Publications

(Article from Insurance Law Alert, July/August 2016)

For more information, please visit the Insurance Law Alert Resource Center.

The Seventh Circuit ruled that allegations that a pharmaceutical distributor’s involvement in a pill mill caused the State of West Virginia to pay millions of dollars for drug abuse care constituted a claim for bodily injury under a general liability policy.  Cincinnati Ins. Co. v. H.D. Smith, L.L.C., 2016 WL 3909558 (7^th Cir. July 19, 2016).

West Virginia sued H.D. Smith and other pharmaceutical distributors for allegedly contributing to an epidemic of prescription drug abuse.  The complaint alleged that Smith negligently or recklessly provided pharmacies with vast quantities of prescription drugs that fueled consumers’ drug additions.  Among other things, the State alleged that it spent millions of dollars caring for drug-addicted residents as a result of such pill mill operations.  Smith tendered defense of the suit to Cincinnati Insurance pursuant to a general liability policy.  Cincinnati refused to defend and sought a declaration that its policy did not cover the suit because it did not seek damages “because of bodily injury.”  An Illinois federal district court agreed and granted the insurer’s summary judgment motion.  The Seventh Circuit reversed.

The underlying complaint alleged that Smith negligently distributed drugs and therefore “interfered with the right of West Virginians to be free from unwarranted injuries, addictions, diseases and sicknesses.”  The Seventh Circuit reasoned that these allegations sufficiently alleged damages because of bodily injury.  In so ruling, the court distinguished Medmarc Cas. Ins. Co. v. Avent Am., Inc., 612 F.3d 607 (7^th Cir. 2010) (discussed in our September 2010 Alert), which held that an insurer need not defend class action suits alleging that baby bottles and related accessories were contaminated with a toxic chemical.  The court explained that the underlying claims in Medmarc did not allege damages because of bodily injury because there were no allegations that the plaintiffs ever used the products or were exposed to the harmful substances.  In contrast, the underlying complaint here alleged that consumers ingested drugs that had been negligently distributed by Smith.  The court therefore concluded that Cincinnati was required to defend the suit.