In Broad Terms, California Court of Appeal Finds No Insurance Coverage in Opioid Lawsuit

Emergent LLP partner Peter Roldan represents corporate and individual policyholders in high-value insurance coverage and bad faith litigation, including a significant pending appeal before the Court of Appeals for the Ninth Circuit.  Below, he discusses a recent California Court of Appeal decision rejecting coverage for a drug manufacturer sued for causing addiction and other harms of the opioid crisis, in terms that insurers are likely to apply broadly to future claims.  If you believe your insurer is resisting paying your insurance claim, email Peter (peter@emergent.law) or contact us.

Sued for Promoting Opioids, Drug Manufacturer Actavis Is Denied Coverage by Its Insurer

Well before the nation’s opioid crisis was declared a public health emergency by President Trump, numerous states, counties, and municipalities were launching investigations and bringing lawsuits against the pharmaceutical manufacturers and distributors who are alleged to be responsible for the epidemic.  In defending against these actions, the targeted companies have sought coverage under their commercial general liability (“CGL”) insurance policies for their mounting defense costs and for indemnity against any judgments, while insurers have sought to limit their duties.

The question of whether insurance coverage exists for these suits was recently addressed by the California Court of Appeal in Traveler’s Property Casualty Co. of America v. Actavis, Inc., No. GO53749, 2017 WL 5119167 (Nov. 6, 2017).  The court concluded that Travelers had no duty to defend various pharmaceutical manufacturers who were alleged to have engaged in a “common, sophisticated, and highly deceptive marketing campaign” designed to increase sales of opioid products.

The County of Santa Clara and the County of Orange brought a lawsuit against Actavis and other pharmaceutical companies who were involved in promoting opioid products for treatment of long-term chronic pain (the “California Action”).  The City of Chicago brought a separate action making essentially the same allegations (the “Chicago Action”). Travelers, which insured Actavis, Inc. and other related companies under a series of CGL policies issued by Travelers and St. Paul Fire and Marine Insurance Co., denied that it had any duty to defend Actavis in either action and brought a lawsuit to obtain a declaration that it had no obligation to defend or indemnify Actavis.

Actavis had purchased primary CGL policies from St. Paul which covered “damages for covered bodily injury or property damage” that are “caused by an event.”  “Event” is defined as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.”  Actavis was also covered under a series of policies issued by Travelers, which covered damages “because of ‘bodily injury’ or ‘property damage’ “caused by an “occurrence.”  “Occurrence” is also defined as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.”  Both sets of policies also contained products and completed work exclusions, which applied to bodily injury or property damage “arising out of” Actavis’ products and work, including statements or representations about the durability, fitness, handling, maintenance, operation, performance, quality, safety or use of its products.

Court Finds No Duty to Defend, Because Manufacturer’s Alleged Scheme Was Not an “Accident”

After a bench trial on stipulated facts, the trial court found (1) the California Action and the Chicago Action did not allege an “accident” as required by the definition of “occurrence” or “event” to create a duty to defend and (2) the products/work product exclusions precluded coverage for Actavis’ claims. 

The Court of Appeal agreed, finding that the allegations that Actavis engaged in “a common, sophisticated, and highly deceptive marketing campaign” aimed at increasing sales of opioid products could only be characterized as deliberate, intentional acts, meaning that they did not constitute an accident under a CGL policy.  The court then turned to the question of whether “some additional, unexpected, independent, and unforeseen happening” produced the injuries alleged in the California and Chicago Actions, or if the injuries were a direct result of the “flood of opioids that entered the market” as a result of Actavis’ marketing campaign.  It then concluded that the injuries, which included “(1) a nation ‘awash in opioids’; (2) a nationwide ‘opioid-induced “public health epidemic’”; (3) a resurgence in heroin use; and (4) increased public health care costs imposed by long-term opioid use, abuse, and addiction,” was not additional, unexpected, independent, or unforeseen.

Opioid Crisis Not a Normal Consequence; Misprescription Not an Independent Cause

The court rejected Actavis’ argument that the alleged injuries were not the “normal consequences of the acts alleged” and found that in order for Actavis’ opioid products to end up in the hands of abusers, it was necessary for doctors to prescribe the drugs to abusers.  The court noted that the role of doctors in prescribing or misprescribing drugs was not an independent or unforeseen happening.

