AIU Ins. Co. v. McKesson Corp.

• Decision Date: 05 April 2022
• Docket Number: Case No. 20-cv-07469-JSC
• Citation: AIU Ins. Co. v. McKesson Corp., 598 F.Supp.3d 774 (N.D. Cal. 2022)
• Parties: AIU INSURANCE COMPANY, et al., Plaintiffs, v. MCKESSON CORPORATION, Defendant.
• Court: U.S. District Court — Northern District of California

598 F.Supp.3d 774

AIU INSURANCE COMPANY, et al., Plaintiffs,

v.MCKESSON CORPORATION, Defendant.

Case No. 20-cv-07469-JSC

United States District Court, N.D. California.

Signed April 5, 2022

Christopher St. Jeanos, Pro Hac Vice, Jocelyn M. Sher, Mitchell Auslander, Pro Hac Vice, Willkie Farr and Gallagher LLP, New York, NY, Madeleine Frances McKenna, Richard Joseph Doren, Gibson, Dunn and Crutcher LLP, Los Angeles, CA, for Plaintiffs.

Anna P. Engh, Pro Hac Vice, Covington Burling LLP, Washington, DC, Clea Liquard, Pro Hac Vice, David Andrew Luttinger, Pro Hac Vice, Covington Burling LLP, New Yrok, NY, Sylvia Huang, Gretchen Ann Hoff Varner, Covington Burling LLP, San Francisco, CA, for Defendant.

ORDER RE: CROSS-MOTIONS FOR PARTIAL SUMMARY JUDGMENT

Re: Dkt. Nos. 79, 110, 111, 114, 115, 135

JACQUELINE SCOTT CORLEY, United States District JudgeThis lawsuit is an insurance coverage dispute between McKesson and three insurers.Before the Court are cross-motions for partial summary judgment on the duty to defend, filed by McKesson and two insurers, National Union Fire Insurance Company of Pittsburgh, PA ("NU") and ACE Property and Casualty Insurance Company("ACE")(together, "Insurers"), (Dkt. Nos. 79, 111, 115;seeDkt. Nos. 112, 113, 116, 117, 118, 119, 120, 122, 123, 124, 133, 134, 136, 137); administrative motions to file under seal, (Dkt. Nos. 110, 114); and a motion to strike, (Dkt. No. 135;seeDkt. Nos. 139, 140).¹Having carefully considered the initial and supplementary briefing, and having had the benefit of oral argument on January 27, 2022, the Court GRANTS NU and ACE's motions for partial summary judgment and DENIES McKesson's motion.As explained below, Insurers have established that the two insurance policies at issue have no potential to cover the three underlying suits.While the suits at least potentially seek damages because of bodily injury, they have no potential to allege that an accident produced the injury.

BACKGROUND

McKesson, a distributor and seller of prescription drugs, held a number of liability insurance policies with Insurers between 1999 and 2017.(Dkt. No. 1 ¶¶ 2, 11–12;Dkt. No. 9 at 2 ¶ 2, 4 ¶ 11–12, 13 ¶ 11, 14 ¶ 12–13;Dkt. No. 45at 4¶ 13.)Two policies are at issue in the cross-motions for partial summary judgment.

I.INSURANCE POLICIES

A.NU Policy

NU PolicyNo. 5443284 covers the period July 1, 2008 through July 1, 2009.(Dkt.No. 79-2at 2–3.)The policy provides a "duty to defend any Suit" against McKesson "that seeks damages for Bodily Injury ... covered by this policy, even if the Suit is groundless, false or fraudulent when the applicable ... Retained Limits have been exhausted by payment of Loss to which this policy applies."(Id. at 33.)²"Bodily Injury means bodily injury, sickness or disease sustained by any person, including death ... resulting from any of these at any time."(Id. at 20.)The policy applies to bodily injury that "occurs during the Policy Period" and "is caused by an Occurrence."(Id. at 4.)"Occurrence" with respect to "Bodily Injury" means "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."(Id. at 24.)"All such exposure to substantially the same general harmful conditions will be deemed to arise out of one Occurrence."(Id. )"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 the Bodily Injury."(Id. at 5.)

The policy's "Retained Limit" of $5 million per "Occurrence" is "exhausted by the payment of Loss to which this policy applies."(Id. at 37, 33.)Defense costs are included in the retained limit.(Id. at 37;seeid. at 23.)The retained limit "will apply whether or not there is any available Scheduled Underlying Insurance or Other Insurance."(Id. at 35.)

B.ACE Policy

ACE PolicyNo. XOO G27610390 001 covers the period July 1, 2015 through July 1, 2016.(Dkt.No. 79-3at 2.)The policy provides a "duty to defend" McKesson against "any ‘suit’ seeking damages for ‘bodily injury,’ ... even if groundless, false or fraudulent, to which this insurance applies," when the "Retained Limits[ ] have been exhausted by payment of ‘loss.’ "(Id. at 69.)" ‘Bodily injury’ means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time."(Id. at 23.)The policy applies to bodily injury that "occurs during the ‘policy period’ " and "is caused by an ‘occurrence.’ "(Id. at 9.)"Occurrence" with respect to "bodily injury" means "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."(Id. at 25.)"All such exposure to substantially the same general conditions shall be considered as arising out of the same ‘occurrence[,]’ regardless of the frequency or repetition thereof, or the number of claimants."(Id. )"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 the ‘bodily injury[.]’ "(Id. at 10.)

