“Because no individual person or persons were identified, coverage fails?”
Justice Stewart to counsel for Acuity
“The way I read the underlying complaints was that the governments are suing for increased emergency services. Is that correct?”
Justice Fischer to counsel for Masters Pharmaceutical, Inc.
On September 8, 2021, the Supreme Court of Ohio heard oral argument in Acuity v. Masters Pharmaceutical, Inc., 2020-1134. At issue in this case is whether an insurance company, which issued policies to a pharmaceutical distributor for “damages because of bodily injury” is required to defend against government lawsuits 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. (“Masters”) 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.
Masters is insured by Acuity. At issue here are eight commercial general liability insurance policies that Acuity issued to Masters, 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 Masters 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 Masters 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.”
Acuity and Masters agree about the underlying facts but disagree as to whether Acuity is obligated under the policies to defend and indemnify Masters 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 Masters. Consequently, Acuity sought a declaratory judgment in the Hamilton County Court of Common Pleas to define the parties’ obligations. Masters counterclaimed for a declaration that Acuity owed it a duty to defend and indemnify. Both parties filed for summary judgment.
The trial court found that Acuity had no duty to defend or indemnify Masters. 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, Masters was under scrutiny for filling “suspicious orders” and was aware of opioid addiction issues. Because the policies are inapplicable, Acuity also owed Masters no duty to defend in the lawsuits. Masters appealed.
The Appeal
In a unanimous decision, the First District Court of Appeals reversed the trial court’s judgment on both the duty to defend and the duty to indemnify.
First, Acuity has a duty to defend the lawsuits because there may be a causal connection between Masters’ 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. Masters’ mere knowledge of risk of opioid addiction is not enough to bar coverage. Finally, the plaintiff-governments are properly considered “organizations” under the policies’ 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 Masters.
Acuity appealed on the duty to defend, but not on the indemnity holding.
Read the oral argument preview of the case here.
Key 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.”)
*State ex rel. Shkurti v. Withrow, 32 Ohio St.3d 424 (1987) (“the” has a precise meaning and should be applied accordingly.)
*Physician Ins. Co. of Ohio v. Swanson, 58 Ohio St.3d 189 (1991) (for policy language that has a limiting or exclusionary effect, the burden of proof is always on the insurer).
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.”)
*Sharonville v. Am. Emp’rs. Ins. Co., 2006-Ohio-2180 (an insurer must defend a suit whenever “the complaint contains an allegation of conduct that could arguably be considered covered by the policy.”)
*Cincinnati Ins. Co. v. Robert W. Setterlin & Sons, 2007-Ohio-5094 (10th Dist.) (finding duty to defend suit by employer corporation seeking reimbursement of payments for injured employee.)
*Ohio Casualty Ins. Co. v. Mansfield Plumbing Prods., LLC, 2011-Ohio-4523 (5th Dist.) (if an insured is aware of an injury of a specific type, all subsequent injuries of that type are excluded from coverage)
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.”)
*Cited by counsel at oral argument.
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.
At Oral Argument
Arguing Counsel
Benjamin C. Sassé, Tucker Ellis LLP, Cleveland, for Appellant Acuity
Paul A. Rose, Brouse McDowell, Akron, for Appellee Masters Pharmaceutical Inc.
Acuity’s Argument
While commercial general liability coverages are general in that they cover many risks not addressed by specialized policies, they are not catch-all insurance. There is no duty to defend lawsuits for governmental costs untethered to any single, identifiable person’s bodily injury claim. The legal obligation under a CGL policy is based in a tort law duty and bodily injury is defined as injury “sustained by a person.” Therefore, to trigger a duty to defend, the complaint must allege a tort duty that requires the insured, here Masters, to pay plaintiffs, here various governments, damages on account of an injury to a particular person. To be covered, there must always be a tort duty running to a particular person that Masters breached. If there were proof of an injury to a particular person, a government could recover its costs whether that be Medicare payments, or other costs from indemnifying an employee. Masters could have done that by identifying particular individuals, or saying they paid costs on behalf of particular individuals that they harmed. Instead, Masters seeks to redefine bodily injury. Here, there is no injury to a particular person allegedly caused by Masters. Because no individual persons were identified as allegedly being harmed by Masters, coverage fails.
The only thing referenced in the complaints are citizens injured by the opioid epidemic. They refer to citizens who have experienced addiction. But they do not bring claims on behalf of any of those citizens and they do not seek derivative damages on behalf of any of those citizens. What they seek is the economic cost of the increased public services they provide.
The point here is not whether or not these claims are ultimately recoverable under some theory. That’s not before the court. The point is those costs are not tied to an identifiable harm and the policy is written to respond to a harm to a particular person. It allows for recovery of consequential damages if those damages arise from harm to a particular person. Again, bodily injury is defined as injury sustained by a person. The policy is written throughout in a way that is designed to respond to injuries to particular people. At trial no one will try to prove that Masters tortiously caused bodily injury to any particular person, and that is what this policy is written to cover.
