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Insurer Not Obligated to Defend Opioid Distributor Against Underlying Government Lawsuits

Prescription pill bottles opened with pill spilling out onto a table.

The Court ruled a pharmaceutical distributor’s insurer does not have to defend the company against lawsuits brought by local governments related to the opioid epidemic.

Prescription pill bottles opened with pill spilling out onto a table.

The Court ruled a pharmaceutical distributor’s insurer does not have to defend the company against lawsuits brought by local governments related to the opioid epidemic.

Lawsuits brought by  governmental bodies against a prescription opioid distributor seeking damages merely related to opioid-related addiction and overdoses do not invoke an insurer’s duty to defend, the Supreme Court of Ohio ruled today.

In a 5-2 decision, the Supreme Court ruled local governments are attempting to recover economic losses they have experienced because of the opioid epidemic, but the policies that insurer Acuity sold to Masters Pharmaceutical do not cover such claims. The Court stated Acuity insured Masters against claims that seek “damages because of bodily injury.”

Masters argued Acuity must defend the company because the governments seek “damages because of bodily injury,” such as costs of medical care and other treatment the governments provided to their citizens suffering from opioid-related injuries. Writing for the Court majority, Chief Justice Maureen O’Connor stated the Court declined Masters’s “expansive interpretation” to include any lawsuit in which damages merely relate to bodily injury without tying the damage to any particular injury sustained by a person.

The decision reversed the First District Court of Appeals, which found Acuity had a duty to defend Masters against the governments’ lawsuits.

Today’s majority opinion noted its ruling is part of a “growing and diverging” body of case law on whether insurance policies purchased by opioid makers and sellers provide coverage for claims seeking “damages because of bodily injury” brought by government entities.

Justices Sharon L. Kennedy, Patrick F. Fischer, R. Patrick DeWine, and Michael P. Donnelly joined the chief justice’s opinion.

In a dissenting opinion, Justice Melody Stewart wrote that some of the government losses, such as the money spent on emergency medical treatment, detoxification, and inpatient hospital services, relate directly to bodily injuries and are arguably covered by the commercial general liability  insurance policies. Justice Stewart stated that nothing in the policies require a direct link between the costs sustained by the governments and specific injuries suffered by their citizens.

Justice Jennifer Brunner joined Justice Stewart’s opinion.

Governments Sue Distributor for Role in Addiction Epidemic
Hamilton-County based Masters was a wholesale distributor of pharmaceutical products until it ceased operations in 2018. Masters filled and shipped prescription opioids to pharmacies across the nation.

A group of 22 cities and counties in West Virginia, Michigan, and Nevada sued Masters, along with several other pharmaceutical manufacturers, distributors, and retailers. The cities and counties made similar claims that the companies were responsible for the opioid epidemic that was ravaging their respective communities. The governments alleged Masters failed to monitor and report suspicious opioid orders and failed to maintain effective controls against the diversion of the painkillers into the illegal market.

The lawsuits claimed that Masters’s conduct “greatly contributed to the vast increase in opioid overuse and addiction” and caused “a public-health and law-enforcement crisis.”

Distributor Turned to Its Insurers for Legal Assistance
Between 2010 and 2018, Masters purchased annual commercial general liability insurance policies from Acuity. The policies stated that under certain circumstances, Acuity would defend Masters against lawsuits seeking “damages because of bodily injury,” and that Acuity would pay the damages that Masters would be legally obligated to pay.

Acuity sought a declaratory judgment from the Hamilton County Common Pleas Court stating that the insurer owed no duty to defend Masters against the government lawsuits and did not have to pay for any potential judgments against Masters. The trial court sided with Acuity.

Masters appealed to the First District, which in 2020 ruled that the policies expressly provided coverage to defend against lawsuits from organizations, like governments, seeking to recover “economic damages” as long as those damages occurred because of bodily injury. Because the governments alleged some of their losses were related to the physical harm caused by opioid addiction, Acuity had a duty to defend Masters, the appellate court ruled.

Acuity appealed the decision to the Supreme Court, which agreed to hear the case.

