| Nov 06, 2017 | G053749 [PDF] [DOC] | The Traveler's Property Casualty Company of America v. Actavis, Inc. 11/6/17 CA4 |
The Traveler's Property Casualty Company of America v. Actavis, Inc.
To seek redress for an opioid epidemic, characterized by the Court of Appeal as having placed a financial strain on state and local governments dealing with the epidemic’s health and safety consequences, two California counties sued (the California Action) various pharmaceutical manufacturers and distributors, including the appellants in this matter, Actavis, Inc., Actavis LLC, Actavis Pharma, Inc., Watson Pharmaceuticals, Inc., Watson Laboratories, Inc., and Watson Pharma, Inc. (collectively, “Watson”).
The California Action alleged Watson engaged in a “common, sophisticated, and highly deceptive marketing campaign” designed to expand the market and increase sales of opioid products by promoting them for treating long-term chronic, nonacute, and noncancer pain - a purpose for which Watson allegedly knew its opioid products were not suited.
The City of Chicago brought a lawsuit in Illinois (the Chicago Action) making essentially the same allegations.
The issue presented by this appeal was whether there was insurance coverage for Watson based on the allegations made in the California Action and the Chicago Action.
Specifically, the issue was whether the Travelers Property Casualty Company of America (Travelers Insurance) and St. Paul Fire and Marine Insurance Company (St. Paul) owe Watson a duty to defend those lawsuits pursuant to commercial general liability (CGL) insurance policies issued to Watson.
Travelers denied Watson’s demand for a defense and brought this lawsuit to obtain a declaration that Travelers had no duty to defend or indemnify.
The trial court, following a bench trial based on stipulated facts, found that Travelers had no duty to defend because the injuries alleged were not the result of an accident within the meaning of the insurance policies and the claims alleged fell within a policy exclusion for the insured’s products and for warranties and representations made about those products.
The California Court of Appeal concluded Travelers had no duty to defend Watson under the policies and affirmed.
===============
Filed
11/06/17
CERTIFIED FOR PUBLICATION
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH
APPELLATE DISTRICT
DIVISION
THREE
THE TRAVELER’S PROPERTY
CASUALTY COMPANY OF AMERICA et al.,
Plaintiffs and Respondents,
v.
ACTAVIS, INC., et al.,
Defendants and Appellants.
|
G053749
(Super. Ct. No. 30-2014-00746842)
O P I N I O N
|
Appeal from a judgment
of the Superior Court of Orange County, William D. Claster, Judge. Affirmed.
Blank Rome, Elizabeth B.
Kim and James R. Murray for Defendants and Appellants.
Dentons US, Ronald D.
Kent, Joshua Kroot; Choate Hall & Stewart, Robert A. Kole and Jean‑Paul
Jaillet for Plaintiffs and Respondents.
*
* *
INTRODUCTION
The
United States faces an epidemic of addiction, overdosing, death, and other problems
brought on by the increasing use and abuse of opioid painkillers. This epidemic has placed a financial strain
on state and local governments dealing with the epidemic’s health and safety
consequences. To seek redress for the opioid
epidemic, the County of Santa Clara and the County of Orange brought a lawsuit (the
California Action) against various pharmaceutical manufacturers and
distributors, including the appellants in this matter.[1]
The California Action alleges Watson engaged
in a “common, sophisticated, and highly deceptive marketing campaign” designed
to expand the market and increase sales of opioid products by promoting them for
treating long‑term chronic, nonacute, and noncancer pain—a purpose for which
Watson allegedly knew its opioid products were not suited. The City of Chicago brought a lawsuit in
Illinois (the Chicago Action) making essentially the same allegations.
The
issue presented by this appeal is whether there is insurance coverage for
Watson based on the allegations made in the California Action and the Chicago Action. Specifically, do the Travelers Property
Casualty Company of America (Travelers Insurance) and St. Paul Fire and Marine
Insurance Company (St. Paul)[2]
owe Watson a duty to defend those lawsuits pursuant to commercial general
liability (CGL) insurance policies issued to Watson?
Travelers
denied Watson’s demand for a defense and brought this lawsuit to obtain a
declaration that Travelers had no duty to defend or indemnify. The trial court, following a bench trial
based on stipulated facts, found that Travelers had no duty to defend because
the injuries alleged were not the result of an accident within the meaning of
the insurance policies and the claims alleged fell within a policy exclusion
for the insured’s products and for warranties and representations made about
those products.
We
conclude that Travelers has no duty to defend Watson under the policies and
therefore affirm. The policies cover
damages for bodily injury caused by an “accident,” a term which has been
interpreted to exclude the insured’s deliberate acts unless the injury was
caused by some additional, unexpected, independent, and unforeseen
happening. The California Action and the
Chicago Action do not create a potential for liability for an accident because
they are based, and can only be read as being based, on the deliberate and
intentional conduct of Watson that produced injuries—including a resurgence in
heroin use—that were neither unexpected nor unforeseen. In addition, all of the injuries allegedly
arose out of Watson’s products or the alleged statements and misrepresentations
made about those products, and therefore fall within the products exclusions in
the policies.
FACTS
I.
The Policies
A. The St. Paul Policies
Watson
purchased primary CGL policies from St. Paul covering the period from May 15,
2006 to May 15, 2010 (the St. Paul Policies).
The St. Paul Policies provide a
duty to defend against any “suit for injury or damage covered by this agreement
. . . even if all of the allegations of the claim or suit are
groundless, false, or fraudulent.” The
St. Paul Policies cover “damages for covered bodily injury or property damage” that
are “caused by an event.” The term “Event”
is defined as an “accident,
including continuous or repeated exposure to substantially the same general
harmful conditions.” The term “bodily
injury” is defined as “any physical harm, including sickness or disease, to the
physical health of other persons.”
The St. Paul Policies have an exclusion for “Products
and Completed Work,” stating, “[w]e won’t cover bodily injury or property
damage that results from your products or completed work.” The St. Paul Policies include, within the definition
of excluded products, “any statement
made, or that should have been
made, about the durability, fitness,
handling, maintenance, operation, performance, quality, safety or use
of the products.”
B. The Travelers Policies
Watson
purchased primary CGL policies from Travelers Insurance covering the period
from May 15, 2010 to May 15, 2013 (the Travelers Policies). The
Travelers Policies provide a duty to defend against any “suit” seeking damages “because
of ‘bodily injury’ or ‘property damage’” caused by an “occurrence.” The Travelers Policies define “occurrence” in
the same way as “event” is defined in the St. Paul Policies, that is, as an “accident, including continuous or
repeated exposure to substantially the same general harmful conditions.” The Travelers Policies define “bodily injury”
as “[p]hysical harm, including sickness or disease, sustained by a person; or . . .
[m]ental anguish, injury or illness, or emotional distress, resulting at any
time from such physical harm, sickness or disease.” The Travelers Policies provide that “damages
because of ‘bodily injury’ include damages claimed by any person or
organization for care, loss of services or death resulting at any time from ‘bodily
injury.’”
