The Delaware Supreme Court narrowed an insurer’s duty to defend in Ace America Insurance Co. et. al. v. Rite Aid Corp. et. al.1 In Ace, the high court majority reversed the trial court, holding that Chubb Ltd. (“Chubb”) had no duty to defend Rite Aid Corp. (“Rite Aid”) in suits brought against it by two Ohio Counties seeking damages for costs arising out of the company’s distribution of opioids.
In the underlying action,2 Cuyahoga County and Summit County (“the Counties”) alleged that Rite Aid contributed to the opioid epidemic by negligently distributing prescription pain pills and failed to take proper steps to prevent improper use of the addictive narcotics. The Counties sought economic damages for increased medical treatment expenses and criminal justice system expenditures, as well as “for handling emergency responses to overdoses, providing addiction treatment, holding opioid-related investigations, arrests and alike.”
Rite Aid tendered the claim to Chubb under a 2015 policy (the “Policy”) and demanded that Chubb provide defense in the underlying lawsuit. The Policy provided that Chubb would pay sums the insured became legally obligated to pay as damages “for” or “because of” personal injury. This language, which is standard in most Commercial General Liability (“CGL”) policies, provides coverage for “damages because of personal injury, which includes damages claimed by any person or organization for care, loss of services or death resulting at any time from the personal injury.” Chubb denied Rite Aid’s claim, arguing that the Counties failed to allege damages directly connected to an individual’s personal injury to trigger the duty to defend. Instead, Chubb noted, the Counties expressly disclaimed personal injury in the Complaint and “[did] not seek damages for death, physical injury to a person, emotional distress, or physical damages to property.” Rite Aid sued Chubb for a declaratory judgment seeking defense coverage under the Policy.
In September of 2020, the Delaware Superior Court ruled that Chubb was obligated to defend Rite Aid “because there was arguably a causal connection between the counties’ economic damages and injuries to their citizens . . . .” This decision was consistent with other judicial decisions confirming that the duty to defend distributors and pharmacies in similar opioid lawsuits fell within the scope of standard CGL policy agreements. Specifically, the Court found that Chubb’s interpretation of the Policy was similar to the insurer’s interpretation of an analogous insurance policy in Cincinnati Ins. Co. v. H.D. Smith, LLC.3 In H.D. Smith, the plaintiff sought coverage for defense costs incurred in an underlying opioid lawsuit akin to Rite Aid. The policy at issue in H.D. Smith was substantially the same as the provision provided in the Chubb policy, and the underlying complaint alleged damages “incurred . . . related to the diagnosis, treatment, and cure of addiction.” The Seventh Circuit opted for a broader interpretation of the phrase “damages because of bodily injury,” and the insurer was required to provide a defense for the pharmaceutical company.
Likewise, the Ohio First District Court of Appeals decision in Acuity v. Masters Pharmaceutical Inc.4 explained, “there is arguably a causal connection between [the insured pharmaceutical wholesale distributor's] alleged conduct and the bodily injury suffered by individuals who became addicted to opioids, overdosed, or died, and the damages suffered by the governmental entities (money spent on services like emergency medical care and substance-abuse treatment).” Although the governmental entities sought their own economic losses, the Acuity court found that some of those losses were arguably because of bodily injury.
Despite this precedent, the Delaware Supreme Court disagreed. In its analysis, the Court analyzed whether the Counties brought suit “because of” personal injuries suffered by individuals under the policy terms. The Court found the Counties “sought to recover only their own economic damages, specifically disclaiming recovery for personal injury or any specific treatment damages,” and thus, failed to demonstrate that the claim arose out of personal injury. The dissenting opinion agreed with the trial court, finding that Rite Aid’s policy language, when interpreted broadly, included coverage for some of the damages sought by the Counties, at least potentially for the loss of services or death of someone due to opioid addiction.
The majority’s decision restricts the broad duty to defend and further muddles the coverage landscape for the hundreds of opioid lawsuits still pending. As the trial court and dissenting opinion state, “an insurer has a duty to defend the insured when a complaint seeks damages for injuries that are arguably covered by the policy.” The Delaware Supreme Court decision narrows the duty to defend for nonderivative economic damages, even with a causal connection to bodily injury.
The Delaware Supreme Court Decision is a significant setback for policyholders. Specifically, the uncertainty of how courts will interpret and enforce the duty to defend in opioid litigation, coupled with the possibility that some courts may require a complaint to allege individual and identifiable injuries to invoke coverage, is problematic. More broadly, it is imperative that all policyholders understand the insurance coverage available in the event of a lawsuit (of any kind), and seek counsel if an insurer fails to defend any such lawsuit.
For more information, contact Stacy M. Manobianca at SManobianca@sdvlaw.com.
1 ACE Am. Ins. Co. et al. v. Rite Aid Corp. et al., 2022 WL 90652 (Del. Jan. 10, 2022).
2 Rite Aid Corp. v. ACE Am. Ins. Co., 2020 WL 5640817 (Del. Super. Ct. Sep. 22, 2020).
3 Cincinnati Ins. Co. v. H.D. Smith, LLC, 829 F.3d 771 (7th Cir. 2016).
4 Acuity v. Masters Pharmaceutical Inc., 2020 WL 3346652 (Ohio Ct. App. Jun. 24, 2020)