Policyholder Pulse
Over the last decade, governmental plaintiffs have secured tens of billions of dollars in settlements from certain manufacturers, wholesale distributors, and pharmacy operators that allegedly contributed to a nationwide epidemic of opioid use disorder (OUD), a/k/a addiction. Bellwether litigation has centered on expansive “public nuisance” claims—reminiscent of covered pollution and gun violence claims that surfaced decades ago—alleging that defendants throughout the opioid supply chain caused and must remediate widespread OUD by changing their practices and funding the treatment of persons who sustained opioid-related injuries. Encouraged by the settlement leverage opioid claims generated, the plaintiffs’ bar has expanded public nuisance litigation in cases involving climate change, ultra-processed foods, lead paint and, more recently, social media.
If the financial stakes of public nuisance litigation are high, then so are the stakes for attendant commercial general liability (CGL) insurance claims. That is why, since the early days of the opioid suits, insurers have coordinated an effort to defeat coverage for governmental public nuisance claims—via early summary judgment motions and appeals in declaratory judgment litigation—by advocating for a restrictive interpretation of the standard CGL insuring agreement covering “damages because of bodily injury or property damage” that courts have interpreted broadly for decades.
Though early appellate results favored policyholders, the pendulum swung in insurers’ direction largely because of decisions by Delaware courts holding that various governments’ opioid public nuisance claims sought non-covered “economic losses”—a term traditionally reserved for a breach of contract, warranty or other commercial violation that CGL policies often do not cover (as opposed to tort claims that impose liability because the insured allegedly caused third-party bodily injury like OUD or property damage like climate change). In the context of alleged nuisances causing physical harm to individuals, those decisions adopt a limiting interpretation of the standard “damages because of bodily injury” coverage clause by holding that a government’s claim may be covered only if it concerns treatment of a particular person’s injuries, but not many persons’ injuries that the insured allegedly caused across a particular community.
Significantly, these Delaware decisions do not only apply Delaware law, but also predict a pro-insurer outcome under the laws of other states where appellate courts have not yet considered opioid coverage claims for themselves. To be sure, dissenting opinions and some other courts have rejected the Delaware framework as a departure from established interpretive principles that do not countenance strict construction of broad promises to cover tort liability because of physical harm for which the insured is deemed legally responsible. For example, courts have long found coverage for governmental claims to remediate migrating pollution that may reach diffuse persons, properties or public waters, even though remediation costs may be quantified in “economic” terms (like all covered “damages”). Yet, the Delaware framework has sprouted a line of federal and certain state court decisions holding that governmental public nuisance claims founded upon allegations that the insured caused widespread OUD do not seek “damages because of bodily injury.”
But those pro-insurer decisions will not provide the last word on coverage of governments’ opioid claims. In a recent opinion certifying the “damages because of bodily injury” question to the high courts of both Florida and Georgia in the Publix Super Markets and Bloodworth Wholesale Drugs opioid coverage appeals, the U.S. Court of Appeals for the Eleventh Circuit provided a timely reminder that each state’s appellate courts will be the final arbiters of coverage for governments’ opioid claims—and for the groundswell of public nuisance litigation that is reaching policyholders in other industries.
The Eleventh Circuit’s Opinion Certifying the “Damages Because of Bodily Injury” Question Portends New Developments for “Public Nuisance” Liability Coverage
The “damages because of bodily injury” issue reached the Eleventh Circuit on separate appeals by Publix (a pharmacy operator) and Bloodworth (a wholesale distributor) from summary judgment decisions by federal district courts in Florida and Georgia, respectively, holding that insurers had no duty to defend or indemnify governmental opioid claims. After full appellate briefing and argument of the merits, the Eleventh Circuit decided that “principles of federalism and comity” demanded certification to the Florida and Georgia high courts in lieu of predicting the answers to “important questions of state law.”
The Eleventh Circuit clarified the certified question by confirming that “[n]one of the parties dispute that the underlying opioid lawsuits seek ‘damages’ or that opioid addiction and overdose qualify as ‘bodily injuries”; rather, the coverage dispute “is over whether the lawsuits against Bloodworth and Publix are for damages ‘because of’ those injuries.” Recounting insurers’ argument “that only lawsuits that seek redress for particular injuries to identifiable people are covered,” the court observed that insurers developed this interpretation circumstantially from “the policies’ notice provisions” and other terms beyond the “damages because of bodily injury” coverage clause. While decisions from Delaware and elsewhere have adopted insurers’ interpretation (and others have not), the appellate authorities of Florida and Georgia gave the Eleventh Circuit “little to go on that directly addresses this coverage issue.” Thus, the Eleventh Circuit concluded it had “no place in deciding” for Florida’s and Georgia’s own courts whether governmental opioid claims seek “damages because of bodily injury” based on each state’s general interpretive principles.
