By Amy J. Kallal and Tyler Flynn
Editor’s Note: This article first appeared in the Spring 2019 issue of AIRROC Matters. It is reprinted here with permission.
It’s talked about on the radio, it’s covered in the news, it’s referenced in popular TV shows, and now the President of the United States is addressing it: America has an opioid problem. According to the U.S. Department of Health and Human Services, as of September 2018 more than 130 people die every day from opioid related drug overdoses. Of the 72,000 drug overdose deaths that occurred in the U.S. in 2017, nearly 50,000 involved opioids. Since 1999, drug overdose deaths have increased from 12.1 per 100,000 people to 39.6 per 100,000. Within the past year, President Trump has declared the opioid epidemic a “public health emergency,” and just this past month he signed into law a bipartisan bill targeting opioid abuse.
So What Are Opioids?
Opioids are a broad group of pain-relieving drugs that work by attaching to receptors in a person’s brain and spinal cord. When the opioids attach to these receptors, they release signals to the body that muffle one’s perception of pain and boost feelings of pleasure. While certain types of opioids are often prescribed to treat patients with chronic or moderate/severe pain, the drugs can be abused when used for minor pain and nonmedical purposes. There are three types of opioids: (1) natural opioids, which are derived from alkaloids in opium poppy plaints (examples: morphine; codeine); (2) semi-synthetic opioids, which are created from altering the chemical make-up in natural opiates (examples: oxycodone; heroin); and (3) fully synthetic opioids, which are manmade and use chemicals not derived from poppy plants (examples: fentanyl; methadone).
How Did This All Start?
In the mid-1990s, the consensus in the medical community was that many patients experiencing pain were undertreated. In 2001, the Joint Commission of Medical Accreditation created pain management standards, which resulted in physicians treating pain as a “fifth vital sign.” The new standards required healthcare providers to focus on pain management and ask every patient about their pain. At the same time, pharmaceutical companies began assuring the medical community of the safety of prescription opioids as pain relievers. “Big Pharma” began running numerous ad campaigns for opioids, representing that opioids were safe and effective for treating pain. Believing that the threat of addiction was low, more and more physicians began to prescribe opioids to their patients, and as time wore on, they prescribed them at greater rates. This led to widespread diversion and misuse of opioid medications.
Opioid prescriptions dispensed by doctors increased from 112 million in 1992 to 282 million by 2012. By 2016, there were enough prescription opioid pills to fill a bottle for every adult in the U.S.; that same year, an estimated two million people in the United States suffered from disorders related to prescription opioids. This factored into many people abusing other opioids as well. For example, approximately 80% of heroin users admitted to misusing prescription opioids before turning to heroin.
The Federal Government’s Response to The Opioid Crisis
In February 2018 the U.S. Attorney General announced a new “Prescription Interdiction and Litigation (PIL) task force dedicated to fighting the opioid epidemic.” The U.S. Department of Justice announced that “the PIL Task Force will combat the opioid crisis at every level of the distribution system” and will “use criminal and civil remedies available under federal law to hold opioid manufactures accountable for unlawful practices.” In August 2018 President Trump publically stated that he wanted the DOJ and the PIL Task Force to bring a lawsuit against large pharmaceutical manufactures on behalf of the federal government. (To date, however, the federal government has not commenced its own legal action.) The PIL Task Force has assisted state and local governments that have brought lawsuits against Big Pharma, including filing a statement of interest in the multidistrict litigation (MDL). More details on the MDL are below.
On October 24, 2018, President Trump signed into law the “Substance Use-Disorder Prevention that Promotes Opioid Recovery Treatment for Patients Act” after it passed with sweeping majorities of 393-9 in the House and 98-1 in the Senate. The bill includes provisions aimed at promoting research to find new drugs for pain management that are not addictive, and also expands Medicaid to provide access to treatment for substance use disorders. Some people, such as Ohio Senator Rob Portman, believe the bill is “a major victory” because it “will strengthen the federal government’s response to the opioid crisis.” Others are skeptical as to how effective it will be, including Leana Wen, the former Health Commissioner of Baltimore, who stated that the legislation “is simply tinkering around the edges” and that a far more comprehensive response is needed to deal with the crisis.
The State & Local Government Response: Bring Them To Court!
State and local governments have brought the fight against the opioid epidemic to the courtroom. More than 40 state attorneys general have formed a coalition and are investigating drug manufacturers and distributors to determine if they engaged in unlawful practices in the marketing and distribution of prescription opioids. Many of these attorneys general have commenced suit against Big Pharma, claiming that the companies’ intentional misleading marketing/advertising and negligent distribution practices caused their states to spend millions on drug addiction treatment and health programs. As of May 2018 over 100 states, cities, and Native American tribes have filed lawsuits against opioid manufactures and/or distributors. As of September 2018 there were approximately 500 different state court lawsuits filed against opioid distributors and manufactures across the country. Additionally, there have been over 1,200 lawsuits filed in federal court; however instead of being tried individually, these cases have been consolidated into the MDL. Many of the plaintiffs hope the MDL will prompt a large settlement, similar to the “Big Tobacco” settlement reached in the 1990s.
The MDL—Multi-District Litigation
In December 2017 the United States Judicial Panel on Multidistrict Litigation formally ordered the consolidation of the then-pending nearly 200 opioid-related cases into one called “The National Prescription Opiate Litigation.” Dan Polster, of the U.S. District Court for the Northern District of Ohio, is the presiding judge. Each case has similar allegations of “improper marketing and inappropriate distribution of various prescription opiate medications.” While the original plaintiffs consisted of cities, states, and towns, they now include individuals, consumers, hospitals, third-party payors, and Native American tribes. The defendants mainly consist of large opioid distributors -- including the “Big Three:” AmerisourceBergen, McKesson, and Cardinal Health, which collectively make up over 80% of the opioid distribution market -- and opioid manufacturers, such as Actavis, Endo Health Solutions, Johnson & Johnson, and Purdue Pharma. The MDL expanded significantly in 2018 and currently involves over 1,200 cases.
