Since 2014, thousands of individual lawsuits have been filed by state and local governments against opioid makers resulting from the influx of these drugs in the marketplace. To defray the costs in defending against these lawsuits, opioid makers and distributors have turned to their insurance companies for a defense. These demands for coverage have triggered coverage litigations in which courts must determine whether an insurance company has a duty to defend its insured in these opioid lawsuits. In these coverage lawsuits, courts from various states have been asked to assess whether coverage exists under substantially the same liability insurance policy. Despite the similarities in these insurance policies, courts from different states have reached different results. These disparate outcomes underscore that the governing law used to interpret these insurance contracts is often the determinative factor of whether coverage exists.
California Says No Coverage
Most recently, a federal court in California weighed in on this issue. There, the court granted summary judgment in favor of the insurance companies and ruled that the insurers had no duty to defend or indemnify drug distributor/seller McKesson Corporation under the respective liability policies.
In October 2020, the insurers filed suit in the Northern District of California seeking a declaratory judgment that they are not obligated to defend or indemnify McKesson against the opioid lawsuits. Specifically, the State of Oklahoma’s suit against McKesson and Cuyahoga and Summit Counties of Ohio suit against McKesson were considered the exemplar, bellwether suits for the declaratory judgment action.
After tendering notice of the claims to the insurers, McKesson spent more than $230 million to defend against thousands of opioid lawsuits. The insurers denied coverage for various reasons, including that the suits did not allege a “bodily injury” or that the alleged “bodily injury” was not caused by an “occurrence.”
Is Deliberate Act an Accident?
The court agreed with the insurers and found that the governmental plaintiffs in the exemplar suits mainly alleged McKesson engaged in deliberate acts to evade the law and increase profits. While Judge Corley found that the underlying lawsuits alleged sufficient facts to constitute a “bodily injury,” the Court found that these same allegations demonstrated that the alleged “bodily injury” was NOT caused by “an occurrence.” Thus, the insurers owed no duty to defend the insureds in the underlying opioid litigations.
The court reached this conclusion because the insurance policy defined an “occurrence” as “an accident…” According to the court, California’s “settled” law states that an “accident” is never present when the insured performs a deliberate act, regardless of whether the insured intended to cause harm by this deliberate act. The court noted this definition of “accident” was unique and varied from how other states have defined “accident” in insurance coverage cases. For example, in Ohio, the court observed an accident occurs even when an insured commits a deliberate act, so long as that deliberate act produces an unintended result.
Because of this unique definition of “accident,” Judge Corley found McKesson’s injury-producing acts, i.e., shipping and distributing opioids, were not an “occurrence” under the policies but deliberate acts falling outside of coverage. Even for the negligence claims, Judge Corley found the allegations were based on alleged deliberate acts. These deliberate acts entailed selling and distributing far greater quantities of opioids than McKesson knew could be necessary for legitimate medical uses thereby fueling an illegal secondary market.
Policy vs. Governing Law Considerations
Underlying the court’s opinion was an important, stark difference in how California defines an “accident” and the impact of that one definition had when interpreting the term “occurrence” in the insurance policy. As such, while the reasoning of this ruling may be confined to California, the decision underscores the importance of which state’s law controls the interpretation of the insurance contract. When addressing difficult coverage decisions both insureds and insurers must not only look at the terms of the insurance policy to determine whether coverage exists, they must also look at applicable law that will interpret the insurance policy to fully assess whether coverage exists under the policy. Thus, both insureds and insurers are cautioned that while the terms and conditions of the insurance policy guide the conversation on whether coverage exists, the state law used to interpret these terms and conditions will often dictate the outcome of that conversation.