Notably, this was not the first time the Eleventh Circuit declined to answer whether governmental opioid claims seek covered “damages because of bodily injury.” In Travelers Property Casualty Co. of America v. Anda, Inc., the court heard an appeal from another Florida district court opinion which held that a governmental lawsuit against an opioid distributor did not seek “damages because of bodily injury.” But the Eleventh Circuit declined to reach that issue, finding the “better conclusion” to be that “Products Exclusions” in the policies at issue (which are not a standard feature of most CGL policies) barred coverage for suits arising from opioid products.
In the Publix and Bloodworth appeals, the Eleventh Circuit once again declined to predict whether governmental public nuisance claims seek covered “damages because of bodily injury.” This marks a shift away from the approach of other courts that have rejected coverage for governmental opioid claims absent, or overlooking, on-point guidance from applicable state law. With the Florida and Georgia Supreme Courts soon to consider the “damages because of bodily injury” issue for themselves, and similar opioid coverage appeals working their way through other states’ courts, the full coverage landscape for governmental public nuisance claims has not yet come into focus.
The Floodgates Have Opened: Policyholders in Other Industries Face the Same “Public Nuisance” Dilemma—and the Same Need for Defense and Indemnity Coverage
Court decisions siding with the insurers’ “damages because of bodily injury” (or “property damage”) defense have accepted the argument that finding coverage might open the “floodgates” of litigation by incentivizing governments and other plaintiffs to use the tort system to mitigate the financial burden of remediating widespread injuries—and ultimately pass on costs to insurers.
But the floodgates are already open. Building on substantial opioid litigation recoveries, the plaintiffs’ bar is wielding public nuisance claims against a widening field of industries. Decisions narrowly construing coverage for “damages because of bodily injury or property damage” do not deter these claims, but could force policyholders to bear substantial unreimbursed costs of defending and potentially settling such litigation despite purchasing the broadest available insurance for tort claims alleging that the insured’s negligence caused third-party physical injury or damage. The issue is whether policyholders will foot this bill alone (if they are able), or share it with their insurers—a matter governed by contracts that have long been interpreted broadly by courts to cover government-imposed remediation costs (absent applicable exclusions).
Insurers’ argument also suggests that the contracted and paid-for terms of the insurance should be narrowed based on a court’s public policy preferences. If insurers advocate for a public policy against funding governments’ public nuisance litigation, they are also advocating against a government’s policy of pursuing such claims. That choice conflicts with principles of insurance policy interpretation while improperly inserting the courts in decisions belonging to the executive branch of each state government. If insurers’ concern is that liability should not be imposed for claims based on supposedly attenuated public nuisance injuries—a position some courts have embraced—then the proper place to raise those remoteness concerns is in defense of their insureds in the underlying tort claims, rather than second-guessing the merits of tort liability as a supposed defense to coverage.
Of course, many states’ appellate courts have not yet addressed coverage for governmental public nuisance torts or similar remediation claims (or have not done so beyond the environmental cleanup context). Policyholders that are or could be swept up in the next wave of public nuisance litigation should be prepared for insurers to reserve rights or deny coverage based on the “damages because of bodily injury or property damage” defense—and potentially litigate that issue through appeal. These policyholders should consult coverage counsel early in the claims process before potential disputes with their insurers arise, to ensure timely notice and strategies that bear in mind the evolving coverage precedent in this burgeoning area. Coverage counsel may also assist during the policy procurement process to help identify, plan for, and mitigate risks (such as how “per-occurrence” self-insured retentions may apply) that often arise with large exposures like public nuisance claims.
While insurers will likely use exclusions in newly issued CGL policies to limit their exposure to covering high-exposure public nuisance claims going forward, CGL policies issued in years past may still be responsive to claims that allege an ongoing public nuisance based on injurious conduct that began long ago. Depending on the twists and turns of still-developing coverage precedent, those policies may be highly valuable assets for businesses that are swept up by the rising tide of public nuisance litigation.