Painkiller distributors face trials

April 20, 2016

Tired of the headaches caused by the prescription painkillers flowing into its cities and towns, the state of West Virginia is seeking an uncommon remedy.

In 2012, the Mountain State filed a complaint in state court against 11 pharmaceutical distributors that supply prescription drugs, including controlled substances, to local pharmacies. West Virginia charged these companies knew of the growing epidemic of prescription drug abuse but failed to respond to the suspicious orders. As a result, the crimes, damages and losses related to the epidemic are costing the state hundreds of millions of dollars annually.

To support its argument in State of West Virginia v. AmerisourceBergen Drug Corp., et al., 2:12-CV-03760, the state pointed to the town of Kermit, population 300. The town’s drugstore received 3.19 million doses of hydrocodone in 2006, which was the 22nd highest level of purchases among all pharmacies in the country. The licensed pharmacist who owned the store testified his business was filling one prescription per minute.

The documents in the lawsuit are under seal and the parties have been instructed not to speak publicly about the matter. In February, Miami-Luken Inc., one of the defendants, settled with the state for $2.5 million.

As the case continues in West Virginia’s Boone Circuit Court, insurance companies that provide coverage to the pharmaceutical distributors have been claiming they have no duty to defend against this lawsuit. One of those disputes reached the 7th Circuit Court of Appeals, where oral arguments took place April 11. The insurance carrier and the distributor disputed the extent of the state’s complaint.

None of the parties in the West Virginia lawsuit have any direct connection to Indiana, and the state has no active role in the dispute.

“We are aware generally of the ligation that the State of West Virginia has brought (using outside counsel) against prescription drug distributors,” Indiana Attorney General spokesman Bryan Corbin said in a statement. “Indiana is not a party to this case or any similar cases, but if any entity were suspected of violating Indiana’s consumer laws or other laws, then the Attorney General’s Office could review it.”

Still, the Hoosier state is familiar with the problem of prescription drug abuse. Indiana’s rate of deaths caused by opioid drug overdose, including heroin, rose 9.6 percent from 2013 to 2014, which was considered a statistically significant increase, according to the Centers for Disease Control and Prevention.

Also, like West Virginia, Indiana has a high level of painkillers being prescribed. The CDC noted a high level of painkiller distribution in 2012, with 109 prescriptions per 100 people. Comparatively, West Virginia’s rate was 138 prescriptions per 100 people.

A 2014 report by the Center for Health Policy at the Indiana University Richard M. Fairbanks School of Public Health found opioids accounted for nearly half of all controlled substances prescribed between 2011 and 2013 in Indiana. Vicodin was the most commonly prescribed, comprising 64 percent of the 5 million prescriptions of all frequently dispensed opioids.

No duty to insure?

At least three insurance carriers have filed four suits in federal courts, arguing they have no obligation to defend the distributors or to indemnify for any potential loss related to the West Virginia action. So far, three of the actions have gone in favor of the insurers, but if the reception from the 7th Circuit panel is any indication, the carriers might have a more difficult time on appeal.

In the case before the 7th Circuit, Cincinnati Ins. Co. v. H.D. Smith Wholesale Drug Co., 15-2825, the insurance company contends it has no duty to defend because West Virginia’s complaint does not specifically state it is seeking damages for areas which the company covers, namely bodily injury.

This argument was successful in two other cases involving different distributors, Cincinnati Ins. Co. v. Richie Enterprises LLC, 1:12-CV-000186 (W.D. Ky. 2014), and Travelers Prop. Cas. Co. v. Anda, 15-11510 (11th Cir.). After a Kentucky federal court ruled in favor of Cincinnati Insurance, the two sides settled and the case was dismissed. Oral arguments for the Travelers appeal at the 11th Circuit are being rescheduled.

The one insurance company not successful in District Court, Liberty Mutual Fire Corp., made a different argument when it filed suit against J.M. Smith Corp. in September 2012. Liberty maintained its policy does not include coverage of knowing misconduct, but the South Carolina District Court was not convinced, finding the insurer did have a duty to defend.

No bodily injury argument

Before the 7th Circuit, Cincinnati Insurance argued West Virginia is seeking retribution for economic loss that came through increased costs for hospitals, law enforcement and judicial services. These are not areas covered by the insurance policy, so there is no duty to defend.

“The state, itself, however, repeatedly and numerous times stated we are not seeking damages on behalf of West Virginia citizens and their injury,” said Brian Reid of Litchfield Cavo LLP, the attorney representing Cincinnati Insurance.

7th Circuit Judges William Bauer and Ann Claire Williams along with U.S. District Court Judge Lynn Adelman of the Eastern District of Wisconsin seemed skeptical of the distinction.

“But the costs that they are seeking to be reimbursed for are ultimately because these citizens of West Virginia were injured, no?” questioned Adelman. “Otherwise if there was nobody injured, there would be no costs.”

Reid responded, “…There may be an example that demonstrates the state has suffered a loss, maybe there were or could have been bodily injury but that’s not what the state is actually seeking.”

Again, Adelman asked why the state was seeking damages.

Reid began to reiterate that West Virginia was wanting damages to cover the costs to law enforcement and the courts when Adelman jumped in and repeated his earlier point, “But all those increased costs were because of bodily injury, no?”

“That may be the symptom, your honor,” Reid replied, “but those are not what the costs are.”

At that point, Williams picked up on Adelman’s line of questioning.

“But … the underlying complaint seeks various forms of relief and you agree only one of those forms of reliefs (sic) need to potentially fall within the policy to trigger duty to defend, right?” she queried.

“That’s correct,” Reid answered.

“So it doesn’t matter if West Virginia seeks disgorgement of profit as long as it also seeks damages because of bodily injury,” Williams continued.

“Agreed, and our position is, in fact, it does not under any of the enumerated causes of action,” Reid countered.

During her rebuttal, Los Angeles Barnes & Thornburg LLP attorney Rachel Lerman, representing distributor H.D. Smith, linked the damages being sought to bodily injury. Specifically, she pointed to the complaint that notes the costs West Virginia has incurred related to diagnosis, medical care and addiction treatment.

“Maybe the complaint is not a very good one, maybe it will get thrown out, but at the duty to defend stage, we need a defense and we purchased insurance to supply us with a defense,” Lerman told the court. “And as long as even one of the allegations could turn out to require us to pay for people getting hurt because of what we did, then we have coverage.

“I’m really at a loss to understand how the other side can say the state isn’t looking for damages because of bodily injury,” she concluded.•


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