CHAPTER § 5.12 Specific Issues in the Pharmaceutical Industry: Emerging Issues

JurisdictionUnited States

§ 5.12 Specific Issues in the Pharmaceutical Industry: Emerging Issues

[1] Opioid Crisis

Significant attention has been paid in recent years to the growing crisis of opioid addiction throughout the United States. As the country has become increasingly aware of the dangers of over-prescribing opioid medication, litigation against opioid manufacturers, distributors, and retailers has increased as well. In addition to the expected private tort claims, numerous state and local governments have brought their own tort claims as well, seeking to recover damages they allege were caused by opioid addition, including increased law enforcement, medical, and social-services costs.289 Federal and state agencies have also initiated enforcement actions against both opioid companies and their directors and officers.290 And in several jurisdictions, 10b5 and derivatives securities actions have been filed.291

These claims have naturally led policyholders to seek coverage under various insurance policies, including CGL, Products Liability, and D&O policies. Unsurprisingly, insurers have resisted these claims.292 Although coverage largely depends on the specific claims and policy language at issue, certain trends have come into focus as this litigation has increased and matured.

[a] CGL Coverage

CGL policies generally cover damages that comes as a result of "bodily injury" that "unexpectedly" occurred during the policy period. These two terms have presented unique challenges in the opioid context.

For example, insurers have argued that the tort claims brought by state and local governments described above seek economic damages, not damages as the result of bodily injury.293 This argument has met with mixed success. Two federal district courts have found in favor of the insurer, while the Seventh Circuit has found in favor of the policyholder.294 The latter case turned on the fact that the policy at issue included language covering damages incurred "because of bodily injury," as opposed to "for bodily injury," reiterating the need for careful drafting and review.295

Using an argument from other mass-tort cases, insurers have also argued that alleged damages were not "unexpected" because manufacturers knew of the danger imposed by opioid products but continued to market them anyway.296 This is a high bar to meet, however, as courts have generally held that a policyholder must not only intend the act but also intend the harm (or at least know with certainty that it will occur) in order to void coverage.297 Recklessness is usually insufficient. This has continued to hold true in the opioid context, with one outlier decision from California.298

[b] D&O Coverage

Companies may also seek to rely on D&O insurance, which insures directors, officers, and companies from breaches of fiduciary duty, fraud, and other "wrongful" conduct. One danger in doing so, however, is that D&O policies often include provisions which, in contrast to most CGL policies, exclude claims for damages caused by "bodily injury." This creates the risk that while seeking coverage under one policy, a policy-holder may simultaneously negate coverage under another.299 D&O policies also often include "conduct" exclusions for claims arising out of fraudulent or other criminal misconduct, but these tend to be limited by the inclusion of language requiring that the claims must be adjudicated before triggering the exclusion.300

[c] Specialty Products-Liability Policies

Pharmaceutical manufacturers may also have a third alternative: specialized insurance lines tailored for the pharmaceutical and life-sciences industries.301 These policies can include language which covers all bodily injury caused by the company's "product," which would ostensibly include opioid medication.302 Because these are not standard provisions, the ultimate determination of coverage with regard to opioid-related litigation depends on the specific language of each individual policy.

[2] Cannabis

As more states legalize the medicinal and recreational use of cannabis, litigation is sure to follow. Already some product-liability and class-action...

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