To Defend or Not to Defend: Commercial General Liability (CGL) Insurers at the Center of Opioid Litigation
Blog Post | 108 KY. L. J. ONLINE | January 10, 2020
To Defend or Not to Defend: Commercial General Liability (CGL) Insurers at the Center of Opioid Litigation
Clay Thornton[1]
In light of the opioid epidemic, drug distributors are being brought into litigation. A question intriguing many insurers is to what extent do they have a duty to defend drug distributors in “pill mill” litigation? Underlying this issue is an inquiry as to whether the product was defective with respect to its intended use.[2]
Generally, like any other business entity, pharmaceutical drug distributors may hold commercial general liability [hereafter “CGL”] insurance, sometimes referred to as business liability policies.[3] CGL insurance provides coverage to business and commercial entities for specified categories of claims arising from injury to property and from liability for claims brought by a third party against the insured.[4]
While the federal court for the Western District of Kentucky has held that the insurance company has a duty to defend the pharmaceutical drug distributor,[5] several jurisdictions have held there is no duty to defend based upon prior gun manufacturing cases.[6]
Duty To Defend
In Cincinnati Insurance Co. v. Richie Enterprises, LLC, Richie Enterprises, LLC [hereafter “Richie”], a pharmaceutical drug distributor incorporated in Kentucky, was sued alongside twelve other drug distributors by the State of West Virginia, whose Attorney General alleged that they were supplying doctors and drugstores with drug quantities in excess of legitimate medical need.[7] Richie sought insurance defense from Cincinnati Insurance under its CGL policy; however, Richie refused to provide defense after concluding the claims brought by West Virginia were not covered by the CGL policy’s limits.[8] Cincinnati Insurance filed a declaratory judgment that there would be no duty to defend.[9]
Under Kentucky law, an insurer has a duty to defend when “there is any allegation which potentially, possibly or might come within the coverage of the policy”; or, restated in other words, the “insurance company must defend any suit in which the language of the complaint would bring it within the policy coverage regardless of the merit of the action.”[10]
Based upon the language of the CGL policy, the Western District of Kentucky had to determine whether the complaint alleged an: “occurrence”, “bodily injury” or “property damage”, and whether the possibility for coverage was removed by the policy’s exclusionary clause regarding intentional and criminal acts.[11] Similar to other CGL policies, the policy at hand provided the following definitions: “Occurrence” is "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."[12] “Bodily injury” is "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time."[13] “Property damage” is "[p]hysical injury to tangible property, including all resulting loss of use of that property."[14]
Occurrence
The Kentucky courts have defined “occurrence” to mean an “accident,” which inherently points to the doctrine of fortuity comprised of two central components, namely intent and control.[15] Regarding intent, Cincinnati Insurance contended West Virginia’s claim that Ritchie provided drugs in excess of medical necessity created a foreseeable result;[16] whereas, Ritchie argued the alleged claims sounded in negligence and, further, Ritchie was simply distributing in response to orders received from doctors and state-regulated pharmacies.[17] Regarding control, Cincinnati Insurance contended that the supplying of drugs to pharmacies was not an accidental result by Ritchie; whereas, Ritchie argued that the resulting drug epidemic was not foreseeable from their actions and was completely within the control of the pharmacists, physicians, and end-users of the prescription drugs.[18] Favoring Ritchie, the Western District held there was an occurrence.[19]
Bodily Injury or Property Damage
Cincinnati Insurance provided several substantive and persuasive arguments which indicated that the Attorney General’s Complaint sounded in economic damages, as opposed to “bodily injury” or “property damage”; however, the Western District of Kentucky favored a conclusion of bodily injury due to medical monitoring. [20]
Intentional and Criminal Act Exclusionary Provision
Cincinnati Insurance finally argued that the allegations of intentional and criminal conduct made their intentional and criminal act exclusionary provision applicable. In Thompson v. West American Ins. Co., the Kentucky Court of Appeals held that “allegations of the complaint cannot compel a defense if coverage does not exist” and, further, that the “obligation to defend arises out of the insurance contract, not from the allegations of the complaint against the insured.”[21]
The Western District of Kentucky, however, held the conduct of distributing prescription drugs based upon orders placed by pharmacies is not, in and of itself, illegal and the violation of laws could be reasonably anticipated.[22] Thus, the Western District concluded that the insurer had a duty to defend.[23] This decision was bolstered by a similar holding from a district court in South Carolina regarding one of the other defendant-drug distributors.[24]
