Insurer must defend drug distributor in W.Va. case, Seventh Circuit rules

By Chris Dickerson | Jul 22, 2016

CHICAGO – An insurance company has to defend a drug distributor accused of contributing to southern West Virginia’s “prescription drug epidemic,” according to a federal appeals court.

On July 19, a three-judge Seventh Circuit Court of Appeals panel ruled that Cincinnati Insurance Company must defend H.D. Smith LLC in a lawsuit filed by the state of West Virginia.

In that lawsuit, filed by former Attorney General Darrell McGraw’s office, the state said H.D. Smith and several other drug companies distributed too many oxycodone and hydrocodone pills, particularly in southern West Virginia. Current West Virginia Attorney General Patrick Morrisey's office now is handling the case.

The court’s seven-page opinion details the background of Cincinnati’s request and the original suit, which was filed in Boone County. H.D. Smith had asked the insurer to defend the suit, but Cincinnati claims its policy doesn’t not cover the suit. The district court agreed with Cincinnati.

“But the plain language of the policy requires Cincinnati to defend a suit brought by a plaintiff to recovery money paid to care for someone who was injured by H.D. Smith,” Judge Ann Claire Williams wrote in the opinion. “West Virginia’s suit fits that distraction, so we reverse.”

The original complaint also says “pill mill” pharmacies knowingly provided citizens with hydrocodone, oxycodone, codeine and other prescription drugs “not for legitimate medical uses but to fuel and profit from the citizens’ addictions.”

“The pharmacies ordered the drugs from the defendant distributors in huge quantities – quantities so large that West Virginia contends the distributors should have known the drugs would be used for illicit and destructive purposes,” Williams wrote. “West Virginia alleged that the defendant distributors ‘acted negligently, recklessly, and in contravention of West Virginia law,’ and cost the state hundreds of millions of dollars every year.”

H.D. Smith contends the policy was valid, covering "damages claimed by any person or organization for care ... resulting ... from the bodily injury."

Cincinnati argues that West Virginia seeks its own damages rather than damages on behalf of its citizens.

“But so what?” Williams wrote, noting that the suit is no different than a mother filing a similar suit because a drug addiction injured her son. “Cincinnati’s argument is untethered to any language in the policy. …

“Cincinnati agreed to cover damages that H.D. Smith became legally obligated to pay 'because of bodily injury. The duty to defend arises 'even if only one of several theories is within the potential coverage of the policy.'”

A spokeswoman for Cincinnati Insurance said the company has no comment on the ruling at this time. to comment on the ruling Thursday. A representative for H.D. Smith also declined comment.

U.S. Seventh Circuit Court of Appeals case number 15-2825; Boone Circuit Court case number 12-C-141

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