Addiction Is a Bodily Injury, But a Result of Actavis’s Products, and So Excluded under the Policy

Although the trial court did not reach the question of whether the harms alleged in the California and Chicago Actions constituted “bodily injury,” the Court of Appeal found that the actions alleged two categories of such injuries: (1) overdose, addiction, death, and long-term disability arising out of the use and abuse of opioids; and (2) the resurgence of the use and abuse of heroin, which was allegedly triggered by use and misuse of opioids.  However, the court, applying a broad interpretation of the term “arising out of,” found that these two categories of injury “arose” out of Actavis’ opioid products.  Therefore, the claims—including the claims of injury due to heroin abuse—were excluded under the products exclusions contained in the Travelers and St. Paul policies.  The court also examined the split in federal and out-of-state authorities regarding the issue of whether products exclusions only applied to an insured’s defective products.  It agreed with the analysis of the Florida Supreme Court in Taurus Holdings v. U.S. Fidelity, 913 So. 2d 528 (Fla. 2005), which found that the products exclusion was not limited to defective products.

Policyholders Will Likely Need Assistance with Claims Arising from Opioid Lawsuits

The Court of Appeal’s decision will likely embolden liability insurance carriers to deny the claims of defendants in opioid lawsuits, unless the policyholders can distance themselves from manufacturing activities and from any allegedly deceptive marketing campaigns.  Otherwise, relying on the Actavis case, insurers will likely take the position that coverage is barred either because there is no “occurrence” or because liability arises out of the insured’s products (unless separate products/completed operations coverage exists).

For policyholders in general, the decision is a reminder to carefully examine all lawsuits to determine whether the basis for a covered “accident” exists, as this will always depend on the specific facts alleged in the complaint.  Furthermore, although the Actavis court applied a broad interpretation of the phrase “arising out of” in the context of an exclusion, California courts continue to be divided on this issue, and the question of whether a broad or narrow interpretation of this key phrase should apply is also likely to remain a fact-dependent issue.  To get the value out of your policy, be sure to have your claim reviewed by an experienced attorney who understands policy interpretation well.

Emergent LLP Partner Peter Roldan Publishes Article on Potential Conflicts in Insurer-Funded Defenses

Emergent LLP partner Peter Roldan represents corporate and individual policyholders in insurance coverage and bad faith litigation.  In the most recent edition of the Bar Association of San Francisco's Bulletin, Peter has published an article addressing potential conflicts for policyholders to bear in mind when they are defended by counsel paid for by their insurer.

Read the article at the link here.  Email Peter (peter@emergent.law) or contact us to learn more about how Emergent LLP enforces its clients' legal and contractual rights.

Seth Rosenberg's Anti-Bullying Work Featured in Palo Alto Media

An anti-bullying case filed by Emergent LLP partner Seth Rosenberg, who leads the firm's personal injury trial practice, has been featured in both the Palo Alto Daily Post and Palo Alto Online.  The lawsuit seeks compensation on behalf of a special education middle school child who was bullied repeatedly, without intervention by the school district.

Emergent LLP stands against bullying.  To learn more about Seth's practice, email him (seth@emergent.law) or contact us.

Pure Market Manipulation Claims Remain Out of Reach For Some Shareholders Victimized By Mysterious Stock Price Reversals

Emergent LLP partner Chi-Ru Jou, who leads the firm's securities litigation practice, provides representation and advice on complex, cutting-edge matters affecting investors and businesses in the financial services industry.  Below, she discusses recent unexplained spikes in the stock price of Chinese lender Wins, and the challenges facing wronged shareholders seeking compensation.  You can reach Chi-Ru by emailing her (chiru@emergent.law) or contacting us.

Wins Finance Holdings Inc. (“Wins”), a company that guarantees loans and leases equipment for small businesses in China, has been the target of multiple securities class action lawsuits ever since the news broke in March of this year that it was under investigation by the SEC for market manipulation of its stock.  Incredibly, the stock price of Wins soared over 4,000% since the inception of trading near the end of 2015, with no company news headlines to explain this market bubble.  On March 30, 2017, the investment analytics site Seeking Alpha reported the SEC investigation and the fact that Wins had mislead the Russell Index into including the company based upon a false report of the location of its headquarters.  On this news, the stock price plunged back to levels below $50 per share, only to be followed by another mysterious spike up to the $200 level in the early summer of this year.  On June 7, 2017, NASDAQ announced that it was halting trade in Wins stock pending the receipt of further information from the company.  On August 4, 2017, NASDAQ sent Wins a delisting determination letter, but withdrew this letter on October 19, 2017.  The stock remains halted while NASDAQ awaits further information from Wins.

