State high court to consider insurance for opioid claims

Last month, the California Supreme Court granted review of the 4th District Court of Appeal's decision in Traveler's Property Casualty Company of America v. Actavis, S245867. The 4th District held that various pharmaceutical companies were not entitled to insurance coverage under their Travelers commercial general liability insurance policies for lawsuits brought by two California cities and the city of Chicago. The lawsuits sought redress for past and future costs of providing increased care to opioid-addicted residents, alleging that the pharmaceutical companies contributed to America's opioid epidemic by over-marketing prescription painkillers.

Actavis held that Travelers had no duty to defend the pharmaceutical companies under two theories. First, the Travelers policies cover claims for bodily injury caused by an "occurrence," defined to mean an "accident" or unexpected, unforeseen happening. The court held that coverage was not triggered because the pharmaceutical companies engaged in the intentional and deliberate marketing of prescription drugs, producing injuries that were expected and foreseeable. Second, the court held that the injuries fell within the Travelers policies' exclusions, removing from coverage any injuries arising out of the pharmaceutical companies' products or misrepresentations regarding those products.

The Supreme Court now faces the following question: Is an insured's intentional conduct -- which leads to unintentional consequences -- considered an "occurrence" under a commercial general liability insurance policy? The answer to this question will not only have an important impact on the insurance litigation surrounding the rising opioid crisis, but will also set a precedent for the variety of insurance litigation cases dealing with this "occurrence" issue. (The issue has been historically litigated in the contexts of asbestos, lead paint and benzene, among others.) The Supreme Court should settle the question in favor of the pharmaceutical companies because preexisting case law and public policy concerns demand that general liability policies provide coverage for opioid-related claims, especially with respect to defense costs.

Case law on the "occurrence" issue supports the contention that general liability policies are intended to provide coverage for opioid-related claims. For example, in the asbestos and lead paint contexts, coverage is only precluded when the policyholder both committed an intentional act and actually intended the resulting injury, or was aware to a certainty that it would occur. See Armstrong World Indus., Inc. v. Aetna Cas. & Sur. Co., 45 Cal. App. 4th 1, 77 (1996) (asbestos); Millennium Chems. Inc. v. Lumbermens Mut. Cas. Co., 411388 (Ohio Ct. Com. Pl. May 8, 2002) (lead paint). Evidence of the policyholder's general knowledge or conscious disregard of known risks is insufficient. At least one court has even found coverage where the policyholder made calculated risks in manufacturing and selling products containing asbestos despite its awareness of the possible injuries the products would cause. See Union Carbide Corp. v. Affiliated FM Ins. Co., 955 N.Y.S.2d 572, 575 (N.Y. App. Div. 1st Dept. 2012).

In the opioid context, courts have held that insurers have the duty to defend policyholders in the underlying actions, finding that the policyholder's conduct constituted an accidental injury rather than an intentional harm. See Liberty Mut. Fire Ins. Co. v. J M Smith Corp., 602 F. App'x 115, 121-22 (4th Cir. 2015); Cincinnati Ins. Co. v. Richie Enters. LLC, 1:12-CV-00186-JHM-HBB, (W.D. Ky. Mar. 4, 2014). Policyholders have undoubtedly relied upon this body of case law in interpreting policy provisions, and their accompanying protections, when agreeing to purchase policies from insurance companies at substantial premiums. Courts must preserve the integrity of a policy's language and uphold the policyholder's reasonable expectation as to what the policy is intended to cover.

Moreover, the opioid epidemic has become an increasingly public issue. A report from the National Institute on Drug Abuse has revealed that more than 90 Americans die each day from an opioid overdose. The report also estimated that prescription opioid misuse alone has caused a U.S. economic burden of $78.5 billion per year, including the costs associated with health care, productivity loss, addiction treatment and criminal justice system involvement. It has been suggested that opioid litigation might very well be the next "big tobacco" of litigation. While the pharmaceutical companies manufacturing the drugs are certainly at risk of lawsuits, there also has been concern over the liability of the retailers selling the drugs, the doctors prescribing the drugs, and the distributors delivering the drugs. The opioid crisis has led, and will continue to lead, to a proliferation of complex litigation between insurance companies and their policyholders. Accordingly, general liability policy provisions should be interpreted as to their true meaning -- to provide coverage for the potentially enormous defense costs associated with litigating opioid-related claims.

No matter the outcome of the Supreme Court's upcoming decision, all entities linked to opioid-related claims should take preliminary, precautionary steps towards seeking insurance coverage protection. Such entities should ensure that all potentially applicable insurance general liability policies are currently being identified, reviewed, and safeguarded; including historical policies and policies sold to affiliates or vendors. Prompt notice should also be immediately provided to insurance companies if, and when, opioid-related claims are received.