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Opioid litigation sets stage for coverage fights

Opioid litigation sets stage for coverage fights

The devastating opioid crisis will eventually have an impact on the insurance market for pharmaceutical manufacturers, distributors and pharmacies in what is already considered a challenging sector to insure, but it is not expected to affect the overall market.

Products liability and directors and officers liability are the lines cited most often as likely to be affected, but others, including errors and omissions, commercial general liability and advertising injury, are mentioned as well.

A total of 42,249 people died from overdosing on opioids in 2016, according to the U.S. Department of Health & Human Services, at a rate of 116 a day.

In March, South Dakota became the 19th state to sue opioid manufacturers among the hundreds of lawsuits that have been filed in various jurisdictions, including counties.

Meanwhile, the judge overseeing the multidistrict litigation filed in Ohio has said he plans to expedite the litigation, although observers say the case has some significant differences with the Big Tobacco litigation settled in 1998 (see related story).

“I think there will probably be at some point in time some discussion between policyholders and our lawyers about where coverage lies, or doesn’t lie, based on particular suits, allegations and theories,” said Cindy Koehler, Boston-based global practice leader for casualty claims at XL Group Ltd., which does business as XL Catlin.

John Denton, New York-based coverage and claims leader with Marsh L.L.C.’s U.S. casualty practice, said: “The insureds are tendering those claims under both current and historical policies, and the carriers are responding to those claims largely by reserving their rights. Ultimately, there may be coverage litigation to resolve whether or not, and to what extent, those policies respond.”

The manufacturers will “stick together” and try to persuade the courts otherwise when insurers say there were exclusions in past policies that preclude coverage, said Walker Taylor IV, Wilmington, North Carolina-based senior managing director of Arthur J. Gallagher & Co.’s life sciences practice.

The insurers will say, “You pushed this onto the public, you advertised them, and you knew it was addictive,” while policyholders will say, “Hey, this is why we bought product liability coverage,” Mr. Taylor said.

Mr. Denton said the two coverage issues that have arisen so far are whether product liability insurance provides coverage for damages because of bodily injury arising out of the insureds’ products, and whether the harm caused was “expected or intended.”

But because state laws differ, “You may have 50 different interpretations of whether and how the policies respond to these opioid complaints,” Mr. Denton said.

On policies now being written, insurers “are either excluding opioids outright completely, or imposing exclusions for actions by government entities, for instance,” said James Walters, Philadelphia-based leader of Aon P.L.C.’s pharmaceutical practice.

“That doesn’t mean they can ignore or get out of the coverage that they have provided in the past ... but they are all generally saying, ‘We’re not covering anything from this point forward,’” Mr. Walter said.

D&O insurance may be affected through derivative as well as class actions, say observers.

“The D&O polices aren’t going to provide coverage for the suits that have been filed by states, counties and municipalities” and others, “but there may be follow-on suits by shareholders against the directors and officers, and if that were to occur, those policies would respond to those suits,” said Mr. Denton.

“What a D&O policy is designed to cover on a public company form is exactly this: a management type of risk arising out of what the company does, and part of what these companies do” is manufacture or become involved in the distribution of opioids, said Carrie O’Neil, senior vice president at JLT Specialty USA, a unit of Jardine Lloyd Thompson Group P.L.C., in Denver.

Damian Caracciolo, vice president of the executive protection practice at CBIZ Inc. in Columbia, Maryland, said D&O lawsuits on this issue began in late 2017. “We’re charting new territory with this, and to see how the D&O policies respond is going to be critical.” D&O insurers will attempt to deny coverage on the basis of conduct exclusions for claims arising out of gains made illegally or deliberately dishonestly, Mr. Walker said.

Insurers would have to defend the companies, though, until these facts are established, Mr. Walker said. “This is going to be a tough standard to prove,” he said.

“I don’t see it having an effect on overall rates,” although that certainly will not be the case for the companies involved, said Kevin LaCroix, executive vice president of RT ProExec, a division of R-T Specialty L.L.C., in Beachwood, Ohio.

It will, at a minimum, affect underwriting, pricing and risk selection. “Underwriters read the headlines and know what is happening,” he said.





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