AIU Insurance Company v. McKesson Corporation
3:20-cv-07469
N.D. Cal.Apr 5, 2022Background
- McKesson, a prescription drug distributor, tendered thousands of opioid-related suits to its insurers; this dispute concerns two policies: NU (7/1/2008–7/1/2009) and ACE (7/1/2015–7/1/2016), each with a $5 million retained limit per occurrence that includes defense costs.
- Three exemplar government suits were briefed: Cuyahoga and Summit County (MDL "Track One") and the State of Oklahoma; complaints allege large-scale, deliberate oversupply/distribution, diversion, addiction, overdoses, and government costs to respond.
- McKesson has incurred and paid substantial defense costs (claiming exhaustion of retentions); insurers denied a duty to defend and sought declaratory relief; McKesson moved for partial summary judgment on the duty to defend; NU and ACE filed cross-motions.
- Key contractual coverage elements disputed: (1) whether the complaints seek "damages because of bodily injury," and (2) whether the alleged harm was caused by an "occurrence" (defined as an "accident").
- The Court granted NU and ACE partial summary judgment (no duty to defend) and denied McKesson’s motion; the Court found the suits potentially allege bodily injury but do not allege an "occurrence" under California law.
Issues
| Issue | Plaintiff's Argument (McKesson) | Defendant's Argument (Insurers) | Held |
|---|---|---|---|
| Whether the complaints seek "damages because of bodily injury" | Complaints allege addiction, overdose, death, and governmental response costs that are "because of" bodily injury; thus coverage potential exists | Insurers argue plaintiffs (governments) did not themselves suffer bodily injury and seek only economic losses, so no coverage | Held: Complaints at least potentially seek damages because of bodily injury; potential coverage on this element exists |
| Whether the injuries were caused by an "occurrence" (an "accident") | McKesson urges that coverage potential exists because the injury-producing events may be accidental or at least ambiguous | Insurers contend the complaints allege deliberate, intentional distribution and scheme; no "accident" unless an additional, unexpected, independent event caused injury | Held: Claims rest on deliberate acts (distribution/oversupply); alleged diversion was foreseeable, not an independent unforeseen happening — no "occurrence"; insurers entitled to summary judgment on duty to defend |
| Whether retained limits were exhausted so insurers' duty to defend is triggered | McKesson says retentions were exhausted by defense costs, creating insurers' duty to defend | Insurers dispute exhaustion and also argue lack of per-occurrence exhaustion where multiple occurrences exist | Held: Court resolved dispute on "occurrence" and did not reach exhaustion; exhaustion issue unresolved here |
| Administrative motions (seal) and procedural motions (strike) | McKesson designated materials confidential under protective order; McKesson opposed striking supplemental brief content | Insurers argued materials should not remain sealed without compelling reasons; NU moved to strike parts of McKesson’s supplement | Held: Motions to file under seal denied for failure to show compelling reasons and for lack of designating-party declaration; NU’s motion to strike denied (McKesson’s supplemental brief permitted) |
Key Cases Cited
- AIU Ins. Co. v. Superior Court, 51 Cal.3d 807 (Cal. 1990) (government cleanup/response costs can be "damages" "because of" property/physical injury)
- Liberty Surplus Ins. Corp. v. Ledesma & Meyer Constr. Co., 418 P.3d 400 (Cal. 2018) (an "accident" excludes deliberate acts unless an additional unexpected, independent happening produced the injury)
- Montrose Chem. Corp. v. Superior Court, 861 P.2d 1153 (Cal. 1993) (duty to defend is broader than duty to indemnify)
- The Travelers Prop. Cas. Co. of Am. v. Actavis, Inc., 225 Cal. Rptr. 3d 5 (Cal. Ct. App. 2017) (in opioid context, diversion resulting from deliberate conduct was not an unexpected independent happening)
- Swift Distrib., Inc. v. Hartford Cas. Ins. Co., 326 P.3d 253 (Cal. 2014) (duty to defend may exist even if indemnity is doubtful; insurer must defend claims that potentially fall within coverage)