Seventh Circuit: Insurer Has Duty To Defend West Virginia’s Suit Against Drug Distributor Seeking To Recover Amounts Expended By The State Caring For Drug-Addicted Citizens

Based on the policy language before it, the U.S. Court of Appeals for the Seventh Circuit recently found that an insurer has a duty to defend a pharmaceutical distributor in a lawsuit brought by West Virginia’s attorney general alleging that drug distributors contributed to the rise of so-called “pill mills” and, given the massive quantities of drugs ordered, they should have known that the drugs were being used for illicit and destructive purposes. The suit alleged that the distributors’ reckless and negligent conduct cost West Virginia hundreds of millions of dollars every year. In the coverage litigation, the district court found that the insurer had no duty to defend since West Virginia’s suit did not seek damages “because of bodily injury” as required for coverage under the policy. The Seventh Circuit, applying Illinois law, reversed and noted that the policy at issue covered suits seeking damages “because of bodily injury” and “[s]uch a policy provides broader coverage than one that covers only damages ‘for bodily injury.’” The court rejected the insurer’s argument that there was no coverage because West Virginia’s suit sought recovery for its own damages and not damages on behalf of its citizens. According to the court, the insurer had a duty to defend since West Virginia’s suit sought reimbursement of damages and losses sustained as the proximate result of the insured’s negligence, which was within the potential coverage of the policy. The court’s opinion in Cincinnati Insurance Co. v. H.D. Smith, L.L.C., (No. 15-2825, July 19, 2016), can be found here.