As for the loss-in-progress provision, Masters has the burden of proof because it is a condition precedent to coverage. And if bodily injury means one thing after the policy was issued, it should mean the same thing prior to issuance too. Therefore, Masters has to show they were unaware of any bodily injury before the inception of the policy in order to be covered. They cannot prove that because their senior officers were on notice from the DEA of bodily injuries in August of 2009, a year before the policy here was issued.
The judgment of the First District should be reversed and the trial court’s declaratory judgment for Acuity should be reinstated.
Masters’ Argument
This is a duty to defend case. Acuity’s arguments for why there is no duty to defend are not currently supported by the law of any jurisdiction. Over the last several years they’ve been rejected by every court across the country to consider them. The arguments contradict the language of the policies, they fail to consider rules of insurance policy construction, and they disregard the law regarding the breadth of the duty to defend.
In Ohio in a duty to defend case, two things are examined to see if the test is satisfied-the language of the underlying complaints and the language of the policies. If there is potentially or arguably a claim pled that would fall within the indemnity coverage of the policy, the insurer must defend. The second thing about the duty to defend is that if an insurer must defend any claim it must defend every claim.
What the complaints allege is bodily injury to specifically identifiable persons and the various governments seek to be compensated for their past costs. The complaints are very particular about that. Sometimes they refer to the individuals damaged in a narrative way. Morgan County West Virginia refers to a considerable number of the county’s residents, but sometimes they are referred to as percentages. Pocahontas County West Virginia alleges it is entitled to compensation for its expenses incurred in regard to 34 drug overdoses per 100,000 population. But some of the complaints are very particularized in regard to numbers. For instance, Saginaw County Michigan seeks to recover for its expenses for 116 opioid related hospitalizations in 2013. Mason County Michigan seeks recovery of its expenses for 24 hospitalizations over a 5-year period. The city of Lansing seeks recovery for its expenses for 243 doses of Narcan administered by its fire department. The point is these are very particularized allegations. Every ambulance that went out to pick up someone picked up a specific person. Every dose of Narcan was administered to a specific person. Every hospitalization and treatment program admission was of a specific person. It is these specific costs as to these specific individuals for which the governmental entities seek reimbursement in their complaints.
As to the issue of whose drug was used in any given overdose, that will be determined in the underlying cases, so it is not at issue here on the duty to defend. What we know is that before these policies were issued, Masters had no knowledge it had ever harmed anyone, nor has Acuity submitted any evidence that Masters had ever harmed anyone. The DEA has never made a determination that Masters has ever harmed anyone and no court has ever made any determination that Masters has ever harmed anyone. Those issues will be addressed in the underlying cases, but they are not for determination in this appeal.
Masters contends that the policy language means what it says and it asks this court to enforce that language as written. Acuity however asks the court to rewrite the language. Acuity asks the court to insert some limitations so that only direct or derivative damages would be recoverable and economic damages would not be recoverable. Secondly Acuity wants to change the phrase “because of bodily injury” to read “because of bodily injury by the underlying plaintiff.” But the policies don’t say that. Acuity wants the Court to rewrite the policies and then construe the policies as rewritten to their benefit as the drafter. It would be difficult to violate more rules of insurance policy construction in a single ruling.
The second problem with Acuity’s argument is the policies do provide coverage for bodily injury claims by organizations. Organizations cannot suffer bodily injury. All damage claims by organizations in respect of bodily injury are economic damages claims. If Acuity’s argument is accepted, the express coverage for bodily injury claims by organizations will be written out of the policy. There are 22 different complaints at issue. They are asking for reimbursement for the direct costs that these governments have incurred.
As for the second proposition of law, the complaints do not allege that Masters knew of any of these bodily injuries before the policies began. But they do seek damages for specific bodily injuries to specifically identifiable persons. Masters simply asks the court to enforce this language as written.
If the governments are going to recover, they must establish in the underlying case exactly which people the ambulances picked up and what the charges were. For example, the city of Detroit alleges 4000 opioid hospitalizations in the year 2013 alone. The city of Detroit did not list 4000 names. Under notice pleading it is not required to.
In effect, Acuity is asking this court to adopt a known-risk exclusion. They are saying that since Masters was in the business of selling medications some of which were opioid based and were addictive, Masters should have known there was a risk. But there’s no such thing in the law as a known-risk exclusion. People buy liability insurance policies because they know of a risk. Masters simply asks this court to enforce this policy language as written and to apply its long-established rules regarding the duty to defend. The First District should be affirmed.
What Was On Their Minds
Reimbursements Sought
What if the government’s claim had just been for Medicaid payments the government had been forced to make because of opioid addiction, asked Justice DeWine? What if the government said because of Masters oversupplying opioids in the state or jurisdiction our Medicaid expenses have increased by 20 million dollars?
