(Article from Insurance Law Alert, December 2020)
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Over the past year, several courts have ruled that general liability insurers are obligated to defend opioid manufacturers and distributers against class action suits brought by government entities, finding that the underlying claims allege damages “because of bodily injury.” See October, July/August, and June 2020 Alerts. Last month, a Pennsylvania federal district court followed suit, ruling that two umbrella insurers were obligated to contribute to the policyholder’s defense. Giant Eagle v. American Guarantee and Liability Ins. Co., 2020 WL 6565272 (W.D. Pa. Nov. 9, 2020).
Giant Eagle, a supermarket with pharmaceutical services, was named as a defendant in numerous lawsuits. Some of the suits were brought by families of individuals affected by opioid addition, while others were filed by counties purportedly seeking damages for the costs of medical treatment and other services related to opioid dependence. Two of Giant Eagle’s umbrella insurers refused to defend, arguing that the underlying suits did not seek damages potentially covered by their policies. The court disagreed and granted Giant Eagle’s partial summary judgment motion.
The court ruled that economic losses incurred by the counties in addressing opioid addition (e.g., costs related to medical treatment and recovery services) were damages “because of bodily injury.” In addition, the court held that the complaints alleged an “occurrence” or “accident” under the relevant policies. In particular, the court noted that the complaints alleged negligence with respect to Giant Eagle’s failure to identify suspicious opioid orders and reasoned that public nuisance claims, which allege that Giant Eagle “should have known” about pill mills, sufficiently alleged fortuitous actions.
The court rejected the insurers’ contention that the underlying claims alleged multiple occurrences, such that Giant Eagle was obligated to satisfy per-occurrence SIRs and deductibles before seeking a defense from umbrella insurers. The court explained that for purposes of determining the insurers’ duty to defend, the complaints need only “potentially allege a single occurrence.” Applying Pennsylvania’s cause-oriented test for number of occurrences, the court stated: “It is certainly possible . . . that a court could find that a single occurrence, i.e., Giant Eagle’s comprehensive failure to maintain effective controls over its opioid distribution and sales, resulted in the injuries suffered by the plaintiffs in the underlying lawsuits.” In addition, the court concluded that under a “first manifestation rule,” the underlying claims alleged injury that potentially occurred during the policy years at issue. In particular, the court noted that the record was insufficient to determine when bodily injury first manifested, and that the complaints allege bodily injury occurring from 1999 through the present. As such, a potential for coverage under the policies existed, and the duty to defend was triggered.
Finally, the court ruled that the insurers’ duty to defend was triggered because Giant Eagle’s payment of defense costs in the underlying suits constitutes a “loss” as defined in the umbrella policies.
In Acuity v. Masters Pharmaceutical, Inc., 2020 WL 3446652 (Ohio Ct. App. June 24, 2020), discussed in our June 2020 Alert, an Ohio appellate court ruled that an insurer must defend a pharmaceutical distributor against certain suits filed by government agencies seeking to cover costs relating to the opioid problem, finding that the suits sought damages “because of” bodily injury and that coverage was not precluded by a loss-in-progress provision. This month, the Ohio Supreme Court agreed to review the appellate court decision. Acuity v. Masters Pharmaceutical Inc., No. 2020-1134 (Ohio Dec. 15, 2020).