Traveler's Prop. Cas. Co. of Am. v. Actavis, Inc.

16 Cal.App.5th 1026

225 Cal.Rptr.3d 5

The TRAVELER'S PROPERTY CASUALTY COMPANY OF AMERICA et al., Plaintiffs and Respondents,

v.ACTAVIS, INC., et al., Defendants and Appellants.

G053749

Court of Appeal, Fourth District, Division 3, California.

Filed November 6, 2017

Blank Rome, Elizabeth B. Kim, Los Angeles, and James R. Murray for Defendants and Appellants.

Dentons US, Ronald D. Kent, Joshua Kroot, Los Angeles; Choate Hall & Stewart, Robert A. Kole and Jean-Paul Jaillet for Plaintiffs and Respondents.

OPINION

FYBEL, J.

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 Watson³ 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,...