iBy Order dated April 5, 2022, the Northern District of California granted partial summary judgment to insurers National Union Fire Insurance Company of Pittsburgh, PA (National Union) and ACE Property and Casualty Insurance Company (ACE) (together, the Insurers), ruling that the Insurers had no duty to defend the insured, a distributor and seller of prescription drugs, in connection with three opioid-epidemic lawsuits wherein state and local governments sought to recover the increased costs they have incurred responding to the opioid epidemic.
In so holding, Judge Jacqueline Corley held that the insured’s over-distribution of opioids led to the foreseeable diversion of prescription painkillers. In turn, the illegitimate use of such painkillers and increased costs incurred by state and local governments in response to the opioid crisis did not arise from an accident or occurrence. Accordingly, National Union and ACE did not have a duty to defend and reimburse the insured for the more than $230 million it incurred to defend against thousands of opioid lawsuits.
Background
The Insurers filed the lawsuit captioned AIU Insurance Co., et al. v. McKesson Corp. against the insured in October 2020. The Insurers sought a declaratory judgment that they were not obligated to defend or indemnify the insured against lawsuits that state and local governments have filed against it wherein they seek to recover increased costs responding to the opioid epidemic.
The Insurers and insured then filed cross-motions for summary judgement using three exemplar cases, two suits filed by counties in Ohio and one filed by the Oklahoma attorney general, for the insured’s alleged liability as a painkiller distributor in connection with the opioid epidemic. The parties later filed motions for partial summary judgment regarding the duty to defend. The exemplar suits included similar allegations of opioid abuse, sickness, addictions, overdoses and deaths.
The insured argued that the underlying opioid lawsuits were at least potentially covered by the National Union and ACE policies because they seek damages for “bodily injury” caused by an “occurrence” and because the insured had exhausted the retention limit for a single occurrence. In contrast, the Insurers argued that the underlying opioid suits were conclusively not covered by the policies because (1) the insured did not exhaust each retention limit for the multiple occurrences at issue, (2) the suits did not seek damages for bodily injury, (3) the suits did not arise from an occurrence and (4) the insured had prior knowledge of the alleged bodily injury.
Bodily Injury
The policies included coverage for damages “for” or “because of” “bodily injury,” defining the latter as “bodily injury, sickness or disease sustained by any person, including death … resulting from any of these at any time.” Order at 9. The court concluded that the exemplar suits seek, “at least potentially and at least in part, forms of relief that might reimburse the government plaintiffs’ costs of responding to and providing care for the bodily injury suffered by people in their jurisdictions. McKesson has established that the exemplar suits at least potentially meet the ‘bodily injury’ requirement for coverage. Insurers have not established conclusively that the exemplar suits do not meet the ‘bodily injury’ requirement for coverage.” Order at 14 citing Liberty Surplus Ins. Corp. v. Ledesma & Meyer Constr. Co. (Ledesma), 5 Cal. 5th 216, 418 P.3d 400, 403 (Cal. 2018).
The court disagreed with the Insurers’ argument that state and local governments were seeking economic losses and had not sustained costs “because of” bodily injuries. The court also opined that it was “not persuaded” that the California Supreme Court would agree with the decision of the Delaware Supreme Court in Ace American Ins. Co. v. Rite Aid Corp, 2022 WL 90652, at 6-11 (Del. Jan. 10, 2022), “which distinguished damages ‘because of’ bodily injury from the government plaintiff’s claim for ‘damages for the money it has been required to spend because of the prescription drug abuse epidemic.’” Order at 12. Rather, the court agreed with the dissent in Rite Aid, finding that “Nothing in the policy language limits coverage to claims asserted by the person injured, a person recovering on behalf of the person injured, or an organization that treated the person injured and demonstrates the existence and cause of the ‘specific’ injuries.” Rite Aid, 2022 WL 90652, at 8. “Rather the policies cover damages claimed by any organization for care resulting at any time from the bodily injury.” Order at 13.
Occurrence / Accident
The Insurers’ policies defined “occurrence” with respect to “bodily injury” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
In analyzing whether an accident occurred, the court held that “[as] alleged, distributing and selling opioids are deliberate acts.” Further, relying on the ruling in The Travelers Prop. Cas. Co. of Am. v. Actavis, Inc., 225 Cal. Rptr. 3d 5, 19-20 (Cal. Ct. App. 2017), the court ruled that “[because] all the claims in the exemplar suits rest on allegations of deliberate conduct, there is ‘no insurable accident under the policies unless some additional, unexpected, independent, and unforeseen happening produced the injuries for which the complaints seek a remedy.’”
Relying further on Actavis, Judge Corley reasoned that “we emphasize that whether [the Insured] intended to cause injury or mistakenly believed its deliberate conduct would not or could not produce injury is irrelevant to determining whether an insurable accident occurred.” Instead, “we look to whether the [complaints] allege, directly or by inference, that it was [the Insured's] deliberate conduct or an additional, unexpected, independent, and unforeseen happening that produced the alleged injuries.”
