In an underlying lawsuit pending in the Circuit Court of Boone County, West Virginia, the State of West Virginia (“the State”) filed claims against a number of prescription drug distributors, including H.D. Smith Wholesale Drug Company (“H.D. Smith”), asserting that they contributed to the State’s opioid epidemic by, among other things, negligently failing to recognize that the volume of drugs distributed to pharmacies exceeded the legitimate medical need. The State sought reimbursement for what it claimed was hundreds of millions of dollars spent each year to provide medical care, facilities and services to drug-addicted citizens.
Cincinnati Insurance Company (“Cincinnati”) issued a series of commercial general liability (“CGL”) and umbrella policies to H.D. Smith. The CGL policies provided that Cincinnati would pay “those sums that the insured becomes legally obligated to pay as damages because of bodily injury…to which this insurance applies.” Under the policies, “damages because of bodily injury” included “damage claimed by any person or organization for care, loss of services or death resulting at any time from the bodily injury.” The umbrella policies stated that Cincinnati would pay the “ultimate net loss which the insured is legally obligated to pay as damages for bodily injury…to which this insurance applies.” In a declaratory judgment action filed by Cincinnati against H.D. Smith, the United States District Court for the Central District of Illinois agreed with Cincinnati that the State merely sought recovery for its own economic loss, and not for damages sustained by its citizens on account of their bodily injury, and therefore owed no duty to defend. See Cincinnati Ins. Co. v. H.D. Smith Wholesale Drug Co., 2015 U.S. Dist. LEXIS 100823 (C.D. Ill. July 28, 2015).
Reversing the district court, the United States Court of Appeals for the Seventh Circuit noted that a policy that affords coverage for damages “because of” bodily injury is more broad than a policy that covers damages “for” bodily injury. The Court also emphasized that the CGL policies provided coverage for “damages claimed by any person or organization for care, loss of services or death resulting at any time from the bodily injury.” The Court likened the State’s claims for costs for providing medical care to its citizens to a mother seeking recovery for her own expenses to care for her injured son. Therefore, the Court reasoned, the fact that the State was seeking its own recovery, and not damages on behalf of its citizens, was irrelevant. The Court held that Cincinnati owed a duty to defend H.D. Smith. The 7th Circuit decision is Cincinnati Ins. Co. v. H.D. Smith Wholesale Drug Co., 2016 U.S. App. LEXIS 13175 (7th Cir. July 19, 2016).