In Cincinnati Ins. Co. v. H.D. Smith Wholesale Drug Co., Case No. 12-3289 (C.D. Ill. Sep. 26, 2019), the court held that Cincinnati Insurance Company (“Cincinnati”) owes coverage for H.D. Smith’s settlement of a lawsuit filed by the State of West Virginia arising out of the opioid crisis (“the West Virginia Lawsuit”). Three years ago, the Seventh Circuit held that Cincinnati owed a duty to defend H.D. Smith in the West Virginia Lawsuit in one of the few published opinions weighing in on whether opioid-related claims may be covered under commercial general liability insurance policies. Relying heavily on the Seventh Circuit decision holding the West Virginia Lawsuit sought recovery of damages because of “bodily injury,” the court held Cincinnati owed a duty to indemnify H.D. Smith based on its conclusion that the primary focus of its settlement was covered. As other courts have held that a governmental entity’s economic losses associated with the opioid crisis do not constitute damage because of “bodily injury,” we expect insurance companies and opioid defendants will continue to dispute and litigate this issue.

H.D. Smith arose out of a lawsuit filed by the State of West Virginia against numerous defendants alleging claims for injunctive relief, violation of West Virginia controlled substances and consumer protection statutes, public nuisance, negligence, and unjust enrichment. The West Virginia Lawsuit alleged that H.D. Smith, a pharmaceutical wholesaler, shipped controlled substances to the state in such a large volume that it should have been aware they were being used for non-legitimate purposes and that H.D. Smith willfully and repeatedly violated pertinent West Virginia regulations. West Virginia sought recovery that included economic damages resulting from public nuisance, costs related to the diagnosis, treatment and cure of addiction and costs associated with law enforcement and public resources dedicated to addressing opioid addiction.

Back in 2015, the Central District held that Cincinnati owed no duty to defend H.D. Smith because the West Virginia Lawsuit did not involve a claim for “damages because of ‘bodily injury’” necessary to implicate the commercial general liability insurance coverage at issue, explaining that West Virginia was not seeking reimbursement for damages sustained by its citizens on account of their own bodily injury, but rather was seeking economic losses and injunctive relief on its own behalf. Other courts reached a similar conclusion, including the Western District of Kentucky and the Southern District of Florida. Cincinnati Ins. Co. v. Richie Enterprises LLC, 2014 WL 3513211 (W.D. Ky. 2014); Travelers Property Cas. Co. of America v. Anda, Inc., 90 F.Supp.3d 1308 (S.D. Fla. 2015), aff’d on other grounds, 658 Fed. Appx. 955 (11th Cir. 2016). However, in 2016, the Seventh Circuit reversed the Central District and held that Cincinnati owed a duty to defend, concluding that amounts West Virginia spent caring for its citizens’ bodily injuries constituted damages because of “bodily injury.” 

On remand, the Central District held that H.D. Smith’s $3,500,000 settlement of the West Virginia Lawsuit was covered.  Under applicable Illinois law, where a policyholder settles an action alleging covered and uncovered claims, the insurer will owe coverage for the entire settlement if the covered claims were “a primary focus of the litigation,” and the insured is not required to allocate between covered and non-covered claims. The Central District cited to the Seventh Circuit’s explanation that damages because of bodily injury would include not only a paralyzed plaintiff’s medical expenses but also the cost of making the plaintiff’s house wheelchair accessible. On remand, the Central District analogized the “public services relating to law enforcement and health care” sought by West Virginia to this type of damage.  The court noted that while West Virginia sought statutory penalties, it did not institute any administrative enforcement proceeding, suggesting that statutory penalties were not a significant part of its claim.  Concluding that the primary focus of the West Virginia Lawsuit was a covered claim, the court held that under Illinois law, Cincinnati owed coverage for the entire settlement and H.D. Smith did not bear the burden of allocating between covered and uncovered amounts.

The few courts that have evaluated the central coverage issue in H.D. Smith have reached differing conclusions. The Western District of Kentucky held that the same West Virginia Lawsuit did not involve a claim for damages because of “bodily injury,” explaining:

In this case, in the absence of the medical monitoring claim, West Virginia is solely seeking damages for the money it has been required to spend because of the prescription drug abuse epidemic in West Virginia. The State of West Virginia does not need to prove that persons were injured by prescription drugs to prove that Richie and the other drug distribution companies violated West Virginia’s Uniform Controlled Substances Act or Consumer Credit and Protection Act. Likewise, they need not offer such proof to show that Richie and the other drug distribution companies caused a public nuisance — or to show that they were negligent in their distribution of controlled substances, causing the State of West Virginia to incur excessive costs. 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. Accordingly, the Court finds that Cincinnati does not have a duty to provide a defense to Richie in connection with claims asserted in the amended complaint in light of the Attorney General’s deletion of Count VII and its medical monitoring claim.

The conclusions in H.D. Smith and Richie are irreconcilable, and we expect this issue will continue to be litigated in the future, especially in light of the hundreds of lawsuits arising out of the opioid crisis that has been filed by governmental entities in recent years. The key issue remains whether a governmental entity’s claim for its own economic losses can constitute damage because of “bodily injury” to the extent the plaintiff will not even need to establish any bodily injury occurred in order to obtain recovery and does not seek recovery on behalf of the injured party. Is a governmental entity’s economic loss akin to an injured plaintiff’s expense for making a house wheelchair accessible as the Central District concluded? Or does the fact that the governmental entity seeks recovery for its own loss, and not on behalf of the persons that actually sustained bodily injuries, render it distinguishable?  To the extent that a court concludes a governmental entity’s increased expenses associated with increased opioid use in its community constitute damages because of “bodily injury,” are all expenses for increased law enforcement and social services incurred because of “bodily injury”?  How directly must an expense relate to a specific bodily injury to fall within commercial general liability insurance coverage? And what will be the impact will opioid defendant’s exposure for statutory penalties? Given how many opioid lawsuits have been filed, we would expect courts to face questions like these in the coming years.

For more information, contact Tressler attorney Michael DiSantis at