The Travelers Policies have an exclusion for “Products‑Completed
Operations Hazard‑Medical and Biotechnology,” which bars coverage for “‘Bodily
injury’ or ‘Property damage’ included in the ‘products-completed operations
hazard.’” We will refer to the Products
and Completed Work provision of the St. Paul Policies and the Products‑Completed
Operations Hazard‑Medical and Biotechnology provision of the Travelers Policies
as “the Products Exclusions.” The term “products-completed
operations hazard” is defined to include “all ‘bodily injury’ and ‘property
damage’ occurring away from premises owned by or rented or loaned to you and
arising out of ‘your product’ or ‘your work.’” The
term “your product” is defined as “[a]ny goods or products . . . manufactured,
sold, handled, distributed or disposed of by:
[¶] . . . [y]ou.” The term “your work” is defined to
mean: “Warranties or representations made at any
time, or that should have been made,
with respect to the fitness,
quality, durability, performance, handling, maintenance, operation, safety, or use of such goods or products.”
II.
The
California Action and the Chicago Action
In
May 2014, Santa Clara County and Orange County (the Counties) filed the
California Action against Watson[3]
and other pharmaceutical companies in the California Superior Court, Orange
County. In December 2014, the Counties
filed a second amended complaint (the California Complaint), which is the
operative pleading in the California Action.
In June 2014, the City of
Chicago (the City) brought the Chicago Action against Watson and other
prescription drug distributors in Cook County, Illinois. The Chicago Action was removed to federal
court. In August 2015, the City filed a
second amended complaint (the Chicago Complaint), which is the operative
pleading in the Chicago Action.
The
California Complaint and the Chicago Complaint are based on allegations that
Watson and the other defendants engaged in a fraudulent scheme to promote the use
of opioids for long‑term pain in order to increase corporate profits. Both complaints allege that Watson had by the
1990’s developed the ability to cheaply produce opioid painkillers, but the
market for them was small. Defendants
knew that opioids were an effective treatment for short‑term postsurgical pain,
trauma‑related pain, and end‑of‑life care and knew that, except as a last
resort, “opioids were too addictive and too debilitating for long‑term use for
chronic non‑cancer pain.” Defendants
knew the effectiveness of opioids decreases with prolonged use, requiring
increases in dosages and “markedly increasing the risk of significant side
effects and addiction.”
The California Complaint and the Chicago Complaint
allege: “In order to expand the market for
opioids and realize blockbuster profits, Defendants needed to create a sea-change
in medical and public perception that would permit the use of opioids for long
periods of time to treat more common aches and pains, like lower back pain,
arthritis, and headaches. [¶] . . .
Defendants, through a common, sophisticated, and highly deceptive marketing
campaign that began in the late 1990s, deepened around 2006, and continues to
the present, set out to, and did, reverse the popular and medical understanding
of opioids.” Defendants are alleged to
have spent millions of dollars developing seemingly scientific materials,
studies, and guidelines that misrepresented the risks, benefits, and
superiority of opioids to treat chronic pain and distributed those materials,
studies, and guidelines to physicians to encourage them to prescribe opioids to
treat chronic, noncancer pain.
To increase prescription sales of their
opioid drugs, Watson and the other defendants allegedly “(a)
overstated the benefits of chronic opioid therapy, promised improvement in
patients’ function and quality of life, and failed to disclose the lack of
evidence supporting long-term use and the significant risks associated with
such use; (b) trivialized or obscured their serious risks and adverse outcomes,
including the risk of addiction, overdose, and death; and (c) overstated their
superiority compared with other treatments, such as other non-opioid
analgesics, physical therapy, and other alternatives.”
Central to the scheme were representations
made by Watson that opioids are rarely addictive. Watson allegedly “persuaded doctors and
patients that what they had long known—that opioids are addictive drugs, unsafe
in most circumstances for long-term use—was untrue, and quite the opposite, that
the compassionate treatment of pain required opioids.”
The California Complaint alleges that Watson and
the other defendants “took steps to avoid detection of and fraudulently conceal
their deceptive marketing and conspiratorial behavior” and “made, promoted, and
profited from their misrepresentations—individually and collectively—knowing
that their statements regarding the risks, benefits and superiority of opioids
for chronic pain were untrue and unproven.”
Both the California Complaint and the Chicago Complaint allege that
Watson’s strategy was “first, to plant and promote supportive literature while
burying unfavorable evidence, and then to cite that same pro-opioid evidence in
their promotional materials, while failing to disclose evidence that contradicts
those claims—are flatly inconsistent with their legal obligations.” Those strategies were intended to, and did, “distort
the truth regarding the risks and benefits of opioids for chronic pain relief
and distorted prescribing patterns as a result.” Watson and the other defendants knew and
intended that their representations “would persuade doctors to prescribe and
patients to use opioids for chronic pain.”
The California Complaint and the Chicago Complaint
allege the efforts of Watson and the
other defendants were “wildly successful” so that “[t]he United States is now
awash in opioids.” The result, the
complaints allege, has been “catastrophic” and a nationwide “opioid-induced ‘public
health epidemic.’” In addition, the
complaints allege the epidemic of opioid use has led to a resurgence in heroin
use. The “dark side of opioid abuse and
addiction” is that it can lead to abuse of and addiction to heroin, which
produces a “high” similar to opioids but at a lower cost.
The California Complaint and the Chicago
Complaint allege that the Counties and the City have and will incur increased
costs of care and services to their citizens injured by prescription and
illegal opioid abuse and addiction. The
California Complaint alleges: “The
diversion of opioids into the secondary, criminal market and the increase in
the number of individuals who abuse or are addicted to opioids have increased
the demands on emergency services and law enforcement in California; [¶] . . .
[¶] These harms have taxed the human, medical, public health, law
enforcement, and financial resources of the People.”
The Chicago Complaint alleges: “The City’s health plans have also paid costs
imposed by long‑term opioid use, abuse, and addiction, such as hospitalizations
for opioid overdoses, drug treatment for individuals addicted to opioids,
intensive care for infants born addicted to opioids, long-term disability, and
more. The City’s workers’ compensation
program and health benefit plans have expended approximately $2.4 million on
addiction treatment services from May 2013 to May 2015. . . . [¶] . . . Defendants’ conduct has
also imposed costs on the City beyond those incurred by its health and workers
compensation plans. These include costs
of providing emergency services in response to opioid-related deaths,
overdoses, addiction, and other injury; costs of funding addiction treatment,
such as the prescription of additional drugs . . . and other costs
attendant to the epidemic of opioid use and abuse in the City.”
The
California Complaint asserts three causes of action: (1) false advertising in violation of
Business and Professions Code section 17500 et seq.; (2) unfair
competition in violation of Business and Professions Code section 17200; and
(3) public nuisance under Civil Code section 3479 et seq. Under the first cause of action, the Counties
seek injunctive relief, restitution, and civil penalties. Under the second cause of action, the
Counties seek civil penalties, and under the third cause of action seek an
order of abatement and injunctive relief. Watson does not seek coverage based on the
first two causes of action.
The Chicago Complaint asserts 10 counts: (I) Consumer Fraud—Deceptive Practices;
(II) Consumer Fraud—Unfair Practices; (III) Misrepresentations in
Connection with Sale or Advertisement of Merchandise; (IV) False
Statements to the City; (V) False Claims; (VI) Conspiring to Defraud
By Getting False or Fraudulent Claims Paid or Approved by the City;
(VII) Recovery of City Costs of Providing Services; (VIII) Insurance
Fraud; (IX) Civil Conspiracy; and, (X) Unjust Enrichment. Of these, counts I, II, III, IV, V, VII,
VIII, and X are asserted against Watson.
