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Vol. 12 - Issue 1

January 12, 2023


Ace American Insurance Co. v. Rite Aid Corp., 270 A.3d 239 (Del. 2022)

First State Has First State High Court To Address Coverage For Municipality Opioid Suits


While the extent of human suffering that has been created by the opioid epidemic cannot be overstated, there is also a huge monetary component of the situation that cannot be -- and has not been -- ignored.  History shows that, in the face of wide-spread social problems, attempts are often made to place certain financial burdens at the feet of the insurance industry.  The nation’s opioid crisis is such a situation. 

In addition to claims brought by individual opioid users, countless suits have been filed by governmental entities, against companies in the pharmaceutical supply chain, seeking to recover for the economic costs placed on these municipalities to address the public health crisis.

To be clear, the governmental entities are not seeking to recover amounts expended to provide opioid-related health care to specific individuals.  Rather, their claims against the companies are more general, involving such things as increased law enforcement costs, judicial and prison expenditures, medical expenses and substance abuse programs.  A handful of courts have addressed the availability of commercial general liability coverage, for these defendant companies, for such social services costs.  The results have been mixed.

Just a few days into the new year, the first state supreme court addressed the issue.  The Delaware high court, in Ace American Insurance Co. v. Rite Aid Corp., held that government-borne social services costs, to respond to the effects of opioids, were not covered under a commercial general liability policy.

Nine months later, the Supreme Court of Ohio, in Acuity v. Masters Pharmaceutical, Inc., reached the same conclusion.  But I chose Rite Aid, over Masters Pharmaceutical, as one of the year’s ten most significant coverage decisions, on the basis that Rite Aid came first and was favorably cited several times by the Masters Pharmaceutical court.  Thus, Rite Aid immediately showed its ability to influence another court nationally, which is the most important reason for a coverage case being one of the year’s top 10. 

Given the extent of opioid municipality litigation, and the resulting coverage stakes, Rite Aid, being the first top court to address the issue – and likely to be examined by just about all subsequent courts – was an easy decision as one of the year’s ten most significant.

At issue before the court was the availability of coverage for Rite Aid for suits filed against it by Summit and Cuyahoga Counties in Ohio.  With the court noting that over a thousand suits have been filed against companies in the pharmaceutical supply chain – the subject of an MDL -- these were considered bellwether suits.

Concluding that the Cuyahoga County suit is representative of others, the court described the complaint as follows:  

“[I]t seeks ‘economic damages’ as a ‘direct and proximate result’ of Rite Aid’s failure to ‘effectively prevent diversion’ and ‘monitor, report, and prevent suspicious orders’ of opioids.  Cuyahoga alleges that Rite Aid’s conduct also ‘fell far short of legal requirements’ and ‘contributed significantly to the opioid crisis by enabling, and failing to prevent, the diversion of opioids’ for illegal and non-prescription use.  Cuyahoga claims the opioid crisis ‘saddled [it] with an enormous economic burden,’ with ‘several departments [incurring] direct and specific response costs that total tens of millions of dollars[,]’ including costs in the areas of medical treatment and criminal justice.”

The court noted that, to plead around the Ohio Product Liability Act, for which claims would be time-barred, the complaints do not seek personal injury damages “for or on behalf of individuals who suffered or died from the allegedly abusive prescription dispensing practices.”

The specific coverage issue arose under an ACE policy that provided liability coverage.  [The court used Chubb to refer to ACE.] While the policy language does not track ISO’s commercial general liability insuring agreement, this is of no significance concerning the decision’s potential influence. 

The ACE Policy provided coverage for sums that the insured becomes legally obligated to pay as damages because of “personal injury” or “property damage,” with damages because of “personal injury” including damages claimed by any person or organization for care, loss of services or death resulting at any time from the “personal injury.”  The term “personal injury” was defined to include “bodily injury.”  As you would expect, the “personal injury” must be caused by an “occurrence” and such injury must occur during the policy period.

Chubb denied coverage and Rite Aid filed an action seeking, among other things, a declaration of Chubb’s duty to pay or reimburse defense costs.  The principal issue was whether the opioid lawsuits, brought by the municipalities, sought damages “because of ‘personal injury,’” defined to include “bodily injury.”  The trial court found in favor of Rite Aid.  The Delaware Supreme Court reversed.

It is not difficult to see how a dispute can arise here.  The ACE policy provides coverage for damages “because of ‘personal injury’” and the municipalities sought coverage for costs connected to individuals who sustained bodily injuries on account of using opioids.  Even the supreme court agreed with the trial court that “the Counties’ economic losses—including for ‘medical care’—were arguably linked to care for Ohio residents affected by the opioid epidemic.”  Essentially, policyholders make a looks like a duck and quacks like a duck argument

Nonetheless, the court held that “under the 2015 Policy, damages for bodily injury are covered losses only when asserted by 1) the person injured, 2) a person recovering on behalf of the person injured, or 3) people or organizations that treated the person injured or deceased, who demonstrate the existence of and cause of the injuries. The Counties expressly disclaimed all personal injury damages in the Track One Lawsuits and, as they say, their claims are ‘not based on’ the injuries of others.  Thus, Chubb has no duty to defend those suits.”

The court further expressed its unwillingness to adopt the duck argument by stating that “the existence of injury—untethered to the claims—does not transform the allegations into claims for damages ‘because of’ personal injury.  The complaint must do more than relate to a personal injury—it must seek to recover for the personal injury or seek damages derivative of the personal injury.”  [This explanation is likely to arise in cases in other contexts addressing coverage for damages “because of bodily injury.”]

The court also rejected the argument that coverage was owed because the policy included “damages claimed by any person or organization for care, loss of services or death resulting at any time from the ‘personal injury.’”  This, the court held, means damages for providing care to an individual, such as the following: “If the Counties ran public hospitals and sued Rite Aid on behalf of these hospitals to recover their actual, demonstrated costs of treating bodily injuries caused by opioid overprescription, the 2015 Policy would most likely be triggered.  But the Counties’ alleged damages do not depend on proof of bodily injuries.”





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