Marketing and sale of opioids did not constitute an “accident” and was barred by product liability claim exclusion

On November 6, 2017, the California Court of Appeal for the Fourth Appellate District affirmed a trial judge’s decision that The Traveler’s Property Casualty Company of America (“Travelers”) was not obligated to defend pharmaceutical manufacturers in two underlying actions alleging deceptive marketing of opioid products.  The Santa Clara and Orange Counties, and the City of Chicago filed actions against Actavis, Inc. and other pharmaceutical companies.  The underlying complaints alleged that the defendants marketed opioid painkillers in a manner that over-stated their benefits and concealed the risk of addiction, disability and death. The plaintiffs alleged that the effective marketing and sales caused citizens to become addicted to opioids and to resort to heroin to support their addiction.  The complaints sought damages for both past and future costs of responding to the resultant health crisis including the care for addicted citizens.

Travelers refused to defend the action under their duty to defend CGL policies and instituted a declaratory judgment action in California seeking a determination that it had no duty to defend Actavis in the underlying actions.

The Travelers’ policies generally provided coverage for “bodily injury” caused by an “event” or “occurrence”. The policies defined “event” or “occurrence” as an “an accident, including continuous or repeated exposure to substantially the same general harmful conditions” or as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The policies also contained product liability exclusions.

In 2016, after a bench trial on stipulated facts, the trial court issued an opinion holding that Travelers had no duty to defend, because neither underlying action alleged an “accident” and because the product liability exclusions applied.

The Court of Appeal affirmed reasoning that a deliberate act does not qualify as an “accident” unless the injury was caused by an additional, unexpected, independent, and unforeseen happening. Because the court characterized the underlying complaints as alleging that Actavis had undertaken “a common, sophisticated, and highly deceptive marketing campaign” which it characterized as “deliberate, intentional acts,” the court held there was no “accident” under the policies.  The opinion noted that “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.'”

Actavis argued that Travelers owed a duty to defend due to the intervening acts of third-party doctors that independently prescribed the opioids.  As such, it asserted that the resultant injuries were unintended and outside of its control. The appellate court rejected the argument holding that the legal applicable legal standard “is not whether the consequences are normal; the test is whether an additional, unexpected, independent, and unforeseen happening produced the consequences.” The prescribing of drugs did not qualify as an independent or unforeseen happening in part because the policyholder’s “deceptive messages tainted virtually every source doctors could rely on for information and prevented them from making informed treatment decisions.”

Alternatively, the appellate court held that there was no duty to defend due to policy exclusions for injury “arising out of” or “result[ing] from” the policyholder’s products. The court applied a broad interpretation of “arising out of” reasoning that, although the California Supreme Court had not addressed the issue, at least one other court (Taurus Holdings v. U.S. Fidelity (Fla. 2005) 913 So.2d 528) has found that “any product” in a product exclusion is not limited to defective products.  Because the underlying actions clearly alleged a direct connection between the policyholder’s marketing efforts and the alleged losses, the minimal causal connection required by the exclusion was established. Traveler’s Prop. Cas. Co. of Am. v. Actavis, Inc., No. G053749 (Nov. 6, 2017).