The Traveler’s Property Casualty Company of America v. Actavis, Inc. — Cal.Rptr.3d –, 2017 WL 5119167 (Nov. 6, 2017); California Court of Appeal, Fourth District, Division 3, Case No. G053749

In two separate lawsuits, the Counties of Santa Clara and Orange (the “California Action”) and the City of Chicago (the “Chicago Action”) sued various pharmaceutical companies, including Actavis, Inc. In the California Action, plaintiffs alleged that defendants “engaged in a common, sophisticated, and highly deceptive marketing campaign designed to expand the market and increase sales of opioid products by promoting them for treating long-term chronic, nonacute, and noncancer pain—a purpose for which [defendants] allegedly knew its opioid products were not suited.” (Internal quotes omitted.) The plaintiffs in the Chicago Action made essentially the same allegations. Both sets of plaintiffs claimed that the defendants’ efforts “were wildly successful” resulting in a “nationwide opioid-induced public health epidemic.” (Internal quotes omitted.)

Actavis tendered the California and Chicago Actions to its commercial general liability insurers, Traveler’s Property Casualty Company of America and St. Paul Fire and Marine Insurance Company. The policies covered claims for damages because of “bodily injury” or “property damage” caused by an “occurrence” or an “event,” defined to mean an “accident.” Both policies, however, contained various exclusions.

The St. Paul policy had an exclusion for “Products and Completed Work” that provided, “[w]e won’t cover bodily injury or property damages that results from your products or completed work.” The Products and Completed Work Exclusion also applied to “any statement made, or that should have been made, about the durability, fitness, handling, maintenance, operation, performance, quality, safety or use of the products.”

The Traveler’s policy had an exclusion for “Products-Completed Operations Hazard-Medical and Biotechnology,” which barred coverage for “bodily injury” or “property damage” included in the “products-completed operations hazard.” The term “products-completed operations hazard” was defined to include “all bodily injury and property damage occurring away from premises owned by or rented or loaned to you and arising out of ‘your product’ or ‘your work.’” The term “your product” meant “any goods or products . . . manufactured, sold, handled, distributed or disposed of by . . . [y}ou.” The term “your work” was defined as “[w]arranties or representations made at any time, or that should have been made, with respect to the fitness, quality, durability, performance, handling, maintenance, operation, safety, or use of such goods or products.”

Travelers and St. Paul denied Actavis’ tender and filed suit seeking declaratory judgment. On a trial by stipulated facts, the lower court granted declaratory relief in favor of Travelers and St. Paul. The trial court reasoned that: “(1) the California Complaint and the Chicago Complaint do not allege an ‘accident’ as required by the definition of ‘occurrence’ (Travelers Policies) or ‘event’ (St. Paul Policies) to create a duty to defend and (2) the Product Exclusions precluded coverage for [Actavis’] claims.”

On Actavis’ appeal, the Court of Appeal affirmed. The Court based its conclusion on several grounds, including the following:

First, the Court explained that “[c]laims involving intentional or negligent misrepresentations do not constitute an accident under a liability policy.” An accident is “an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause.” But “[a]n accident does not occur when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage.’” In the California and Chicago Actions, plaintiffs based their claims on Actavis’ alleged intentional and deliberate marketing conduct. The Court was not convinced that there could be an insurable accident when “[t]he complaints allege [Actavis] knew that opioids were unsuited to treatment of chronic long-term, nonacute pain and knew that opioids were highly addictive and subject to abuse, yet engaged in a[n] [alleged] scheme of deception in order to increase sales of their opioid products.”

Actavis argued that an “accident” could have resulted from the unexpected and unforeseen over-prescription of opioids by doctors. But the Court rejected the argument, explaining that “the role of doctors in prescribing, or misprescribing, opioids is not an independent or unforeseen happening.”

Second, the Court held that “all of the injuries allegedly rose out of [Actavis’] products or the alleged statements and misrepresentations made about those products.” Thus, according to the Court, the claims fell within the Product Exclusions.

In reaching its conclusion, the Court examined two categories of alleged “bodily injury.” First, bodily injury as it “relates to use and abuse of opioid painkillers and includes injuries such as overdose, addiction, death, and long-term disability.” And second, bodily injury as it “relates to use and abuse of heroin, the resurgence of which is alleged to have been triggered by use and misuse of opioids.” According to the Court, the California and Chicago Actions asserted: (1) “a direct connection between the statements and representations made by [defendants] in its alleged campaign to increase sales of its opioid products and the abuse, addiction, death, and other injuries caused by those products”; and (2) “a direct causal connection between [the product] warranties and representations and the resurgence in heroin use.” As a result, the Court concluded that the California and Chicago Actions alleged claims against Actavis that fell within the Product Exclusions.