Against Watson, the Chicago Complaint seeks injunctive relief,
restitution, treble restitution, civil penalties, disgorgement of profits based
on unjust enrichment, treble damages, and costs incurred by the City of Chicago
that were related to the violations of state, federal, and local law.
III.
The Coverage Lawsuit
In
June 2014, Watson tendered the California Action and the Chicago Action to
Travelers. In September and December
2014, Travelers denied it had a duty to defend Watson in connection with either
action.
In
September 2014, Travelers filed this lawsuit to obtain a declaration it had no
obligation under the St. Paul Polices or the Travelers Policies to defend or indemnify
Watson in connection with the California Action or the Chicago Action. Travelers filed an amended complaint in
December 2014. Watson answered and filed
a cross‑complaint for declaratory relief, breach of contract, and breach of the
implied covenant of good faith and fair dealing. Travelers
and Watson stipulated to a stay of all claims other than their respective
declaratory relief claims on the duty to defend and agreed to proceed with a
trial on a statement of stipulated facts.
A trial on stipulated facts was held in March
2016. The trial court issued a proposed
statement of decision finding that Travelers had no duty under the Policies to
defend Watson. The court concluded (1)
the California Complaint and the Chicago Complaint do not alleged an “accident”
as required by the definition of “occurrence” (Travelers Policies) or “event”
(St. Paul Policies) to create a duty to defend[4] and (2) the Products Exclusions precluded
coverage for Watson’s claims.[5] The
court deemed moot the issue whether the California Action or the Chicago Action
“seek damages for” or “because of” potentially covered “bodily injury.”
The proposed statement of decision became the
final statement of decision without objections or proposed additions. Travelers and Watson stipulated to a judgment
in favor of Travelers on claims not resolved by the statement of decision,
including the claim by Travelers it had no duty to indemnify Watson. Judgment was entered in favor of Travelers
and against Watson on all causes of action of the Travelers’ complaint and
Watson’s cross-complaint. Watson timely
filed a notice of appeal.
DISCUSSION
I.
An Insurer’s Duty to Defend: General Principles and Standard of Review
The
insurer’s duty to defend is broader than the duty to indemnify. (Hartford
Casualty Inc. Co. v. Swift Distributors, Inc. (2014) 59 Cal.4th 277, 287 (Swift); Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 299
(Montrose).) An insurer owes the insured a duty to defend
against claims that create “a potential for indemnity under the insurance
policy,” and that duty arises even if the evidence suggests, without
conclusively establishing, that the loss is not covered. (Swift,
supra, at p. 287; Montrose, supra, at p. 299.)
Determination
of the duty to defend is made in the first instance by comparing the
allegations of the complaint and the terms of the insurance policy. (Swift,
supra, 59 Cal.4th at p. 287.) The
duty to defend also may exist when facts extrinsic to the complaint and known
to the insurer suggest the claim might be covered. (Ibid.)
“‘Moreover, that the precise causes of
action pled by the third party complaint may fall outside policy coverage does
not excuse the duty to defend where, under the facts alleged, reasonably
inferable, or otherwise known, the complaint could fairly be amended to state a
covered liability.’ [Citation.] Thus, ‘[i]f any facts stated or fairly inferable
in the complaint, or otherwise known or discovered by the insurer, suggest a
claim potentially covered by the policy, the insurer’s duty to defend arises and
is not extinguished until the insurer negates all facts suggesting potential
coverage.’” (Ibid.) Doubt about an
insurer’s duty to defend generally must be resolved in the insured’s
favor. (Ibid.)
The
duty to defend, though broad, is measured by the nature and kinds of risk
insured by the policy. (Swift, supra, 59 Cal.4th at p.
288.) “In an action seeking declaratory
relief concerning a duty to defend, ‘the insured must prove the existence of a potential
for coverage, while the insurer must establish the absence of any such
potential. In other words, the
insured need only show that the underlying claim may fall within policy
coverage; the insurer must prove it cannot.’ [Citation.] Thus, an insurer may be excused from a duty to
defend only when ‘“the third party complaint can by no conceivable theory raise
a single issue which could bring it within the policy coverage.”’ [Citation.] In a ‘mixed’ action, where some claims are
potentially covered while others are not, ‘the insurer has a duty to defend as
to the claims that are at least potentially covered.’” (Ibid.)
When
the facts are undisputed or stipulated, the meaning and interpretation of an
insurance policy are reviewed de novo under rules of contract interpretation. (Adamo
v. Fire Ins. Exchange (2013) 219 Cal.App.4th 1286, 1293.) “‘The fundamental rules of contract
interpretation are based on the premise that the interpretation of a contract
must give effect to the “mutual intention” of the parties. “Under statutory rules of contract
interpretation, the mutual intention of the parties at the time the contract is
formed governs interpretation. (Civ.
Code, § 1636.) Such intent is to be
inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.) The ‘clear and explicit’ meaning of these
provisions, interpreted in their ‘ordinary and popular sense,’ unless ‘used by
the parties in a technical sense or a special meaning is given to them by usage’
(id., § 1644), controls judicial
interpretation. (Id., § 1638.)”’”
(E.M.M.I.
Inc. v. Zurich American Ins. Co. (2004) 32 Cal.4th 465, 470.)
II.
There Is No Potential for Coverage Because
the Claims Arise Only Out of Watson’s Deliberate Conduct.
A. “Accident” and “Deliberate” Acts: Background
In
deciding whether Travelers had a duty to defend Watson, we compare the
allegations of the complaint and the terms of the insurance policies. (Swift,
supra, 59 Cal.4th at p. 287.) The
St. Paul Policies provide coverage for an “event,” and the Travelers Policies
provide coverage for an “occurrence,” each defined as “an accident, including
continuous or repeated exposure to substantially the same general harmful
conditions.”
“In
the context of liability insurance, an accident is ‘“an unexpected, unforeseen,
or undesigned happening or consequence from either a known or an unknown cause.”’ [Citations.]
‘This common law construction of the term “accident” becomes part of the
policy and precludes any assertion that the term is ambiguous.’” (Delgado
v. Interinsurance Exchange of Automobile Club of Southern California, supra,
47 Cal.4th at p. 308 (Delgado).) “Under California law, the word ‘accident’ in
the coverage clause of a liability policy refers to the conduct of the insured
for which liability is sought to be imposed on the insured.” (Id.
at p. 311.) “The term ‘accident’ in the
policy’s coverage clause refers to the injury‑producing acts of the insured,
not those of the injured party.” (Id. at p. 315.)
“‘An
accident does not occur when the insured performs a deliberate act unless some
additional, unexpected, independent, and unforeseen happening occurs that produces
the damage.’ [Citations.] An accident may exist if ‘“any aspect in the
causal series of events leading to the injury or damage was unintended by the
insured and a matter of fortuity.”’ [Citation.] However, ‘[w]here the insured intended all of
the acts that resulted in the victim’s injury, the event may not be deemed an “accident”
merely because the insured did not intend to cause injury.’” (Navigators
Specialty Ins. Co. v. Moorefield Construction, Inc. (2016) 6 Cal.App.5th
1258, 1275 (Navigators).)
