A federal judge in North Carolina has ruled against a Chubb subsidiary in its attempt to rid itself of defense-cost obligations in opioid-related litigation by enforcing two policy exclusions.
According to court documents in U.S. District Court for the Middle District of North Carolina, Chubb’s Federal Insurance Company attempted to activate two exclusions within a private directors and officers (D&O) policy held from 2013-2020 by drug wholesaler North Carolina Mutual Wholesale Drug Company (Mutual Drug) – a defendant in dozens of opioid-related lawsuits brought by local municipalities over its alleged negligence and public nuisance in prescribing opioids.
Chubb refused to cover any costs related to the drug wholesaler’s defense or liability in the suits, using “contract” and “professional services” exclusions, the court said. District Judge Catherine C. Eagles ruled earlier this month against the application of either exclusion in this case, adding that, “Mutual Drug has met its initial burden to show coverage.”
“None of the underlying lawsuits raise breach of contract claims,” Eagles noted. “None were filed against Mutual Drug by any of its members or customers. None arise out of a direct relationship between Mutual Drug and the ultimate users of opioid prescription medicine.”
Eagles said Mutual Drug “submitted overwhelming and uncontradicted evidence” that it and Chubb were aware of the possibility of litigation over opioids and both thought about how the policy would cover these types of lawsuits.
On the “professional services” exclusion, Eagles said Chubb did not provide legitimate examples to support its use of the clause, and that “services” means an act of labor that does not involve a tangible commodity, but Mutual Drug sells pharmaceutical products, a tangible commodity.
“The cases on which Chubb relies concern services that do not involve producing tangible commodities,” Eagles said, adding that Chubb’s interpretation of the policy language “would transform every simple commercial transaction into a professional service if the sale involved commodities subject to a distributor’s compliance with any one of a multitude of regulatory or licensing requirements.”
“It is hard to think of anything the policy would cover if Chubb’s sweeping interpretation were adopted,” the judge added.
Eagles said Chubb did not show any of its policy exclusions apply and awarded Mutual Drug summary judgement on its breach of contract claim and declaratory judgement establishing coverage. The document said Mutual Drug is planning to file an amended complaint to include claims of unfair and deceptive trade practices. Eagles did not issue a ruling on this issue.
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