The insured pharmaceutical company was sued for flooding the California pharmaceutical market with opioids, concealing the facts, disregarding its duties, and ignoring risks as a result of which people became addicted and even died as a result of opioid use. The insured sought an indemnity from the insurer’s which covered “bodily injury caused by an occurrence” and an occurrence was “an accident including continuous or repeated exposure to substantially the same general harmful conditions”. The court found that the claims against the insured were based on allegations of “purely deliberate conduct” which was not an accident and was not covered by the policy.

The court found that it was simply not credible that, when the doctors prescribed the drugs that the insured allegedly pushed, when pharmacists fill those prescriptions with drugs the insured distributed, and when end users became addicted to those drugs, overdosed, resorted to heroin or died, it was a mere “matter of fortuity”. The complaints alleged that these happenings were functionally inevitable and entirely foreseeable results of the deliberate conduct of the insured. They were not unexpected nor unforeseen.

The insured argued that, because the claimants alleged that the insured “should have known” about the consequences of their conduct, the claims were based on negligence and not intentional conduct. The court found that, where the complaints referred to things the insured “knew or should have known”, that language was deployed to establish that there was a foreseeable risk of harm stemming from the insured’s actions. The term “should have known” is one way of saying that the reasonable person standard governs the question of unreasonable risk and foreseeability, so the actor’s subjective inability to appreciate a risk is immaterial. The allegation was made for its legal effect and not as a factual contention that the insured may not have actually known that it was engaging in certain conduct. An accident is an unexpected, unforeseen or undesigned happening or consequence from either a known or unknown cause. 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. Nothing of that nature was alleged by the complainants.

The insurers therefore had no duty to defend under the policies and the claims were dismissed.

[AIU Insurance Co and Others v McKesson Corp., case no 22/16158 in the US Court of Appeals for the Ninth Circuit (January 26, 2024)]