In
Navigators, the insured, a general
contractor, made the deliberate decision to have flooring tiles installed in a
building despite knowing that the concrete slab on which the tiles were to be
installed emitted moisture vapor in excess of specifications. (Navigators,
supra, 6 Cal.App.5th at pp. 1262,
1266‑1268.) The insured knew the excess
moisture vapor could cause the flooring tiles to fail, but believed there was
low to no risk of that happening. (Id. at p. 1267.) The flooring tiles failed and repair costs
were $377,404. (Id. at pp. 1262,
1268-1269.) The insurer provided the
insured a defense in the underlying litigation under a reservation of rights,
paid the policy limits in settlement, and, after learning the insured had made
the order to install the flooring tiles on a moist concrete slab, brought a
lawsuit seeking a declaration it had no duty to defend or indemnify the
insured. (Id. at pp. 1272-1273.)
The
trial court concluded the insurer had no duty to indemnify the insured, and a
panel of this court affirmed. (Navigators, supra, 6 Cal.App.5th at pp. 1262‑1263.) The insured acted deliberately in directing
the installation of the flooring tiles and knew the moisture vapor emission
rate from the concrete slab exceeded specifications. (Id.
at p. 1276.) The excess moisture
caused the tiles to fail and there was no “‘additional, unexpected,
independent, and unforeseen happening’” that produced the damage. (Ibid.) The insured’s mistaken belief that there was
little to no risk in installing the flooring tiles did not transform the
insured’s deliberate act into an accident.
(Id. at p. 1277.) We did conclude, however, the insurer had a
duty to defend because the complaint in the underlying action alleged facts
that created the potential for coverage; i.e., that the flooring tiles failed
for reasons other than excess moisture vapor emitted from the concrete
slab. (Id. at p. 1285.)
In
State Farm General Ins. Co. v. Frake (2011)
197 Cal.App.4th 568 (Frake), the
insured struck his friend, John King, in the groin while the two were engaged
in horseplay. (Id. at p. 571.) King
sustained injuries and sued the insured, who tendered his defense to the
insurer under a liability provision of a renter’s policy. (Ibid.) The insurer sued the insured for a
declaration regarding the duty to defend.
(Ibid.) The Court of Appeal, reversing the trial
court, held the insurer had no duty to defend because the insured engaged in an
intentional act. (Id. at pp. 582‑583.)
The Court of Appeal confirmed that under Delgado, supra, 47
Cal.4th 302, “the term ‘accident’ does not apply where an intentional act
resulted in unintended harm.” (Frake, supra, at p. 582.)
In
Fire Ins. Exchange v. Superior Court (2010)
181 Cal.App.4th 388, 396 (Fire Ins.
Exchange), the insureds intentionally constructed a home that extended
across the property line under the mistaken belief they owned a five‑and‑one‑half‑foot
strip of land and had the legal right to build on it. Faced with a lawsuit for quiet title,
declaratory relief, and fraud, the insureds tendered defense to their insurer
under a homeowners policy. (Id. at p. 391.) After the insurer refused to defend on the
ground there was no potential for coverage, the insureds sued for breach of
contract and bad faith. (Ibid.)
The trial court denied the insurer’s motion for summary judgment. (Ibid.)
The
Court of Appeal held that the trial court erred and directed it to grant the
insurer’s motion for summary judgment. (Fire Ins. Exchange, supra, 181 Cal.App.4th at p. 390.)
The Court of Appeal concluded the act of constructing the home was
intentional and, therefore, not an accident under the policy, even though the
insureds acted under a mistaken belief they had the right to do so. (Id. at
p. 396.) No unexpected and unintended event
occurred between the time of the intentional construction and the time of the encroachment
on the neighbor’s property. (Ibid.)
Although the insureds believed they had the legal right to take the action
they did, their “mistaken belief in their legal right to build does not
transform their intentional act of construction into an accident.” (Ibid.)
B. The California
Complaint and the Chicago Complaint Do Not Allege the Potentiality of Liability
Based on an Accident.
The
claims of the California Complaint and the Chicago Complaint are based on
allegations that Watson engaged in deliberate conduct. The allegations
that Watson and the other defendants engaged in “a common, sophisticated, and
highly deceptive marketing campaign” aimed at increasing sales of opioids and
enhancing corporate profits can only describe deliberate, intentional acts. Claims involving intentional or negligent
misrepresentations do not constitute an accident under a liability policy. (Miller v. Western General Agency, Inc. (1996)
41 Cal.App.4th 1144, 1150 [no duty to defend claims for fraud, deceit, and
negligent misrepresentation in connection with the advertising and sale of a
home because the underlying claims did not allege an accident]; Dykstra v.
Foremost Ins. Co. (1993) 14
Cal.App.4th 361, 367 [no duty to defend because “coverage was provided
for accidents only and not for intentional or negligent misrepresentations”];
Genesis Ins. Co. v. BRE Props. (N.D. Cal. 2013) 916 F.Supp.2d 1058, 1073 [no
duty to defend because a “misrepresentation is not an accident, and so it does
not fall within the policy’s definition of an occurrence”].)
Because
the California Complaint and the Chicago Complaint allege that Watson engaged
in deliberate conduct, there could be no insurable “accident” under the policies
unless “‘some additional, unexpected, independent, and unforeseen happening’”
produced the injuries for which the complaints seek a remedy. (Navigators,
supra, 6 Cal.App.5th at
p. 1275.) Were the injuries
alleged, as Watson asserts, “indirect unintended results” caused by “mere
negligence or fortuities outside Watson’s control”? Or were the injuries alleged, as Travelers
asserts, the direct result of “the flood
of opioids that entered the market” resulting from Watson’s alleged scheme to
increase the sale of opioid products?
In
resolving this question, we emphasize that whether Watson intended to cause
injury or mistakenly believed its deliberate conduct would not or could not produce
injury is irrelevant to determining whether an insurable accident occurred. (Navigators,
supra, 6 Cal.App.5th at pp. 1275,
1277; see Albert v. Mid‑Century Ins. Co. (2015)
236 Cal.App.4th 1281, 1291 [“When an insured intends the acts resulting in the
injury or damage, it is not an accident ‘merely because the insured did not
intend to cause injury’”].) Instead, we look
to whether the California Complaint and the Chicago Complaint allege, directly
or by inference, it was Watson’s deliberate conduct, or an additional,
unexpected, independent, and unforeseen happening, that produced the alleged
injuries.
The
injuries alleged by the California Complaint and the Chicago Complaint are: (1) a nation “awash in opioids”; (2) a nationwide “opioid-induced ‘public health
epidemic’”; (3) a resurgence in heroin use; and (4) increased
public health care costs imposed by
long-term opioid use, abuse, and addiction, such as hospitalizations for opioid
overdoses, drug treatment for individuals addicted to opioids and intensive
care for infants born addicted to opioids.
None of those injuries was additional,
unexpected, independent, or unforeseen. The
complaints allege Watson knew that opioids were unsuited to treatment of
chronic long‑term, nonacute pain and knew that opioids were highly addictive
and subject to abuse, yet engaged in a scheme of deception in order to increase
sales of their opioid products. It is
not unexpected or unforeseen that a massive marketing campaign to promote the
use of opioids for purposes for which they are not suited would lead to a
nation “awash in opioids.” It is not
unexpected or unforeseen that this marketing campaign would lead to increased
opioid addiction and overdoses. Watson
allegedly knew that opioids were highly addictive and prone to overdose, but
trivialized or obscured those risks.