For securities practitioners, the most interesting and perplexing part of this scenario was the nature of the class action complaints that were filed during the months following the Seeking Alpha article, asserting claims under Rule 10b-5 of the Securities Exchange Act.  Several plaintiff-side securities firms issued press releases stating that they had filed complaints, but only two firms engaged in a battle for lead counsel status in the Southern District of New York and the Central District of California, leading to the voluntary dismissal of the SDNY lawsuit.  Although the subject of the SEC investigation was believed to be the company’s market manipulation, the class action complaints relied for the most part on theories of misrepresentation, drawing upon news headlines such as Wins’ misrepresentations to the Russell Index.  The currently pending putative class action in California features an amended complaint pleading both misrepresentation and scheme liability as separate causes of action, yet the substantive allegations focus upon the misrepresentation regarding the company headquarters.

This fact was obviously due to the lack of information available about what manipulative acts the insiders at Wins could have perpetrated to drive these mysterious spikes in its stock price.  Securities class action lawsuits are frequently brought in the New York federal courts, where the Second Circuit case ATSI Communications v. Shaar Fund, 493 F.3d 87 (2d Cir. 2007) imposes a stringent pleading standard for market manipulation cases.  In ATSI, the Second Circuit held that a plaintiff had to allege “something more” than open-market trading activity that was otherwise perfectly legal in order to support claims of market manipulation.  Although the court clarified that for market manipulation claims, the pleading standard was slightly lower than the standard for misrepresentation claims, due to the fact that the information was mostly in the hands of the defendant, it still spelled out that the plaintiff had to plead with particularity “what manipulative acts were performed, which defendants performed them, when the manipulative acts were performed, and what effect the scheme had on the market for the securities at issue.”  Id. at 102. 

In the wake of these events involving Wins, it may be time for the Second Circuit to take another look at the pleading standard for market manipulation.  Otherwise, shareholder plaintiffs may need to resort to other devices such as derivative litigation rather than the securities class action lawsuit to address such mysterious instances of apparent market manipulation.

Seven Tips to Get Your North Bay Fires Insurance Claim Paid

For survivors of disasters such as the recent North Bay fires, insurance coverage is crucial for recovery and for rebuilding.  As an advocate for insurance policyholders, Emergent LLP partner Peter Roldan helps them to maximize coverage for their losses.  Below are a few of his tips for navigating the claims process and dealing with insurers.  You can reach Peter by emailing him (peter@emergent.law) or contacting us.

1) Give prompt notice of your claim

I can’t stress enough how important it is to give notice of a loss as soon as possible.  Obviously, if your insurance company doesn’t know about the claim, it can’t pay it.  In situations like the North Bay fires, insurance companies will be inundated with claims, so it’s imperative that policyholders get their claims into the queue.  Opening a claim also allows you to request cash advances for additional living expenses (ALE) and for purchasing necessities.

Finally, notifying your insurer starts the clock running with respect to fair claims handling deadlines, putting the onus on the insurer to promptly begin its investigation and adjustment of your claim.

2) Document your loss as thoroughly as possible

Your insurer can’t pay for damages that it doesn’t know about.  Ultimately, it’s up to the policyholder to provide the insurer with proof of loss.  To help speed up the process and ensure that you’re reimbursed for all covered losses, you should send your insurer as much information as possible regarding your damaged property and any additional expenses relating to the loss.  This includes receipts, photos, or videos of damaged items, as well as property inventories.

3) Keep written records of all communications with your insurer

Maintain a file of all written communications with your insurance company, and keep a detailed log of all your telephone conversations and any face-to-face meetings with the insurer’s representatives.  These records will come in handy when you need to follow up on your claim (see tip no. 4, below) and will be especially important if you need to file a lawsuit against the insurance company to recover your insurance benefits.

4) Follow up and be proactive

Even the most well-meaning claims adjuster sometimes gets swamped.  To keep your claim from falling through the cracks or getting sent to the bottom of the to-do pile, follow up with your insurance company on a regular basis—don’t let more than two weeks pass without some sort of contact with your insurer.   Squeaky wheel gets the oil, etc.  But be polite—nasty letters won’t necessarily help, and they certainly won’t look good if you end up having to go to court.

5) Know the coverage available under your policy

Although a good claims adjuster will work with a policyholder to try to identify the elements of a covered loss, you shouldn’t rely solely on the adjuster’s representations regarding the available coverage (see tip no. 7, below).  Familiarize yourself with the coverage provided in your policy and don’t be afraid to ask the claims adjuster whether a loss or expense is covered (and make your request in writing).

6) Don’t sign any contracts or legal documents without consulting an attorney

As part of the claims handling process, your insurer may ask you to sign a release or an assignment of rights.  It’s a good idea to have any such release or assignment reviewed by an attorney before signing, as you may be giving up important rights.  Always ask for copies of documents you sign.

