Michael Best Partner Eric G. Barber was quoted in the Law360 article "7th Circ. 'Pill Mill' Ruling Ushers In Nuisance Coverage" on July 20, 2016. Click here to read the complete article.
The Seventh Circuit's ruling Tuesday that an insurer must defend H.D. Smith in West Virginia's suit alleging that it has exacerbated a prescription drug abuse epidemic rejected the notion that liability insurance only covers damages suffered directly by an injured party, paving the way for companies to win coverage of claims that their products have created a "public nuisance."
A panel of the appeals court said an Illinois federal judge wrongly concluded that Cincinnati Insurance Co. had no duty to defend H.D. Smith LLC against the West Virginia attorney general's suit alleging the company has contributed to the rise of so-called pill mills, which prescribe painkillers without legitimate medical justification.
The lower court held that West Virginia's suit didn't seek damages "because of" bodily injury as defined by H.D. Smith's commercial general liability, or CGL, policy with Cincinnati. But the appellate panel found that the underlying action included claims that West Virginia has incurred expenses to provide medical treatment to uninsured citizens who are hooked on prescription drugs, which fall within the scope of the policy.
"On its face, West Virginia's suit appears to be covered by Cincinnati's policy," U.S. Circuit Judge Ann Claire Williams wrote for the panel. "Cincinnati argues to the contrary, stressing that West Virginia seeks its own damages, not damages on behalf of its citizens. But so what? Cincinnati's argument is untethered to any language in the policy."
According to experts, the Seventh Circuit's holding that CGL insurance may cover government entities' costs to care for injured citizens will certainly help pharmaceutical distributors secure defense coverage for actions similar to West Virginia's. But the opinion could also open the door for manufacturers of other products such as lead paint, tobacco or firearms to obtain coverage of claims that their goods have taken a social toll.
"The Seventh Circuit opinion allows companies that might be in municipalities' or other entities' crosshairs to have confidence that their insurer will help defend against those lawsuits," said Eric Barber, a Michael Best & Friedrich LLP partner who represents policyholders.