It also is not unexpected or unforeseen that
promoting the use of opioids would lead to a resurgence in heroin use. The California Complaint alleged: “The pain‑relieving properties of opium have
been recognized for millennia. So has
the magnitude of its potential abuse and addiction. Opioids, after all, are closely related to
illegal drugs like opium and heroin.” Both
the California Complaint and the Chicago Complaint allege: “Defendants had access to scientific studies,
detailed prescription data, and reports of adverse events, including reports of
addiction, hospitalization, and deaths—all of which made clear the significant
adverse outcomes from opioids and that patients were suffering from addiction,
overdoses, and death in alarming numbers.”
Watson argues the alleged injuries are not
the “normal consequences of the acts alleged” and, for its opioid products to
end up in the hands of abusers, it was necessary for doctors to prescribe the
drugs to abusers. The test, however, is
not whether the consequences are normal; the test is whether an additional,
unexpected, independent, and unforeseen happening produced the consequences. The
role of doctors in prescribing, or misprescribing, opioids is not an
independent or unforeseen happening. The
California Complaint and the Chicago Complaint allege: “Nor is Defendants’ causal role broken by the
involvement of doctors, professionals with the training and responsibility to
make individualized medical judgments for their patients. Defendants’ marketing efforts were ubiquitous
and highly persuasive. Their deceptive
messages tainted virtually every source doctors could rely on for information
and prevented them from making informed treatment decisions.”
C. Coverage
Decisions Arising from West Virginia Litigation
Pharmaceutical companies, including Watson,
also are the target of litigation in West Virginia for their alleged role in
the opioid crisis. In two decisions, Liberty Mut. Fire Ins. Co. v. JM Smith Corp.
(4th Cir. 2015) 602 Fed.Appx. 115 (JM
Smith) and Cincinnati Ins. Co. v. Richie
Enterprises, LLC (W.D. Ky. 2014, Civ. A. No. 1:12-CV-00186-JHM-HBB) 2014
U.S.Dist Lexis 27306 (Richie), courts
have concluded the insurer had a duty to defend the pharmaceutical companies in
the West Virginia lawsuit. Watson argues
those decisions support imposing on Travelers a duty to defend Watson in the
California Action and the Chicago Action.
The allegations in the West Virginia lawsuit are, however, appreciably
different from those in the California Complaint and the Chicago Complaint, and
the state law governing those decisions is different from California law.
JM Smith and Richie both arose out of the same complaint brought by the State of
West Virginia against 13 pharmaceutical drug distributors. (JM Smith, supra, 602 Fed.Appx. at p. 117; Richie, supra,
2014 U.S.Dist Lexis 27306 at pp. *1‑2.)
As described in JM Smith, the West Virginia complaint alleged:
“[T]he drug distributors were contributing to a well‑publicized prescription
drug abuse epidemic in West Virginia by failing to identify, block, and report
excessive drug orders. It identified ‘pill
mills’—physicians, pharmacists, and distributors of controlled substances who
write and fill excessive prescriptions—as responsible for increased abuses. The complaint also charged the drug
distributors with ‘substantially contributing to’ the epidemic by failing to maintain
sufficient controls that would flag suspicious orders as required by West
Virginia law, all while the distributors were on notice that the epidemic was a
current and growing problem.” (JM Smith, supra, 602 Fed.Appx. at p. 117.)
As described in Richie, the
West Virginia complaint alleged the drug distributors “illegally
distributed controlled substances by supplying physicians and drugstores with
drug quantities in excess of legitimate medical need.” (Richie, supra, 2014 U.S.Dist. Lexis
27306 at p. *2.)
In
JM Smith, supra, 602 Fed.Appx. at
page 116, the Fourth Circuit Court of Appeals held that the insurer had a duty
to defend a pharmaceutical distributor in the West Virginia lawsuit because the
claims alleged created a possibility of coverage under the CGL policy. The court scrutinized, count by count, the
allegations of the West Virginia complaint and concluded they alleged claims
based on negligence and did not allege intentional harm. (Id. at
p. 120.) Further, under South Carolina
law applicable to the policies, “accidents require that either the act or the injury resulting from the act be
unintentional”; that is, a deliberate act is an accident if the resulting
injury is unintentional. (Ibid., italics added.) Under California law, in contrast, a
deliberate act is not an accident, even if the injury is unintentional, unless the
injury was produced by an additional,
unexpected, independent, and unforeseen happening.
The
court in Richie likewise found that
the West Virginia complaint included allegations of negligent conduct that
would trigger coverage under the “‘occurrence’” provision of the policies. (Richie, supra, 2014 U.S.Dist. Lexis
27306 at p. *14.) In addition,
under Kentucky law, a loss or harm is “fortuitous”—i.e. accidental—if
unintended by the insured. (Id. at p. *11.) The court found the West Virginia complaint “sets
forth allegations that the alleged harm is fortuitous and properly deemed ‘accidental’
since Richie did not intend for the alleged drug addiction to occur.” (Id. at
p. *14.) Here, as we have explained,
under California law “the term ‘accident’ does not apply where an intentional
act resulted in unintended harm.” (Frake, supra, 197 Cal.App.4th at p. 582.)
D. There Is No Potential for Liability Based on
Negligence.
Watson
argues the duty to defend was triggered because the California Complaint and
the Chicago Complaint “permit the possibility that Watson will be held liable,
if at all, for conduct or omissions that are negligent.” In particular, Watson argues its liability
under the public nuisance cause of action of the California Complaint (the only
cause of action of that complaint for which Watson seeks coverage) can be based
on negligent conduct or omissions.
A
“nuisance” is “[a]nything which is injurious to health” (Civ. Code,
§ 3479), and a “public nuisance” is “one which affects at the same time an
entire community or neighborhood, or any considerable number of persons” (id., § 3480). Both are remediable by civil suit or
abatement. (Id., §§ 3491, 3493, 3494.)
The public nuisance statutes do not require a finding that the nuisance
was created or furthered by intentional acts.
However, “it is not the form or title of a cause of action that
determines the carrier’s duty to defend, but the potential liability suggested
by the facts alleged or otherwise available to the insurer.” (CNA
Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598,
609.) The duty to defend is triggered by
allegations on the face of the complaint and from extrinsic information available
to the insurer and whether those allegations and facts create a potential for
coverage under the terms of the policy.
(Low v. Golden Eagle Ins. Co. (2002)
99 Cal.App.4th 109, 113.)
The
facts alleged in the California Complaint and the Chicago Complaint suggest
potential liability based only on Watson’s intentional conduct. But to the extent the complaints create a potential
for liability against Watson based on unintentional conduct, the claims fall
within the Products Exclusions.
III.
The Claims Fall Within the Products
Exclusions and Therefore Are Excluded From Coverage.
A. Products
Exclusions: Background
The Products Exclusions exclude coverage for
bodily injury “arising out of” (Travelers Policies) or that “results from” (St.
Paul Policies) “[a]ny goods or products . . . manufactured, sold,
handled, distributed or disposed of by: [¶] . . . [y]ou.” The Products Exclusions also exclude coverage
for bodily injury that arises out of or results from “[w]arranties or representations made at any
time, or that should have been made,
with respect to the fitness,
quality, durability, performance, handling, maintenance, operation, safety, or use of such goods or products.”
