(Article from Insurance Law Alert, November 2024)
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Holding
A Florida district court ruled that injuries alleged in underlying opioid suits brought by government entities against a pharmacy did not constitute damages “because of bodily injury,” as required by the applicable policies. Publix Super Mkts., Inc. v. Ace Prop. & Cas. Ins. Co., 2024 U.S. Dist. LEXIS 195956 (M.D. Fla. Oct. 29, 2024).
Background
Publix, a supermarket chain that operates pharmacies, was named as a defendant in suits seeking damages related to the alleged unlawful sale of opioids without effective controls against diversion into illegal markets. The underlying suits, brought by various municipalities, also alleged that Publix knew or should have known that its conduct adversely affected the safety and welfare of local communities. In particular, the suits alleged that Publix’s conduct resulted in an increase of emergency medical responses to overdoses and drug-related crimes, and the expenditure of significant resources on social programs relating to opioid abuse, among other things.
Publix sought defense and indemnity from its tower of insurers. When none of the insurers agreed to defend or indemnify, Publix sued, seeking a declaration of coverage. Thereafter, Publix filed a motion for partial summary judgment as to certain policies. The court denied the motion and issued an order for Publix to show cause as to why summary judgment should not be granted in favor of the insurers.
Decision
Addressing a preliminary matter, the court ruled that Publix’s summary judgment motion was ripe for adjudication under federal Constitutional standards. Courts have used different tests for ripeness with respect to disputes over insurance coverage under excess policies. Some courts have concluded that a coverage dispute is ripe when the excess insurer either denies coverage or formally declares that it has no duty to defend, regardless of whether the underlying policy has been exhausted. Other courts have held that ripeness for an excess insurance declaratory judgment action turns on the satisfaction of two elements: (1) a true dispute regarding coverage, and (2) a likelihood that resolution of the dispute will have a “tangible impact on defendants’ obligations.” The court adopted the latter standard, finding it more consistent with Eleventh Circuit precedent.
With respect to the first prong, the insurers argued that the motion was unripe because Publix had not shown the exhaustion of self-insured retentions (SIRs), a condition precedent to coverage. Rejecting this assertion, the court concluded that a justiciable controversy existed because all the insurers named in the motion for summary judgment had affirmatively denied coverage, thereby creating a “true dispute.”
As to the second prong, the court ruled that resolution of the dispute would likely have a “tangible impact on the parties.” Although it deemed the question a close call given that Publix had not paid any judgments or settlements in the underlying case and because defense costs did not count towards the exhaustion of underlying policies or the Druggists Policy’s SIR, the court concluded that “on balance, it is likely that a ruling on the merits will have a tangible impact on the parties with respect to at least some of the excess policies.” More specifically, the court emphasized that some layers of insurance would be implicated after $2.5 million or $5 million in settlement or judgments, and that Publix was facing dozens of suits and had already reached a settlement in principle in at least one of them. For these reasons, the court deemed the dispute ripe.
With respect to the substantive coverage issue, Publix argued that the policies provided coverage because the underlying suits included allegations relating to injury, sickness, disease and death related to opioid use. Publix further claimed that policy language referring to damages “claimed by any person or organization for care, loss of services, or death resulting at any time from the bodily injury” indicated an intention to provide coverage for claims brought by government entities for opioid-related harms. Alternatively, Publix asked the court to find the phrase “because of bodily injury” ambiguous and to construe it in favor of coverage.
Rejecting these assertions, the court ruled that the injuries alleged in the underlying suits are not damages “because of bodily injury.” As the court noted, Florida law interprets “because of” to require a direct causal connection. The court concluded that the causal connection between the injuries alleged and the damage sought in the underlying opioid suits was too attenuated to meet that standard. Emphasizing that the suits alleged, among other things, public nuisance in the form of “severe and far-reaching public health, social services, and criminal justice consequences,” the court ruled that there was no direct causal connection between the damages the plaintiffs sought and any individual bodily injuries.
Finally, the court rejected Publix’s argument that the addition of a specific opioid exclusion in later policies indicated that the earlier policies were intended to include coverage for underlying opioid claims. As the court stated: “An exclusion, or lack thereof, cannot be relied upon to create coverage where the plain language of a policy demonstrates that coverage does not exist.”
Comments
Publix aligns with other decisions holding that underlying opioid suits brought by government entities do not allege damages because of bodily injury. See Westfield Nat’l Ins. Co. v. Quest Pharm., Inc., 57 F.4th 558 (6th Cir. 2023); Acuity v. Masters Pharm., Inc., 205 N.E.3d 460 (Ohio 2022); ACE Am. Ins. Co. v. Rite Aid Corp., 270 A.3d 239 (Del. 2022); Allied Prop. Cas. Ins. Co. v. Bloodworth Wholesale Drugs, Inc., 2024 U.S. Dist. LEXIS 55499 (M.D. Ga. Mar. 27, 2024).
Simpson Thacher represents St. Paul Fire & Marine Insurance Company in this matter.