Opioid insurance coverage is now one of the most important issues faced by the pharmaceutical industry, which is now in the cross-hairs of plaintiffs lawyers.
Insurance Coverage for Opioid Claims
To date, hundreds of lawsuits have been filed, and the solution to the problem includes a variety of liability insurance policies sold to the various entities in the supply chain for legal prescription opioid pain medicine. The issue of opioid insurance coverage has certainly gotten the attention of insurance company lawyers. As is typical in these kinds of situations, the insurance industry is lawyered up to fight against paying opioid claims. Based on our experience representing policyholders in the opioid crisis, many of the arguments raised by insurers are invalid, and many of the claim denials issued by insurers are improper. A synopsis of the opioid crisis in general, and arguments for defeating insurer denials of coverage are addressed below.
1. The Explosion of Investigations and Lawsuits Against Those in The Supply Chain of Legal Prescription Opioid Pain Medicine
Public concern over the alarming level of opioid abuse and the staggering number of opioid-related overdose deaths has driven increased legal and regulatory action at many levels. Most of the tens of thousands of opioid deaths directly result from illegal street drugs, not prescribed opioid pain relievers. Prescribed medicines — developed to relieve pain and suffering and approved and regulated by the government — according to some, are now being alleged to have contributed to the crisis of addiction and death. And, as with prior public health crises (asbestos, tobacco), where there is suffering and death, plaintiffs’ lawyers will follow. See “The Opioid Crisis Has Plaintiff Lawyers Smelling Cash,” (Wall Street Journal, January 3, 2018), (subscriptions required); “Lawyers Circle America’s Opioid Crisis,” (Financial Times, August 3, 2017).
A cadre of private lawyers is now teaming up with state, county, municipal and tribal governments to investigate and file lawsuits against pharmaceutical manufacturers, wholesale distributors, retail pharmacy chains and others in the supply chain of opioid pain medicine regarding their actions in connection with the marketing, sale and distribution of opioid pain medications. More specifically:
- Pharmaceutical manufacturing companies have been sued in state courts by many state Attorneys General, and in state or federal court by scores of city, county and local government agencies and Native American tribes. These lawsuits typically allege a variety of claims related to marketing and sales practices, including false advertising, unfair competition, public nuisance, consumer fraud, deceptive acts and practices, negligence, false claims and unjust enrichment. The suits generally seek equitable and/or injunctive relief and monetary damages.
- Wholesale distributors and retail chains have also been sued alleging that they failed to provide effective controls and procedures to guard against the diversion of opioid pain medicine, acted negligently by distributing pain medicine to pharmacies that served individuals who abuse controlled substances, and failed to report suspicious orders of opioid pain medicine in accordance with regulations.
- Additionally, a coalition of states has issued requests for documents and information regarding the distribution of prescription opioid pain medications.
- Health insurers have sued manufacturers and others, seeking to recover damages allegedly sustained as a result of defendants allegedly defrauding insurers into paying for prescribed opioid pain medications.
Because of these lawsuits and investigations, many companies have also been sued by shareholders for alleged violations of securities laws and/or are nominal defendants in derivative litigation alleging that their directors and officers breached their fiduciary duties.
In September 2017, plaintiffs in some of these lawsuits filed a motion before the Judicial Panel on Multidistrict Litigation to have all federal opioid crisis actions transferred to a single federal court for consolidated and coordinated pretrial proceedings. In December 2017, the Judicial Panel transferred over 115 pending federal actions to the Northern District of Ohio and, with the consent of that court, assigned them to the Honorable Dan A. Polster for coordinated or consolidated pretrial proceedings. Since then, as of this writing, more than 250 additional actions have been transferred to the MDL, and many more cases are expected to follow.
Although coverage must be determined on a case-by-case basis, Insurance policies can afford a solution to companies that are targets of these investigations and lawsuits by providing coverage for the costs of defense, and ultimately, settlements or judgments paid to resolve these opioid-related claims.