Thus, the Products Exclusions bar
coverage for bodily injury that arises out of or results from (1) goods or
products manufactured, sold, handled, distributed, or disposed of by Watson and
(2) warranties or representations
made with respect to the fitness,
quality, durability, performance, handling, maintenance, operation, safety, or use of those goods or
products.
The
trial court found the allegations of the California Complaint and the Chicago
Complaint come within the Products Exclusions because “[a]ll of the harm that is asserted in the
lawsuits—narcotics addiction, the public nuisance in the California action and
the public health costs, etc. highlighted in the Chicago [Action]—stem from
Watson’s products and what Watson said and did not say about the products.”
Policy exclusions must be construed narrowly,
and the insurer has the burden of demonstrating an exclusion precludes
coverage. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 16; Safeco Ins. Co. v. Robert S. (2001) 26
Cal.4th 758, 777; see Atlantic Mutual
Ins. Co. v. J. Lamb, Inc. (2002) 100 Cal.App.4th 1017, 1039 [“an insurer
that wishes to rely on an exclusion has the burden of proving, through
conclusive evidence, that the exclusion applies in all possible worlds”].)
The “bodily injury” alleged by the California
Complaint and the Chicago Complaint falls into two categories. The first category relates to use and abuse
of opioid painkillers and includes injuries such as overdose, addiction, death,
and long‑term disability. The second
category relates to use and abuse of heroin, the resurgence of which is alleged
to have been triggered by use and misuse of opioids.
California courts have interpreted the terms “arising
out of” or “arising from” broadly: “It
is settled that this language does not import any particular standard of
causation or theory of liability into an insurance policy. Rather, it broadly links a factual situation
with the event creating liability, and connotes only a minimal causal
connection or incidental relationship.”
(Acceptance Ins. Co. v. Syufy
Enterprises (1999) 69 Cal.App.4th 321, 328.) Watson does not argue the term “results from”
(used in the St. Paul Policies) should be interpreted differently from the term
“arising out of.” (See Pension Trust Fund v. Federal Ins. Co. (9th
Cir. 2002) 307 F.3d 944, 952‑953 [“‘as a result of’” and “‘arising out of’”
should be interpreted in the same way].)
This broad interpretation of “arising out of”
applies to both coverage provisions and exclusions. (Crown
Capital Securities, L.P. v. Endurance American Special Ins. Co. (2015) 235
Cal.App.4th 1122, 1131 [applying definition to policy exclusion]; Jon Davler, Inc. v. Arch Ins. Co. (2014)
229 Cal.App.4th 1025, 1035‑1036 [applying definition to policy exclusion]; Southgate
Recreation & Park Dist. v. California Assn. for Park & Recreation Ins.
(2003) 106 Cal.App.4th 293, 300 [arising out of “‘broadly links’ the
exclusionary operative events with the exclusion” and is “generally equated”
with “‘origination, growth or flow from the event’”]; Medill v. Westport Ins. Corp. (2006) 143 Cal.App.4th 819, 829‑830
[broad interpretation of the term “arising out of” applies to breach of
contract exclusion]; Aloha Pacific, Inc. v. California Ins. Guarantee Assn.
(2000) 79 Cal.App.4th 297, 318‑319 [broad interpretation given to term “‘arising
out of’” in trademark exclusion in general liability insurance policy]; Fibreboard
Corp. v. Hartford Accident & Indemnity Co. (1993) 16 Cal.App.4th 492,
503 [“California courts generally have given the term ‘arising out of’ or ‘arising
from’ their commonsense meaning, concluding that they connote more than mere
causation”]; see Trenches, Inc. v.
Hanover Ins. Co. (9th Cir. 2014) 575 Fed.Appx. 741, 751 [“In California,
the phrase ‘arising out of’ is construed broadly, even if in an exclusion”].)[6]
As
to the first category of bodily injury, as Travelers argues, the alleged opioid
epidemic and attendant ills arise out of Watson’s opioid products because, simply
and irrefutably, “narcotics addiction and abuse ‘arise out of’ narcotics.” In addition, the complaints allege a direct
connection between the statements and representations made by Watson in its
alleged campaign to increase sales of its opioid products and the abuse, addiction,
death, and other injuries caused by those products. Indeed, this campaign, which allegedly
misrepresented the efficacy of opioid painkillers, overstated their benefits,
and trivialized their risks, is the very basis on which liability against
Watson is premised. Those statements and
misrepresentations are alleged to have been made to create a “new and far
broader market for [Watson’s] potent and highly addictive drugs,” and induce
physicians to prescribe opioid painkillers for purposes to which they were
unsuited. The success of Watson’s
marketing campaign was what is alleged to have led to the epidemic of opioid misuse.
The
second category of bodily injury, the alleged resurgence in heroin use, also
arises out of Watson’s products. Heroin
is not, of course, a product made or distributed by Watson, but that fact is
not dispositive. The Products Exclusions
extend, as we have explained, to bodily injury arising out of warranties or representations made by Watson in connection with its
products. The complaints allege a direct
causal connection between those warranties and representations and the
resurgence in heroin use: Watson’s
warranties and representations made as part of this campaign to increase the
sales of highly addictive opioid painkillers allegedly had the intended effect
of increasing their sales, use, and addiction, which led to a dramatic increase
in the use of heroin as a cheaper alternative.
The California Complaint alleges:
“It is hard to imagine the powerful pull that would cause a law‑abiding,
middle‑aged person who started on prescription opioids for a back injury to
turn to buying, snorting, or injecting heroin, but that is the dark side of
opioid use and addiction.”
B. Federal and Out‑of‑State Cases
Several
federal and out‑of‑state cases support our conclusion the Products Exclusions
bar coverage here. Travelers Property Casualty Co. of America v. Anda, Inc. (11th.
Cir. 2016) 658 Fed.Appx. 955 (Anda) addressed
the application of the same exclusions to allegations of bodily injury caused
by the opioid epidemic in West Virginia.
The State of West Virginia sued insured pharmaceutical companies (including
Watson Pharmaceuticals, Inc.) alleging they “knowingly or negligently flooded
the West Virginia market with commonly‑abused drugs.” West Virginia alleged it suffered many kinds
of harm, including increased crime and congested hospitals, as a result of the
over‑supply of the insureds’ products on the market. (Id. at
p. 956.) Anda, Inc. (a pharmaceutical
distributor) and Watson Pharmaceuticals, Inc. (together, Anda) sought defense
and indemnification under CGL polices issued by Travelers and St. Paul. (Id. at
pp. 956‑957.) Those policies had
the same products exclusions as found in the Travelers Policies and the St.
Paul Policies here. (Id. at pp. 957‑958.)
The
Eleventh Circuit Court of Appeals, applying California law, concluded the
injuries alleged had, at a minimum, a connection with the insureds’ products
and therefore fell within the products exclusion. (Anda,
supra, 658 Fed.Appx. at p. 958.) The court explained: “In [the West Virginia] action, the State
seeks to enjoin the way Anda distributes its products. It also seeks monetary damages arising from
the injuries—whether they be ‘bodily’ or not—caused by these products. At bottom, the State claims that Anda and
other pharmaceutical distributors have so flooded the market with their
products that West Virginia suffers from an opioid epidemic. As a result of that epidemic, the State has suffered
monetary losses that it now seeks to recover. The causal connection between Anda’s products
and the injuries alleged by the State is sufficient to meet the low bar set by
California law. Accordingly, we conclude
that all the underlying claims, if covered at all, are embraced within the
Travelers and St. Paul Products Exclusions, which render any coverage
inapplicable.” (Id. at pp. 958‑959.)
