What does the $572 million Oklahoma opioid judgment mean for other opioid defendants and insurers?
After over five weeks of trial testimony, on August 26, 2019, Cleveland County, Oklahoma District Judge Thad Balkman announced the first major judgment against an opioid defendant in the United States. Judge Balkman found that Johnson & Johnson helped create the State of Oklahoma’s opioid crisis, and he ordered J&J to pay the estimated cost of the state’s abatement services for one year -- $572 million.[i]
Anxiously watching and awaiting the outcome of the Oklahoma trial, sat opioid manufacturers, distributors and retailers sued in over 2,000 cases now pending in a multi-district litigation in Cleveland, Ohio[ii], involving over 1,600 local government plaintiffs. Also watching were 48 other state Attorneys General who have filed suits against the opioid industry. The mammoth Oklahoma judgment raises the profound questions of how this judgment will impact the exposure in those other suits, as well as how it will impact the inevitable insurance coverage disputes looming in the background.
As discussed below, the unique role that J&J played in allegedly contributing to the opioid epidemic may make its exposure different than other manufacturers like Mallinckrodt and Endo Pharmaceuticals, different than the exposure of distributors like AmerisourceBergen, Cardinal Health and McKesson, and different than the exposure of retailers such as Walgreens, CVS and Costco.
Of course, to the extent those, or similarly situated defendants, are found to have engaged in wrongful conduct along the lines of what was found against J&J, such liability will be unlikely to be insured, as discussed below.
The Oklahoma Judgment
After two Oklahoma defendants, Purdue Pharma and Teva Pharmaceuticals settled for $270 million and $85 million, respectively, the State’s case went to trial against J&J on a single claim of public nuisance. Judge Balkman concluded that J&J’s sales representatives used Oklahoma roads, homes and other aspects of real and personal Oklahoma property to conduct knowingly false and misleading marketing and promotion of opioids over decades in a way that indeed created and exacerbated the public nuisance of the epidemic.
In reaching this legal conclusion, Judge Balkman found that the increase in opioid overdose deaths and addiction treatment in Oklahoma was caused by the oversupply of opioids through increased opioid sales and overprescribing since the late 1990s. He determined that J&J’s role in the oversupply of opioids was multifaceted:
- J&J (through its subsidiaries) started a project in 1994 to develop a specialized opium poppy from which it would manufacture raw narcotic materials that could be sold to all other opioid manufacturers to use in their drugs;
- J&J also engaged in the production of its own branded opioids, including the fentanyl-based drug Duragesic, which it improperly marketed; and
- J&J engaged in extensive marketing of opioids in general to falsely tout that “chronic pain was undertreated and increased opioid prescribing was the solution.”
As examples of J&J’s false, deceptive and misleading opioid marketing, the court noted that in 1998 the FDA found that various J&J marketing posters deceptively promoted Duragesic without substantial evidence of claims regarding its efficacy and drug indications. In 2001, J&J’s own scientific advisory board informed it that the primary marketing messages in its opioid marketing were misleading regarding the threat of addiction, that minimizing these risks was dangerous due to the drugs’ lethal nature, and that no data existed to support the claims in J&J’s marketing. In 2004, the FDA advised J&J that a professional file card used in its opioid promotions contained false or misleading claims about the abuse potential of J&J’s drug.
Based on these, and many similar factual findings, the court ordered that J&J must pay for the 2019 opioid abatement costs of the State, including $232 million for addiction treatment services, $56 million for universal screening, $103 million for “pain prevention and non-opioid pain management therapies,” with all of the 2019 abatement categories totaling $572,102,028. The court rejected the State’s request for $17.5 billion to pay for 20 years of allegedly required abatement programs, finding that the State did not present sufficient evidence of the amount of time and costs necessary beyond 2019.
The Impact of the Oklahoma Opioid Judgment on Nationwide Opioid Litigation
The judgment against J&J may not be an accurate barometer of exposures facing the remaining opioid defendants in thousands of suits across the country, given that J&J was somewhat uniquely situated in at least three significant ways, discussed below.
