United States: The Travelers Property Casualty Company Of America V. Actavis, Inc.

In The Travelers Property Casualty Company of America v. Actavis, Inc., 16 Cal.App.5th 1026 (November 6, 2017), the California Fourth District Court of Appeal affirmed the trial court's entry of judgment in favor of The Travelers Property Casualty Company of America ("Travelers Property") and St. Paul Fire and Marine Insurance Company ("St. Paul") (St. Paul and Travelers Property collectively referred to as "Travelers") finding that a duty to defend was not triggered under comprehensive general liability ("CGL") policies issued to Actavis, Inc., Actavis, LLC, Actabis Pharma, Inc., Watson Pharmaceuticals, Inc., Watson Laboratories, Inc., and Watson Pharma, Inc. (collectively "Watson"). The trial court had found that underlying lawsuits filed by the County of Santa Clara, the County of Orange (collectively "California lawsuits") and City of Chicago ("Chicago lawsuit") against Watson alleging various claims of fraud and misrepresentation and unfair competition arising out of Watson's "common sophisticated and highly deceptive marketing campaign designed to expand the market and increase sales of opioid products and promoting them for treating long-term chronic, non-acute, and non-cancer pain," did not constitute accidental conduct triggering coverage under the Travelers policies.

The Travelers policies afforded coverage for bodily injury and property damage caused by an "event" (defined in the St. Paul policy as an accident) and "occurrence" (defined in the Travelers Property policies as an accident). Watson tendered the defense of the underlying California and Chicago lawsuits to Travelers. In response, Travelers denied coverage of such lawsuits contending that they did not allege facts constituting a potential "accident" as required by the Travelers policies and / or the claims alleged in the lawsuits were barred by the products exclusions in such policies.

The underlying complaints against Watson alleged that Watson and other defendants engaged in a fraudulent scheme to promote the use of opioids for long-term pain in order to increase corporate profits. The California lawsuits alleged causes of action for false advertising, unfair competition and public nuisance. The Chicago lawsuit alleged ten causes of action based on consumer fraud, false advertising, conspiracy, recovery of city costs for providing public services, insurance fraud and unjust infringement.

After declining coverage of the California and Chicago lawsuits, Travelers filed a complaint for declaratory relief against Watson. In response, Watson filed a cross-complaint for declaratory relief, breach of contract and bad faith. Travelers and Watson stipulated to a stay of all claims other than their respective declaratory relief claims on the duty to defend and agreed to proceed with a trial on a statement of stipulated facts. Thereafter, the trial court concluded that the California and Chicago complaints did not allege an "accident" as required by the definition of "occurrence" (Travelers Property policies) or "event" (St. Paul policies) and the products exclusions in such policies precluded coverage for Watson's claims.

In affirming the trial court's judgment in favor of Travelers, the Court of Appeal stated as follows:

The claims of the California Complaint and the Chicago Complaint are based on allegations that Watson engaged in deliberate conduct. The allegations that Watson and the other defendants engaged in "a common, sophisticated, and highly deceptive marketing campaign" aimed at increasing sales of opioids and enhancing corporate profits can only describe deliberate, intentional acts. Claims involving intentional or negligent misrepresentations do not constitute an accident under a liability policy. (Miller v. Western General Agency, Inc. (1996) 41 Cal.App.4th 1144, 1150 [no duty to defend claims for fraud, deceit, and negligent misrepresentation in connection with the advertising and sale of a home because the underlying claims did not allege an accident]; Dykstra v. Foremost Ins. Co. (1993) 14 Ca1.App.4th 361, 367 [no duty to defend because "coverage was provided for accidents only and not for intentional or negligent misrepresentations"]; Genesis Ins. Co. v. BRE Props. (N.D. Cal. 2013) 916 F.Supp.2d 1058, 1073 [no duty to defend because a "misrepresentation is not an accident, and so it does not fall within the policy's definition of an occurrence"].)

Because the California Complaint and the Chicago Complaint allege that Watson engaged in deliberate conduct, there could be no insurable "accident" under the policies unless 'some additional, unexpected, independent, and unforeseen happening' produced the injuries for which the complaints seek a remedy. (Navigators, supra, 6 Cal.App.5th at p. 1275.) Were the injuries alleged, as Watson asserts, "indirect unintended results" caused by "mere negligence or fortuities outside Watson's control"? Or were the injuries alleged, as Travelers asserts, the direct result of "the flood of opioids that entered the market" resulting from Watson's alleged scheme to increase the sale of opioid products?

In resolving this question, we emphasize that whether Watson 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. (Navigators, supra, 6 Cal.App.5th at pp. 1275, 1277; see Albert v. Mid-Century Ins. Co. (2015) 236 Cal.App.4th 1281, 1291 ["When an insured intends the acts resulting in the injury or damage, it is not an accident 'merely because the insured did not intend to cause injury"'].) Instead, we look to whether the California Complaint and the Chicago Complaint allege, directly or by inference, it was Watson's deliberate conduct, or an additional, unexpected, independent, and unforeseen happening, that produced the alleged injuries.

The injuries alleged by the California Complaint and the Chicago Complaint are: (1) a nation "awash in opioids"; (2) a nationwide "opioid-induced 'public health epidemic'; (3) a resurgence in heroin use; and (4) increased public health care costs imposed by long-term opioid use, abuse, and addiction, such as hospitalizations for opioid overdoses, drug treatment for individuals addicted to opioids and intensive care for infants born addicted to opioids.

None of those injuries was additional, unexpected, independent, or unforeseen. The complaints allege Watson 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 scheme of deception in order to increase sales of their opioid products. It is not unexpected or 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." It is not unexpected or unforeseen that this marketing campaign would lead to increased opioid addiction and overdoses. Watson allegedly knew that opioids were highly addictive and prone to overdose, but trivialized or obscured those risks.

It also is not unexpected or unforeseen that promoting the use of opioids would lead to a resurgence in heroin use. The California Complaint alleged: "The pain-relieving properties of opium have been recognized for millennia. So has the magnitude of its potential abuse and addiction. Opioids, after all, are closely related to illegal drugs like opium and heroin." Both the California Complaint and the Chicago Complaint allege: "Defendants had access to scientific studies, detailed prescription data, and reports of adverse events, including reports of addiction, hospitalization, and deaths all of which made clear the significant adverse outcomes from opioids and that patients were suffering from addiction, overdoses, and death in alarming numbers."

The Court of Appeal also affirmed the trial court's entry of judgment based on the products exclusions in the Travelers Property and St. Paul policies. The Court of Appeal emphasized that the exclusions barred coverage of bodily injury arising out of the goods or products manufactured, sold, handled, distributed or disposed of by you (i.e., Watson). The product exclusions applied to exclude coverage for bodily injury which arises out of or results from "warranties or representations made at any time, or that should have been made with respect to fitness, quality, durability, performance, handling, maintenance, operation, safety, or use of such goods or products." While the Court of Appeal acknowledged that exclusions are interpreted narrowly under California law, the Court of Appeal also noted that the products exclusions broadly linked the exclusionary operative events with the subject matter of the exclusion by using the phrase "arising out of." Hence, because the California and Chicago lawsuits arose out of and were related to Watson's deceptive conduct, the products exclusions applied to bar coverage of such lawsuits. The Court of Appeal rejected Watson's argument that the exclusions were ambiguous as the products by themselves, were not defective. In response, the Court of Appeal noted that the exclusions applied to "any products" rather than "defective products."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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