In The Traveler’s Property Casualty Company of America v. Actavis, Inc. (No. G053749, filed 11/6/17), a California appeals court held that there was no duty to defend or indemnify lawsuits by the State of California and the City of Chicago against pharmaceutical manufacturers allegedly engaged in a scheme to increase sales of opioid products by marketing them for unsuitable uses, because there was no allegation of an occurrence or accident and the policies’ products exclusions barred coverage.
In Actavis, California and Chicago alleged that the insured manufacturers engaged in a fraudulent scheme to promote the use of opioids for long term pain in order to increase corporate profits, knowing that opioids were “too addictive and too debilitating for long term use.” Further, they allegedly knew that prolonged use “markedly increas[es] the risk of significant side effects and addiction.” Notwithstanding, “through a … sophisticated, and highly deceptive marketing campaign … [the manufacturers] set out to, and did, reverse the popular and medical understanding of opioids.” The manufacturers spent millions of dollars developing seemingly scientific materials, studies and guidelines that misrepresented the risks and benefits, and distributed those materials, studies, and guidelines to physicians to encourage them to prescribe opioids to treat chronic, noncancer pain.
The lawsuits alleged that the efforts were “wildly successful” so that “[t]he United States is now awash in opioids.” The result, the complaints alleged, “has been ‘catastrophic’ and a nationwide ‘opioid-induced public health epidemic.’” In addition, the complaints alleged that the epidemic of opioid use has led to a resurgence in heroin use. The allegations supported claims for consumer fraud; deceptive practices; unfair practices; misrepresentations; insurance fraud; civil conspiracy, etc.
The manufacturers’ tenders of defense and indemnity were denied, and the insurers filed an action for declaratory relief, drawing cross-complaints for breach of contract and bad faith. The subject policies insured against damages for bodily injury or property damage caused by an “event” or “occurrence,” defined as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.” In addition, the policies had similar versions of exclusions for bodily injury or property damage resulting from “your product.” In a trial on stipulated facts, the trial court ruled that the lawsuits did not allege accidents or occurrences, and the products exclusions barred coverage.
The appeals court agreed. The court quoted Delgado v. Interinsurance Exchange of Automobile Club of Southern California (2009) 47 Cal.4th 302 and Navigators Specialty Ins. Co. v. Moorefield Construction, Inc. (2016) 6 Cal.App.5th 1258, stating: “An accident does not occur when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage. An accident may exist if any aspect in the causal series of events leading to the injury or damage was unintended by the insured and a matter of fortuity. However, where the insured intended all of the acts that resulted in the victim’s injury, the event may not be deemed an ‘accident’ merely because the insured did not intend to cause injury.”
The Actavis court went on saying that “[t]he claims of the California Complaint and the Chicago Complaint are based on allegations that [the manufacturers] engaged in deliberate conduct. The allegations that Watson and the other defendants engaged in ‘a common, sophisticated, and highly deceptive marketing campaign’ aimed at increasing sales of opioids and enhancing corporate profits can only describe deliberate, intentional acts.”
In dismissing the manufacturers’ claim that any injuries were “indirect unintended results” caused by “mere negligence or fortuities outside [their] control,” the Actavis court stated that “In resolving this question, we emphasize that whether Watson intended to cause injury or mistakenly believed its deliberate conduct would not or could not produce injury is irrelevant to determining whether an insurable accident occurred.”
The Actavis court found that “It is not unexpected or unforeseen that a massive marketing campaign to promote the use of opioids for purposes for which they are not suited would lead to a nation awash in opioids…. It is not unexpected or unforeseen that this marketing campaign would lead to increased opioid addiction and overdoses. Watson allegedly knew that opioids were highly addictive and prone to overdose, but trivialized or obscured those risks…. It also is not unexpected or unforeseen that promoting the use of opioids would lead to a resurgence in heroin use.”
The fact that doctors had to prescribe the drugs was also irrelevant: “The test, however, is not whether the consequences are normal; the test is whether an additional, unexpected, independent, and unforeseen happening produced the consequences. The role of doctors in prescribing, or misprescribing, opioids is not an independent or unforeseen happening. The California Complaint and the Chicago Complaint allege: ‘Nor is Defendants’ causal role broken by the involvement of doctors, professionals with the training and responsibility to make individualized medical judgments for their patients. Defendants’ marketing efforts were ubiquitous and highly persuasive. Their deceptive messages tainted virtually every source doctors could rely on for information and prevented them from making informed treatment decisions.’”
The Actavis court also dismissed the argument that the complaints’ nuisance claims could result in liability based upon negligent conduct, saying that the facts alleged sounded only in intentional conduct and distinguishing cases from West Virginia, Kentucky and South Carolina finding coverage for identical lawsuits, on the ground that those states do not distinguish, as does California, between the intent to act and the intent to cause the harm, for purposes of the accident/occurrence requirement.
The Actavis court further dismissed the possibility of negligence liability saying that in any case the policies’ products exclusions barred coverage. In that regard, the Actavis court noted that California requires only a minimal causal connection to meet the test for injuries or damage “arising out of” an insureds’ work or products, and found that the allegations of the California and Chicago complaints satisfied the requirement. Further, the court said that the limitation of proximate causation applicable to tort liability is not determinative for insurance coverage purposes. Instead, the terms “arising out of” and “arising from” “identif[y] a core factual nucleus, i.e., products manufactured, sold or distributed by the insured, and links that nucleus to the bodily injury or property damage covered under the policy. This link is not made in terms of tort causation.”
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