A general liability insurer had no duty to defend its insured, a pharmaceutical company, against governmental lawsuits alleging that the insured engaged in a fraudulent scheme to promote opioid use. ( Traveler’s Property Casualty Company of America v. Actavis, Inc. (2017) WL 5119167)
Facts
Watson Pharmaceuticals, Inc. and related companies (collectively “Watson”) manufacture prescription medicines, including opioid pain killers. In response to the current “opioid epidemic” in the United States, three governmental entities – the County of Santa Clara, California, the County of Orange, California, and the City of Chicago, Illinois – filed lawsuits alleging that Watson had fraudulently promoted opioid painkiller use, which in turn caused the governmental entities to suffer financial losses in responding to the consequences of the opioid epidemic.
Specifically, the governmental entities alleged the following: By the 1990’s, Watson had developed the ability to cheaply produce opioid painkillers, but there was only a small market for such painkillers. Watson knew that opioids were an effective treatment for short-term post-surgical pain, trauma-related pain, and end-of-life care, and also knew that opioids were too addictive and too debilitating for long-term use. In order to realize “blockbuster profits,” Watson engaged in a sophisticated and deceptive marketing campaign designed to increase sales of its opioid products by promoting them for treating long-term chronic pain – purposes for which Watson knew opioids were not suited. Watson spent millions of dollars developing seemingly scientific materials, studies, and guidelines that misrepresented the risks, benefits, and superiority of opioids to treat chronic pain, and Watson then distributed those materials, studies, and guidelines to physicians to encourage them to prescribe opioids for chronic pain. Watson knew and intended that its representations “would persuade doctors to prescribe, and patients to use, opioids for chronic pain.” Watson’s marketing campaign was “wildly successful” and contributed to the current opioid epidemic as well as an ancillary resurgence in heroin use. As a result, the governmental entities have incurred and will continue to incur huge costs in caring for citizens injured by opioid abuse and heroin addiction.
Watson was an insured on consecutive commercial general liability policies issued by St. Paul Fire and Marine Insurance Company and Travelers Property Casualty Company of America (collectively “Travelers”). The policies provided in relevant part that Travelers would indemnify Watson against damages because of “bodily injury” caused by an “occurrence” not otherwise excluded, and that Travelers would defend Watson against any suit seeking such damages. The policies all contained “products-completed operations” exclusions which barred coverage for bodily injury arising out of an insured’s products or representations concerning the suitability and safety of such products.
Travelers declined to defend Watson against the governmental entities’ lawsuits, and then filed a declaratory relief action seeking confirmation of its position. After a bench trial, the trial court ruled that Travelers had no duty to defend or indemnify Watson against the underlying lawsuits. Watson appealed.
Holding
The California Court of Appeal affirmed.
The appellate court began by holding that the claims the governmental entities were asserting against Watson in the underlying lawsuits were not the result of an “accident.” Under California law, an insured’s deliberate act is not an “accident” unless some additional, unexpected, independent, and unforeseen happening causes the resulting injury. The allegations that Watson engaged in a sophisticated and highly deceptive marketing campaign aimed at increasing sales of opioids and enhancing corporate profits were allegations of deliberate, intentional acts. It was “not unexpected or unforeseen” that this marketing campaign would lead to increased opioid addiction and to a resurgence in heroin addiction. Because there was no “accident,” there was no possibility of coverage and hence no duty to defend.
Further, the claims that the governmental entities were asserting against Watson fell within the scope of the policies’ “products-completed operations” exclusions. Those exclusions barred coverage for bodily injury “arising out of …any goods or products… manufactured, sold, handled, distributed or disposed of by [Watson]” or “warranties or representations made at any time, or that should have been made, with respect to the fitness, quality, durability, performance, handling, maintenance, operation, safety, or use of such goods or products.” Both the alleged opioid epidemic and the alleged ancillary resurgence in heroin use arose out of (i.e., flowed from) Watson’s act of marketing and selling its products (i.e., opioid painkillers) for purposes for which Watson knew they were not suited (i.e., treatment of long-term, chronic, non-acute pain). Although the governmental entities were not alleging that Watson’s opioid painkiller products were “defective,” the policies’ “products-completed operations” exclusions did not require that the injuries arise out of an insured’s “defective” product – only that the injuries arise out of the insured’s “product.”
Comment
Note the alleged sequence of events here: (1) in order to maximize profits, the insured allegedly engaged in a deceptive marketing campaign to convince doctors that opioid pain killers were safe for treating long-term chronic pain; (2) doctors, in turn, prescribed opioids for treating long-term chronic pain; (3) patients became addicted to opioids; and (4) some patients then turned to heroin, which produces a “high” similar to opioids but at a lower cost. While there is a direct connection between the insured’s allegedly deceptive marketing campaign and the patients’ addiction to opioid pain killers, there is a slightly more attenuated connection between the insured’s marketing campaign and some patients’ eventual addiction to heroin. If there was any room for the appellate court to find a duty to defend here, it would have been with respect to those patients who eventually became addicted to heroin. Nevertheless, the court concluded that there was no “accident,” and enforced the exclusion for injuries “arising out of [the insured’s] products,” both as to injuries stemming from opioid pain killers and injuries stemming from heroin.