No Duty To Defend
Products-Completed Operations Exclusions & “Arising Out of” Considerations
In three federal court cases, the courts have concluded that a products exclusion provision operated to exclude coverage for claims against gun manufacturers for injuries allegedly caused by the guns the insureds had manufactured, and the insurers in opioid litigation have looked to these cases for support.[25] The issue is whether the damages “arise out of” the use of guns, and are thus excluded from coverage under the policies’ products-completed operations hazard exclusions.[26]
Black’s Law Dictionary defines “arise” to mean “[t]o spring up, originate, to come into being or notice.”[27] In Mass. Bay. Ins. Co. v. Bushmaster Firearms, Inc., the victims and family of victims of a shooting incident sued several gun manufacturers.[28] There, a Maine District Court held the damage that the product in question, namely firearms, created was within the products- completed operations hazard language and was thus excluded from coverage.[29] The Maine District Court looked to an earlier decision by the First Circuit regarding gun manufacturers in Brazas Sporting Arms v. American Empire Surplus, in which the insured argued that the exclusion was limited to defective products.[30]The First Circuit rejected the insured’s argument by stating:
The products-completed operations hazard includes in plain and unambiguous language “all ‘bodily injury’ and ‘property damage occurring away from premises you own or rent and arising out of ‘your product.’” Where, as here, the language of the exclusion provision is unambiguous, the text should be given its plain meaning. In this case, the plain meaning of the exclusion is that it applies to all product-related injuries.[31]
In Taurus, another gun manufacturer case, the insured again argued that the products-completed operations exclusion should be applied only to defective product.[32] The Taurus court’s review of case law across the nation revealed: First, most courts have not considered whether such provisions should only apply to defective products. Second, those that have are split on the issue of whether to construe “arising out of” language as restricted to only defective products or a broader interpretation. Third, the language of the policy is the most important factor for determining the duty to defend question.[33] The Taurus court ultimately held there was no coverage because the claims fell within exclusions for “‘bodily injury and property damage … arising out of your product.’”[34]
In opioid litigation citing these gun manufacturing cases, the court in The Travelers Property Casualty Co. of America v. Actavis, Inc. held the insurer had no duty to defend the insured-pharmaceutical companies.[35] Regarding an “occurrence,” or “accident,” the Court of Appeal of California held that the test is “whether an additional, unexpected, independent, and unforeseen happening produced the consequences.”[36] There, the court said the role of doctors in prescribing, or misprescribing, opioids is not an independent or unforeseen happening.[37] Regarding Products Exclusion language, the insurance policies in question provided: exclusion of coverage for bodily injury “arising out of” (Travelers Policies) or that “results from” (St. Paul Policies) “[a]ny goods or products…manufactured, sold, handled, distributed or disposed of by” the insured.[38] The Products Exclusions in the policies at question were unambiguous, stating:
The declarations page states that the Travelers Policies have a general aggregate limit that applies to claims “[o]ther than Products-Completed Operations.” Because no classification of products claims is listed on the declarations page or a policy schedule, all products and operations are subject to the Products Exclusions.[39] A host of federal and state cases supported this decision in Actavis, Inc. that Products Exclusions bar coverage. [40]
Conclusion
The sample of court decisions provided exemplify how courts have reached different conclusions regarding insurer’s duty to defend in opioid litigation. The decisions have depended upon the construction of the insurance policy at hand,[41] differing state law interpretations of “occurrences” or “accidents” regarding intent,[42] and court interpretations of products-completed exclusionary clauses.
With that recognition, depending on the jurisdiction in which an insurer finds themselves, the answer may still be unclear. However, if there is any consolation, the standing case law provides a litany of successful arguments for both insurers and insureds in future opioid litigation.
[1] Staff Editor, Kentucky Law Journal, Volume 108; J.D. Candidate, University of Kentucky College of Law (2021); B.S., Accounting, B.S., Economics, Gatton College of Business and Economics, University of Kentucky (2018).
[2]Aetna Casualty & Surety Co. v. Richmond, 76 Cal. App. 3d 645 at 654 (Cal. Dist. Ct. App. 1977).
[3] Stephen Michael Sheppard, Commercial General Liability, The Wolters Kluwer Bouvier Law Dictionary Desk Edition.
[4] Id.
