Actavis Not Owed Opioid Defense, Calif. Appeals Court Says

Law360

 | November 7, 2017

(this article previously appeared on Law360 - re purposed with permission)

Travelers need not defend Actavis against lawsuits alleging its misleading marketing of painkillers has fueled the nation's opioid addiction problem and led to a spike in heroin use, because the underlying actions allege no accidental injuries, a California appeals court said in a published opinion Monday.

A three-judge panel in Santa Ana upheld a trial judge's decision for The Travelers Property Casualty Co. of America after finding that the suits against Actavis Inc. and other pharmaceutical companies lodged by two California counties and the city of Chicago do not trigger coverage under the insurer's general liability policies, because the suits are rooted in allegations of intentional wrongdoing by the drugmakers rather than accidental events.

"The allegations that [Actavis] 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," Judge Richard D. Fybel wrote for the panel. "Claims involving intentional or negligent misrepresentations do not constitute an accident under a liability policy."

Besides, even if the underlying actions did contain allegations that could potentially give rise to coverage, Travelers would still be relieved of any defense obligation because of policy exclusions for any injuries "arising out of" or "result[ing] from" the drugmaker's products, the panel held.

Travelers and subsidiary St. Paul Fire and Marine Insurance Co. had sued Actavis and its Watson Pharmaceuticals Inc. unit in California court in September 2014 to avoid covering the underlying suits, which were both filed several months earlier and remain pending.

In the two underlying complaints, Chicago and California's Orange and Santa Clara counties claimed Actavis and other pharmaceutical companies overstated the benefits of opioid painkillers while trivializing their risks of addiction, overdose and death, in an effort to boost sales. The city and counties also alleged that the opioid crisis has led to a resurgence in heroin use, as painkiller addicts have turned to the illicit drug for a cheaper fix. The government entities are seeking damages for, among other things, the past and future costs of providing increased care to opioid- and heroin-addicted residents.

Following a March 2016 bench trial in the insurance dispute, Judge William D. Claster entered a judgment in Travelers' favor, holding that Actavis has no shot at coverage because the underlying suits did not allege an accident and, alternatively, because the policies' products exclusions applied. Actavis appealed.

In Monday's opinion, the appellate panel said that under California law, an accident does not occur for coverage purposes if the policyholder performs a deliberate act, unless some other "additional, unexpected, independent and unforeseen happening" occurs that causes an injury. Here, none of the injuries alleged by the municipalities were unexpected or unforeseen, the panel found.

"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,'" Judge Fybel wrote.

The panel also rejected Actavis' argument that the actions of doctors in prescribing opioid painkillers are an independent event causing the municipalities' claimed losses, noting the underlying complaints' allegations that the pharmaceutical companies' "deceptive messages tainted virtually every source doctors could rely on for information and prevented them from making informed treatment decisions."

Moreover, the panel held, even if the underlying suits raised the possibility that Actavis could be held liable for covered unintentional conduct, coverage would still be erased by the product exclusions in the Travelers policies.

The exclusions' "arising out of" language has been interpreted broadly by California courts to require only a minimal causal connection, according to the opinion. Chicago and the California counties have clearly asserted there is a direct connection between Actavis' products — and the drugmaker's representations about the safety and use of those products — and their alleged losses from the surge in opioid addiction and heroin use, the panel said.

 

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