First, J&J is alone atop the “hierarchy of fault” as a producer and supplier of raw opium that it specifically cultivated to be used in fueling the expected increased demand for opioids once they were marketed for uses beyond end-of-life cancer pain. J&J owned subsidiaries that not only developed this raw material with the intent of pumping it into the public’s medicine cabinets, but J&J was the key supplier of these drugs to other manufacturers, including Purdue Pharma for inclusion in OxyContin. In fact, the court found that J&J’s subsidiary had long term agreements for such sales with the seven top U.S. generic drug manufacturers. This places J&J somewhat more at the top rung of the production process, and arguably creates more culpability than will flow to many of the parties further down the production line.
Second, “smoking gun” evidence presented at trial demonstrated that J&J’s false and misleading marketing was more active and knowing than is the case with many other opioid defendants. In addition to ignoring the advice of its own scientific advisors to stop falsely marketing the non-addictive qualities of certain opioids, J&J ran a website called Prescribe Responsibly. According to the court, the site promoted the message that, if patients showed signs of addiction to opioids, this would be labeled as a condition known as “pseudoaddiction,” which should then be addressed through higher and higher doses of opioids. J&J also disseminated a brochure titled “Finding Relief” which actively promoted the concept that pain was undertreated and downplayed the risks of opioids. These instances of alleged blatant disregard of the veracity of its marketing put J&J in the uniquely poor company of companies like Purdue Pharma and Insys Therapeutics. Many of the other opioid defendants do not yet appear to be saddled with such direct evidence of the intentional nature of their false marketing.
Third, a series of obvious intervening causes (such as the pushing of opioids by “pill mill” doctors) were not given full consideration or credibility by Judge Balkman. He simply concluded, “[t]here are no intervening causes that superseded [J&J’s] acts and omissions as direct cause of the State’s injuries, or otherwise defeat a finding of direct and proximate cause.” Other courts may be less inclined to be so dismissive of intervening causation. For example, other well-documented causes of the opioid epidemic that must be accounted for in the remaining suits, include:
- Insys Pharmaceuticals’ illegal marketing practices surrounding the promotion of its opioid products, which resulted in a criminal conviction of its top executives, as well as a $225 million settlement with the Department of Justice
- Reckitt Benckiser Group plc’s contribution to the opioid epidemic through the improper marketing of the opioid addiction treatment drug Suboxone, for which it reached a $1.4 billion settlement with the Department of Justice
- Morris & Dickson’s conduct in failing to report suspicious orders of hydrocodone and oxycodone, as a contributing factor toward the epidemic, for which the company paid $22 million in civil penalties
- The Indian Health Service Hospitals’ contribution toward the public nuisance through its deficiencies in opioid prescription and dispensing practices, which were found to increase the risk of opioid abuse, misuse, and overdoses to a vulnerable population, according to a July 2019 audit by the Office Inspector General.
Not only does the Oklahoma judgment fail to account for these, and many other, intervening causes, but the judgment failed to address any set-off for $355 million in settlements from other defendants. The judgment similarly does not account for any portion of the over $6 billion in federal funding that has been made available to the states through recent legislation. Together, these intervening causes and alternative sources of funding may play a larger role in the damages calculations in future cases than they did in Oklahoma.
Coverage Considerations Reflecting the Oklahoma Judgment
Liability insurance is simply not structured to fund the abatement of generalized social harm, as was the subject of the Oklahoma judgment. The facts upon which the judgment is based highlight the inherent incompatibility between the purpose and language of liability insurance policies, and the relief sought by the opioid plaintiffs.
For example, liability policies generally do not cover intentional or fraudulent conduct. Instead, most liability policies only insure damages caused by an “occurrence,” which is defined to mean an “accident.” Judge Balkman’s findings of fault with respect to J&J’s knowingly false and misleading marketing campaign raise serious questions as to whether any liability arising from such calculated business strategies can fit within the insurance construct of an “accidental occurrence.”
Similarly, liability policies generally do not cover injuries which began, in whole or in part, prior to the insurance period, or which were known to the policyholder before the policy’s inception. These “prior knowledge” defenses are either expressly set forth in the policy language, or applied through various common law doctrines. Judge Balkman’s findings indicate that, as early as the late 1990s, J&J was aware that it falsely marketed the safety of prescription opioids for treating chronic pain. These findings point to insurance coverage questions as to when and to what extent J&J knew of the harm to the public that it had allegedly helped to create and exacerbate, such that insurance coverage after such knowledge existed may be unavailable.
