On September 8, 2021, the Supreme Court of Ohio will hear oral argument in Acuity v. Masters Pharmaceutical, Inc., 2020-1134. At issue in this case is whether an insurance company, which issued a policy to a pharmaceutical distributor for “damages because of bodily injury” is required to defend against a government lawsuit stemming from the national opioid epidemic.

Case Background

In response to the opioid epidemic, city, county, and state governments across the country sued prescription opiate manufacturers and distributors for failure to monitor, investigate, refuse, and report suspicious orders of opiates. The governments’ purported damages are economic—citing increased costs in law enforcement, judicial expenditures, substance abuse treatment, and emergency and medical services. An Ohio opiate distributor, Masters Pharmaceutical, Inc. (“MPI”), with a principal place of business in Hamilton County, Ohio, is a named defendant in underlying lawsuits brought by cities and counties in the states of West Virginia, Michigan, and Nevada as part of the National Prescription Opiate Litigation. The majority of these lawsuits were transferred to a federal multi-district litigation court in the Northern District of Ohio.

MPI is insured by Acuity. At issue here are eight commercial general liability insurance policies that Acuity issued to MPI, providing for indemnity and a duty to defend against damages. Acuity has a duty under the policies to defend any suit seeking damages because of bodily injury. No duty to defend exists if the conduct alleged is undeniably outside the scope of coverage. As for indemnity, the policies state that Acuity will pay MPI for damages it becomes obligated to pay “because of bodily injury.” Coverage is limited to bodily injury caused by an “occurrence.” The policies also contain a loss-in-progress provision excluding from coverage any bodily injury that MPI knew “occurred in whole or in part” prior to the beginning of the policy periods in 2010. “Damages” is defined as those “claimed by any organization for care, loss of services, or death resulting at any time from the bodily injury.”

Both Acuity and MPI agree about the underlying facts but disagree as to whether Acuity is obligated under the policies to defend and indemnify MPI in the underlying opioid lawsuits. More specifically, the parties disagree over whether the policies’ insurance of “bodily injuries” extends to the opioid context and if Acuity is obligated to defend claims against MPI. Consequently, Acuity sought a declaratory judgment in the Hamilton County Court of Common Pleas to define the parties’ obligations. MPI counterclaimed for a declaration that Acuity owed it a duty to defend and indemnify. Both parties filed for summary judgment.

Judge Tom Heekin found that Acuity had no duty to defend or indemnify MPI. First, Acuity is not obligated to indemnify because the governments seek economic damages, not damages for “bodily injury.” The governments cannot seek damages for their citizens’ bodily injury from opioid addiction because they would not have standing to do so. Second, the loss-in-progress provision prevents coverage because well before 2010, MPI was under scrutiny for filling “suspicious orders” and was aware of opioid addiction issues. Because the policies are inapplicable, Acuity also owed MPI no duty to defend in the lawsuits. MPI appealed.

The Appeal

The First District Court of Appeals reversed the trial court’s judgment on both the duty to defend and the duty to indemnify. Judges Beth Myers and Robert Winkler joined the unanimous opinion, authored by Judge Candace Crouse.

First, Acuity has a duty to defend the lawsuits because there may be a causal connection between MPI’s distribution of opioids, the bodily injury suffered by addicted or overdosed individuals, and the damages suffered by governmental entities, namely medical expenses or treatment costs. Second, the trial court incorrectly analyzed the loss-in-progress provision. MPI’s mere knowledge of risk of opioid addiction is not enough to bar coverage. Finally, the plaintiff-governments are properly considered “organizations” under the policys’ definition of “damages.” Therefore, the governments can claim economic damages that occur because of bodily injury and Acuity must defend such claims. Because Acuity is now under a duty to defend, it would be premature to decide whether it also must indemnify MPI.

Acuity appealed on the duty to defend, but not on the indemnity holding.

Key Statutes and Precedent

City of Willoughby Hills v. Cincinnati Ins. Co., 9 Ohio St.3d 177, 180 (1984) (“where the insurer’s duty to defend is not apparent from the pleadings in the case against the insured, but the allegations do state a claim which is potentially or arguably within the policy coverage, or there is some doubt as to whether a theory of recovery within the policy coverage had been pleaded, the insurer must accept the defense of the claim.”)

Anderson v. Highland House Co., 93 Ohio St.3d 547 (2001) (“To defeat coverage, the insurer must establish not merely that the policy is capable of the construction it favors, but rather that such an interpretation is the only one that can fairly be placed on the language in question.”)

Chiquita Brands Int. Inc. v. Natl. Union Fire Ins. Co. of Pittsburg, Pa., 2013-Ohio-759 (“the insured bears the burden to show that its loss was covered under the policy,” and “a duty to defend does not attach where the conduct alleged is indisputably outside the scope of coverage.”)

