The Delaware Superior Court recently ruled that ACE American – one of Rite Aid’s general liability insurers – must defend Rite Aid in hundreds of lawsuits brought against it by government agencies and political subdivisions alleging that Rite Aid improperly distributed opioids. The Delaware Superior Court’s decision marks the third decision in three months confirming that general liability insurers should be defending their policyholders in prescription opioid litigation filed by government entities seeking to recover as damages the amounts that they allegedly spent to provide medical, health, emergency, and other services to citizens suffering from opioid addiction.
At issue before the Delaware Superior Court was Rite Aid’s motion for partial summary judgment requesting a defense from ACE American for the hundreds of government entity prescription opioid claims that have been consolidated in the National Prescription Opiate Multidistrict Litigation, MDL 2804, pending in the Northern District of Ohio. The court granted Rite Aid’s motion, and denied ACE American’s cross-motion for partial summary judgment, which ACE American submitted along with certain other Chubb entities that issued general liability policies to Rite Aid during the relevant time period.
The court began by stating that it need not decide whether Pennsylvania or Delaware law governs the ACE American policy, given that the states’ laws did not conflict and were not materially different with respect to the cross-motions’ relevant issues. The court then went on to reject each of the four principal defenses to coverage that ACE American presented.
First, ACE American argued that the government entities’ suits did not seek damages “because of bodily injury” – one of the triggers of coverage under a general liability policy – because the government entities did not themselves suffer bodily injuries. The court joined a clear, growing consensus in rejecting ACE American’s argument, and held that the defense coverage was triggered because the ultimate cause of the alleged damages was bodily injuries suffered by the residents of the relevant jurisdictions. Construing the duty to defend broadly in Rite Aid’s favor, the court reasoned that because at least “[s]ome of the economic losses sought by the governmental entities are arguably because of bodily injury,” Rite Aid was entitled to a full defense from ACE American against those liabilities. Rite Aid, No. N19C-04-150, at p. 33.
Second, the court rejected ACE American’s argument that the MDL lawsuits should be treated as multiple separate occurrences. In reaching its conclusion, the court held that there can be “multiple instances that constitute a single cause” but that in this instance, it “is not possible to identify independent damages from each respective cause of distribution and dispensing.” Id. at pp. 36-37. The court therefore agreed with Rite Aid that all government entity opioid lawsuits alleging either distribution or dispensing claims should be deemed a single occurrence under the ACE American general liability policy.
Third, the court disagreed with ACE American that Pennsylvania’s “first manifestation” theory should apply to these lawsuits, which states that the policies in effect when the injury first manifested are triggered. Instead, the court held that the “multiple trigger” theory applies, which provides that for latent injury cases, any insurance policies in effect at any point during the period from the initial exposure to harmful conditions through manifestation of the injury or damage must respond to the loss. The court refused to limit the scope of the multiple trigger rule to claims of asbestosis or mesothelioma, holding that “[t]he personal injury of opioid abuse and opioid use disorder would plainly fall into the category of a ‘latent injury’” to which the multiple trigger rule was designed to apply.
Finally, the court dismissed ACE American’s attempt to avoid its coverage obligations based on the “prior knowledge” or “known loss” defenses. The court reasoned that, at most, Rite Aid may have been aware of the risk of diversion of its products prior to 2015, but knowledge of a risk would not bar coverage under the policy’s “prior knowledge” provision. Further, the court held that knowledge of opioid abuse, or the “opioid crisis” more generally, was insufficient to void coverage based on a known loss defense. The court held that knowledge of injuries was insufficient to trigger the known loss defense. The court explained that for the known loss defense to apply, the insured must have known of “a likely exposure to losses which would reach the level of coverage” prior to an insurance policy’s inception date. In other words, to defeat coverage under a general liability policy based on the known loss defense, the insurer must prove that the policyholder must know not simply of an injury, but that there is a likelihood of liability for that injury. Because Rite Aid could not have known the government entities would seek to hold it liable for the claims at issue in the MDL until at least 2017, when those entities began asserting their novel theories of liability, the court held the known loss defense could not apply.
The Delaware Superior Court joins the Ohio First District Court of Appeals in Acuity v. Masters Pharmaceutical, Inc., No. C-190176 (Ohio Ct. App. 1 Dist. June 24, 2020), as well as the Ohio Court of Common Pleas in Cincinnati Ins. Co. v. Discount Drug Mart, Inc., No. CV-19-913990 (Ohio Com. Pleas Sept. 9, 2020) – two other courts that have recently issued decisions finding coverage in favor of the policyholder for government entity opioid claims. Those decisions, as well as the Seventh Circuit’s earlier decision in Cincinnati Ins. Co. v. H.D. Smith, L.L.C., 829 F.3d 771 (7th Cir. 2016), confirm that general liability insurance policies have an important role to play in responding to prescription opioid claims.
Client Alert 2020-556