2. Insurance Policies Responding to Opioid Litigation and Investigations
Depending on the nature of the claims asserted, target companies should seek coverage for opioid-related claims under several different types of insurance policies.
A. General Liability Insurance Policies
Commercial general liability (GL) insurance policies typically have broad grants of comprehensive coverage that respond to many kinds of opioid-related lawsuits. These policies usually cover “sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ . . . caused by an ‘occurrence.’” The policies typically define “occurrence” to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” In most jurisdictions, a GL insurer has a duty to defend a policyholder against all claims in a lawsuit so long as a single claim falls potentially within the scope of coverage.
Based on our experience representing pharmaceutical entities in the opioid crisis, the insurers have identified three points of attack:
Bodily injury caused by an “accident.” Insurers routinely argue that allegations in opioid lawsuits assert intentional acts by defendants, not fortuitous “occurrences” or “accidents.” Allegations in the underlying opioid lawsuits that allege negligence, however, allege a potentially a covered “accident” and trigger the duty to defend. One court reasoned that,
“the defendants here were engaged in the lawful activity of providing prescription drugs to pharmacies. They may not have been sufficiently careful about whose hands the drugs eventually reached, but that does not preclude finding accidental injury.”
But an outlier decision by the California Court of Appeal recently held that underlying complaints against a manufacturer did not allege the potentiality of liability based on an “accident,” because none of the injuries alleged was, in the court’s view, unexpected, independent or unforeseen. This is the most pernicious defense that insurers are likely to assert, because it turns on its head the concept of fortuitous loss, and if accepted potentially eviscerates coverage for virtually every kind of claim, as, under this theory, the negligent consequences of any volitional action would be excluded from coverage. Thus, opioid claims are covered “accidents” and this defense should remain a minority position, at best.
Damages “because of ‘bodily injury.’” Insurers also argue that opioid lawsuits, especially those asserted by governmental entities, do not seek damages because of “bodily injury” to citizens, but rather seek only to recover the economic loss suffered by the governments (or health insurers) in the form of increased costs allegedly incurred because of defendants’ actions. Most certainly, claims by governmental entities and health insurers are seeking compensation because of bodily injury, as without bodily injury, there would be no claims. Accordingly, this novel, but creative argument raised by the insurers has already been rejected by one federal appeals court. Nonetheless, insurers are relentlessly pushing the argument and have found some isolated traction with the argument.
Products/completed operations exclusions. Although opioid claims fall within the GL policies’ grant of coverage as loss because of bodily injury caused by an occurrence, insurers are taking the position that opioid claims are not covered because they fall within within the products-completed operations hazard. Even if insurers are correct, a duty to defend still exists if covered and non covered causes combine to result in the alleged loss. Insurer’s rights based on products exclusions may be reserved, but, in most instances, these exclusions do not warrant an outright denial of coverage. Moreover, to the extent that a loss properly falls within the completed operations hazard, such loss is exactly the kind of loss covered under separate products liability insurance (as discussed below).
B. Products Liability Insurance Policies
Defendants in opioid-related litigation, especially pharmaceutical manufacturers, often carry specialized life sciences insurance coverages, including products liability coverage. These policies may, for example, cover sums that the insured becomes legally obligated to pay as damages because of bodily injury included within the products-completed operations hazard. Products liability policies typically cover all bodily injury occurring away from premises owned or rented by the policyholder and arising out of the company’s “product,” which includes opioid pain medicine.
Even here, insurers are raising defenses to coverage. These include:
The “expected or intended” exception to the definition of “occurrence.” Here, insurers are taking the absurd position that policyholders expected the injury and loss. This is a variant on the fortuity defense asserted under GL policies, that has been soundly rejected in other contexts.
Exclusions for “unfair competition,” criminal violations, and intentional acts of non-compliance with FDA rules or regulations. Although these kinds of exclusions may be found in policies issued to companies involved in the distribution chain of legal opioid pain medication, they are not applicable at the duty-to-defend stage of the underlying litigation, and, the insurer has the burden of proving their applicability. In most jurisdictions, this burden can only be met if the excluded basis for liability is the only potential cause of loss. Given the nature of claims opioid claims alleged to date, this burden cannot be met. In any event, a duty to defend exists where covered and non covered causes combine to result in the loss alleged. Accordingly, these exclusions do not permit an early termination of the duty to defend while the underlying litigation remains pending.
