Watch the full video at https://rumble.com/v26smfe-no-defense-for-economic-damages-alone.html and at https://youtu.be/GQwgp_dywTU
IN Westfield National Insurance Company; Motorists Mutual Insurance Company v. Quest Pharmaceuticals, Inc., 21-6026, 21-6043, United States Court of Appeals, Sixth Circuit (January 13, 2023) lawsuits against opioid manufacturers and distributors for costs dismissed because plaintiffs suffered neither bodily injury nor property damage.
In the wake of a nationwide opioid epidemic, aggrieved individuals, local governments and other organizations are taking pharmaceutical companies to task for their alleged misconduct in marketing and distributing prescription opioids. Quest Pharmaceuticals, Inc. (“Quest”), a Kentucky-based generic drug distributor, is now on the receiving end of approximately 77 such lawsuits. Quest reported the dispute to its insurers, Westfield National Insurance Co. (“Westfield”) and Motorists Mutual Insurance Co. (“Motorists”), which immediately sued in federal court seeking declaratory judgments that they were not obligated to defend or indemnify Quest in the underlying lawsuits.
The district court granted summary judgment to the insurers, reasoning that the relevant policy language did not cover the claims brought against Quest.
BACKGROUND
The underlying plaintiffs allege violations of the RICO Act, violations of state statutes, and common law claims of public nuisance and negligence. The underlying plaintiffs’ damages include “substantial expenses for police, emergency, health, prosecution, corrections, rehabilitation and other services.” Many of the complaints also clarify that the plaintiffs’ claims “are not based on or derivative of the rights of others” and that the plaintiffs “do not seek damages for death, physical injury to person, emotional distress or physical damage to property[.]”
Given that the court found that the policies did not require either insurer to defend or indemnify Quest in the underlying dispute, it never reached Westfield’s alternative argument that the policies’ “known loss” provision, which excludes damages known to the insured before purchasing the policy , also excluded coverage of the underlying trials.
ANALYSIS
As a federal court sitting in plurality, the Sixth Circuit must apply Kentucky law to this question of contract interpretation. Pursuant to Kentucky law, the Sixth Circuit was required to interpret the policies “in accordance with the parties’ mutual understanding at the time they entered into the contracts]” based solely—where possible—on the plain language of the contract.
Simple sentence
Broadly speaking, terms in an insurance policy are given their plain and ordinary meaning, so that words without “legal technical meaning” are interpreted in accordance with common usage and understanding.
The cops here are demanding that the insurance companies defend Quest against lawsuits seeking “damages for bodily injury” and reimburse Quest for such damages that Quest becomes “legally obligated to pay[.]” An insurer’s duty to defend arises whenever an allegation in an underlying complaint “may” fall within the scope of the policy.
The underlying lawsuits seek “damages” under the policy; they also agree that the lawsuits do not seek damages directly “for bodily injury.” The only disagreement is whether the damages sought are “Because bodily injury.”
“Because”
In general, the phrase “because of” means because of or on account of. Quest argued that the underlying lawsuits are “bodily injury” where they would not have been brought had they not been brought for injuries caused by opioid abuse and addiction, and thus exist because of or because of these underlying damages. The insurers, on the other hand, argued that the claims are not “bodily injury” where they allege no specific bodily injury and seek only monetary damages for costs incurred by the underlying plaintiffs in addressing the opioid epidemic.
In this case, the underlying plaintiffs seek monetary damages not to compensate for an expressly covered injury, but rather to cover the costs of activities conducted in relation to numerous unspecified injuries. As a result, the Sixth Circuit agreed with the district court that the suits against Quest are not “for bodily injury” under the policies.
The Sixth Circuit concluded that lawsuits brought by local governments and other entities to cover costs incurred because of the opioid epidemic — but not to recover for any specific bodily injuries — do not trigger the insurers’ obligations to defend or indemnify Quest.
The parties agreed that the lawsuits were not alleged to have harmed any particular person. Instead, the allegations described broad societal harms caused by opioid addiction, such as reduced productivity and increased health care costs, which the underlying plaintiffs link to Quest’s and other pharmaceutical companies’ saturation of communities with prescription opioids that fuel illegal opioid addiction. As such, the underlying lawsuits against Quest are not “for bodily injury” and the insurers have no obligation to defend Quest or indemnify Quest for any damages it may owe.
The definition of “indemnity” similarly informed the Sixth Circuit’s understanding of the policies’ scope and purpose, namely to cover tort claims.
Nothing in the policies suggested that they were intended to cover lawsuits such as these, particularly by local authorities to recover purely financial damages. The plain language instead states that claims must arise in some way from some bodily injury to a person. Although some of the complaints raise tort claims such as nuisance or negligence, the underlying theory of recovery is that Quest’s alleged misconduct resulted in financial injury to the entities themselves.
No complaint presupposes recovery for a particular person’s bodily injury, so no complaint triggers the insurers’ duty to defend.
The claims, all of which are for economic damages, are, according to the Sixth Circuit, simply outside the scope of the policies.
The Sixth Circuit read the full text of the policies and allegations of the lawsuits against the insured. As a result of finding no bodily or property damage, coverage for lawsuits seeking damages from the insured for the amounts the opioid drug crackdown cost various cities and other public entities was financial only, no damage due to the insured against risks of claims bodily injury or property damage.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud for insurers and policyholders alike. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and zalma@zalma.com
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