(Article from Insurance Law Alert, January 2024)
For more information, please visit the Insurance Law Alert Resource Center.
Holding
The Ninth Circuit ruled that opioid-related suits brought by government entities against a pharmaceutical distributor do not allege a covered “occurrence” and that insurers have no duty to defend the underlying suit. AIU Ins. Co. v. McKesson Corp., 2024 U.S. App. LEXIS 1806 (9th Cir. Jan. 26, 2024).
Background
McKesson, a distributor of prescription drugs, was named as a defendant in underlying suits brought by government entities for its alleged role in contributing to the opioid crisis. The suits alleged that McKesson intentionally flooded the market with opioids, contravening various industry safeguards and ignoring or concealing risks associated with the use of opioid medications. McKesson’s insurers sought a declaration of no coverage, arguing that the underlying claims did not allege an “occurrence” (defined as an accident) and did not seek damages “for” or “because of” bodily injury. A California district court ruled that coverage was unavailable because the underlying allegations failed to allege an “occurrence.” The Ninth Circuit affirmed.
Decision
Under California law, deliberate conduct is not an accident “unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage.” The Ninth Circuit concluded that the claims against McKesson exclusively alleged deliberate conduct and did not include any allegations relating to independent or unforeseen happenings.
The court rejected McKesson’s assertion that negligent causes of action in the underlying suits indicated at least some amount of unintentional conduct. The court emphasized that the appropriate focus is on the facts alleged, rather than theories of recovery, stating “[t]he mere fact that such intentional conduct gives rise to causes of action for negligence does not transform those allegations into allegations of merely accidental conduct.” The court also rejected McKesson’s contention that the conduct of “downstream actors including doctors, pharmacists, and opioid addicts” should be deemed additional, unexpected, independent and unforeseen happenings so as to give rise to an “occurrence.” Because the court concluded that the underlying suits did not allege an accident, it did not reach the issue of whether the claims alleged covered “bodily injury.”
Comments
As the Ninth Circuit noted, a California appellate court has previously ruled that an insurer had no duty to defend underlying opioid claims. See Travelers Prop. Cas. Co. of Am. v. Actavis, Inc., 225 Cal. Rptr.3d 5 (Cal. Ct. App. 2017). McKesson argued that Actavis was distinguishable because in that case, the insured policyholder was an opioid manufacturer (rather than a distributor) and that complaint alleged a deceptive marketing scheme (whereas the instant case arose out of distribution activities). However, the court deemed those factual differences immaterial for the purposes of determining coverage under California law.