Economic Damages not a Risk Insured Against
Insurance is not Designed to Cure Public Ills
The Supreme Court of Delaware was asked whether insurance policies covering lawsuits “for” or “because of” personal injury require insurers to defend their insureds when the plaintiffs in the underlying suits expressly disavow claims for personal injury and seek only their own economic damages. The trial Court decided that the insured, Rite Aid, could effective compel its insurance carriers to defend it against lawsuits filed by two Ohio counties to recover opioid-epidemic-related economic damages.
In ACE American Insurance Company, Illinois Union Insurance Company, ACE Property & Casualty Company, and Federal Insurance Company v. Rite Aid Corporation, Rite Aid Hdqtrs. Corporation, and Rite Aid Of Maryland, Inc. d/b/a Mid-Atlantic Customer Support Center, No. 339, 2020, Supreme Court of Delaware (January 10, 2022) the Delaware Supreme Court resolved the dispute by reading the policies involved and the facts alleged by the Ohio Counties.
Three classes of plaintiffs are within the scope of the insured’s personal injury coverage:
- the person injured,
- those recovering on behalf of the person injured, and
- people or organizations that directly cared for or treated the person injured.
To recover under the insured’s policy as a person or organization that directly cared for or treated the injured person, the plaintiff must prove the costs of caring for the individual’s personal injury. The plaintiffs, governmental entities, sought to recover only their own economic damages, specifically disclaiming recovery for personal injury or any specific treatment damages.
Rite Aid is a national drugstore company with about 2,500 stores around the country. Chubb wrote general liability insurance for Rite Aid.
Rite Aid and others are defendants in multi-district litigation before the United States District Court for the Northern District of Ohio (the “MDL Opioid Lawsuits”). Plaintiffs have filed over a thousand suits in the MDL Opioid Lawsuits against companies in the pharmaceutical supply chain for their roles in the national opioid crisis. Certain suits are bellwether suits-including the complaints of Summit and Cuyahoga Counties in Ohio (“the Counties”) which are at issue before the Delaware Supreme Court.
The Counties’ cases are called the “Track One Lawsuits.” Those lawsuits: “take aim at the two primary causes of the opioid crisis: (a) a marketing scheme [by certain defendants] . . .; and (b) a supply chain scheme, pursuant to which the various entities in the supply chain failed to design and operate systems to identify suspicious orders of prescription opioids, maintain effective controls against diversion, and halt suspicious orders when they were identified, thereby contributing to the oversupply of such drugs and fueling an illegal secondary market.”
ACE Policy XSL G27390900, the 2015 Policy “applies” to “personal injury” which “is caused by an ‘occurrence’ that takes place in the ‘coverage territory;’ and . . . occurs during the policy period.” “Personal injury” is defined in part as “bodily injury” and includes “any continuation, change, or resumption of that ‘personal injury’ . . . after the end of the policy period.” “Bodily injury” has its own definition: “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” And an occurrence, with respect to bodily injury, is “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Finally, the 2015 Policy provides that Chubb has a “duty to defend the insured against any ‘suit’ seeking [personal injury] damages.”
After Chubb denied coverage, Rite Aid sued the carriers in the Superior Court, claiming breach of contract, seeking a declaratory judgment on the duty to pay or reimburse defense costs, and statutory remedies for Chubb’s refusal to defend without good cause under Pennsylvania law. Rite Aid moved for partial summary judgment seeking a declaration that Chubb is obligated to “pay or reimburse” Rite Aid’s defense costs for the Track One Lawsuits and “all similarly pled lawsuits[, ]” which would likely encompass most of the MDL Opioid Lawsuits. Chubb moved for partial summary judgment on the grounds that it had no obligation to defend Rite Aid in the lawsuits.
The Superior Court granted summary judgment to Rite Aid.
Chubb acknowledges that an insurer has a duty to defend the insured when a complaint seeks damages for injuries that arguably are covered by the policy. And Chubb agrees that the 2015 Policy covers suits seeking damages “for” or “because of” personal injury. Coverage depends on whether the bodily injury was suffered by the plaintiff, or someone asserting bodily injury liability derivatively for the harmed party. Dispositive to the Supreme Court was the fact that the Counties did not suffer personal injury and thus seek compensation only for their non-derivative economic harms, even if those harms have some causal connection to a bodily injury.
It is axiomatic that the duty to defend is broad. An insurer has an obligation to defend its insured, even if the action against the insured is groundless, whenever the complaint may potentially come within the coverage of the policy. This applies even when the complaint has only one allegation that falls within the scope of the policy’s coverage and even if an insured is ultimately found to be not liable.
Taking Cuyahoga County’s complaint as representative, it seeks “economic damages” as a “direct and proximate result” of Rite Aid’s failure to “effectively prevent diversion” and “monitor, report, and prevent suspicious orders” of opioids. Cuyahoga alleges that Rite Aid’s conduct also “fell far short of legal requirements” and “contributed significantly to the opioid crisis by enabling, and failing to prevent, the diversion of opioids” for illegal and non-prescription use. Cuyahoga claims the opioid crisis “saddled [it] with an enormous economic burden,” with “several departments [incurring] direct and specific response costs that total tens of millions of dollars[, ]” including costs in the areas of medical treatment and criminal justice.
The complaints do not allege personal injury damage claims for or on behalf of individuals who suffered or died from the allegedly abusive prescription dispensing practices. Rather, the Counties expressly disclaimed personal injury damages. The Counties made clear that: they “do not seek damages for death, physical injury to person, emotional distress, or physical damages to property;” and their increased costs are of a different kind and degree than Ohio citizens at large and can only be suffered by the Counties and are not based upon or derivative of the rights of others.
Delaware law recognizes that the duty to defend test extends past the mere labels of a claim, inquiring into whether the factual allegations in the underlying complaint potentially support a covered claim. However, the Track One Lawsuits asserted no claims for personal injury-just facts that support the economic loss claims. The Supreme Court recognized that the plaintiffs did not seek damages for personal injury. They seek to recover for non-derivative economic loss.
The Supreme Court, looking to the mutual intent at the time of contracting, an objective, reasonable third party would read damages claimed by any person or organization for care or death resulting at any time from the personal injury to mean damages directly resulting from the personal injury-damages for providing care to an injured individual.
The Supreme Court noted that if the Counties ran public hospitals and sued Rite Aid on behalf of these hospitals to recover their actual, demonstrated costs for treating bodily injuries caused by opioid over-prescription, the 2015 Policy would most likely be triggered. However, the Counties’ alleged damages do not depend on proof of bodily injuries or even suggest them.
The complaints, the Supreme Court concluded, are not covered by the 2015 Policy. The trial court was reversed and the Supreme Court concluded the insurers had no duty to defend or indemnify the insureds.
People insured and many judges seem to believe that insurance is not a contractually established risk transfer device but is a means of curing the ills of the community. They forget that insurance is a contract that protects the person or entity insured against certain identified fortuitous risks of loss. When, as in this case, the policy only insures against personal injury, there can be no duty to defend or indemnify the insured for economic damages that do not fit the definition of “personal injury.” The Supreme Court of Delaware read the policy and had no choice but to reverse the trial court and determine the insurers owed neither defense nor indemnity to the Rite Aid entities.
© 2022 – Barry Zalma
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 54 years in the insurance business.
You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, firstname.lastname@example.org and email@example.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma; you can follow Mr. Zalma on Twitter at; you should see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims–library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/