Poisoning people with opioids is not a common occurrence

McKesson, a distributor and seller of prescription drugs, held a number of liability insurances with insurance companies between 1999 and 2017. Two insurances are relevant in the claims for partial summary judgment. IN AIU Insurance Company, et al. v. Mckesson Corporation, Nr. 20-cv-07469-JSC, United States District Court, ND California (April 5, 2022) McKesson claimed defense costs incurred in connection with mass lawsuits over opioid distribution.

INSURANCE

NU Policy

The NU policy covers the period from 1 July 2008 to 1 July 2009. The policy gives a “duty to defend any process” against McKesson “who seeks damages for bodily harm … is covered by this policy, even if the trial is unfounded, false or fraudulent where applicable… Retained limits have been exhausted through the payment of losses to which this policy applies. ” “Event” with respect to “bodily injury” means “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

The insurance “Retained Limit” of $ 5 million per “Currence” is “consumed by the payment of loss to which this policy applies.” Defense costs are included in the maintained limit.

ACE policy

The ACE policy covers the period 1 July 2015 to 1 July 2016.

The policy applies to bodily injury that “occurs during the” insurance period “and” is caused by an “event”.

The “Retained Limit” policy is $ 5 million per “Currence”.

EXAMPLE COSTUME

The parties limit their claim for a partial summary judgment to the obligation to defend themselves against three “for example proceedings”.

“Track One” litigation in several districts

In October and December 2017, respectively, the Cuyahoga and Summit Counties of Ohio filed a lawsuit against McKesson and other defendants. The lawsuits were consolidated into an opioid multidistrict litigation (“MDL”) in the Northern District of Ohio.

The lawsuits claim that McKesson “failed[ed] to: a) control the supply chain. (b) prevent diversion. (c) report suspicious orders; and (d) stopping shipments of opioids in quantities [it] knew or should have known could not be justified and indicated serious overuse of opioids. “The county councils further claim that McKesson” intentionally, unreasonably and / or illegally fraudulently marketed and expelled as many opioids on the market as possible, which fueled dependence and diversion of these powerful drugs “, and violated its duty of care by” choosing not to effectively monitor for suspicious orders, “choosing not to investigate suspicious orders”, “choosing not to report suspicious orders” and “choosing not to stop or suspend deliveries of suspicious orders . “

Oklahoma suit

In May 2020, the state of Oklahoma filed a lawsuit against McKesson. The lawsuit claims demands for negligence, statutory general inconvenience and unfair enrichment. By flooding Oklahoma in general with more opioids than could be used for legitimate medical purposes and by filling in and failing to report orders that they knew or should have known would likely be diverted for illegal and / or non-medical use, McKesson broke [its] duty.

Obligation to defend

McKesson confirms that it has paid more than $ 230 million to defend itself against the thousands of opioid trials as of January 2021. It has paid more than $ 60 million in defense costs in opioid MDL for the period July 2018 to October 2019, the vast majority of which arose to defend the Track One processes. McKesson certifies that the insurance companies have so far not defended McKesson against any of the opioid trials, acknowledged an obligation to defend, or reimbursed McKesson’s defense costs.

DISCUSSION

The obligation to defend is broader than the obligation to make amends. Unlike the liability for compensation, which is determined only when the insured’s underlying liability is determined, the defense obligation must be assessed already at the beginning of a case. An insurer may have a liability even when it ultimately has no obligation to compensate, either because no damages are awarded in the underlying action against the insured, or because the actual judgment relates to damages not covered by the insurance.

An insurer and an insured who request a declaratory judgment on the defense obligation have different burdens. The insured must prove the existence of one potential for coverage, while the insurer must determine the absence of such potential. In other words, the insured only needs to show that the underlying claim May fall within the insurance coverage; the insurer must prove it can not. ” [Liberty Surplus Ins. Corp. v. Ledesma & Meyer Constr. Co. (“Ledesma”), 418 P.3d 400, 403 (Cal. 2018).]

Although the obligation to defend is broad, it is not unlimited. McKesson argues that the exemplary processes are at least potentially covered by the NU and ACE policies because they seek damages for “bodily harm” caused by an “event” and because McKesson has exhausted the detention limit for an individual event.

The exemplary processes seek, at least potentially and at least in part, forms of relief that can reimburse the state plaintiffs’ costs of responding to and caring for the bodily harm suffered by people in their jurisdictions. McKesson has determined that the exemplary suits at least potentially meet the requirement of “bodily injury” for coverage. The question is where the “bodily injury” is caused by an accident or incident.

PRESENCE

The insurances cover bodily injury that is “caused by an event.” In the case of bodily injury, an “event” is “an accident, including continuous or repeated exposure to essentially the same general harmful conditions.” Accident does not apply to the consequences of an action, but instead applies to the act itself. [State Farm Gen. Ins. Co. v. Frake (“Frake”), 128 Cal.Rptr.3d 301, 309 (Cal.Ct.App. 2011).]

Intentional behavior – allegations of negligence

Claims of non-negligence constitute the largest part of the exemplary processes. Track One claims for violations of federal RICO law and OCPA, statutory general nuisance, general legal nuisance, damage by criminal acts, unfair enrichment and civil conspiracy. The Oklahoma complaint alleges statutory public nuisance and unfair enrichment.

The allegations that McKesson engaged in a system to circumvent the law and increase profits can only describe intentional, intentional acts. The exemplary lawsuits allegations of violations of the RICO Act, OCPA violations, general inconvenience, criminal misconduct, unfair enrichment and civil conspiracy are based on specific allegations of intentional conduct.

Claims of negligence

Each of the exemplary processes includes a negligence claim.

The central distinction between negligence and intentional damages is whether the conduct was done for the purpose of causing harm or with a certainty that harm would occur, not if the conduct was intentional. Coverage does not depend on the technical legal cause of action brought by a third party but on the facts alleged in the underlying complaint or otherwise known to the insurer.

According to the complaints, McKesson knew or should have known that incoming orders were “suspicious”, that shipments went to “pill factories”, that the quantities “could not be justified” and “exceeded any legitimate market”, that “diversion… Likely occurred”, and that its behavior “would have serious consequences.”

Additional, unexpected, independent and unforeseen event

Since all claims in the exemplary proceedings are based on allegations of intentional conduct, there is no insurable accident under the insurances. The complaints allege that opioids from McKesson’s distribution were diverted, that is, routed from legitimate to illegal use. However, they specify that the amounts of McKesson’s distribution so far exceeded the legitimate use of the opioids must has been redirected.

It is not unexpected or unforeseen that a massive marketing campaign to promote the use of opioids for purposes for which they are not suitable would lead to a nation being “flooded with opioids”. The alleged quantities of McKesson’s distribution mean that the alleged diversion is expected and anticipated by law. In summary, the exemplary processes raise claims based on alleged intentional behavior. McKesson’s distribution of opioids caused damage to the state’s plaintiffs. Because claims are based on intentional behavior, they do not claim an accident.

The insurers definitively established that the exemplary processes do not meet the “occurrence” requirement for coverage, and there is no potential for coverage of the three exemplary processes under the two insurances in question.

For reasons reported above, NU and ACE’s request for partial judgment in military service were upheld. McKesson’s claim for partial judgment on military service was rejected.

Liability insurance can by definition only respond to a random event, an accident. Liability insurance should never respond with defense or indemnity if the conduct that is the subject of the lawsuit against the insured was the result of the insured’s intentional conduct. McKesson must pay his own defense and indemnity.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

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