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 (email@example.com) 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.