The
only significant difference between Anda and
this case is that the California Complaint and the Chicago Complaint also allege
liability for a resurgence in heroin use allegedly triggered by Watson’s
products. But as we have explained,
although heroin is not a Watson product, the alleged resurgence in heroin use
arises out of Watson’s opioid products and the statements and representations
Watson made about them.
The
Florida Supreme Court, in Taurus Holdings v. U.S. Fidelity (Fla. 2005) 913 So.2d 528 (Taurus) addressed whether CGL insurance
policies excluded coverage for lawsuits brought by municipalities against gun
manufacturers to recover the costs of medical and other services incurred as a
result of gun violence. The court held
there was no coverage because the claims fell within exclusions for “‘bodily
injury and property damage . . . arising out of your product.’” (Id. at
p. 530.) The court interpreted the
term “‘arising out of’” broadly to mean “‘“originating from,” “having its
origin in,” “growing out of,” “flowing from,” “incident to” or “having a
connection with.”’” (Id. at pp. 532‑533, 536.) The court then applied this broad
interpretation and concluded the policies excluded claims against the gun
manufactures when the injuries alleged were caused by guns manufactured by the
insured. The court explained: “The provision at issue excludes coverage for
‘all bodily injury and property damage . . . arising out of your
product.’ The underlying complaints
allege damages for increased health care costs and the increased costs for
police and emergency medical services due to gun violence, and the costs
associated with the prosecution of gun‑related crimes. The allegations in the complaints all ‘concern
off-premises conduct arising out of (not merely incidentally related to)
firearms products.’ [Citation.] The bodily injuries alleged all originated from
[the insured]’s products—that is, the discharge of their manufactured guns. (Id.
at p. 540.)
Three
federal court decisions, all cited by the Florida Supreme Court in Taurus, reached the same
conclusion. (Brazas Sporting Arms v. American Empire Surplus (1st Cir. 2000) 220
F.3d 1; Beretta U.S.A. Corp. v. Fed. Ins.
Co. (4th Cir. 2001) 17 Fed.Appx. 250; Mass.
Bay Ins. Co. v. Bushmaster Firearms (D.Me. 2004) 324 F.Supp.2d 110.) In each case, the court concluded that a products
exclusion provision operated to exclude coverage for claims against a gun
manufacturer for injuries allegedly caused by the guns the insured had
manufactured.
C. Watson’s Arguments
1. The
Conduct Alleged Was Connected With the Products.
Watson
argues the Products Exclusions do not apply because the alleged harm was caused
by “conduct sufficiently independent of the product’s design and manufacture.” In support of this argument, Watson cites Aetna Casualty & Surety Co. v. Richmond (1977)
76 Cal.App.3d 645 (Richmond) and McGinnis v. Fidelity & Casualty Co. (1969)
276 Cal.App.2d 15 (McGinnis).
In
Richmond, supra, 76 Cal.App.3d at
page 648, the insured, a sporting goods store, was sued by a customer who was
injured when ski bindings she bought at the insured’s store failed to release
properly. Based on a products exclusion
(called a completed operations or products hazard), the insurer denied the
insured’s demand for defense and indemnification. (Ibid.)
Although the insured did not manufacture
the ski bindings, an employee of the insured adjusted the bindings and affixed
them to the skis. (Ibid.) The Court of Appeal
concluded the insurer had no duty to defend or indemnify because the products
exclusion included workmanship on the products.
(Id. at p. 654.) “The critical issue,” the court stated, “is
whether the product was defective with respect to its intended use.” (Ibid.)
If the product was defective, the fact
that the negligence of insured’s employee in adjusting the bindings “contributed
to the existence of the defect” did not take the cause of action alleged out of
the products exclusion. (Id. at pp. 654‑655.) “Only where negligent service of the insured
constitutes ‘an act sufficiently removed from the quality of the product in question
[will it] escape the exclusionary clause.’”
(Id. at p. 655.)
In
McGinnis, supra, 276 Cal.App.2d at page 16, a boy was injured when gunpowder
purchased at the insured’s gun and ammunition store exploded. The insurer disclaimed liability under the
policy based on an exclusion for bodily injury arising out of “[g]oods or
products manufactured, sold, handled or distributed by the insured.” (Id. at
pp. 16‑17.) The Court of Appeal
concluded the claim fell outside the exclusion because the injury was not
caused by a defective product: “The
powder did exactly what it was designed to do, and what everyone expected it to
do; it exploded when detonated.
Consequently this is not a products liability case because no negligence
can be attributed to the manufacturer.
Stated another way, [the insured] was negligent in selling to the minor,
and his negligence was a proximate cause of the accident.” (Id. at
p. 17.)
According
to Watson, Richmond and McGinnis correctly state a rule that a
products exclusion does not apply if the bodily injury is caused by conduct
sufficiently independent or removed from the product’s design and manufacture. In that situation, the products exclusion
would not bar coverage because there would be a potential for coverage based on
a nonexcluded cause—the insured’s conduct.
As
we see it, Richmond and McGinnis support the conclusion the
Products Exclusions bar coverage here. In Richmond,
the Court of Appeal concluded that the conduct of the insured’s employee in
adjusting the bindings and attaching them to the skis did not take the claim
out of the products exclusion because that negligent conduct was connected with
the bindings’ defects. Here, although
the Watson’s opioid products are not alleged to be defective, Watson’s
statements and representations about them were closely connected with (“not
sufficiently removed from”) the claims they were overprescribed and
misused. Watson’s alleged liability
arises out of allegations that Watson launched a marketing campaign to sell a
nondefective product for a purpose for which it was unsuited. In Cravens
v. Dargan & Co. v. Pacific Indem. Co. (1972) 29 Cal.App.3d 594, 599,
the Court of Appeal, distinguishing McGinnis,
concluded that a claim for injury from the insured’s insecticide product fell
within a products exclusion. Although
the insecticide was not defective, the insured knew its proper purpose but
recommended and sold the product for an unsuitable use. (Ibid.) This
case is the same: Although Watson’s
opioid products are not alleged to be defective, it is alleged Watson marketed
and sold them for a purpose for which Watson knew they are not suited, i.e.,
treatment of long‑term, chronic, nonacute pain.
2. The
Products Exclusions Are Not Limited to Defective Products.
Although
Watson does not expressly state as much, its argument is premised on the
proposition that products exclusions, such as those in Travelers Policies and
the St. Paul Policies, exclude only injuries caused by defective products. Here, the Products Exclusions by their terms are not limited to defective
products but quite plainly exclude bodily injury arising out of “[a]ny goods or products . . . manufactured,
sold, handled, distributed or disposed of by:
[¶] . . . [y]ou.” (Italics
added.)
The California Supreme Court has not
addressed whether the term “any product” in a Products-Completed Operations
Hazard exclusion is limited to defective products. In Taurus,
supra, 913 So.2d 528, the Florida
Supreme Court addressed that issue in a case involving the same exclusion found
in the policies in this case. The
Florida Supreme Court acknowledged a split of authority among jurisdictions and
listed both cases limiting the exclusion to defective products and those
holding the exclusion applies more broadly.
