Insurance Coverage for the Opioid Crisis

Amy J. Spencer

With the “opioid epidemic” at an all-time high—and the resulting news coverage and public awareness also at an all-time high—now is the time for pharmaceutical companies, pharmacists, hospitals, doctors, first responders, and employers to review their professional liability and general liability insurance policies and any other potentially applicable policies such as products liability and directors and officers (“D&O”) insurance.

Pharmacies, Healthcare Professionals, and Employers

Pharmacy manager CVS Caremark, which has 90 million plan members, recently announced that it will issue prescription policies intended to help curb opioid abuse. Generally, the program will limit and control initial prescriptions and daily dosages. The new rules will bring CVS in line with guidelines issued by the Centers for Disease Control and Prevention last year. However, doctors can request exemptions for certain patients, and employers and insurers can opt out of the program.

As opioid prescription standards become the norm, health care professionals and employers should make sure that their insurance policies cover them for alleged improper deviations from an industry standard of care. Allegations could concern either a failure to implement a proper prescription policy or a failure to adhere to a policy already implemented. A typical professional liability policy will exclude “intentional acts” committed by the insured as well as an insured’s “dishonest, fraudulent, criminal or malicious acts or omissions.” Thus, the issue of whether a knowing departure from the standard of care is “intentional” or “negligent” becomes paramount for insurance coverage. See Moscarillo v. Professional Risk Management Services, Inc., 398 Md. 529, 921 A.2d 245 (2007).

Pharmaceutical Companies

Pharmaceutical companies, distributors, and other professionals that sell and market opioids have been named as defendants in lawsuits alleging causes of action, such as deceptive marketing, unfair trade practices, False Claims Act liability, fraud and misrepresentation, products liability, failure-to-warn, and various common law torts. See, e.g., City of Chicago v. Purdue Pharma L.P., 211 F. Supp. 3d 1058 (N.D. Ill. 2016) (city plausibly alleged that five pharmaceutical companies engaged in deceptive practices through a marketing campaign that overstated benefits and downplayed risks of long-term opioid therapy).

Deceptive marketing claims, for example, may be covered under commercial general liability (“CGL”) or D&O policies. Although the wrongful rendering of “professional services” typically is excluded from these types of policies, the marketing of pharmaceuticals to professionals is not necessarily a “professional service.” In Scottsdale Ins. Co. v. Coapt Systems, Inc., 2013 WL 3146781 (N.D. Cal. Jun. 18, 2013), the court held that a D&O insurer was required to pay defense costs to former officers and directors of a medical device company that manufactured, marketed, and sold defective pharmaceutical products to physicians. The court declined to hold that “all” sales and marketing activities directed toward a professional constitute “professional services.” Nothing in the underlying lawsuits brought by consumers alleged that the company “engaged in any activity that has been held to be, or can be considered analogous to, the provision of professional services, as opposed to ordinary commerce.” 2013 WL 3146781, at *6.

In 2012, the State of West Virginia sued several wholesale pharmaceutical distributors alleging that the distributors contributed to the drug epidemic by failing to identify, block, and report excessive drug orders. One of the distributor’s insurers, Liberty Mutual, sought a judgment in South Carolina district court that it had no obligation to cover a distributor under its CGL policy. In an appellate ruling, the Fourth Circuit held that the underlying lawsuit alleged a covered accidental “occurrence.” Liberty Mut. Fire Ins. Co. v. JM Smith Corp., 602 F. App’x 115, 120 (4th Cir. 2015). In so holding, the court distinguished between “intentional acts” and “intended consequences,” such that distributors who intentionally provided the drugs, but did not intend the resulting injury, were covered. The court concluded:

[T]he defendants here were engaged in the lawful activity of providing prescription drugs to pharmacies. They may not have been sufficiently careful about whose hands the drugs eventually reached, but that does not preclude finding accidental injury. We cannot forecast how the case will conclude, but it is at least possible that the state court will find that the defendants did not take sufficient care to catch suspicious activity and therefore accidentally caused harm to prescription drug abusers and the state of West Virginia. Therefore we hold that there is at least a possibility of coverage under the Liberty Mutual CGL policy[.]

602 F. App’x at 122. See also Cincinnati Ins. Co. v. Richie Enterprises LLC, 2014 WL 838768 (W.D. Ky. Mar. 4, 2014), order clarified, 2014 WL 3513211 (W.D. Ky. Jul. 16, 2014) (in related coverage suit, holding that distributor’s conduct was accidental).

Another question that arose in the West Virginia insurance coverage litigation was whether the state’s lawsuit sought damages “because of bodily injury” to consumers, as was required for coverage under the CGL policies, or whether the state only sought monetary damages incurred on its own behalf. The court in Cincinnati Ins. Co. v. H.D. Smith, L.L.C., 829 F.3d 771 (7th Cir. 2016) found in favor of the insured distributor on this issue.

All Stakeholders

Myriad insurance issues can arise from allegations of harm caused by opioid marketing practices, prescription policies, employer policies, and hospital and first responder care. This post touches on only a few. The issues specific to each entity or individual will need to be carefully reviewed to assess the scope of available insurance coverage.