Aren’t the governments seeking reimbursement for their expenditures to deal with the citizens who are injured as a result of their opioid addiction, asked Chief Justice O’Connor?
The way I read the underlying complaints was that the governments are suing for increased emergency services. Is that correct, asked Justice Fischer? Are the complaints asking for damages such as Medicaid and Medicare recoveries? For ambulances and ambulance runs?
Bodily Injury
The policies also say that bodily injury is damages claimed by any person or organization for care, loss of services, or death, not just a human person, commented Chief Justice O’Connor.
Doesn’t the same definition of bodily injury have to apply both to coverage and to the loss-in-progress provision, asked Justice DeWine?
Identifiable Persons
Were the governmental entities required to name some of those people who suffered harm from opioid addictions as plaintiffs, asked Justice Stewart? Because no individual person or persons were identified, does coverage fail? Does it matter whose drug was used in the particular overdoses?
In the pleading is there a reference to anybody with bodily injury, asked Chief Justice O’Connor? Any group? Citizens with bodily injury? Citizens injured by this distribution? Could it not be shown at trial that there were people, citizens, who suffered bodily injury?
The Acuity policy says damages because of bodily injury include damages claimed by any person or organization for care, loss of services, or death resulting from the bodily injury, noted Justice Brunner. So where does it say this has to be a particular person when it says “bodily injury including damages claimed by an organization for care.” She added that she was failing to see where there must be an individual based on the terms of the Acuity policy, which talks about organizations. Does Acuity reject the analogy in the H.D. Smith case from the 7th Circuit?
A Hypothetical
Justice DeWine asked the following hypothetical: Imagine that the state of California decided to sue Marathon Oil which had this policy language and the suit was that the fossil fuels had caused global warming which had caused the state of California to have flooding, increased forest fires, the state has spent money to fight these fires, and to deal with the flooding and other environmental disasters and there had been increased skin cancers which cost the state money. Would that be covered? Would the insurance company have to defend? Because among the myriad of harms here there are also personal injuries even though they are not directly seeking recovery for that?
Loss-in-Progress Provision
Who has the burden of proving what is or isn’t excluded based on the loss-in-progress provision, asked Justice Brunner? Did Masters’ license revocation put them on notice that essentially, they were uninsurable on that issue?
How it Looks from the Bleachers
To Professor Emerita Bettman
Like a win for Masters on the duty to defend. Best to remember duty to indemnify is not at issue here. For Acuity, Mr. Sassé really stayed on message that there had to be damage to an identifiable person before there was a duty to defend, but Mr. Rose came back strongly for Masters with the point that the policies also provide coverage for bodily injury claims by organizations. Mr. Rose was also effective with his list of the particular injuries alleged by a variety of governmental entities, making clear that when the time came, at trial, those could and would be translated into injuries to individual persons. The H.D. Smith case from the Seventh Circuit could provide guidance here.
The one kicker that could undermine Masters is the loss-in-progress provision. If Masters knew of the risk of bodily injury from opioid products before it got its CGL coverage that could tip the balance in Acuity’s favor. I couldn’t really tell from the argument exactly what Masters knew and when.
To Student Contributor Brandon Bryer
As a matter of personal preference and policy, I think Acuity should win this case. I believe, however, that insurance law as it exists today and the strict language of the policy better support Masters’ position. This case is certainly a close call, but I anticipate the Court will hold that Acuity has a duty to defend its insured under the policy. First, counsel for Masters did an excellent job of undermining one of Acuity’s core arguments—that the policy only applies when there is bodily injury or harm to an identifiable individual. To do so, counsel for Masters simply read the government complaints in the underlying opioid lawsuits. Logically, ambulance rides, doses of Narcan, and increased Medicaid or Medicare costs are going to be directly traceable to identifiable persons and the government will likely have to prove just that at trial. Second, I thought counsel for Masters emphasized a really crucial point: this case is only about the duty to defend a lawsuit, not whether Acuity will eventually have to indemnify Masters for allegedly negligent distribution practices. I share Justice DeWine’s concerns about the lack of a limiting principle and just how far Masters’ position could be extended, but I think the fact this is only a duty to defend case waters down that concern considerably.
The one curveball that could save Acuity is if the justices find the loss-in-progress provision to be a complete bar to coverage. Justice Brunner heavily pressed both attorneys on this issue and I thought counsel for Acuity used his rebuttal wisely in highlighting this argument. Effectively, if bodily injury means one thing post-coverage, it should logically mean the same thing pre-coverage too. And as Acuity has tried to establish throughout this case, Masters might have been placed on notice as early as 2009—a year before it acquired the policy at issue here—of the risk that opioid distribution presented for bodily injury to the broader public prior. Ultimately, I still think Masters will prevail on its duty to defend claim.