(Article from Insurance Law Alert, October 2020)
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A Delaware trial court ruled that an insurer is obligated to defend Rite Aid in certain lawsuits relating to its distribution of opioids, finding that the suits alleged bodily injury and that policy exclusions do not bar coverage. Rite Aid Corp. v. Ace American Ins. Co., 2020 WL 5640817 (Del. Super. Ct. Sept. 22, 2020).
According to the court, certain government entities alleged that Rite Aid knowingly distributed opioids to its local pharmacies and improperly dispensed prescription opioids to its customers, which contributed to and perpetuated drug addiction, resulting in injuries or death. Rite Aid sought a defense under a 2015 policy issued by Chubb. The insurer denied a duty to defend because, among other things, the underlying claims alleged economic loss rather than damages “because of personal injury,” required to trigger a duty to defend under the policy. Both parties moved for summary judgment on the duty to defend, and the court ruled in Rite Aid’s favor.
Addressing choice of law, the court declined to decide whether Delaware or Pennsylvania law governed the dispute, holding that both states have significant interests in the litigation and that the laws of the two states do not differ materially with respect to the relevant issues. The court then ruled that the underlying claims sought damages “because of personal injury” because the policy defined personal injury to include “bodily injury.” The court rejected Chubb’s assertion that the claims alleged only economic loss because the underlying plaintiffs were not the individuals who actually suffered from opioid addiction. In so ruling, the court relied on Cincinnati Ins. Co. v. H.D. Smith LLC, 829 F.3d 771 (7th Cir. 2016) (discussed in our July/August 2016 Alert) and Acuity v. Masters Pharmaceutical Inc., 2020 WL 3446652 (Ohio Ct. App. June 24, 2020) (discussed in our June 2020 Alert), which held that the policy’s use of the phrase “because of bodily injury” encompassed claims brought by the state to recover damages incurred due to the opioid epidemic. Those courts reasoned that even though the government entities were seeking damages for their own economic losses, some of those losses were arguably “because of bodily injury.”
The court also concluded that the underlying claims alleged only one occurrence and thus that the policy’s “Retained Limit” was satisfied. Applying a cause-based analysis, the court explained that the tortious distribution and/or dispensing of opioids arose from a single occurrence because all injuries and damage resulted from the same proximate cause–Rite Aid’s alleged negligent action in failing to implement proper controls. The court rejected Chubb’s contention that distribution and dispensing are separate occurrences because they constitute distinct activities that may result in distinct economic losses.
Additionally, the court rejected a “manifestation” trigger. Chubb argued that under Pennsylvania law, the only potentially applicable policy is the one in effect when harmful effects first manifest themselves, and thus that it has no duty to defend because here, any alleged personal injury first manifested before 2015. See Pennsylvania National Mutual Cas. Ins. Co. v. St. John, 106 A.3d 1 (Pa. 2014). However, the court ruled that a “multiple trigger” applies for “latent injury” cases, noting that “such injuries many not manifest themselves until a considerable time after the initial exposure causing injury occurs.” The court ruled that the personal injury of opioid abuse falls into the category of such “latent injury.” Finally, the court rejected “known loss” or “loss in progress” defenses, explaining that the allegation that Rite Aid had “mere knowledge of a risk” prior to the policy period is not sufficient to bar coverage. Alternatively, the court reasoned that the policy applies to “each separate person’s bodily injury occurring during the policy period,” such that even if “Rite Aid knew it injured certain persons before 2015, this does not necessarily demonstrate that it also knew it injured different persons in 2015.”
Courts in other jurisdictions have declined to find coverage for opioid-related claims by government entities. See, e.g. Travelers Prop. Cas. Co. of Am. v. Actavis, Inc., 2017 WL 5119167 (Cal. App. Ct. Nov. 6, 2017); Cincinnati Ins. Co. v. Richie Enterprises LLC, 2014 WL 3513211 (W.D. Ky. 2014) (discussed in our November 2017 Alert).