Travelers Property Casualty Company of America v. Anda, 90 F.Supp.3d 1308 (S.D. Fla. 2015) (the government “does not purport to assert claims on behalf of individual citizens for the physical harm sustained personally by those citizens” and “any reference to the drug abuse and physical harm to West Virginia citizens merely provides context explaining the economic loss to the State.”)

Cincinnati Ins. Co. v. H.D. Smith, LLC, 829 F.3d 771 (7th Cir. 2016) (under an insurance policy requiring defense against suits that alleged “‘damages because of bodily injury,’ including ‘damages claimed by any person or organization for care, loss of services or death resulting at any time from the bodily injury,’” the Seventh Circuit held that “because of bodily injury” included claims brought by governmental entities to recover damages sustained due to the opioid epidemic and the insurer had to defend the suit.)

In re Natl. Prescription Opiate Litigation, No. 1:17-md-2804 (N.D. Ohio 2018) (“perhaps it can be said . . . [that] the provision of medical treatment and emergency response services arise directly out of the personal injury of the citizens because they are effectively claims to recoup the costs of medical expenses.”)

Votes to Accept the Case

Yes: Chief Justice O’Connor, Justices DeWine, French, Fischer, and Kennedy.

No: Justices Donnelly and Stewart

Acuity’s First Proposition of Law Accepted for Review

Commercial general liability policies cover an insured’s liability for an “occurrence” causing “bodily injury” to specific persons. They do not cover an insured’s liability for corporate practices that allegedly cause governmental entities to sustain economic losses for increased governmental services.

Acuity’s Second Proposition of Law Accepted for Review

The “loss in progress” provision is a general condition precedent clarifying that coverages do not apply to “bodily injury” that the insured knows has occurred, in whole or in part, before the policy period. Knowledge of the nature and scope of any damages resulting from the “bodily injury” is unnecessary.

Acuity’s Argument

Acuity’s Commercial General Liability policies covering damages “because of bodily injury” only apply to direct and derivative claims stemming from injury to an identifiable person, not to society as a whole. Claims for increased public service costs untethered to any one person’s bodily injury are not covered. Therefore, Acuity has no duty to defend the government lawsuits seeking tangential damages for pure economic loss due to the opioid epidemic.

Even if the Court finds otherwise, the loss-in-progress provision independently precludes a duty to defend.  The policy conditions coverage on MPI’s lack of knowledge that bodily injury had occurred, even partially, before the date of issuance, which MPI cannot prove.  The First District’s decision, which relies on misplaced analogies and unrelated cases, must be reversed.

First, the governments are only seeking recouped costs for increased governmental services on behalf of the public, not direct damages to any person’s bodily injury. The context of the policy clearly shows an intent to cover only personal injury payments to an identifiable person, not for any liability where bodily injury is a tangential factor. To arrive at the opposite conclusion, the First District relied on a faulty analogy: that the government seeking economic damages is no different than the mother of a drug addicted son seeking reimbursement for money spent on her son’s injuries. The two are not equivalent, however, because the mother actually has a claim arising from the bodily injury to an identifiable person resulting from an opioid distributor’s negligence. In contrast, the governments in the opioid litigation disclaim any burden of proving injury to an identifiable person but explicitly seek generalized economic loss.

Second, the First District improperly equated the governments to “organizations” which could claim damages under the policy for care or loss of services at any time from the bodily injury. Rather, use of the word “organization” merely refers to the common notion that in addition to natural persons, such as the mother from the previous analogy, so too can an organization seek a derivative claim. But crucially, like the mother, the organization must have a derivative claim based on a bodily injury experienced by an identifiable person, not generalized economic harm.

Finally, even if the preceding arguments fail, MPI is barred from coverage because it had knowledge that bodily injury from opioid addiction had at least begun to occur prior to the coverage period’s start date of July 26, 2010. Namely, MPI’s DEA registration was revoked for an “egregious” diversion of opiates in 2009 and MPI itself does not contend it lacked knowledge of the opioid addiction. Contrary to the plain language of the policy and in reliance on an unrelated case, the First District incorrectly focused on whether MPI knew of the governments’ claimed damages from opioid addiction rather than on damages from bodily injury. Because it asked the wrong question, it got the wrong answer. Coverage does not exist under the Acuity policies.

MPI’s Argument

The 22 lawsuits filed by governmental entities against MPI seek damages for the cost of medical care to their citizens necessitated by opioids distributed by MPI.  Under the plain text of the policies only one conclusion can be reached: Acuity has a duty to defend MPI. The First District’s opinion correctly brings Ohio into accord with a growing body of national opioid cases holding that insurance companies must defend against suits where governmental entities assert damages “because of bodily injury.” In fact, Ohio courts have long held that insurance companies have a duty to defend claims by governmental entities to recover damages for increased costs caused by third-party citizens. The First District’s opinion must be affirmed. 