One issue in the case has been the discovery of information from the U.S. Drug Enforcement Agency’s Automated Records and Consolidated Orders System / Diversion Analysis and Detection System (“ACROS”) database. ACROS is a drug reporting system that monitors the flow of controlled substances from manufacture through the point of retail sale. Even though the DEA opposed releasing ACROS data, the plaintiffs argued that the data was necessary to identify previously unknown entities involved in the distribution of opioids and that it would provide invaluable information about the patterns of opioid sales. On April 11, 2018 Judge Polster ordered the DEA to produce the ACROS data for six states. A month later, on May 8, 2018, he concluded that the data had been “extremely informative” and ordered the DEA to produce the ACROS data for all 50 states. On July 26, 2018, the judge ordered that no party was allowed to publicly release the ACROS data and further ordered that the data could only be used by certain governmental plaintiffs and attorneys general to assist them in litigating the MDL or for law enforcement purposes. The trial for the first set of cases was originally scheduled for March 2019, but on August 13, 2018, Judge Polster postponed the trial until September 2019. All parties involved are still attempting to resolve the case via settlement, including Judge Polster, who this past year said that his goal was to facilitate a settlement and that “people aren’t interested in depositions, discovery, and trials.”
Some Insurance Coverage Issues To Consider In The General Liability Context
The large uptick in lawsuits against opioid distributors and manufacturers has raised questions relating to coverage, including whether these companies are entitled to a defense from their CGL insurers.
One question courts have evaluated is whether the “Big Pharma” suits seek damages that satisfy a CGL policy’s “bodily injury” requirement. For example, in Cincinnati Ins. Co. v. Richie Enterprises LLC, No. 12-CV-00186, 2014 WL 3513211 at *5 (W.D. Ky. July 16, 2014), the district court held that the insurer had no duty to defend its insured (a pharmaceutical distributor) on the ground that the State of West Virginia was not seeking damages “because of” bodily injury; rather, the state was “solely seeking damages for the money it has been required to spend because of the prescription drug abuse epidemic in West Virginia … The Attorney General’s claim that persons suffered physical harm and death due to prescription drugs only explains and supports the claims of the actual harm complained of: the economic loss to the State of West Virginia.” In Travelers Prop. Cas. Co. of America v. Anda, Inc., 90 F.Supp.3d 1308 (S.D. Fl. Mar. 9, 2015), aff’d 658 Fed. Appx. 955 (11th Cir. 2016), the district court agreed with the insurers’ argument that the State of West Virginia had not asserted claims against their insured (a distributor) “for bodily injury” or “because of bodily injury” – as required under the policies – but, instead, made claims for its own economic losses, which were not covered. On appeal, the Eleventh Circuit declined to reach of the question of whether the state’s claims were “for” or “because of” “bodily injury,” holding that the “better conclusion” was that the Travelers/St. Paul policies did not afford coverage because of their products exclusions. In contrast to these cases, Cincinnati Ins. Co. v. H.D. Smith, LLC, 829 F.3d 771 (7th Cir. 2016), reached the opposite conclusion and held that the insurer had a duty to defend the distributer in West Virginia’s underlying lawsuit. The Seventh Circuit emphasized that the policy language at issue in that case provided coverage for damages “because of bodily injury,” which the court held was broader than language providing coverage “for bodily injury.”
Another question courts have considered is whether there is an “accident” or “occurrence” under the policies. In Liberty Mutual Fire Ins. Co. v. J.M. Smith Co., No. 7-12-CV-2824, 2013 WL 5372768 (D.S.C. Sept. 24, 2013), for example, Liberty Mutual argued that the complaint against a distributor failed to alleged a covered occurrence because it only claimed facts supporting “knowing misconduct” and the distributor knew its actions would result in harm (i.e., the intentional acts were not accidental). The court disagreed on both counts, holding that the complaint contained allegations of negligence (e.g., the distributor acted negligently with others to violate West Virginia’s drug laws and “should have been aware” of suspicious or unusually large orders to pharmacies) and that the distribution of prescription drugs based on orders placed by pharmacies was not, in and of itself, illegal, “and the violation of laws cannot be reasonably anticipated – especially as to J.M. Smith, which had been distributing prescription drugs in West Virginia for only a short time and to only three pharmacies.” Similarly, in Travelers Prop. Cas. Co. of America v. Actavis, Inc., 16 Cal.App.5th 1026 (Cal.Ct.App. Nov. 6, 2017), a California appellate court affirmed that Travelers had no duty to defend under CGL policies issued to various manufacturers and distributors. In the underlying complaints filed by two California counties and the City of Chicago, the plaintiffs alleged fraud and misrepresentation arising out of a “highly deceptive marketing campaign.” The court held that Travelers’ denial of coverage was proper because the alleged injuries were caused by “deliberate and intentional conduct” rather than an “accident” that would qualify as an “occurrence.” Additionally, the claims fell within the policies’ products exclusion.
The opioid epidemic has become a more pressing issue in the United States with each passing year. The federal government has passed legislation and most states and many cities and counties are engaged in legal action to recoup their costs. It remains to be seen whether these actions will result in Big Pharma paying and whether CGL insurers will be contributing (and, if so, how much).
Amy J. Kallal is a partner with Mound Cotton Wollan & Greengrass LLP. She can be contacted at akallal@moundcotton.
Tyler Flynn is an associate at Mound Cotton Wollan & Greengrass, LLP. He can be contacted at email@example.com.