What is the difference between providing coverage for damages for bodily injury and damages because of bodily injury? This distinction in policy language made all the difference to the Court of Appeals for the Seventh Circuit in Cincinnati Ins. Co. v. H.D. Smith, LLC.

In this case, the court found coverage for a state’s claims against a pharmaceutical product distributor. In another lawsuit, the state of West Virginia had sued the distributor, alleging that it was a “pill mill” that provided hydrocodone, oxycodone, codeine and other prescription drugs to pharmacies knowing they were not used for legitimate medical purposes, but instead to feed drug users’ addictions. West Virginia alleged that it had incurred millions of dollars’ worth of medical expenses caring for and treating those users, which it sought from H.D. Smith.

Cincinnati Insurance sought declaratory relief that it had no duty to defend nor indemnify H.D. Smith from that suit, as West Virginia sought only its own economic losses and had not itself suffered bodily injury. The federal district court agreed, but H.D. Smith appealed.

The Seventh Circuit disagreed and reversed. The court first noted that, under Illinois law, liability policies stating that they cover suits seeking damages because of bodily injury provide broader coverage than those covering damages for bodily injury. Because Cincinnati’s policy was a “because of” policy, the court concluded that “On its face, West Virginia’s suit appears to be covered by Cincinnati’s policy.” The court rejected Cincinnati’s position that no coverage existed because West Virginia was not itself injured but instead sought reimbursement of purely economic loss, analogizing to cases where a mother incurred medical expenses caring for her injured child.

The opinion did not discuss the distinction that liability insurance policies typically provide coverage for claims brought by persons who themselves are injured, which are sometimes joined with spousal or familial claims for loss of consortium or services that are completely derivative of the injured person’s claim. The court did not seem to appreciate this distinction – which hinges less on the difference between “because of” and “for” and more on the traditional risks contemplated by insurance underwriters. The scenario potentially created by this opinion is that parties incurring expenses having anything whatsoever to do with someone else getting injured could seek coverage under potential defendants’ liability insurance policies. This is particularly true in Wisconsin, which is a direct action state.

After this opinion was released, several commentators suggested that the decision broadened coverage under typical liability policies for nuisance suits brought by states or regulators against corporate defendants. This may in fact turn out to be true, but we’d note that several additional policy provisions may apply to bar or limit coverage for such suits, such as intentional act exclusions and the doctrine of fortuity.