First, courts interpret the phrase “because of” to require only a causal connection between the bodily injury and the damages. And the plaintiff-governments allege precisely that—they seek recovery of increased costs that were caused by the “bodily injury” of opioid addiction in their communities. Acuity’s core argument—that the policies only applies to direct or derivative damages—improperly attempts to add language to the unambiguous policies and create exclusions out of thin air.

Second, the plaintiff-governments are “organizations” which incurred damages because of bodily injuries to those addicted to opioids. Acuity could have excluded claims brought by governmental entities but did not.  In fact, Acuity’s policies expressly provide for coverage to such organizations. If the Court needs to consider the mother-government analogy at all, it merely illustrates that the identity of the underlying claimant is irrelevant to the determination of whether that claimant seeks “damages because of bodily injury.” Acuity’s insistence on the injury being sustained by an “identifiable person” and that the claimant have a direct claim circumvents the plain language of the policies and should be rejected.

Third, because it cannot support its argument on the plain language, Acuity resorts to case law that is inapplicable, no longer good law, or has been distinguished in opioid cases. In contrast to cases where damages were wholly unrelated to allegations of bodily injury, the damages experienced by the plaintiff-governments are quantitatively tied to the bodily injuries suffered. Acuity also relies on pure economic loss cases which are inapposite here.

Finally, the loss-in-progress provision does not apply in this case because the record contains no allegations that MPI knew about addictions, overdose, death, or opioid abuse before the 2010 issuance of the policy. The relevant focal point is whether MPI knew of bodily injury due to opioid addiction prior to 2010, which it did not. Even if the provision applied, generalized risks or knowledge of injury to unknown third parties is not sufficient to bar coverage. To hold otherwise would eviscerate coverage for product distributors and undermine the reason why those companies acquire the policies in the first place. 

Amici in Support of Acuity

The Ohio Insurance Institute

The Ohio Insurance Institute (OII) is a member-run trade organization comprised of national property and casualty insurance companies. OII members routinely issue policies similar to the one at issue here, and thus have an interest in maintaining the transparency, uniformity, and predictability of the law governing such policies.

Acuity’s policies must be interpreted in the broader context. That context is tort liability—insurers are only obligated to defend and indemnify for legal liability caused by an occurrence that resulted in damages to the individual plaintiff. The opioid epidemic is undoubtedly a serious societal issue in need of redress. The answer, however, does not lie in a distorted expansion of commercial general liability coverage that will have adverse impacts across the insurance sector.

The Complex Insurance Claims Litigation Association

Amici include the Complex Insurance Claims Litigation Association (CICLA), American Property Casualty Insurance Association (APCIA), and National Association of Mutual Insurance Companies (NAMIC). Amici are trade associations of property and casualty insurance companies, which seek to aid courts in resolving important insurance cases with great consequences to insurers, policyholders, and the public.

Commercial general liability policies like the ones at issue in this case do not cover economic losses untethered to a specific bodily injury. Holding that Acuity’s policy requires insurers to defend governmental suits for expenditures in public services would be an untenable extension of settled insurance law. In practice, insurers must be able to accurately and reasonably evaluate the risks posed by an insured. Non-predictable economic losses incurred by a government for public services is not a risk that either the insured or insurer can anticipate and holding to the contrary would introduce great uncertainty into insurance markets. This Court should apply the policy as written and reverse the First District’s decision.  

Amicus in Support of MPI

United Policyholders

United Policyholders is a non-profit, charitable organization, informing the public on the duties of insurers and ensuring the rights of policyholders. Amicus desires to provide policyholder perspectives on issues that are likely to have widespread impact.

Insurers such as Acuity are obligated to cover and defend governmental suits seeking costs created by policyholders, such as MPI. The plain language of the policy dictates this result and insurance companies should not be permitted to rewrite their obligations after a lawsuit has arisen. Both in Ohio and nationally, courts have held insurers to answer for governmental suits against the insured—including in the context of lead paint poisoning, firearms, and fire damage to third party property. The same theory has been applied to opioids and this Court should follow. Finally, Acuity is incorrectly attempting to morph the loss-in-progress provision into a known-risk provision. Of course, opioid manufacturers knew of the risks presented by opioids prior to 2010, but at the time MPI acquired the policy, it had no knowledge of injury that had actually occurred. Therefore, the loss-in-progress provision is not a bar to coverage.

Student Contributor: Brandon Bryer