Because of Bodily Injury
September 19, 2016
The insured's general liability insurer brought an action against the insured for a declaratory judgment that it owed no duty to defend the insured in an underlying lawsuit. This case is Cincinnati Insurance Company v. H.D. Smith, LLC, 2016 WL 3909558.
West Virginia sued H.D. Smith and other pharmaceutical distributors, seeking to hold them liable for contributing to the state's epidemic of prescription drug abuse. West Virginia alleged that the defendants acted negligently, recklessly, and in contravention of West Virginia law, and that this cost the state hundreds of millions of dollars every year.
H.D. Smith sought coverage under its general liability policy with Cincinnati Insurance Company. The insurer refused to defend the lawsuit and filed this declaratory judgment action. The U.S. District Court entered judgment in favor of the insurer and this appeal followed.
The United States Court of Appeals, Seventh Circuit, noted that the Cincinnati policy issued to H.S. Smith covered lawsuits seeking damages “because of bodily injury”. The court said that such a policy provides broader coverage than one that covers damages only “for bodily injury”. To the court, this meant that if the insured had a policy that only covered damages for bodily injury, it would be reasonable to conclude that the damages sought do not fall within the insurer's duty. However, if the insurance contract provides for damages because of bodily injury, then the insurer would have a duty to defend and indemnify.
The court pointed out that West Virginia alleged that its citizens suffered bodily injuries and that the state spent money caring for those injuries, money that the state seeks in damages. The state alleges that H.D. Smith negligently distributed drugs that were consumed by persons then residing in West Virginia. In so doing, H.D. Smith interfered with the right of West Virginians to be free from unwarranted injuries, addictions, diseases, and sicknesses. Thus, the state has incurred excessive costs related to diagnosis, treatment, and cure of addiction and has provided necessary medical care, facilities, and services for treatment of its citizens.
The Circuit Court held that the lawsuit against the insured sought damages because of bodily injury and was within the coverage of the policy. The ruling of the District Court was reversed.
Editor's Note: The U.S. Court of Appeals, Seventh Circuit, makes a distinction between coverage for damages “because of bodily injury” and coverage for damages “for bodily injury” in its decision in favor of the insured. In other words, if the policy in question here applied only to damages for bodily injury, there would have to be some bodily injury to the plaintiff. In this case, there was no bodily injury alleged to have been wrought upon the underlying plaintiff (the state of West Virginia), but the state did suffer excessive costs in treating citizens that were injured because of bodily injury. The court offers an interesting and subtle distinction to establish the duty to defend.