Fortuitous Event Needed to Obtain Liability Insurance Coverage

No Accident, No Coverage

I have often, here, quoted the simple, clear and unambiguous definition of insurance provided by the California Insurance Code that states: “Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.” An intentional act, therefore, by definition cannot be insured against.

In The Traveler’s Property Casualty Company Of America et al. v. Actavis, Inc., et al., G053749, Court Of Appeal Of The State Of California Fourth Appellate District Division Three, (November 6, 2017) the court was faced with a question whether two anti-opioid-manufacturer lawsuits allowed the manufacturers to receive defense from their commercial general liability insurers.


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. The California Action alleged Actavis, Inc., Actavis LLC, Actavis Pharma, Inc., Watson Pharmaceuticals, Inc., Watson Laboratories, Inc., and Watson Pharma, Inc. (hereinafter “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 court was asked, specifically, do 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 sued its insureds seeking a declaration that Travelers had no duty to defend or indemnify. The trial court agreed 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.


Watson purchased primary CGL policies from St. Paul that had an exclusion for “Products and Completed Work.  The Travelers Policies that preceded the St. Paul policy also had 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.'”

The suits alleged that 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.”



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.

The duty to defend, though broad, is measured by the nature and kinds of risk insured by the policy. 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.

There Is No Potential for Coverage Because the Claims Arise Only Out of Watson’s Deliberate Conduct.

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. 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. 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.

The claims of the California Complaint and the Chicago Complaint are based on allegations that Watson engaged in deliberate conduct. 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.

The facts alleged in the California Complaint and the Chicago Complaint suggest potential liability based only on Watson’s intentional conduct.

The Claims Fall Within the Products Exclusions and Therefore Are Excluded From Coverage.

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 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.”

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.” 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. The Court of Appeal, after reviewing opinions of other jurisdictions concluded that the term “any product” in the Product Exclusions of the Travelers Policies and the St. Paul Policies is not limited to defective products.

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.


Insurance, by definition, requires that the coverage only applies to contingent or unknown events. The unwritten exclusion in every policy is the fortuity exclusion that requires the loss to be accidental. The two complaints against the opioid manufacturers is clearly limited to the intentional conduct of the manufacturers and, therefore, no coverage exists. The plaintiffs, therefore, are required to seek the personal assets of the defendants if they can prove their case and if the succeed the manufacturers will actually be punished for their wrongdoing.

© 2017 – Barry Zalma

This article, and all of the blog posts on this site, digests and summarizes cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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