• Traveler's Property Casualty Co. of America v. Actavis, Inc. (4th Dist. Ct. App. 2017) ___ Cal. App. 5th ___, 2017 DJDAR 10578, Case No. G053749
  • January 16, 2018

    Watson was a manufacturer and distributor of pharmaceuticals including opioid products. Watson purchased primary CGL policies from St. Paul covering bodily injury caused by an "event" defined as an "accident." The St. Paul policies also included a products exclusion which applied to "any statement made, or that should have been made, about the durability, fitness, handling, maintenance, operation, performance, quality, safety or use of the products." Watson also purchased primary CGL policies from Travelers covering bodily injury caused by an occurrence defined as an "accident." The Travelers policies also included a products exclusion which defined "your work" as including "warranties or representations made at any time, or that should have been made, with respect to the fitness, quality, durability, performance, handling, maintenance, operation, safety, or use of such goods or products."

    In 2014, two California counties and the City of Chicago sued Watson alleging that although Watson knew that opioids were too addictive for long-term use for chronic non-cancer pain, it marketed them for such use in an effort to make profits. Watson allegedly overstated the benefits of chronic opioid therapy, obscured the serious risks including addiction, and overstated their superiority to other treatments. These efforts to cloud the truth allegedly were wildly successful leading to the United States being awash in opioids and an "opioid-induced 'public health epidemic.'" This allegedly resulted in a resurgence in heroin addiction. As a result, the California counties and the city of Chicago allegedly suffered increased costs related to the care and services to their citizens and increased demands on emergency services and law enforcement.

    Watson tendered the defense of these actions to the insurers who declined the defense based on the absence of an accident and the product exclusions. The insurers filed a declaratory relief action and Watson filed a cross-complaint requesting declaratory relief and alleging breach of contract and bad faith. A trial on the declaratory relief claims was held on stipulated facts. The trial court found there was no duty to defend as there was no accident alleged and the products exclusions barred coverage. The parties stipulated to a judgment in favor of Travelers and St. Paul on the remaining claims and Watson timely appealed the judgment.


    The appellate court first addressed the "accident" issue noting that the allegations of the complaints were that Watson had engaged in deliberate conduct. Thus, there could be no "accident" unless there was some additional, unexpected, independent, and unforeseen happening that produced the injuries. However, whether Watson intended to cause the injuries or mistakenly believed its conduct would not produce injury was irrelevant to determining whether there was an accident. The appellate court found that the injuries alleged, namely a country "awash" in opioids, an opioid public health epidemic, a resurgence in heroin use, and increased public health care costs, were not unexpected or unforeseen. According to the complaints, Watson knew that opioids were not suited for treatment of chronic long-term pain and knew they were highly addictive and subject to abuse. Regardless of this knowledge, Watson engaged in a scheme of deception in order to increase sales. The appellate court determined that it was not unforeseen or unexpected that this massive marketing campaign to promote opioids would lead to the damages alleged.

    Next, the appellate court noted that even if negligent conduct had been alleged, the product exclusions would apply to preclude coverage. Watson argued that the harm was caused by conduct sufficiently independent of the product's design and manufacture to bring it outside the exclusion. The appellate court disagreed noting that although the opioids themselves were not defective, the "statements and representations about them were closely connected with...the claims they were overprescribed and misused. Watson's alleged liability arises out of allegations that Watson launched a marketing campaign to sell a non-defective product for a purpose for which it was unsuited." Although noting that the issue had not been previously addressed by the California Supreme Court, the appellate court determined that the wording of the exclusion does not require that the product itself be defective in order for the exclusion to apply. Since the alleged injuries arose out of the insured's products and misrepresentations, the exclusion applied. As such, the appellate court affirmed the judgment of the trial court.


    The court's ruling in this case follows established California law to the effect that deliberate conduct does not amount to an "accident," even when the injuries are unexpected or unforeseen, unless there is some additional unexpected or unforeseen happening that causes the injuries. The court also addressed an issue not previously addressed by the California Supreme Court: whether a product must be defective in order for a product exclusion to apply. As noted, the court determined that this is not a requirement as long as the injuries arise out of the product or misrepresentations about the product. This is a straight forward interpretation of the exclusion which makes no mention of the product itself being defective, but instead requires only that the injury arise out of or result from the product.

    This opinion is not final. It may be withdrawn from publication, modified upon rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.

    This publication is intended for informational purposes only and is not intended as legal advice or as a substitute for legal consultation in a particular case or circumstance. Transmission of this information is not intended to create, and receipt does not create, an attorney-client relationship.