Supreme Court Examined ‘Hypothetical Mother’ Rationale for Coverage
Chief Justice O’Connor explained that several courts across the nation have ruled in lawsuits on policies containing nearly identical language to those Acuity sold to Masters. Some have held that the insurers must defend the pharmaceutical companies, and others have not.

Masters cited a 2016 decision by the U.S. Court of Appeals for the Seventh Circuit (Cincinnati Ins. Co. v. H.D. Smith, LLC), in which the insurance company was found to have a duty to defend the insured opioid distributor. The majority opinion contrasted the H.D. Smith ruling with a 2022 decision by the Delaware Supreme Court, which in ACE Am. Ins. v. Rite Aid Corp. ruled there was no duty to defend.

In H.D. Smith, the state of West Virginia alleged it was entitled to damages for the money it spent caring for citizens with opioid-related bodily injuries. In siding with the state, the Seventh Circuit used the analogy of a hypothetical West Virginia man who suffered bodily injuries from his opioid addiction. In the scenario, the man’s mother spent her own money to care for her injured son and then sued the pharmaceutical distributor seeking to recover her costs.

The Seventh Circuit noted the insurance company acknowledged its policy would cover the pharmaceutical company against the hypothetical mother’s claims. The circuit court reasoned that the state’s damages for the care of its citizens is no different than the mother’s care for her son.

However, the Delaware Supreme Court in ACE Am. Ins. Co. rejected the hypothetical mother analogy in a case brought against Rite Aid by Ohio counties. The Delaware high court ruled the mother’s claim is not similar to the state’s claim. For the mother’s claim to be covered, she would have to prove that the alleged harm caused by the pharmaceutical company was the “immediate and direct result of her son’s injury,” the court stated.

Unlike the mother scenario, the cases brought by the counties do not allege nor try to prove how each of the pharmaceutical companies are tied to individual injuries. Rather, the counties’ damages are tied to a public health crisis, the Delaware court concluded. The Court majority agreed with the Delaware high court and found the Seventh Circuit’s hypothetical “unhelpful and not comparable to the underlying suits” brought against Masters.

In this case, Acuity argued the government claims are for damages “of an injury sustained by a society as a whole or by unidentified members of the public,” which is “insufficient to constitute a claim for ‘damages because of bodily injury.’”

In today’s decision, the Court majority stated it is true that some of the complaints allege citizens sustained opioid-related injuries and that the governments’ damages include costs for providing medical care and treatment services. But the governments do not allege that “specific opioid-related injuries sustained by their citizens occurred because of Masters’s alleged failure to prevent the improper diversion of prescription opioids and the damages sought flow from the care of those specific opioid-related injuries.”

“To be sure, the opioid epidemic, as a public-health crisis, necessarily relates to bodily injuries, such as opioid addictions, hospitalizations, and deaths. But allegations of bodily injury alone do not automatically bring an action within the coverage for ‘damages because of bodily injury,’” the Court concluded. Because the governments tied “their alleged losses to the aggregate economic injuries they have experienced as a result of the opioid epidemic” and “not to any particular bodily injury,” the Court held, Acuity does not owe Masters a duty to defend it in the underlying governments’ suits.

Insurer Must Defend Distributor, Dissent Maintained
In her dissent, Justice Stewart wrote that decades ago the Court made it clear that an insurer has a duty to defend its insured against a claim that potentially or arguably is within the policy coverage. She wrote the majority opinion acknowledged that some of the government claims are associated with bodily injuries, and she maintained those claims should trigger Acuity’s duty to defend.

The dissent stated the majority opinion disregards the insurance policy language, which does not limit claims to those seeking costs for their own bodily injuries. The policies indicate they cover the costs of organizations, such as government entities, for losses associated with bodily injuries even though the organizations cannot personally suffer “bodily injuries.”

The dissent stated the majority adds three restrictions on coverage where no language in the policies support such restrictions.

“But this interpretation adds words to the policies; the language in the policies does not specify who, or whether a particular claimant, must suffer the bodily injury for coverage. And this court should not read into the contract a meaning that is not there,” Justice Stewart concluded.

2020-1134. Acuity v. Masters Pharmaceutical, Inc. , Slip Opinion No. 2022-Ohio-3092.

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