(Id. at p. 536.) The Florida Supreme Court concluded the
exclusion did not apply only to defective products: “We do not believe that a fair reading of the
exclusion at issue here would apply it only
to defective products. Certainly the
word ‘defective’ is found nowhere in the exclusion. The language is much broader, applying the
exclusion to ‘all bodily injury and property damage . . . arising out of your
product.’ The term ‘your product’ is
defined as ‘any goods or products . . . manufactured, sold, handled,
distributed or disposed of by’ Taurus. The
word ‘any’ before ‘goods or products’ connotes a scope extending beyond merely
defective products. Therefore, nothing
in the text of the exclusion suggests it applies only to defective products. .
. . The plain language of the exclusion
in this case excludes coverage for all product-related injuries, not merely
defective products.” (Id. at pp. 536‑537.)
We agree with the analysis of the Florida
Supreme Court and likewise conclude the term “any product” in the Product
Exclusions of the Travelers Policies and the St. Paul Policies is not limited to defective products. Thus, whether or not the opioid products
manufactured, sold, or distributed by Watson were defective is not alone
decisive of the issue whether the Products Exclusions apply. We are not bound by Richmond or McGinnis (see
Sarti v. Salt Creek (2008) 167
Cal.App.4th 1187, 1193 [“there is no horizontal stare decisis in the California
Court of Appeal”]), and we disagree with those decisions to the extent they
state a different rule.
3. “Arising Out Of” Does Not Equate to Tort Causation.
Even
if Watson’s products were a cause of
the harm, Watson contends the Products Exclusions do not apply because there
are other, concurrent proximate causes of the harm alleged that are independent
of the design and manufacture of the opioid drugs. The terms “arising out of” and “arising from”
do not regulate the standard of causation.
(Fibreboard Corp. v. Hartford
Accident & Indemnity Co., supra, 16 Cal.App.4th at pp. 504‑505.) Instead, those terms “identif[y] a core
factual nucleus, i.e., products manufactured, sold or distributed by the
insured, and links that nucleus to the bodily injury or property damage covered
under the policy. This link is not made
in terms of tort causation.” (Id. at p. 505.)
Moreover,
the California Complaint and the Chicago Complaint allege, expressly or by
inference, lack of concurrent proximate causation. The reason that doctors and other medical
professionals misprescribed opioid painkillers is alleged to have been the
successful marketing efforts by Watson. The
California Complaint alleges: “Nor is
Defendants’ causal role broken by the involvement of doctors, professionals
with the training and responsibility to make individualized medical judgment
for their patients. Defendants’
marketing efforts were ubiquitous and highly persuasive. Their deceptive messages tainted virtually
every source doctors could rely on for information and prevented them from
making informed treatment decisions.” The
allegations of the complaints thereby foreclose the potential of proximate
concurrent causation.
4. The
Products Exclusions Are Not Ambiguous.
Watson
argues the Products Exclusions are ambiguous due to an exception in section
2.d(3) of the Travelers Policies. The
exception in section 2.d(3) is for “products or operations for which the
classification, listed in the Declarations or in a policy schedule, states that
products‑completed operations are subject to the General Aggregate Limit.” This exception, like so many provisions in a
CGL policy, takes some effort to understand, but that does make it
ambiguous. We agree with the explanation
given by Travelers that “if the parties elected to exempt any particular
products or operations from the Products Exclusion, they were required to list
the relevant classification on the Declarations page or on a policy schedule,
and note that the products or operations within that classification are subject
to the General Aggregate Limit.”
Here,
neither the Declarations page nor any policy schedule states that any
classification of products claims were subject to the general aggregate limit. The Declarations page states that the
Travelers Policies have a general aggregate limit that applies to claims
“[o]ther than Products‑Completed Operations.”
Because no classification of products claims is listed on the
Declarations page or a policy schedule, all products and operations are subject
to the Products Exclusions.
DISPOSITION
The judgment is affirmed. Respondents shall recover costs on appeal.
FYBEL,
J.
WE CONCUR:
BEDSWORTH, ACTING P. J.
MOORE, J.
[1]
Appellants are Actavis, Inc., Actavis LLC, Actavis Pharma, Inc., Watson
Pharmaceuticals, Inc., Watson Laboratories, Inc., and Watson Pharma, Inc. The parties refer to the appellants
collectively as Watson, and, for the sake of consistency, we shall do the same.
[2]
We refer to Travelers Insurance and St. Paul together as “Travelers.”
[3]
The relationship among the Watson entities is alleged as: “Actavis PLC is a public limited company
incorporated in Ireland with its principal place of business in Dublin,
Ireland. Watson Pharmaceuticals, Inc.
acquired Actavis, Inc. in October 2012 and the combined company name was
changed to Actavis, Inc. as of January 2013.
The combined company then became a wholly[‑]owned subsidiary [of]
Actavis PLC in October 2013. Watson
Laboratories, Inc. is a Nevada corporation with its principal place of business
in . . . California, and is a wholly[‑]owned subsidiary of Actavis,
Inc. . . . a Nevada Corporation with its principal place of business
in . . . New Jersey. Actavis
Pharma, Inc. is a Delaware corporation with its principal place of business in
New Jersey, and was formerly known as Watson Pharma, Inc. Actavis LLC is a Delaware limited liability
company with its principal place of business in . . . New
Jersey. Each of these defendants is
owned by Actavis [PLC], which uses them to market and sell its drugs in the
United States.” (Some capitalization
omitted.)
[4]
The trial court concluded: “In the case at hand, the theory of both the
California and the Chicago lawsuits is that Watson engaged in a well‑orchestrated
scheme to increase the use and sales of its opioids notwithstanding their known
but undisclosed addictiveness. Both
lawsuits emphasize the deliberate nature of Watson’s actions. Watson is accused of a course of conduct
designed to increase sales of its opioids by intentionally misleading doctors
and the public. It is further accused of
fraudulently concealing its deceptive marketing practices. Under Delgado [v. Interinsurance Exchange of Automobile
Club of Southern California (2009) 47 Cal.4th 302] and its
progeny, the fact that Watson’s allegedly intentional misconduct may have
resulted in unintended consequences such as an increase in heroin addiction
does not transform the purported misconduct into an ‘accident’ as that term is
used in the two insurance policies.”
[5]
The trial court concluded: “All of the harm that is asserted in the
lawsuits—narcotics addiction, the public nuisance in the California action and
the public health costs, etc. highlighted in the Chicago [Action]—stem from
Watson’s products and what Watson said and did not say about the products. Put another way, to the extent that any
‘bodily damage’ occurred, it directly arose from Watson’s products. Significantly, both the St. Paul and
Travelers Property Products Exclusion provisions encompass
statements/representations that were made or that should have been [made]
regarding Watson’s products. Such
statements/misrepresentations are at the heart of the two lawsuits—indeed,
without the alleged scheme to inflate the sales of the opioids, there would be
no basis for the legal actions.”
[6]
Watson urges us to use the present case as a vehicle for narrowing the
meaning of “arising from” or “arising out of” in an exclusion. We agree with the definition of “arising
from” or “arising out of” given in the cases cited.