Chattem Inc. Notes Motion to Intervene in Lawsuit Filed by Interstate Fire & Casualty Co.

November 28, 2003

Chattem, Inc., a marketer and manufacturer of branded consumer products, announced that Interstate Fire & Casualty Company (“Interstate”) has filed a motion to intervene as a party plaintiff in the previously disclosed lawsuit filed by Kemper Indemnity Insurance Company (“Kemper”) in the United States District Court for the Eastern District of Tennessee.

Like Kemper, Interstate reportedly seeks to rescind its excess product liability insurance policy issued to the company by Interstate (the “Interstate Policy”). The Interstate Policy provides the company with $25 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 Interstate Policy is in excess of $73.5 million of product liability insurance coverage that is available to the company from Kemper and two other insurance companies. In its lawsuit, Kemper reportedly seeks to rescind its policy for $50 million of excess coverage for product liability claims. Coverage under the Kemper policy is in excess of $23.5 million of product liability coverage available from two other insurance companies.

The company has reached agreements with the two insurance companies providing the first $23.5 million of product liability coverage that ensures the substantial portion of the coverage under their policies will be available. Chattem continues to seek a global settlement of PPA claims and reportedly does not believe the Interstate action will materially affect those efforts.

In the lawsuit, Interstate is seeking to rescind the Interstate Policy based on allegations that the company failed to disclose the preliminary results of the Yale Study during the submission process to renew the Interstate Policy for coverage for the Dec. 21, 1999 to May 31, 2001 policy period.

In the alternative, Interstate is seeking a declaratory judgment on certain policy interpretation issues that if granted would bar or limit coverage for PPA-related claims under the Interstate Policy. These claims by Interstate are similar to those previously asserted by Kemper.

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

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