United States: Battle Lines Drawn Over Coverage For Opioid Litigation

Originally published by Corporate Counsel Business Journal, July/August 2018

The pharmaceu­tical industry is under siege by opioid litigation. Opioid producers and dis­tributors are the targets of dozens of suits brought by states and municipali­ties, and the situation will only worsen. As with other catastrophic corpo­rate liabilities, companies have turned to their insur­ance companies for relief. Judging by emerging case law, insurance companies are fighting back fiercely against assuming respon­sibility for these claims.

To date, coverage liti­gation has centered on the insurance companies' duty to defend their policyholders. The cost of defending against multiple opioid suits can cripple a company. Insurance should be a first line of defense. The insurance company's duty to defend is much broader than its duty to indemnify. In most states, it is based solely on the allegations of the underlying complaint. The court must scrutinize the complaint liberally in favor of coverage, and the insurance company must defend if there is a poten­tial for coverage. However, since the duty to defend is based on the allegations of the underlying complaint, the policyholder may be at the mercy of the way in which the underlying plaintiff has drafted its complaint.

Intentional vs. Negligent Conduct

This is what happened to Actavis. Two California counties and Chicago sued Actavis over opioids. Actavis sought a defense from its insurance com­pany, Travelers, which instead sued Actavis in California in 2014. The California Court of Appeal issued its decision in 2017 (The Travelers Property Casualty Company v. Actavis, Inc.), 16 Cal. App. 5th 1026, 225 Cal. Rptr. 3d 5, 20 (Cal. Ct. App. 2017), sub judice (Cal.). The court held that Travelers did not have a duty to defend because the underlying complaints "can only be read as being based on the deliberate and intentional conduct of [Actavis] that produced injuries – including a resurgence in heroin use – that were neither unex­pected nor unforeseen." Id. at 1030, 225 Cal. Rptr. 3d at 10. The court rea­soned that insurance pol­icies do not cover inten-tional wrongdoing and that since the underlying complaints only alleged intentional wrongdoing, Actavis did not have any coverage. The manner in which the underlying plaintiffs drafted their complaints proved decisive on coverage.

The court in Actavis distinguished between the case before it and a decision that found a duty to defend against an opioid complaint brought by the attorney general for West Virginia (Cincinnati Ins. Co. v. H.D. Smith Wholesale Drug Co., 2016). The complaint contained seven causes of action, sounding in both negligence and intentional wrongdoing. The court held that since the complaint contained allegations of negligence, the insurance company had to defend. Moreover, under the applicable law, the insur­ance company had to defend the entire suit even if there was only one covered cause of action.

Opioid companies must cope with the public per­ception of them as villains. Some courts will believe the worst of them. For example, in Actavis, it is at least open to question whether Actavis actually believed that its product would lead to a resurgence of heroin use. In Liberty Mutual Insur­ance Co. v. J M Smith Corp., No. 7:12-2824-TMC, 2013 U.S. Dist. LEXIS 136448, at *15 (D.S.C. Sep. 24,(2013), Liberty Mutual, like Travel­ers in Actavis, based its cov­erage defense on intention, arguing that by pumping massive quantities of pills into West Virginia, J M Smith had to know that it was contributing to opioid addiction. In J M Smith Corp., though, the court rejected that argument and found that Liberty Mutual had a duty to defend because, again, the complaint contained allegations of neg­ligent conduct. Id. at *18.

Bodily Injury vs. Economic Harm

All of the opioid insurance coverage litigation to date has involved general liability policies, which contain coverage for damages because of bodily injury. Whether an opioid complaint alleges damages because of bodily injury, or whether the alleged con­duct is purely economic, as the insurance companies argue, is another contested insurance coverage issue.

Cincinnati Ins. Co. v. Richie Enterprises LLC, 2014 BL 58698 (W.D. Ky. Mar. 4, (2014)) also con­cerned the West Virginia opioid complaint. In Richie, the court held that of the seven causes of action, only medical monitoring involved allegations of bodily injury. Id. at *23. As a result, it ordered the insurance company to defend the entire case. Ultimately, however, West Virginia dropped the med­ical monitoring count. As a result, the court in Richie revisited the issue and held that insurance coverage did not exist. Cincinnati Ins. Co. v. Richie Enters. LLC, 2014 BL 197097 (W.D. Ky. July 16, 2014).

Cincinnati Ins. Co. v. H.D. Smith Wholesale Drug Co., 829 F.3d 771 (7th Cir. 2016) reached the exact opposite conclusion addressing the same West Virginia complaint. The court emphasized that the insurance policy did not just cover bodily injury, but covered damages "because of bodily injury." Id. at 774 (emphasis in original). The court stated that "West Virginia alleged that its citizens suffered bodily injuries and the state spent money caring for those injuries – money that the state seeks in damages." As a result, the court found that the damages incurred by the state were because of bodily injury and the insurance company had a duty to defend. Id. at 775.

