In an effort to deal with the terrible epidemic of drug abuse and the human and economic costs of this dilemma, the state of West Virginia has brought lawsuits in several jurisdictions against pharmaceutical companies and distributors of “controlled” drugs which West Virginia alleges were sold by “pill mills” to people for no reasonable or legitimate purpose.  The sale of those controlled drugs, the state alleges, led to terrible addiction and related bodily injury to its citizens, which in turn caused enormous financial losses to the state in the form of medical care spent on its its injured citizens.

Naturally enough, the pharmaceutical companies are turning to their commercial general liability policies for a defense against these costly claims. In two different states, Illinois and Florida, the trial courts both agreed with liability insurers that they did not have to cover the lawsuits as they did not seek damages “because of bodily injury,” notwithstanding the allegations to that effect by West Virginia in the respective lawsuits.

Oddly, the Florida court in Travelers Property Casualty Co. et al v Anda Inc. found the very explicit bodily injury allegations in the underlying lawsuit were only there for “context.” Because of that, the judge agreed with Travelers’ overreaching argument that there was no ‘occurrence,” that distributing the medications for financial benefit “is the antithesis of an accident.” We doubt whether this same judge would find no accident where the claim was by a consumer of a product who claimed injury, notwithstanding that the distributor of the allegedly defective product was doing so for financial gain. The decision is pending on appeal in the 11th Circuit Court of Appeals.

Luckily the 7th Circuit Court of Appeals recently reversed the lower court ruling in the decision in Cincinnati Insurance Company v H.D. Smith.  Although the facts were incredibly similar to the Anda case, the 7th Circuit found that West Virginia’s claims against the insured in that matter were indeed potentially covered and must be defended. The Court relied on the point that the insurance policy stated that “Cincinnati agreed to cover damages that H.D. Smith became legally obligated to pay ‘because of bodily injury,’” and that “damages because of bodily injury include ‘damages claimed by any person or organization or care, loss of services or death resulting at any time from the bodily injury.’” Comparing these provisions in the policy to the allegations of the complaint filed by the state of West Virginia, and applying the classic doctrine that a mere potential for coverage is all that is required to find a duty to defend, the Court spent only a few pages in concluding that the insurer owed a defense. There, the court focused on the “because of” language noting that this creates a broader coverage than a promise to cover only “damages for bodily injury.” Acknowledging that the West Virginia suit alleged many theories and remedies, the Court also noted the duty to defend arises “even if only one of several theories is within the potential coverage of the policy.”

It remains to be seen whether the 11th Circuit will follow this ruling in the Anda appeal or go in another direction.