[5] Cincinnati Insurance Co. v. Richie Enterprises, LLC, 2014 U.S. Dist. LEXIS 27306 (W.D. Ky. 2014). See Liberty Mutual Fire Ins. Co. v. JM Smith Corp., 602 Fed. Appx. 115, 116 (4th Cir. 2015). The Fourth Circuit held that because the claims alleged in the West Virginia complaint create a possibility for coverage, the insurer was held to have a duty to defend the drug manufacturer.
[6] See The Travelers Property Casualty Co. of America v. Actavis, Inc., 16 Cal. App. 5th 1026. See also Taurus Holdings, Inc. v. United States Fid. & Guar. Co., 913 So. 2d 528; Brazas Sporting Arms v. American Empire Surplus (1st Cir. 2000) 220 F.3d 1; Beretta U.S.A. Corp. v. Fed. Ins. Co. (4th Cir. 2001) 17 Fed. Appx. 250; Massachusetts Bay Ins. Co. v. Bushmaster Firearms (D.Me. 2004) 324 F.Supp.2d 110. Products exclusion provision operated to exclude.
[7] Cincinnati Insurance Co. v. Richie Enterprises, LLC, 2014 U.S. Dist. LEXIS 27306 at *1-2 (W.D. Ky. 2014).
[8] Id. at *5.
[9] Id.
[10] Id. at *9. (citing James Graham Brown Found., Inc. v. St. Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 279 (Ky. 1991)).
[11] Id. at *8.
[12] Id.
[13] Id. at *7-8.
[14] Id. at *8.
[15] Id. at *9-10. (citing Cincinnati Ins. Co. v. Motorist Mutual Ins. Co., 306 S.W.3d 69, 73-74 (Ky. 2010).
[16] Id. at *13-14.
[17] Id. at *11-13.
[18] Id. at *18-19.
[19] Id. at *19-20.
[20] Id. at *23-24. See Baughman v. U.S. Liab. Ins. Co., 662 F. Supp. 2d 386, 396 (D.N.J. 2009) ("The underlying plaintiffs have brought suit to procure, among other things, the costs of medical monitoring 'as damages' for the 'bodily injury' they allegedly suffered due to exposure to dangerous levels of mercury and so the underlying suit falls within the general coverage of the CGL policy.").
[21] Id. at *24-25. (quoting Thompson v. West American Ins. Co., 839 S.W.2d 579 (Ky. App. 1992)).
[22] Id. at *25.
[23] Id. at *15. (citing Liberty Mutual Fire Insurance Co. v. J M Smith Corp., 2013 U.S. Dist. LEXIS 136448. Affirmed in Liberty Mut. Fire Ins. Co. v. J M Smith Corp., 602 Fed. Appx. 115 (4th Cir. 2015)).
[24] Id.
[25] The Travelers Property Casualty Co. of America v. Actavis, Inc., 16 Cal. App. 5th 1026 (Cal. Dist. Ct. App. 2017). See Brazas Sporting Arms v. American Empire Surplus, 220 F.3d 1 (1st Cir. 2000); Beretta U.S.A. Corp. v. Fed. Ins. Co., 17 Fed. Appx. 250 (4th Cir. 2001); Massachusetts Bay Ins. Co. v. Bushmaster Firearms, 324 F.Supp.2d 110 (D.Me. 2004).
[26] Taurus Holdings, Inc. v. U.S. Fid. & Guar. Co., 913 So.2d 528, 530 (Fla. 2005).
[27] Taurus Holdings, Inc., 913 So.2d at 536 (citing Arise, Black's Law Dictionary (6th ed. 1990)).
[28] Massachusetts Bay Ins. Co. v. Bushmaster Firearms, 324 F.Supp.2d 110 (D.Me. 2004).
[29] Id. at 112.
[30] Id. at 113.
[31] Id. (quoting Brazas Sporting Arms v. American Empire Surplus, 220 F.3d 1, 6 (1st Cir. 2000)).
[32] Taurus Holdings, Inc., 913 So.2d at 537.
[33] Id.
[34] Id. at 530.
[35] The Travelers Property Casualty Co. of America, 16 Cal. App. 5th at 1026.
[36] Id. at 1042.
[37] Id.
[38] Id. at 1044.
[39] Id. at 1051-52.
[40] Id. at 1046-47. See Travelers Property Casualty Co. of America v. Anda, Inc., 658 Fed.Appx. 955 (11th Cir. 2016).
[41] See The Travelers Property Casualty Co. of America, 16 Cal. App. 5th at 1051-52.
[42] Id. at 1042-43.