Sunday, 26 May 2019

Insurance Coverage on National Opioid Lawsuits – The National Law Review

In a barrage of nationwide litigation, hundreds of lawsuits have been filed by states, counties and cities against pharmaceutical manufacturers and wholesale distributors seeking to recover costs allegedly incurred in responding to the opioid epidemic, estimated to impose $55 billion in health and related societal costs and $20 billion in emergency and inpatient costs in the United States each year. If history is any guide, as the number of lawsuits continues to grow, the field of actual and potential defendants likely will grow as well. As defendants mount a vigorous defense to these lawsuits, they must be conscious of how expensive a defense can be, regardless of whether the claims have merit.

These lawsuits target the perceived deep pockets, such as the pharmaceutical manufacturers and wholesale distributors, for allegedly causing opioid abuse by supplying opioids to the affected areas.

The plaintiffs typically seek recovery of a variety of costs expended in connection with opioid abuse, including costs associated with treatment of opioid addiction and overdose, increased law enforcement and medical personnel and higher demands on hospitals and jails.

Going forward, manufacturers, distributors and other potential defendants must consider whether and how their liability insurance will respond to this rapidly growing litigation risk. Looking back, they must examine their historical insurance policies to find coverage. Thus far, they have primarily looked to their commercial general liability (CGL) policies, but other policies may be triggered as well, including directors’ and officers’ liability policies and professional errors and omissions policies.

Triggering CGL Policies

There already has been fairly significant coverage litigation arising from the opioid lawsuits, and insurers have quickly mounted standard lines of attack seeking to avoid coverage. For example, insurers have argued that these lawsuits are not covered by the CGL’s insuring agreement promising to cover “all sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage” caused by an “occurrence.” As discussed below, insurers have argued that certain claims alleged in the underlying opioid lawsuits do not arise from bodily injury, and also that they do not involve an “occurrence.” CGL policies require insurers to defend their insureds for the entire lawsuit if any of the underlying allegations or claims against the insured are even potentially within the scope of coverage. Thus, if an opioid lawsuit includes any allegation that even potentially falls within the scope of coverage, the insurer has a duty to defend the entire lawsuit. 


The term “occurrence” is typically defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Insurers have argued that the opioid lawsuits allege intentional, not “accidental,” conduct because manufacturers and distributors By Andrea Warren and Christian Jones intended to sell the pharmaceuticals at issue. Insurers also have made this intentional acts argument when invoking the exclusion typically found in CGL policies for “expected and intended” conduct.

Courts have largely rejected the insurers’ “occurrence” argument, recognizing that these lawsuits allege or potentially involve negligent conduct, such as claims that a manufacturer or distributor negligently failed to monitor the volume of pharmaceuticals being shipped to a particular area. See, e.g., Cincinnati Ins. Co. v. Richie Enters. LLC, 2014 WL 838768 (W.D. Ky. Mar. 4, 2014); Liberty Mut. Fire Ins. Co. v. JM Smith Corp., 2013 WL 5372768 (D.S.C. Sept. 24, 2013), aff’d 602 Fed. Appx. 115 (4th Cir. 2015); Cincinnati Ins. Co. v. H. D. Smith Wholesale Drug Co. 2015 WL 4624734 (C.D. Ill. Aug. 3, 2015), rev’d on other grounds, 829 F.3d 771 (7th Cir. 2016).

In Richie Enterprises, for example, the court held that “allegations of negligent conduct in the complaint support a decision that the alleged prescription drug abuse epidemic is fortuitous since its creation was beyond Richie’s control.” 2014 WL 838768 at *7. The court explained that “the alleged harm is the prescription drug abuse epidemic in West Virginia, and its creation extended beyond Richie’s control. The pharmacies in West Virginia dispensed the prescription drugs to people who presented seemingly valid prescriptions. There is no allegation that Richie ‘controlled’ the pharmacies – let alone to whom the pharmacists dispensed the drugs….” Id.

Similarly, in JM Smith, the court rejected the insurer’s “occurrence” argument by distinguishing between “intentional acts” of selling or distributing products and intending to cause injury due to later abuse of that product. 2013 WL 5372768 at *6. Distributors, for example, certainly intend to distribute pharmaceutical products, but that does not mean that they intend to cause any injuries resulting from later abuse of the products. The court in JM Smith found that the “conduct of distributing prescription drugs based upon orders placed by pharmacies is not, in and of itself, illegal and the violation of laws cannot be reasonably anticipated.” Id. In affirming, the Fourth Circuit explained that “[n]o defendant, and certainly not the insured, has been accused of providing prescription drugs to any person or entity knowing it was enabling an abuser.” JM Smith, 602 Fed. Appx. at 121.

Likewise, in H.D. Smith, the court found that “[t]wo of the eight counts [in the underlying opioid lawsuit complaint] specifically assert negligence. Other counts included allegations of both negligent and intentional conduct. Given that it must liberally construe the allegations of the underlying complaint, the Court concluded that H.D. Smith alleged an ‘occurrence.’”1 2015 WL 4624734 at *5.

The few courts that have accepted insurers’ “occurrence” arguments have done so on state-specific grounds or due to specific allegations in the underlying complaint at issue. See, e.g., Travelers Prop. Cas. Co. of America v. Actavis, Inc. (2017) 16 Cal. App. 5th 1026, petition for review conditionally granted, 229 Cal. Rptr. 3d 2 (2018). In Actavis, the court held that the specific underlying lawsuits brought in California and Chicago did not allege an “occurrence” because they did not contain any allegations of negligence or raise the possibility that the insured could be liable based on a finding of negligence. The California court also reached this result because, under California law (at least at the time), if the insured intended the acts that