Drug wholesaler's insurance victory could have far-reaching consequences

Judge rules insurance giant's policy exclusions don't apply in opioid litigation case

Drug wholesaler's insurance victory could have far-reaching consequences

Professional Risks

By Ryan Smith

An opioid wholesaler’s court victory against an insurance giant opens the door to a new way for pharmaceutical companies to recoup legal bills stemming from the opioid crisis.

Earlier this month, a federal district court ordered a Chubb unit to pay North Carolina Mutual Wholesale Drug Co.’s defense costs in more than a hundred lawsuits that alleged the drug wholesaler had oversold opioid painkillers to pharmacies, according to a Blo0omberg report.

The company had directors and officers coverage through Chubb’s Federal Insurance Company, Bloomberg reported. D&O coverage generally covers a wider spectrum of losses than more narrowly focused liability coverage.

Mutual Drug had a $10 million D&O policy through Federal Insurance, Bloomberg reported. After being sued by local governments that alleged it mishandled prescription opioids, Mutual Drug filed claims for Federal Insurance to pay its legal costs.

The insurer maintained that the D&O policy’s breach-of-contract exclusion meant it wasn’t responsible for the defense costs, as the underlying claims against the drug wholesaler stemmed from its agreements with pharmacies, Bloomberg reported.

However, District Judge Catherine C. Eagles disagreed. Eagles, district judge for the Middle District of North Carolina, ruled that the exclusion did not apply because the underlying lawsuits never alleged a breach of contract.

Federal Insurance also maintained that a professional services exclusion applied because the lawsuits included allegations about Mutual Drug’s compliance review services.

However, Eagles ruled that since the policy defined “professional services” as “services which are performed for others for a fee,” the exclusion did not apply, as Mutual Drug did not charge customers for compliance reviews.

The court’s reading of that exclusion could have far-reaching implications, according to Ray Tittmann, managing partner at TittmannWeix.

“This will be raised in future cases, as the distinction is not limited by industry,” Tittmann told Bloomberg. “Insureds producing or distributing goods will cite this precedent to fend off a professional services exclusion.”

The ruling is one of the first D&O decisions covering defense costs in opioid lawsuits, Bloomberg reported. The court rejected two common policy exclusions and read D&O insurance coverage broadly in its decision, which will open the door for other drug companies facing opioid litigation, Bloomberg reported.

“This decision will certainly open the eyes of policyholders and get them to think about their D&O coverage,” Mike Levine, a partner at law firm Hunton Andrews Kurth, told Bloomberg.

Major public companies, including CVS Health Corp., Johnson & Johnson, and Walmart have agreed to pay billions of dollars in settlements related to the opioid crisis, according to Bloomberg. However, D&O policies for private companies – like Mutual Drug – have much broader terms than policies for public companies, Bloomberg reported.

Jodi Green, attorney at Feldman Legal Advisors, told Bloomberg that the recent ruling could be a boon for private companies.

“It’s possible that some insureds overlooked D&O as an option,” Green told the news agency.

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