By Cara Wright
On June 24, 2020, the Ohio First District Court of Appeals held in Acuity v. Masters Pharmaceuticals, Inc., 1st Dist. Hamilton No. C-190176, 2020-Ohio-3440 that an insurer has a duty to defend an insured pharmaceutical distributor in lawsuits brought by governmental entities for costs incurred combating the opioid epidemic.
This declaratory judgment action arose from underlying litigation filed by the states of West Virginia, Michigan and Nevada, alleging that the insured – in this case, Masters Pharmaceuticals, Inc. – acted negligently in failing to investigate, report and refuse to fill suspicious orders of prescription opioids and that the failures to do so contributed to the opioid epidemic, resulting in increased costs for police patrols, judicial expenditures, person and public-works expenditures, substance-abuse treatment and emergency and medical-care services.
The provision of the particular policy at issue provided that the insurer would pay “sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies.” The insurer argued that the policy did not require defense of the claims asserted by the states of West Virginia, Michigan and Nevada because they were seeking to recover their own economic losses, and not losses resulting from any ‘bodily injury’.
The First District rejected this argument. Instead, the Court held that while the governmental entities were seeking to recover their own economic losses, some of those losses (e.g., medical expenses and treatment costs) arose “because of” bodily injury. As a result, the Court found that the claims fell within the terms of the policy and that the insurer owed its insured a duty to defend.
The insurer also argued that its insured knew about the potential harm to individuals from the ingestion of opioids and that, as a result, the claims by the governmental entities were excluded under a policy “loss-in-progress” clause. The First District rejected this argument, too, finding instead that this policy provision was not an exclusion, but instead was a prerequisite to establishing coverage. In particular, the First District held that, although the insured may have been aware there was a risk that if it filled suspicious orders diversion of its product could contribute to the opioid epidemic; nevertheless, the mere knowledge of this fact was not sufficient to bar coverage under the policy’s “loss-in-progress” provision. Thus, the insurer was found to have a duty to defend its insured from the claims brought by the governmental entities.