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An American court has ruled that Directors and Officers (D&O) liability insurance can protect against claims arising from the manufacture, distribution and sale of opioids.<\/p>\n\n\n\n
In The North Carolina Mutual Whole Company v. Federal Insurance Company,<\/em> the North Carolina federal court determined a drug wholesaler\u2019s D&O policy provides coverage for more than one hundred underlying lawsuits, rejecting the insurer\u2019s argument that two exclusions, the contract and professional services exclusions, barred coverage.<\/p>\n\n\n\n In the case, Mutual Drug, a wholesale distributer of pharmaceutical drugs, sought coverage under its D&O policy for underlying suits alleging that it violated state and federal laws and regulations, and breached common law duties, by failing to properly monitor, identify and stop suspicious orders of prescription opioids.<\/p>\n\n\n\n However, Chubb refused to provide coverage, relying on two exclusions in the policy\u2014the \u201cContract\u201d exclusion and the \u201cProfessional Services\u201d exclusion. Chubb argued the \u201cContract\u201d exclusion should apply because the underlying liability lawsuits arise from contracts Mutual Drug has with its customers.<\/p>\n\n\n\n Addressing Chubb\u2019s argument the court stated: \u201cNone of the claims against Mutual Drug are based on any contract, and Chubb has pointed to no language in any of the complaints that relies on or even mentions any contract to which Mutual Drug is a party.\u201d<\/p>\n\n\n\n Chubb argued that Mutual Drug\u2019s compliance reviews for customers were \u201cservices\u201d for a fee, but Judge Eagles noted that Chubb \u201cpoints to nothing to indicate that Mutual Drug charged a specific fee to undertake compliance duties on behalf of any customer.\u201d It was also stated that Chubb failed to point to any claim in the underlying suits involving an allegation that Mutual Drug provided any professional services to the plaintiffs.<\/p>\n\n\n\n The compliance reviews fell outside the policy\u2019s definition of \u201cprofessional services\u201d with the court noting that to conclude otherwise \u201cwould transform every simple commercial transaction into a professional service if the sale involved commodities subject to a distributor\u2019s 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\u2019s sweeping interpretation were adopted.\u201d<\/p>\n\n\n\n The Court\u2019s decision underlines the premise that an insurer cannot expansively apply an exclusion to effectively eviscerate coverage as highlighted by Chubb\u2019s view of the professional services exclusion.<\/p>\n\n\n\n