In addition, liability policies are unlikely to insure the payment for prospective equitable abatement. Instead, liability policies generally cover a policyholder’s legal compensation paid to a claimant “because of” or “for” “bodily injury” that takes place during the policy period. An award of “equitable abatement” to fund future public services arguably does not qualify as compensatory damages “because of” or “for” injury to a person. Some courts already have ruled that insurance does not cover generalized costs to society incurred to address the opioid epidemic because such damages are not “because of bodily injury” that is sustained by “a person.”[iii]
Not only is equitable abatement unlikely to qualify as damages “because of” or “for” “bodily injury” to a person, but the funding for services that have not yet been provided, for injuries that have not yet happened, means that the damages are really not being paid for injury “during the period” of any existing insurance policy. The abatement damages awarded in Oklahoma are forward looking, with the goal of ameliorating injury that has yet to take place and/or prevent it from taking place in the first instance. Liability policies do not cover sums paid to address future injury,[iv] with some courts holding that the payment for preventative measures or equitable relief is simply not covered damages.[v]
The opioid epidemic is a multifaceted social problem with innumerable contributing factors. While social problems of this magnitude call for social solutions, such as legal reforms and legislative funding, the Oklahoma ruling demonstrates that courts may be tempted to lend a hand by ordering the pharmaceutical industry to fund future social services to address the epidemic. J&J is differently situated from many opioid defendants, so the ruling may be of limited influence or precedence. However, to the extent other opioid defendants are found to have acted with similar deceptive motives and knowingly misleading business plans, as Judge Balkman found, such findings create serious hurdles in allowing the pharmaceutical industry to pass that liability onto its insurers.
About the authors: Adam H. Fleischer and Allyson C. Spacht are members of the insurance coverage firm BatesCarey LLP in Chicago, and serve on the firm’s Opioid Coverage Task Force in monitoring and evaluating a range of liability and insurance issues on behalf of insurers and reinsurers.
[i] State of Oklahoma, ex rel. Mike Hunter, Attorney General of Oklahoma v. Johnson & Johnson, et al., Case No. CJ-2017-816 (Okla. Dist. Ct. Aug. 26, 2019).
[ii] In Re: National Prescription Opiate Litigation, Case No. 1:17-md-2804 (Ohio Dist. Court).
[iii] See Acuity v. Masters Pharmaceutical, Inc., Case No. A 1701985 (Ohio Ct. C.P. 2019) (Feb. 7, 2019), Travelers Prop. Cas. Co. of Am. v. Anda, Inc., 90 F. Supp. 3d 1308, 1314 (S.D. Fla. 2015) aff’d on other grounds, 658 F. App’x 955 (11th Cir. 2016), Cincinnati Ins. Co. v. Richie Enterprises LLC, No. 1:12-CV-00186-JHM, 2014 WL 3513211 (W.D. Ky. July 16, 2014). However, at least one court has found coverage for such recoupment of governmental costs. See Cincinnati Ins. Co. v. H.D. Smith, LLC, 2016 WL 3909558 (7th Cir. July 19, 2016).
[iv] See Schnitzer Inv. Corp. v. Certain Underwriters at Lloyds of London, 341 Or. 128, 136 (Or. 2006).
[v] See Boeing Co. v. Aetna Cas. & Sur. Co., 784 P.2d 507, 516 (Wash. 1990), Bellaire Corp. v. Am. Empire Surplus Lines Ins. Co. et al., 115 N.E. 3d 805, 812 (Ohio Ct. App. 2018); Cinergy Corp. v. Assoc. Elec. & Gas Ins. Servs. Ltd., 865 N.E.2d 571, 583 (Ind. 2007). See also, cases finding no coverage for equitable relief, including: Ellett Bros. Inc. v. United States Fidel. & Guar. Co., 275 F.3d 384, 387 (4th Cir. 2001); Continental Ins. Cos. v. Northeastern Pharm. and Chemical Co., Inc., 842 F.2d 977, 986 (8th Cir. 1988); Maryland Cas. Co. v. Armco, Inc., 643 F. Supp. 430, 432 (D. Md. 1986), aff’d, 822 F.2d 1348 (4th Cir. 1987); Am. & Foreign Ins. Co. v. Jerry’s Sports Center, No. 2001-939 C.P., 2003 WL 25884676 (Pa. Ct. Common Pleas Feb. 23, 2003), aff’d 852 A.2d 1241 (Pa. Super. Ct. April 23, 2004).