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Note 14 - Commitments and Contingent Liabilities

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

14.

Commitments and Contingent Liabilities

On April 14, 2017, representatives for the estate of an individual plaintiff filed a wrongful death complaint with the Suffolk Superior Court, in the County of Suffolk, Massachusetts (the “Court”), against the Company and other defendants, including Biostage, Inc. (f/k/a Harvard Apparatus Regenerative Technology, Inc.) (“Biostage”), a former subsidiary of the Company that was spun off in 2013, as well as another third party. The complaint seeks payment for an unspecified amount of damages and alleges that the plaintiff sustained terminal injuries allegedly caused by products, including one synthetic trachea scaffold and two bioreactors, provided by certain of the named defendants and utilized in connection with surgeries performed by third parties in Europe in 2012 and 2013.

On September 15, 2021, Biostage’s products liability insurance carrier, which insures the Company as an additional insured and which had appointed defense counsel and had been defending both Biostage and the Company on this case, notified the Company and Biostage that it was denying coverage under the applicable policy for the lawsuit and would no longer be providing a defense to the Company or Biostage with respect thereto, or covering related legal expenses incurred after September 30, 2021. The insurance carrier also filed a corresponding complaint for declaratory judgment with the Court asking the Court to declare that said insurance provider is not required to defend, indemnify or provide coverage to the Company or Biostage with respect to the lawsuit.

On January 24, 2022, the Superior Court, Suffolk County, granted the Company’s and Biostage’s jointly filed motion for a preliminary injunction against the insurance carrier requiring that it continue to pay legal expenses incurred by Biostage and the Company in connection with the underlying lawsuit during the pendency of the insurance coverage lawsuit, as well as awarding reasonable attorneys’ fees and costs incurred by the parties in connection with seeking the preliminary injunction. The insurance carrier has filed a notice of appeal of the preliminary injunction.

The Company continues to believe that the insurance carrier’s grounds for denying coverage are without merit, and intends to vigorously defend against this complaint for declaratory judgment and the insurance carrier’s denial of the claim and related matters in order to, among other things, restore the Company’s rights to seek insurance coverage for any damages awarded in the lawsuit. However, notwithstanding the preliminary injunction, there can be no assurance that the Company and Biostage will prevail in the insurance coverage litigation. As such, other than what has been ordered in the preliminary injunction, it is unclear at this point the full extent to which the Company’s liability insurance coverage will reimburse the Company for all or any portion of any defense costs or damages incurred in connection with the underlying case.

Additionally, while there can be no assurance of prevailing, the Company intends to defend the plaintiff’s claims against the Company in the underlying case vigorously. A trial date has been set for October 2022 and the parties are currently preparing for trial. If the Company loses on the merits and a jury awards damages, the Company does not know the exact amount of compensatory and, potentially, punitive damages that could be awarded, but the amounts could be substantial. Further, while Biostage has agreed to indemnify the Company for claims and losses relating to certain liabilities that it has assumed from the Company, including liabilities in connection with the sale of Biostage’s products and other liabilities related to the operation of Biostage’s business, the Company cannot be assured that Biostage will have the ability to indemnify the Company against the liabilities the Company may incur in this lawsuit, in particular due to Biostage’s overall financial condition. If Biostage is unable to satisfy its obligations under its indemnity to the Company and if the insurance carrier does not fund the defense of the case, the Company may have to fund the entire defense of the case and satisfy the liabilities in this lawsuit, which could have an adverse impact on the Company’s financial condition or cash flows.

The Company is involved in various other claims and legal proceedings arising in the ordinary course of business. After consultation with legal counsel, the Company has determined that the ultimate disposition of such proceedings is not likely to have a material adverse effect on its business, financial condition, results of operations or cash flows. Although unfavorable outcomes in the proceedings are possible, the Company has not accrued for loss contingencies relating to any such matters as they are not considered to be probable and reasonably estimable. If one or more of these matters are resolved in a manner adverse to the Company, the impact on the Company’s business, financial condition, results of operations and cash flows could be material.