Insurer Need Not Defend Drug Chain in Opioid Suits Claiming Economic, Not Personal, Injury

In the latest turn in litigation over the opioid crisis, a state’s high court has found an insurer does not need to pay defense costs under a commercial general liability policy for a pharmacy chain facing public nuisance lawsuits.

The Delaware Supreme Court has found that insurer Chubb was right to deny legal cost payments for Rite Aid that is facing county governments’ claims that it contributed to the opioid epidemic. The court said Chubb was correct because its policy for Rite Aid covered personal injuries, but the counties are not claiming personal injuries.

Reversing a lower court, the Delaware high court ruled that coverage was not triggered because although Rite Aid’s insurance policy with Chubb covers defense costs for personal injury lawsuits, the lawsuits against Rite Aid by two Ohio counties are public nuisance suits seeking to recover economic damages for the counties, as opposed to lawsuits seeking recovery for personal injuries or treatments for opioid victims.

Because the counties are not pursuing claims for personal Injuries related to the opioid epidemic, Chubb is not obligated to pay up to $3 million in defense costs under a 2015 general liability policy, the high court said.

Rite Aid, a national drugstore company with about 2,500 stores, is among the defendants in multi-district litigation before the U.S. District Court for the Northern District of Ohio. Plaintiffs have filed thousands of lawsuits against companies in the prescription drug supply chain for their roles in the opioid crisis.

The complaints of Summit and Cuyahoga Counties in Ohio that were at issue in the Delaware courts are considered bellwether cases among the many so-called “Track One Lawsuits.” These lawsuits blame pharmaceutical firms for the opioid crisis, alleging they were part of a marketing and supply chain schemes in which they failed to identify and halt suspicious prescription for opioids, “thereby contributing to the oversupply of such drugs and fueling an illegal secondary market.”

Rite Aid sued after Chubb denied its claim for defense coverage.

On September 22, 2020, the state’s Superior Court granted summary judgment for Rite Aid. It decided that Rite Aid’s insurance carriers were required to defend it against the lawsuits, finding there was arguably a causal connection between the counties’ economic damages and the injuries to their citizens from the opioid epidemic. The court also said that the 2015 policy provision providing coverage for damages claimed by any person or organization for care, loss of services or death resulting at any time from the personal injury applied to the economic loss claims in the Track One Lawsuits because they were at least in part grounded in medical care for the personal injuries suffered by the counties’ residents.

Chubb appealed.

By a 4-1 vote, the Delaware Supreme Court on January 10 came out in Chubb’s favor and reversed the lower court in an opinion by Chief Justice Collins Seitz:

“Three classes of plaintiffs are within the scope of the insured’s personal injury coverage—the person injured, those recovering on behalf of the person injured, and people or organizations that directly cared for or treated the person injured. To recover under the insured’s policy as a person or organization that directly cared for or treated the injured person, the plaintiff must prove the costs of caring for the individual’s personal injury. Here the plaintiffs, governmental entities, sought to recover only their own economic damages, specifically disclaiming recovery for personal injury or any specific treatment damages. Thus, the carriers did not have a duty to defend Rite Aid under the governing insurance policy.”

Chubb acknowledged that the 2015 policy covers suits seeking damages “for” or “because of” personal injury. But Chubb argued the coverage depends on whether the bodily injury was suffered by the plaintiff, or someone asserting bodily injury liability derivatively for the harmed party. Chubb claimed the counties did not suffer personal injury and seek compensation only for economic harms, even though these harms have some causal connection to a bodily injury.

Rite Aid argued that the 2015 policy does not exclude non-derivative economic damages related to bodily injury. If the damages sought are causally related to a covered “occurrence,” it argued, the duty to defend is triggered. It also contended that since the 2015 policy covers damages suffered by an organization providing care resulting from a covered bodily injury, government entities providing medical care should be included.

The claims in the Track One Lawsuits are substantially similar. Cuyahoga County’s complaint seeks “economic damages” as a “direct and proximate result” of Rite Aid’s failure to “effectively prevent diversion” and “monitor, report, and prevent suspicious orders” of opioids. Cuyahoga County alleges that Rite Aid’s conduct also “fell far short of legal requirements” and “contributed significantly to the opioid crisis by enabling, and failing to prevent, the diversion of opioids” for illegal and non-prescription use.

Cuyahoga claims the opioid crisis saddled it with an “enormous economic burden” of tens of millions of dollars” including costs for medical treatment and criminal justice.

However, the Supreme Court noted, personal injury damage claims for or on behalf of individuals who suffered are completely absent from the counties’ complaints. Rather, the counties expressly disclaim personal injury and “do not seek damages for death, physical injury to person, emotional distress, or physical damages to property. The counties further declare that their increased costs “are of a different kind and degree than Ohio citizens at large” and “are not based upon or derivative of the rights of others.”

If the counties were suing on behalf public hospitals to recover costs for treatments of injuries caused by over-prescribing of opioids, the court said the 2015 policy would likely be triggered.

The state’s high court noted that even the federal judge overseeing the MDL Opioid Lawsuits observed that the counties do not seek recovery based on injuries to individual residents.

The case is Rite Aid Corp. et al. v. ACE American Insurance Co..

The ruling is in line with a recent West Virginia ruling and runs counter to an Ohio court ruling in related opioid cases.

The Delaware Supreme Court justices said they agree with the reasoning of the U.S. District Court for the Western District of Kentucky (Cincinnati Insurance Co. v. Richie Enterprises LLC), where the defendant drug distributor was sued by West Virginia for allegedly illegally distributing controlled substances and supplying excessive drug quantities. The defendant demanded that its insurer defend under its commercial general liability policy. In dismissing the case, the federal district court found that West Virginia was not seeking damages “because of” the citizens’ bodily injury; rather, it was seeking damages because it incurred costs due to drug distribution companies’ alleged distribution of drugs in excess of legitimate medical need.

Rite-Aid, Walgreens Sued by West Virginia Over Opioid Rx Flood

Rite Aid asked the court to consider another case (Acuity v. Masters Pharmaceutical, Inc.), where the Ohio First District Court of Appeals held that similar complaints from the MDL Opioid Lawsuits triggered a duty to defend.

But the Delaware court disagrees with the Ohio appellate court’s reasoning in Acuity. ”We agree that carriers have a broad duty to defend that may be triggered by the factual allegations of the pleadings. But the Track One Lawsuits have no claims for personal injury—just facts that support the economic loss claims,” Chief Justice Seitz wrote.

The justices concluded that Chubb does not have a duty to defend Rite Aid in the Track One lawsuits under the 2015 policy.