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”) did not owe a duty to defend various pharmaceutical manufacturers in two actions alleging deceptive marketing of opioid products because the alleged injuries in the underlying actions were not caused by an accident. Traveler’s Prop. Cas. Co. of Am. v. Actavis, Inc. (Nov. 6, 2017, No. G053749) 2017 Cal. App. LEXIS 976.

The County of Santa Clara and the County of Orange brought a lawsuit (the “California action”) against Actavis, Inc. and other pharmaceutical companies engaged in a “common, sophisticated, and highly deceptive marketing campaign” designed to increase the sale of opioid products by promoting them for treatment of long-term chronic pain, a purpose for which Actavis allegedly knew its opioid products were not suited. The City of Chicago brought a separate lawsuit (the “Chicago action”) against Actavis making essentially the same allegations. Both actions alleged that Actavis’ marketing scheme resulted in a “catastrophic” and nationwide “opioid-induced ‘public health epidemic’” and a resurgence in heroin use. Both actions also alleged that the Counties and City have and will incur increased costs of care and services to their citizens injured by prescription and illegal opioid abuse and addiction.

Travelers declined any duty to defend under commercial general liability policies issued by Travelers and St. Paul Fire and Marine Insurance Co. (collectively “Travelers”), and brought this action seeking a declaration that it had no duty to defend or indemnify Actavis with respect to both actions.

The St. Paul policies cover “damages for covered bodily injury or property damage” that are “caused by an event.” The policies defined “event” to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Similarly, the Travelers policies cover damages “because of ‘bodily injury’ or ‘property damage’” caused by an “occurrence.” The term “occurrence” is also defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The St. Paul and Travelers policies also include product exclusions that bar coverage for bodily injury or property damage resulting from or arising out of “your product” or “your work.”

Following a bench trial on stipulated facts, the trial court issued a statement of decision concluding that neither the California nor Chicago action alleged an “accident” as required by the policies to create a duty to defend, and the product exclusions precluded coverage for the claims.

The Court of Appeal agreed, noting that under California law, a deliberate act is not an accident, even if the resulting injury was unintended, unless the injury was caused by an additional, unexpected, independent, and unforeseen happening. The Court found that the allegations that Actavis engaged in “a common, sophisticated, and highly deceptive marking campaign” to increase the sale of opioids and corporate profits “can only describe deliberate, intentional acts” for which there could be no insurable “accident” unless “some additional, unexpected, independent, and unforeseen happening” produced the injuries alleged in the underlying actions.

The Court rejected Actavis’ assertion that the injuries were indirect and unintended results caused by “mere negligence and fortuities” outside of Actavis’ control. “[W]hether [Actavis] intended to cause injury or mistakenly believed its deliberate conduct would not or could not produce injury is irrelevant to determining whether an insurable accident occurred.” Instead, the Court must look to “whether the California Complaint and the Chicago Complaint allege, directly or by inference, it was [Actavis’] deliberate conduct, or an additional, unexpected, independent, and unforeseen happening, that produced the alleged injuries.” The Court found that it was neither unexpected nor 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” or an increase in opioid addiction and overdoses.

The Court also rejected Actavis’ contention that the alleged injuries are not the “normal consequences of the acts alleged” because in order for the opioid products to end up in the hands of abusers, doctors must prescribe the drugs to them. “The test, however, is not whether the consequences are normal; the test is whether an additional, unexpected, independent, and unforeseen happening produced the consequences.” The Court opined that the role of doctors in prescribing, or even misprescribing, opioids is not an independent or unforeseen happening.

Although the trial court declined to determine whether the California or Chicago actions sought damages because of potentially covered “bodily injury,” the Court found that those actions alleged two categories of “bodily injury”: (1) the use and abuse of opioid painkillers including overdose, addiction, death, and long-term disability; and (2) use and abuse of heroin, the resurgence of which was alleged to have been triggered by use and misuse of opioids. Applying a broad interpretation of “arising out of” as used in the product exclusions, the Court held that both categories of “bodily injury” arise out of Actavis’ opioid products, and are, therefore, barred by the product exclusions in the policies.

The Court also noted a split of authority whether product exclusions apply only to defective products. Although recognizing that the California Supreme Court has not addressed the issue, the Court agreed with the Florida Supreme Court’s reasoning in Taurus Holdings v. U.S. Fidelity (Fla. 2005) 913 So.2d 528, that the term “any product” in the product exclusions applies broadly and does not limit the application of the exclusions to defective products.

Actavis reaffirms California law that a deliberate act resulting in unintended injuries is not an “accident,” unless the injuries were caused by an additional, unexpected, independent, and unforeseen happening. This decision also reiterates California’s broad interpretation of “arising out of” as used in coverage provisions and exclusions.