(Article from Insurance Law Alert, July/August 2024)
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Holding
A California district court ruled that underlying opioid-related suits did not allege a covered “occurrence” and therefore that insurers had no duty to defend. AIU Ins. Co. v. McKesson Corp., 2024 U.S. Dist. LEXIS 134565 (N.D. Cal. July 30, 2024).
Background
McKesson, a distributor of prescription drugs, was named as a defendant in underlying suits brought by government entities for its alleged role in contributing to the opioid crisis. The suits alleged that McKesson intentionally flooded the market with opioids, contravening various industry safeguards and ignoring or concealing risks associated with the use of opioid medications. McKesson’s insurers sought a declaration of no coverage, arguing, among other things, that the underlying claims did not allege an “occurrence.”
Ruling on McKesson’s motion for summary judgment, the court held that the underlying allegations did not give rise to an “occurrence” and therefore that the insurers had no duty to defend the suits.
Decision
As the court noted (and as reported in our January 2024 Alert), the Ninth Circuit granted insurers’ partial summary judgment motion, finding no duty to defend three Exemplar Opioid Lawsuits under two policies issued to McKesson in effect from 2008-2009 and 2015-2016. AIU Ins. Co. v. McKesson Corp., 2024 U.S. App. LEXIS 1806 (9th Cir. Jan. 26, 2024). The Ninth Circuit reasoned that the conduct was not “accidental” and thus did not constitute an occurrence as defined by the policy because the allegations in the lawsuit involved exclusively intentional conduct and did not involve unexpected or unforeseen injuries.
In the present case, McKesson argued that notwithstanding the Ninth Circuit’s ruling, the suits alleged at least a potentially covered occurrence as that term is defined under policies issued between 1999-2004. McKesson reasoned that a slight difference in policy language during this time period warranted a different conclusion as to the occurrence issue. In particular, the 1999-2004 policies included the phrase “damage neither expected nor intended from the standpoint of the insured,” whereas the policies in the Ninth Circuit decision did not include the phrase “from the standpoint of the insured” in the occurrence definition, but instead included that phrase in a policy exclusion that barred coverage for damage “expected or intended from the standpoint of the insured.” Rejecting this argument, the court held that the differing placement of that verbiage was irrelevant, and that all policies required accidental conduct or damage that was neither expected nor intended from the standpoint of the insured in order to trigger an insurer’s defense obligations. Further, the court emphasized that under California law, deliberate conduct is not deemed accidental simply because the insured did not intend the damage that resulted from the deliberate conduct.
The court also rejected McKesson’s assertion that even if the definition of “occurrence” in the 1999-2004 policies “is as the Ninth Circuit stated,” the suits allege a potentially covered occurrence based on “diversion” of the opioid products distributed by McKesson. McKesson argued that the diversion of opioids by “‘underhanded’ physicians and pharmacists who were writing and filling illegitimate prescriptions was the particular unforeseen, intervening cause of the alleged injuries from 1999-2004.” Deeming this argument unpersuasive, the court noted that the Ninth Circuit had already rejected that contention, noting that diversion of McKesson’s “oversupply of opioids” was the “inevitable and entirely foreseeable result” of its alleged actions and practices, including its alleged failure to maintain effective controls and failure to report or halt suspicious orders.