7) Remember that the insurance company is not your friend

Insurance companies spend a lot of money to convince you that you’re in good hands or that they make good neighbors.  They also hire famous athletes and actors, and have cute mascots to help bolster their images in the eyes of consumers.  Don’t believe the hype.  Treat your insurance claim like any other business transaction or negotiation.

While there’s no need to be paranoid and to think that all insurance companies are out to get you, do remember that insurance companies are run by human beings and that human beings make mistakes and make bad decisions.  Don’t count on your insurance company to look out for your interests.  By being knowledgeable about your policy and the claims process, you can usually ensure that you are getting the benefits you are entitled to under your policy.

However, be sure to seek out the services of an experienced and qualified insurance law attorney, if needed.  Insurance companies have plenty of lawyers on their side, so you’ll want to have your own attorney to fight for you if you are being treated unfairly.

California Appellate Court Clarifies When Construction Professionals’ Knowledge Will Be Imputed to Real Property Seller

Emergent LLP partner and real estate litigator Johnny J. Yeh closely follows developments in the California appellate courts.  Below, he discusses a recent decision analyzing when an architect, engineer, or general contractor’s knowledge of property defects will be imputed to the seller in litigation brought by the buyer.  To stay up to date with this and other Emergent news, contact us.

Recently, the Court of Appeals issued its opinion in RSB Vineyards, LLC v. Orsi, 2017 WL 4325299 (Cal. Ct. App. Sept. 29, 2017), which was certified for partial publication.  The setup of the case is straight-forward.  Defendants purchased a vineyard and engaged in remodeling work to convert a residence on the property into a wine tasting room.  Throughout the process, defendants, who were not construction professionals, relied on their architect, structural engineer, and general contractor to ensure that the work conformed to applicable building codes and standards.  Subsequently, plaintiff purchased the vineyard from the defendants, including the wine tasting room.  Shortly thereafter, plaintiff discovered that the wine tasting room was structurally unsound and had to demolish it.  Plaintiff then sued defendants, claiming misrepresentation and omissions with respect to the sale.  Defendants, in turn, successfully moved for summary judgment, arguing that they had no actual knowledge of the defects at issue.

On appeal, plaintiff argued: (1) that it had provided evidence creating a triable issue of fact as to defendants' actual knowledge; and (2) that it had no obligation to demonstrate defendants' actual knowledge because the knowledge of their construction professionals could be imputed to them, and the evidence showed the deficiencies were so severe that those professionals must have known of these defects.

The court quickly disposed of the first point, noting that many of the alleged defects "were discovered only during the process of demolition."  Id. at *4.  The court further observed there was a lack of evidence showing that the defects "would have been apparent to a non-professional."  Id.  The court likewise rejected plaintiff's appeal to the sheer number and severity of the defects, noting that they were "technical matters" that would not be "apparent to a person unskilled in construction or structural engineering."  Id. at *5.

The court's discussion of plaintiff's second point was more interesting.  The court accepted the rule (fairly well-established in the law) that a principal could be charged with the knowledge of his agent "while the agent was acting in that role and within the scope of his or her authority as an agent."  Id.

However, the court did not accept plaintiff's suggestion that defendants’ contractual professionals were necessarily "agents."  Specifically, the court pointed to Civil Code section 2295, which defines an agent as "one who represents another . . . in dealings with third persons."  Id. at *6.  Based on this language, the court noted that "if a service provider simply furnishes advice and does not interact with third parties as the representative of the recipient of the advice, the service provider is not acting as an agent."  Id.  The court then concluded that there was "no evidence to suggest [defendants'] professionals were acting in the role of agent when they acquired . . . knowledge" about the defects.  Id.  Indeed, such knowledge "would have been gained while the professionals were planning or carrying out the work of renovating the residence," and not while acting in their role as agents.  Id.

In addition, the court dismissed plaintiff's affirmative misrepresentation claims on the basis that the representations were, in fact, true.  Finally, the court dismissed plaintiff's breach of contract claim, which was also premised on defendants' failure to disclose.

Ultimately, RSB reminds litigants of an important wrinkle in the process of proving the actual knowledge requirement for a fraud-based claim against a seller of property.  Specifically, if a litigant is going to impute a contractor’s or other professional's knowledge of a defect to the seller, the litigant should prepare to demonstrate that the contractor or professional acquired knowledge of the defect while acting as an agent (as opposed to acting as a mere service provider).  Careful and thoughtful use of discovery is a must in this respect, and creating a solid record of the conduct and actions of the construction professionals is critical.