The State of West Virginia, through its Attorney General (“AG”), sued thirteen pharmaceutical drug distributors, alleging that they illegally distributed controlled substances by supplying physicians and drugstores with drug quantities in excess of legitimate medical need. According to the AG, the drug distribution companies became an integral part of the “pill mills” in West Virginia and were liable for the harms caused to the State of West Virginia.
Once it was named as a defendant in the West Virginia lawsuit, one pharmaceutical drug distributor sought insurance defense from its insurer under its commercial general liability policy (“CGL policy”). Subject to certain limitations and exclusions, the policy stated that the insurer would pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage that is caused by an occurrence. The policy also stated that the insurer had the right and duty to defend the insured against any suit seeking those damages. The CGL policy defined “bodily injury” as bodily injury, sickness, or disease sustained by a person, including death resulting from any of these at any time. It defined “property damage” as physical injury to tangible property, including all resulting loss of use of that property. It defined “occurrence” as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. The policy excluded certain expected or intended injuries. Specifically, the policy stated that it did not apply to bodily injury or property damage that may reasonably be expected to result from the intentional or criminal acts of the insured or which was in fact expected or intended by the insured, even if the injury or damage was of a different degree or type than actually expected or intended.
The insurer refused to provide the pharmaceutical drug distributor with a defense after concluding that West Virginia's claims against it did not fall within the CGL policy's limits. The insurer filed an action, seeking the court's decision that it had no duty to either defend or indemnify the pharmaceutical drug distributor with respect to the West Virginia action. The pharmaceutical drug distributor moved for summary judgment. The parties disputed: (1) whether the AG's complaint alleged an “occurrence”; (2) whether the AG's complaint alleged claims for “bodily injury” or “property damage”; and (3) whether the possibility of coverage was defeated by the policy's intentional and criminal act exclusion.
The United States District Court for the Western District of Kentucky denied the insurance company’s motion for judgment and granted, with respect to the defense issue, the pharmaceutical drug distributor’s motion for summary judgment.
The alleged outcome of the pharmaceutical drug distributor's actions-namely, prescription drug abuse in West Virginia which costs the State of West Virginia hundreds of millions of dollars annually, lacked intent or control, and was thus an accident falling under the CGL policy’s definition of occurrence, triggering the insurer's duty to provide a defense. The pharmaceutical drug distributor did not intend for the alleged drug addiction to occur. The allegations of negligence in the AG's complaint were, in essence, allegations that the pharmaceutical drug distributor did not intentionally cause the alleged harm.
The allegations of negligent conduct in the complaint supported a decision that the alleged prescription drug abuse epidemic was fortuitous since its creation was beyond the pharmaceutical drug distributor's control. The pharmacies in West Virginia dispensed the prescription drugs to people who presented seemingly valid prescriptions. The AG did not allege that the pharmaceutical drug distributor controlled the pharmacies or to whom the pharmacists dispensed the drugs. Also, physicians wrote the prescriptions for the end-users of the drugs. The AG did not allege that the pharmaceutical drug distributor controlled the physicians in the same manner that a contractor controls subcontractors.
The court went on to hold that that the AG’s complaint sought damages for bodily injury. Specifically, in Count VII, the AG brought a claim for the costs of a medical monitoring program. The AG alleged that the increased susceptibility to death, injuries and irreparable harm to the health of abusers and dependent users resulting from their exposure to prescription drugs could only be mitigated or addressed by the creation of a court-supervised fund, financed by the defendants, which would fund a comprehensive medical monitoring program. The AG also alleged that prescription drug users in West Virginia had no adequate remedy at law in that monetary damages alone would not compensate for the continuing nature of the harm to them. Further, the AG alleged that without a court-approved medical treatment monitoring program, the relevant product users would not receive prompt medical care that could detect and prolong their productive lives, increase prospects for improvement, and minimize disability. The court concluded that these allegations showed that in addition to seeking damages for economic harm, the State of West Virginia sought to recover damages on behalf of its citizens for bodily injury.
The court found that the policy's intentional and criminal act exclusion did not negate coverage. The court reasoned that the conduct of distributing prescription drugs based upon orders placed by pharmacies was not, in and of itself, illegal and the violation of laws cannot be reasonably anticipated. Further, the underlying complaint contained allegations that fell within the insurance policy's language, as there were allegations that the prescription drug abuse epidemic was “fortuitous,” an “accident,” and an “occurrence.” Under Kentucky law, any exceptions and exclusions in insurance policies must be strictly construed against the insurer to make insurance effective.
The United States District Court for the Western District of Kentucky granted the pharmaceutical drug distributor’s motion for summary judgment in so far as the insurer was required to defend the distributor.
See: Cincinnati Ins. Co. v. Richie Enterprises LLC, 2014 WL 838768 (W.D.Ky., March 4, 2014) (not designated for publication).
See also Medical Law Perspectives, January 2014 Report: Prescription Painkillers: Risks for Patients, Pharmacists, and Physicians
See also Medical Law Perspectives, May 2013 Report: Drugs, Dosage, and Damage: Physician Liability for Prescribing or Administering Medication