The policy's "Retained Limit" is $5 million per "Occurrence."(Id. at 71.)"The defense and supplemental payment expenses will be included within the ‘retained limit’ and within the applicable Limits of Insurance of this policy."(Id. at 69.)The retained limit "will apply whether or not there is any available ‘other insurance.’ "(Id. at 70.)

II.EXEMPLAR SUITS

The parties limit their cross-motions for partial summary judgment to the duty to defend against three "exemplar suits."

A."Track One" Multidistrict Litigation Suits

In October and December 2017, respectively, Cuyahoga and Summit Counties of Ohio filed suit against McKesson and other defendants.³The suits were consolidated into an opioid multidistrict litigation ("MDL") in the Northern District of Ohio.⁴(Dkt. No. 79-7 ¶ 7.)In April 2018, the suits were identified as "Track One" bellwether suits and set for trial in October 2019.(Id.¶ 9.)

The Track One operative complaints assert claims for violations of the federal Racketeer Influenced and Corrupt Organizations ("RICO")Act and the Ohio Corrupt Practices Act ("OCPA"), statutory public nuisance, common law absolute public nuisance, negligence, injury through criminal acts, unjust enrichment, and civil conspiracy.(Dkt. No. 79-12 ¶¶ 922–81, 993–1115, 1134–78;Dkt. No. 79-14 ¶¶ 907–39, 951–1072, 1091–1137.)The suits allege that McKesson "fail[ed] to: (a) control the supply chain; (b) prevent diversion; (c) report suspicious orders; and (d) halt shipments of opioids in quantities [it] knew or should have known could not be justified and were indicative of serious overuse of opioids."(Dkt. No. 79-12 ¶ 502;seeDkt. No. 79-14 ¶ 518.)The counties further allege that McKesson "intentionally, unreasonably, and/or unlawfully deceptively marketed and pushed as many opioids onto the market as possible, fueling addiction to and diversion of these powerful narcotics," and breached its duty of care by "choosing not to effectively monitor for suspicious orders,""choosing not to investigate suspicious orders,""choosing not to report suspicious orders," and "choosing not to stop or suspend shipments of suspicious orders."(Dkt. No. 79-12 ¶ 1049, 1089;Dkt. No. 79-14 ¶¶ 1008, 1046.)With respect to the negligence claim, the suits note:

Plaintiff does not allege that Defendants were negligent for failure to protect from harm.Rather, Defendants engaged in conduct the foreseeable result of which was to cause harm to Plaintiff.Defendants have engaged in affirmative acts of creating an illegal, secondary prescription opioid market by failing to exercise adequate control over the marketing, distribution, and sale of their prescription opioids.

(Dkt. No. 79-12 ¶¶ 1091–92;Dkt. No. 79-14 ¶¶ 1048–49.)

McKesson settled the Track One suits shortly before trial, in October 2019.(Dkt. No. 79-7 ¶ 12.)

B.Oklahoma Suit

In May 2020, the State of Oklahoma filed suit against McKesson.(Dkt.No. 79-16.)The suit asserts claims for negligence, statutory public nuisance, and unjust enrichment.(Id.¶¶ 120–37.)Oklahoma alleges that McKesson "fail[ed] to (a) control the supply chain; (b) prevent diversion; (c) report suspicious orders; and (d) halt shipments of opioids in quantities it knew or should have known could not be justified and were indicative of serious oversupply of opioids."(Id.¶ 60.)

By flooding Oklahoma generally with more opioids than could be used for legitimate medical purposes and by filling and failing to report orders that they knew or should have known were likely being diverted for illicit and/or non-medical uses, McKesson breached [its] duty.In doing so, McKesson not only failed to prevent foreseeable harm, but caused foreseeable and preventable harm to Oklahoma and its citizens.

(Id.¶ 55.)"It was foreseeable that filling suspicious orders for opioids and continuing to oversupply them would harm the State of Oklahoma and its citizens."(Id.¶ 106.)

III.COMMUNICATIONS BETWEEN MCKESSON & INSURERS

A.Tender of Notice

McKesson first notified Insurers of an opioid lawsuit, as relevant here, in February 2016 by tendering notice of a suit filed by the State of West Virginia.(Dkt. No. 79-7 ¶ 4;Dkt.No. 79-8;Dkt. No. 112 ¶ 3.)McKesson later gave notice of the thousands of opioid lawsuits against the company that were filed thereafter.(Dkt. No. 79-7 ¶ 4;Dkt.No 79-9.)In December 2017, McKesson tendered notice of the Cuyahoga and Summit County suits for defense and indemnity under the policies at issue here.(Dkt. No. 79-7 ¶¶ 6, 8;Dkt.No. 79-11;Dkt.No. 79-13.)In May 2020, McKesson tendered notice of the Oklahoma suit.(Dkt. No. 79-7 ¶ 15.)

B.Duty to Defend

McKesson represents that it has paid more than $230 million to defend against the thousands of opioid lawsuits as of January 2021.(Id.¶ 18.)It has paid more than $60 million in defense costs in the opioid MDL for the period July 2018 to October 2019, the...