C. Management Liability Insurance Policies (D&O)
Management liability policies, including directors’ and officers’ (D&O) policies, afford broad coverage for loss arising from claims first made during the policy period against insured persons for “wrongful acts,” commonly defined to include any “actual or alleged act, error, misstatement, misleading statement, neglect, omission or breach of duty.” Private company D&O insurance policies cover wrongful acts of the company, as well as individuals, whereas public company D&O insurance policies typically cover loss to the company arising from securities claims brought against the company on behalf of shareholders, and derivative actions brought to enforce a right of the company, for wrongful acts under same definition. The definition of a covered “claim” in these policies may include requests, investigative demands or subpoenas by regulatory, administrative, governmental or similar authority demanding to examine insured persons under oath or requiring the production of documents. Wording is not uniform, and each policy must be studied carefully.
Given the amount of money at stake, Insurance company lawyers have spent a considerable amount of time working up potential D&O insurance policy defenses. Some of the defenses to coverage raised by D&O insurers include:
Definition of “Loss” Defenses. Here, insurers note that the definition of Loss in some policies excludes from coverage fines, penalties or matters uninsurable under applicable law. Even with such definitions, insurers must provide a defense for the entire cost of defending opioid claims, and of resolving claims for damages exclusive of the fines or penalties.
Conduct Exclusions. Management liability policies may also exclude coverage for claims arising out of: (1) the gaining by any insured of any profit or advantage to which such Insured was not legally entitled; or (2) the commission by any insured of any criminal or deliberately fraudulent or dishonest act. But, such exclusions commonly require a final adjudication in the underlying claim adverse to such insured establishing the excluded conduct. Hence, these exclusions have no applicability if the underlying claim is settled. Moreover, mere allegations of a complaint are insufficient to trigger these exclusions, and cannot relieve an insurer of either its defense or indemnity obligations absent a required final adjudication.
Because insurers are facing a difficult time evading coverage for opioid claims, they are raising all sorts of non-contractual defenses to avoid coverage, including a “social insurance” argument they have raised in the past. If past public health crises are prologue, these arguments will run something like this: Holding insurers responsible to pay for the costs of public services, including health care, will transform private party liability insurance into social insurance to underwrite public health epidemics caused by all manner of ills. According to insurers, this will, at a minimum, increase the cost of liability insurance, and financially harm liability insurers, who have not priced this risk into their premiums. Moreover, holding insurers liable to pay will shift costs away from those best equipped to address the social problem; the companies that supply the opioid products.
These arguments are inconsistent with insurance law, which permits parties to freely contract to cover risks, and which place the burden on insurers to pay for insured risk, even if they made an error in underwriting. Courts interpret insurance contracts according to their language and construe them against insurers if they are ambiguous, and in favor of an insureds’ reasonable expectations of coverage.
Moreover, to the extent courts are inclined to look past contract language when construing insurance policies, the social arguments cut in favor of coverage, not against it, because liability insurance is designed to perform risk management, and deterrence and compensation functions of insurance are important to the social functioning and ordering of society. See, e.g., J.W. Stempel, The Insurance Policy as Social Instrument and Social Institution, 51 William & Mary L. Rev. 1489 (2010). These social purposes are especially easy to grasp in the context of pharmaceutical companies that develop and bring to market countless products, including opioid pain medicine, that can relieve human pain and suffering. These companies bought and paid for liability insurance to manage the risks inherent in their business. They are entitled to enforce the promises made to them by those insurance companies that accepted their risks and their premiums.
If you have any questions concerning the issues addressed in this post, please contact Bernard Bell (firstname.lastname@example.org / 202-760-3158 (DC) / 212-203-6750 (NY)).