company by Kemper (the “Kemper Policy”).

The Kemper Policy reportedly provides the company with $50 million of excess coverage for product liability claims, including those asserted in the lawsuits currently pending and anticipated to be filed against the company relating to the existence of phenylpropanolamine (“PPA”) in DEXATRIM.

Coverage under the Kemper Policy is reportedly in excess of $23.5 million of product liability insurance coverage that is available to the company from two other insurance companies. In addition, the company has $25 million of insurance coverage from another insurance company that is in excess of the Kemper Policy.

In the lawsuit, Kemper is reportedly seeking to rescind the Kemper Policy based on allegations that the company failed to disclose the preliminary results of the Yale Study during the submission process to renew the Kemper Policy for coverage for the Dec. 21, 1999 to May 31, 2001 policy period. In the alternative, Kemper is seeking a declaratory judgment on certain policy interpretation issues that if granted would bar or limit coverage for PPA-related claims under the Kemper Policy.

The company reportedly believes that the claims made by Kemper in its lawsuit are without merit. The company said it would aggressively defend this lawsuit and will vigorously pursue its rights under the Kemper Policy and its available remedies at law against Kemper which may include, among other things, a counterclaim of bad faith against Kemper.

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