States and municipalities around the country have sued pharmaceutical companies for their alleged role in increasing levels of addiction and overuse of pharmaceutical products. These suits have given rise to insurance coverage disputes over whether such claims are covered under the pharmaceutical companies’ policies. The U.S. Court of Appeals for the Seventh Circuit has now weighed in on one such dispute and held that West Virginia’s suit seeking recovery of costs it incurred to provide services to citizens addicted to prescription drugs is a covered claim because the state’s claim was for “damage because of bodily injury.” Cincinnati Ins. Co. v. H.D. Smith, L.L.C., No. 15-2825, 2016 U.S. App. LEXIS 13175 (7th Cir. July 19, 2016)
In H.D. Smith, the policyholder sought coverage under its CGL and umbrella policies for West Virginia’s suit seeking damages for, among other things, hospital services provided to citizens with prescription drug abuse problems but no medical insurance, costs which were paid by the state. H.D. Smith’s insurer filed a declaratory judgment action for a determination that the West Virginia suit was not covered, primarily because West Virginia’s claim did not seek “damages because of bodily injury.” The insurer argued that West Virginia’s damages were not covered because the state sought damages for its own economic loss, which were not covered under the policy. According to the insurer, the damages West Virginia sought were not directly tied to bodily injury because the state did not seek reimbursement of damages sustained by its citizens on account of their bodily injury, nor did West Virginia seek reimbursement for its own liability to its citizens on account of their bodily injury.
The Seventh Circuit disagreed. According to the court, “damages because of bodily injury” is broad enough to encompass damages suffered by others for which the claimant has paid. The court noted that the policy defined “damages because of bodily injury” to include “damages claimed by any person or organization for care, loss of services or death resulting at any time from the bodily injury.” Therefore, West Virginia’s claim fell within the broad interpretation given to the phrase “damages because of bodily injury.”
The Seventh Circuit’s decision is one of several in coverage suits involving actions by states and other government entities against prescription drug distributors. The issue the Seventh Circuit addressed—whether West Virginia sought damages because of bodily injury—has come up in other cases as well. In one case involving coverage for a similar claim brought by West Virginia against another pharmaceutical company, the Kentucky Federal District Court held that West Virginia did not allege “damage because of bodily injury” because the state suffered only economic losses. Cincinnati Ins. Co. v. Richie Enterprises LLC, No: 1:12-CV-00816, 2014 U.S. Dist. LEXIS 96510 (W.D. Ky. July 16, 2014). Other cases address the question of whether the government entities allege an “occurrence.” These decisions split based on the nature of the government entity’s claims. One court held that West Virginia alleged an “occurrence” because it alleged that a pharmaceutical distributor failed to take appropriate precautions against misuse of its products. See Liberty Mut. Fire Ins. Co. v. JM Smith Corp., 602 F. App’x 115 (4th Cir. 2015). Another held that the government entities in question, California and Chicago, failed to allege an “occurrence” because they alleged that a pharmaceutical manufacturer deliberately engaged in a scheme to increase its sale of opioids by misleading doctors and the public. Travelers Prop. Cas. Co. of Am. v. Actavis, Inc., Case No. 30-2014-00746842-CU-IC-CXC (Cal. Sup. Ct. March 17, 2016). In both cases, the focus was on whether the alleged acts or omissions were intentional or negligent.
As other states and municipalities file suits to recover the costs of dealing with abuse of pharmaceutical products, insurers covering the pharmaceutical companies targeted in those suits will need to consult the decisions discussed above and respond accordingly.