An Ohio federal court recently added to the limited, but growing, body of case law on insurance coverage for opioid litigation. In Miami-Luken, Inc. v. Navigators Insurance Co., No 1:16-cv-00876 (S.D. Ohio July 11, 2018), the court found that a specific litigation exclusion precluded coverage for a DEA action against an opioid distributor.
Like many of the opioid coverage decisions thus far, this case stems from a 2012 lawsuit filed by the Attorney General of West Virginia against various opioid distributors, including Miami-Luken, captioned West Virginia v. Amerisourcebergen Drug Corp., No. 12-C-141 (Boone Cnty Cir. Ct., W. Va.) (West Virginia Lawsuit). The West Virginia Lawsuit alleged the distributors contributed to the state’s “pill-mill” crisis by oversupplying pharmacies with suspiciously large amounts of opioids, including oxycodone.
In October of 2015, Miami-Luken sought directors and officers coverage from Navigators Insurance Company. Miami-Luken disclosed the West Virginia Lawsuit in its insurance application. In November of 2015, Navigators issued to Miami-Luken a D&O policy containing a specific litigation exclusion, which precluded coverage for any claims involving “the same or substantially the same facts, circumstances or allegations” as the West Virginia Lawsuit.
Later that month, the DEA served on Miami-Luken an Order to Show Cause (DEA Action). The DEA Action sought cause as to why the DEA should not revoke Miami-Luken’s certificate of registration, which would prevent it from legally distributing drugs on the DEA’s controlled substances list. The DEA alleged Miami-Luken “failed to maintain effective controls and report suspicious orders in distributing oxycodone and other controlled substances” to pharmacies in West Virginia. Navigators denied coverage for the DEA Action based upon the specific litigation exclusion, and Miami-Luken initiated a declaratory judgment coverage action against Navigators.
In granting Navigators’ motion for summary judgment in the coverage action, the court determined that the “facts, circumstances, or allegations for the two actions” are “clearly” at least substantially similar and that the DEA Action related to the West Virginia Lawsuit. Specifically, the court found that although the DEA Action may encompass a broader geographic area and timeframe, it involved many of the same pharmacies, the same controlled substances, and the same alleged failure to control the diversion of opioids.
Despite those similarities, Miami-Luken made several arguments as to why the exclusion should not apply. It argued that the exclusion should only apply to the West Virginia Lawsuit itself or an addition to that lawsuit. The court disagreed, finding that the plain language of the exclusion applied to the West Virginia Lawsuit or similar allegations as those raised by that lawsuit. The court also rejected Miami-Luken’s argument that the exclusion is limited to civil litigation, determining that the exclusion makes no distinction between administrative proceedings, such as the DEA Action, and civil proceedings. Lastly, the court was unpersuaded by Miami-Luken’s argument that construing the exclusion so broadly would effectively negate coverage for any claim. The court noted that Miami-Luken provides various other services besides distribution of opioids, such as distributing over-the-counter medications, operating retail pharmacies, and providing specialized software development and sales As such, the policy could still provide coverage to Miami-Luken beyond its opioid business.
This decision is ostensibly the first decision to apply a specific litigation exclusion, or similar type of exclusion, in the context of opioid litigation. Significantly, the exclusion’s language here, which precluded claims involving “the same or substantially the same facts, circumstances or allegations,” is similar to the verbiage found in prior notice, prior litigation, and relatedness exclusions. As such, this decision is likely to have persuasive value for courts looking at these types of exclusions in the context of opioid litigation. As governmental bodies and other parties continue to file new opioid lawsuits against many of the same manufacturers and distributors, these types of exclusions will become more frequently cited in coverage disputes. Therefore, carriers should be certain to familiarize themselves with this decision.