The issue of whether the complaint alleges bodily injury also arises in a dif­ferent context. An opioid complaint brought by the state of New Jersey contains three causes of action under the Consumer Fraud Act and one under the False Claims Act. Porrino v. Insys Therapeu­tics, Inc., (N.J. Super. Ct. Ch. Div. filed Oct. 5, 2017). None of these causes of action necessarily involves bodily injury. Moreover, the complaint principally seeks penalties and fines, which insurance compa­nies regularly assert are not covered.

The city of Newark framed its 2017 opioid complaint differently (City of Newark, New Jersey v. Purdue Pharma) L.P., et al., (N.J. Super. Ct. Law Div. filed Oct. 4, 2017). While the com­plaint brought a count under the Consumer Fraud Act, it also brought counts for pub­lic nuisance and fraudulent and negligent misrepre­sentation. The complaint, inter alia, sought damages for public nuisance and compensatory damages for fraud and negligent misrep­resentation. A defendant in the City of Newark case has a better chance of obtaining a defense than a defendant in the state of New Jersey case.

Directors & Officers Liability Insurance and Opioid Litigation

Even aside from the bodily injury issue in Richie and J M Smith Corp., an opioid complaint may only allege economic harm. In such a case, a private company may look to its directors and officers (D&O) insur­ance policy. Public compa­ny D&O policies normally only provide insurance coverage for the corpora­tion for securities claims. However, private company D&O policies generally do not have this restriction and respond to a broad range of financial claims against the company.

D&O policies are crit­ical in another context. The federal prosecutor in Massachusetts sued John Kapoor, the director and founder of Insys, and six of his colleagues; the state of New Jersey then added Mr. Kapoor to its action. The company's D&O policy should respond and advance defense costs for the individuals. D&O policies, however, do have limitations. They purport not to cover bodily injury or property damage. They do not respond solely to complaints, but more broadly to "claims." How­ever, definitions of "claim" may vary dramatically. These policies contain numerous exclusions, the most important of which for these purposes are the "conduct" exclusions, which essentially foreclose conduct for fraud and intentional wrongdoing. A D&O policy should contain limiting language on these exclusions. The best such language, which is increasingly common, is that these exclusions do not apply until there is a final non-appealable adjudication of fraud or intentional wrongdoing in the underlying case.

Policyholders should be careful to note that D&O policies have "burning limits." Every dollar spent on defense erodes the policy limit, which means one dollar less for settle­ment. If a company that has insurance coverage intends to settle an opioid claim, it is better off doing it quickly, before defense costs eat away at the limit. Policyholders also need to carefully supervise defense counsel, especially those appointed by the insurance company, to make sure that the attorneys' fees are not exorbitant.

In the Insys case in Massachusetts, each of the seven individuals may need his or her own lawyer. Attor­neys' fees for seven individuals can quickly exceed a D&O policy's limit. When purchasing D&O insurance, companies must carefully review worst-case scenarios and ascertain if the policy limits are sufficient.

Finally, opioid litigation can result in related share­holder derivative litigation against the defendant company's directors and officers. The D&O policy is designed to defend and indemnify against such suits. However, policyholders and their insurance brokers need to be wary. The insur­ance industry is reportedly contemplating the addition of opioid exclusions to D&O insurance policies.

No End in Sight

The furor over opioids is growing more intense, and companies with opioid exposures can only expect more litigation. Insurance is an essential bulwark in fighting off these claims. However, the insurance industry is struggling mightily to avoid paying opioid claims. Policy­holders must navigate numerous difficult issues before reaching the haven of insurance coverage for their opioid liabilities.


Robert D. Chesler is a share­holder in the Newark, New Jersey, office of Anderson Kill. He represents policyholders in a broad variety of coverage claims against their insurers and advises companies with respect to their insurance programs. A leader in areas of insurance cov­erage including cyber insurance recovery, directors and officers insurance, intellectual property, privacy and "green" insurance, he has served as the attorney of record in more than 30 reported insurance decisions. Reach him at rchesler@andersonkill.com.

Carrie Maylor DiCanio is a shareholder in the New York office of Anderson Kill. She concentrates her practice on corporate and commercial litiga­tion and insurance recovery. She has recovered valuable insurance proceeds for corporate policy­holders in state and federal courts throughout the U.S. and has advised clients on pre-litigation insurance matters. She also co-chairs Anderson Kill's Women's Network. Reach her at cdicanio@andersonkill.com.


Anderson Kill practices law in the areas of Insurance Recovery, Commercial Litigation, Environmental Law, Estates, Trusts and Tax Services, Corporate and Securities, Antitrust, Banking and Lending, Bankruptcy and Restructuring, Real Estate and Construction, Foreign Investment Recovery, Public Law, Government Affairs, Employment and Labor Law, Captive Insurance, Intellectual Property, Corporate Tax, Hospitality, and Health Reform. Recognized nationwide by Chambers USA and best-known for its work in insurance recovery, the firm represents policyholders only in insurance coverage disputes - with no ties to insurance companies and has no conflicts of interest. Clients include Fortune 1000 companies, small and medium-sized businesses, governmental entities, and nonprofits as well as personal estates. Based in New York City, the firm also has offices in Philadelphia, PA, Stamford, CT, Washington, DC, Newark, NJ and Los Angeles, CA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions