No Bodily Injury – No Property Damage – No Coverage

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In Westfield National Insurance Company; Motorists Mutual Insurance Company v. Quest Pharmaceuticals, Inc., Nos. 21-6026, 21-6043, United States Court of Appeals, Sixth Circuit (January 13, 2023) suits against opioid manufacturers and distributors for expenses were rejected because plaintiffs incurred neither bodily injury nor property damage.

In the wake of a nationwide opioid epidemic, aggrieved individuals, local governments, and other organizations are taking pharmaceutical companies to task for their allegedly wrongful conduct in promoting and distributing prescription opioids. Quest Pharmaceuticals, Inc. (“Quest”), a Kentucky-based distributor of generic drugs, now finds itself on the receiving end of approximately 77 such lawsuits. Quest reported the litigation to its insurers, Westfield National Insurance Co. (“Westfield”) and Motorists Mutual Insurance Co. (“Motorists”), who promptly sued in federal court and sought declaratory judgments that they were not required to defend or indemnify Quest in the underlying lawsuits.

The district court granted summary judgment to the insurers, reasoning that the relevant policy language did not cover the claims brought against Quest.

BACKGROUND

The underlying plaintiffs plead violations of the RICO Act, violations of state statutes, and common law claims of public nuisance and negligence. The underlying plaintiffs’ damages include “significant expenses for police, emergency, health, prosecution, corrections, rehabilitation, and other services.” Many of the complaints also clarify that the plaintiffs’ claims, “are not based upon or derivative of the rights of others” and that the plaintiffs “do not seek damages for death, physical injury to person, emotional distress, or physical damages to property[.]”

Given that the court found that the policies did not require either insurer to defend or indemnify Quest in the underlying litigation, it never reached Westfield’s alternative argument that the policies’ “known-loss” provision, which excludes injuries the insured knew of before purchasing the policy, also precluded coverage of the underlying lawsuits.

ANALYSIS

As a federal court sitting in diversity, he Sixth Circuit must apply Kentucky law to this question of contract interpretation. In accordance with Kentucky law, the Sixth Circuit was required to interpret the policies “according to the parties’ mutual understanding at the time they entered into the contracts]” based solely-where possible-on the plain language of the contract.

Plain Meaning

Broadly speaking, terms in an insurance policy are given their plain and ordinary meaning, such that words with no “technical meaning in law” are interpreted in accordance with common use and understanding.

The policies here require the insurers to defend Quest against lawsuits seeking “damages because of bodily injury” and indemnify Quest for any such damages that Quest becomes “legally obligated to pay[.]” An insurer’s duty to defend arises whenever an allegation in an underlying complaint “might” fall within the policy’s purview.

The underlying lawsuits seek “damages” within the meaning of the policy; they also agree that the lawsuits do not seek damages directly “for bodily injury.” The sole disagreement is whether the damages sought are “because of bodily injury.”

“Because Of”

Generally, the phrase “because of” means on account of or by reason of. Quest argued that the underlying lawsuits are “because of bodily injury” where they would not have been brought but for injuries caused by opioid abuse and addiction, and thus exist by reason of or on account of those underlying injuries. The insurers argued, on the other hand, that the claims are not “because of bodily injury” where they fail to allege any particular bodily injury and seek only economic damages for costs the underlying plaintiffs incurred in addressing the opioid epidemic.

In this case the underlying plaintiffs seek economic damages not to compensate an explicitly covered injury, but rather to cover the costs of activities conducted in relation to many indeterminate injuries. As a result, the Sixth Circuit agreed with the district court that the lawsuits against Quest are not “because of bodily injury” within the meaning of the policies.

The Sixth Circuit concluded that lawsuits brought by local governments and other entities to recover costs incurred due to the opioid epidemic-but not to recover for any specific bodily injuries-do not trigger the insurers’ duties to defend or indemnify Quest.

The parties agreed that the lawsuits alleged no particular injury to any particular person. The allegations instead broadly described societal harms caused by opioid addiction, such as diminished productivity and increased healthcare costs which the underlying plaintiffs tie to Quest’s and other pharmaceutical companies saturation of communities with prescription opioids fueling illicit opioid addiction. As such, the underlying lawsuits against Quest are not “because of bodily injury” and the insurers have no duty to defend Quest or indemnify it for any damages it may owe.

The definition of “damages” likewise informed the Sixth Circuit’s understanding of the policies’ scope and purpose-namely, covering tort claims.

Nothing in the policies suggested that they were meant to cover lawsuits like the ones here, brought primarily by local governments to recover purely economic damages. The plain language instead indicates that claims must in some way derive from a particular bodily injury to a person. Although some of the complaints plead tort claims such as nuisance or negligence, the underlying theory of recovery is that Quest’s alleged misconduct resulted in economic harms to the entities themselves.

No complaint predicates recovery on a particular person’s bodily injury, and so no complaint triggers the insurers’ duty to defend.

The claims, all of which are for economic damages, are, in the opinion of the Sixth Circuit, simply beyond the policies’ scope.

ZALMA OPINION

The Sixth Circuit read the full text of the policies and the allegations of the suits against the insured. As a result, finding no bodily injury or property damage, coverage for the suits seeking damages from the insured for the amounts the opioid drug infestation cost various cities and other public entities were economic only, no damage due to the insured against risks of claims of bodily injury or property damage.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com

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