Two pharmacy chains involved in multidistrict litigation are suing 500 physicians alleging that doctors and not pharmacists are to blame for faulty prescriptions. (Photo: Shutterstock)
Claims stemming from the manufacture, sale, distribution, and prescription of opioid products continue to proliferate, fueling opioid liability as a historic mass tort. Claims asserted in lawsuits brought by state and local governments include allegations of negligence, fraudulent misrepresentation, violation of consumer protection statutes, public nuisance, unjust enrichment, antitrust violations, and claims for medical monitoring and injunctive relief, among others.
In December 2017, the U.S. Judicial Panel on Multidistrict Litigation ordered the consolidation of approximately 200 then-pending opioid-related cases into multidistrict litigation before the U.S. District Court for the Northern District of Ohio, styled In Re: National Prescription Opiate Litigation (MDL No. 2804) (the "MDL").
It was recently reported that two pharmacy chains involved in the opioid MDL are suing 500 physicians, alleging it is the doctors, not the pharmacists, who are to blame for faulty prescriptions. At the end of February, the judge handling the MDL allowed claims against opioid companies by union benefit plans to proceed, concluding that the plans' claims of harm differed from the injuries to health and safety suffered by the public at large.
Regardless of fault or the type of claim brought, the cost of defending and resolving these lawsuits is enormous, so it is no surprise that many defendants have looked to insurance to cover the cost of defense and ultimate liability. Commercial general liability ("CGL") insurance, which developed in the first half of the 20th century specifically as protection against expanding concepts of product liability, is a logical first choice for policyholders. But other types of insurance may also afford coverage to manufacturers, distributors, retailers and other companies in the opioid "supply chain."
CGL coverage
Insurers have raised many arguments against policyholders' claims for coverage of opioid suits under their CGL insurance policies. For example, insurers have contested whether the opioid lawsuits allege "bodily injury," and whether that bodily injury has been caused by an "occurrence." CGL policies generally define "bodily injury" as "injury, sickness or disease sustained by a person, including death resulting from any of these at any time," and "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Insurers have argued that coverage does not apply because the loss presented by these claims is a "mere economic loss," not one for bodily injury and that the conduct causing the loss is not "accidental" and thus does not qualify as an "occurrence." The growing body of case law in this area should be encouraging for policyholders.
In Cincinnati Insurance Co. v. H.D. Smith, the Seventh Circuit held that the State of West Virginia's opioid lawsuit against distributor H.D. Smith triggered its insurer's duty to defend. The court found that, although the suit sought damages for economic harm, the claim was nevertheless a result of "bodily injury" implicating the policy. The court compared the West Virginia opioid lawsuit to the lawsuit of a mother seeking redress for economic harm incurred in caring for her son's injuries, noting that "the mother's suit is covered even though she seeks her own damages (the money she spent to care for her son), not damages on behalf of her son (such as his pain and suffering or money he lost because he missed work). Legally, the result is no different merely because the plaintiff is a state instead of a mother.").
In Liberty Mutual Fire Insurance Co. v. J.M. Smith Corp., the Fourth Circuit similarly held that an insurer's duty to defend was implicated by an underlying opioid lawsuit. There, West Virginia alleged that J.M. Smith, a wholesale pharmaceutical distributor, failed to implement sufficient controls to identify and alert regulatory authorities to suspicious prescription drug orders. J.M.'s insurer argued that this did not present an "occurrence" within the meaning of J.M.'s liability policy because the complaint alleged willful and intentional misconduct that does not constitute an "accident."
The Fourth Circuit rejected this argument, holding that there was a possibility of coverage, and thus a duty to defend because the defendant was not accused of intentionally providing prescription drugs with the knowledge that it was "enabling an abuser." Rather, the court found that J.M. was "engaged in the lawful activity of providing prescription drugs to pharmacies. [J.M.] may not have been sufficiently careful about whose hands the drugs eventually reached, but that does not preclude finding accidental injury."
Some courts, however, have reached the opposite conclusion. For example, in Travelers Property Casualty Co. of America v. Actavis, Inc., the California Court of Appeals held that, under California law, opioid-related claims alleging intentional and negligent misrepresentations did not constitute an "accident" and therefore were not an "occurrence" under the policy.
Although not at issue in H.D. Smith, J.M. Smith Corp., or Actavis, the insurance industry has now developed so-called "opioid endorsements" or "opioid exclusions" for inclusion in their new and renewal policies. Policyholders should be on the lookout for these endorsements and exclusions as the consequence of these additions could be a substantial limitation on otherwise sought after coverage.
Directors & officers coverage
Directors & Officers ("D&O") insurance is another type of coverage that policyholders may look to when facing opioid-related liabilities. Insurers, however, are likely to raise arguments against policyholders' claims for coverage under D&O policies as well. D&O policies are generally "claims-made" policies that contain "aggregation of claims" provisions, making it possible for insurers to argue that opioid lawsuits filed in different years are "related claims." This tactic shifts the responsibility of coverage to the policy in place when the first claim arose. If successful, this could result in the claim being considered "untimely" or falling under a policy with impaired or exhausted limits due to other unrelated claims.
D&O policies also typically contain professional services exclusions and limited entity coverage, which insurers may attempt to rely on in avoiding coverage.
As many of the recent decisions show, companies brought into litigation over opioids may find refuge, or at least a defense, through their insurance policies. Manufacturers, distributors, retailers and other targets of these lawsuits and investigations should insist that their CGL and D&O insurers honor their duties to defend and indemnify these product liability claims. Insurers will continue to aggressively challenge coverage for opioid-related claims, lest they accept the substantial cost of defending and resolving these exposures. But the insurance industry's bluster should not dissuade policyholders from seeking coverage, as coverage counsel can help identify and navigate the rights and obligations due under all available lines of coverage, even when faced with aggressive insurer rhetoric and coverage denials.
This article first appeared on the Hunton Andrews Kurth Insurance Recovery blog and is republished here with the authors' permission.
Lorelie S. Masters (LMasters@huntonAK.com) is a partner in the Washington, D.C. office of Hunton Andrews Kurth and a nationally recognized insurance coverage litigator who handles all aspects of complex, commercial litigation and arbitration. Michael S. Levine (mlevine@HuntonAK.com) is a partner in the Washington, D.C. office of Hunton Andrews Kurth and has more than 20 years of experience litigating insurance disputes and advising clients on insurance coverage matters. Michelle M. Spatz (mspatz@HuntonAK.com) is an associate in the Washington, D.C. office of Hunton Andrews Kurth and represents clients in complex insurance coverage litigation and arbitration, and provides counseling on a wide array of insurance matters.
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