California Continues to Chip Away at the Duty to Defend in Insurance Cases

The opioid epidemic still presents a large problem for lawmakers and health care providers as opioid use continues to hurt communities and destroy lives. It is estimated that 116 people die every day from overdoses linked to opioid usage, according to an article by the U.S. Department of Health and Human Services. This issue affects millions of people as around 2.1 million people suffer from an opioid use disorder.

The continued use of opioids and their addictive nature has even caused many people to turn to heroin just to feed their addiction. The government is concerned about the epidemic because of the impact on life and the economy, as the opioid epidemic has had an economic cost of around $504 billion. Clearly, action must be taken in order to curb the abuse that is occurring.

Opioids are distributed by pharmaceutical companies as a form of treatment for short-term (usually post-surgical) pain relief. As corporations that design and distribute products, these pharmaceutical companies have insurance policies to protect themselves. Many policies have built into them a duty to defend and indemnify section; the duty to defend describes an insurer’s obligation to provide an insured with defense counsel.

A duty to defend policy and an indemnification policy were tested recently in California and the court decided that there was no duty to defend nor indemnify, as described within the policy, “because the injuries alleged were not the result of an accident within the meaning of the insurance policies and the claims alleged fell within a policy exclusion for the insured’s products and for warranties and representations made about those products,” as cited in The Traveler’s Property Casualty Company of America v. Actavis, Inc., 16 Cal.App.5th 1026 (2017 ).


The County of Santa Clara and the County of Orange in California, as well as the City of Chicago in Illinois, filed actions against pharmaceutical manufacturer Watson (now part of Actavis). The suits allege that Watson used deceptive marketing tactics to flood the pharmaceutical market with opioid products that they allegedly knew were not fit for long-term treatment. This, in turn, caused these counties and cities to expend public tax dollars battling this opioid epidemic.

Watson had insurance policies through Travelers Property Casualty Company of America (Travelers) and St. Paul Fire and Marine Insurance Company (St. Paul). Because of the suits, Watson asserted that Travelers and St. Paul owed a duty to defend Watson and that they also would have to indemnify Watson for payouts as per the insurance policies.


The main issue in this case is whether Travelers and St. Paul owe Watson a duty to defend the lawsuits pursuant to their commercial general liability insurance policies? A related issue the court is trying to grasp here is whether liability can attach for unintended consequences of intentional acts; Watson did not produce defective products, but marketed them for uses that they allegedly knew were unfit.


Like the trial court, the appellate court also found that Travelers and St. Paul owed no duty to defend Watson under the general liability insurance policies. The court reasoned that the policies covered damages for bodily injuries caused by accidents. The term accident excludes the deliberate acts Watson took when marketing and distributing opioids unless the injury was caused by some additional, unexpected, independent and unforeseen event.

The court then explained that the addictive nature of opioids and resurgence in heroin use were not unforeseen events as Watson’s actions in marketing opioids for long-term use were very deliberate. Finally, the court states that in addition to the previous reasoning, Watson’s products gave rise to the injuries, thus the injuries fall within the products exclusion clauses in the insurance policies.


Shortcuts to profits will usually not pay off. Watson decided it was easier to go for the short-term gains, rather than the long-term brand trust that it could have established with responsible marketing and distribution of its products. Because of their recklessness, Watson allegedly created injuries. Normally, liability for injuries can be covered through insurance policies; however, this was not the case here as the insurance companies did not want to be party to this problem that Watson had created. A relationship between an insurer and the insured should be one of trust. It is a business relationship that can be mutually beneficial to both parties if each side handles their business affairs with tact and responsibility.

If you have any questions, contact our experienced insurance fraud attorneys today!