(Article from Insurance Law Alert, November 2017)
For more information, please visit the Insurance Law Alert Resource Center.
A California appellate court ruled that an insurer is not obligated to defend or indemnify pharmaceutical manufacturers and distributers (the “Defendants”) in suits alleging deceptive marketing practices and other state, federal and common law claims in connection with the sale and distribution of opioids. Travelers Prop. Cas. Co. of Am. v. Actavis, Inc., 2017 WL 5119167 (Cal. App. Ct. Nov. 6, 2017).
The coverage dispute arose out of suits filed in California and Chicago against the Defendants alleging a “highly deceptive marketing campaign” designed to increase sales of opioids by promoting the drugs for purposes for which they are not suited or intended. Travelers refused to defend the suits on the basis that the alleged injuries were not caused by an accident under the liability policies. Following a jury trial, a California court ruled that Travelers had no duty to defend because there was no “accident” as required by the policies’ “occurrence” provision. The appellate court affirmed.
The appellate court held that there was no potential for coverage because all claims asserted against the Defendants arose out of deliberate or intentional conduct. The court further held that there was no “additional, unexpected, independent, and unforeseen happening” that resulted from the intentional conduct. The court reasoned that all of the alleged injuries (e.g., a “public health epidemic,” a resurgence in heroin use, and increased long term health care costs) were neither unexpected nor unforeseen consequences of a marketing campaign designed to promote opioid use. The court emphasized that under California “occurrence” law, it is irrelevant whether Defendants intended to cause injury or whether they mistakenly believed that their deliberate conduct would not cause injury. In addition, the court rejected Defendants’ assertion that a public nuisance claim in the California action triggered Travelers’ defense obligation because nuisance claims may be based on negligent conduct. The court explained that notwithstanding the label of the cause of action, the facts alleged suggest liability based only on intentional conduct.
Alternatively, the court held that even if the complaints created a potential for coverage based on unintentional conduct, the claims fall within the Product Exclusions, which bar coverage for injury that arises out of “warranties or representations . . . with respect to the . . . safety or use of such goods or products.” In so ruling, the court rejected the notion that Products Exclusions are limited to defective products. As the court noted, the Eleventh Circuit similarly applied a Products Exclusion to bar coverage for opioid-related claims. See Travelers Prop. Cas. Co. of Am. v. Anda, Inc., 658 F. App’x 955 (11th Cir. 2016).
Notably, two courts have reached a contrary conclusion with respect to other opioid claims.
See Liberty Mut. Fire Ins. Co. v. JM Smith Corp., 602 F. App’x 115 (4
th Cir. 2015);
Cincinnati Ins. Co. v. Richie Enters., LLC, 2014 WL 838768 (W.D. Ky. 2014). The court distinguished these cases based on different underlying allegations and applicable state law. In particular, the court explained that the complaints in
JM Smith and
Richie contained allegations of negligence, and that, in any event, South Carolina and Kentucky law define “accident” to include intentional conduct that results in unintended injuries, whereas “[u]nder California law, in contrast, a deliberate act is not an accident, even if the injury is unintentional, unless the injury was produced by an additional, unexpected, independent, and unforeseen happening.”