Court Opinion

ID: 9927286
Source: CourtListenerOpinion
Date Created: 2024-01-26 18:01:08.1006+00
Date Added: 2024-06-11T09:24:12.704517
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        JAN 26 2024
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

AIU INSURANCE COMPANY,                          No.    22-16158

       Plaintiff-counterclaim-defendant,        D.C. Nos.    3:20-cv-07469-JSC
                                                             3:20-cv-09356-JSC
 and

NATIONAL UNION FIRE INSURANCE                   MEMORANDUM*
COMPANY OF PITTSBURGH, PA,

       Plaintiff-counterclaim-
       defendant-Appellee,

 v.

MCKESSON CORPORATION, FKA
McKesson HBOC, Inc.,

       Defendant-counterclaim-
       3rd-party-plaintiff-Appellant,

 v.

ACE PROPERTY AND CASUALTY
INSURANCE COMPANY,

       Third-party-defendant-Appellee.

       *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
                   Appeal from the United States District Court
                      for the Northern District of California
                 Jacqueline Scott Corley, District Judge, Presiding

                      Argued and Submitted January 10, 2024
                            San Francisco, California

Before: SILER,** CLIFTON, and M. SMITH, Circuit Judges.

      McKesson Corporation appeals the district court’s order granting partial

summary judgment in favor of National Union Fire Insurance Company of

Pittsburgh, Pa., and ACE Property and Casualty Insurance Company (collectively,

“Insurers”). During the relevant period, McKesson held policies issued by Insurers

which covered any “Bodily Injury … caused by an Occurrence.” An “occurrence”

is defined in the policies as an “accident, including continuous or repeated

exposure to substantially the same general harmful conditions.”

      Insurers sought a declaratory judgment that they had no duty to defend

McKesson against litigation (the “Exemplar Suits”) seeking to impose liability on

McKesson for its alleged role in the opioid crisis. McKesson argues that the district

court erred in finding that the Exemplar Suits did not allege an accident and thus

Insurers had no duty to defend. The district court certified its order granting partial

summary judgment for Insurers as final under Fed. R. Civ. P. 54(b), so we have

jurisdiction under 28 U.S.C. § 1291. Because the parties are familiar with the facts,

**
      The Honorable Eugene E. Siler, United States Circuit Judge for the U.S.
Court of Appeals for the Sixth Circuit, sitting by designation.

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we do not recount them here, except as necessary to provide context to our ruling.

We affirm.

      Under California law, an insurer is obliged to defend any action brought

against an insured “if the insurer becomes aware of, or if the third-party lawsuit

pleads, facts giving rise to the potential for coverage under the insuring

agreement.” Liberty Surplus Ins. Corp. v. Ledesma & Meyer Constr. Co., 418 P.3d

400, 403 (Cal. 2018) (quotation omitted). “[T]he duty to defend is broader than the

duty to indemnify,” Montrose Chem. Corp. v. Super. Ct., 861 P.2d 1153, 1157

(Cal. 1993), and “generally applies to the entire action, even though the suit

involves both covered and uncovered claims, or a single claim only partially

covered,” Presley Homes, Inc. v. Am. States Ins. Co., 108 Cal. Rptr. 2d 686, 689

(Cal. Ct. App. 2001). Because McKesson is entitled to coverage under Insurers’

policies for any “Occurrence,” defined as an accident, Insurers are obliged to

defend if any claim in the Exemplar Suits alleges accidental conduct.

      “[T]he meaning of the term ‘accident’ in a liability insurance policy is

settled in California. An accident is an unexpected, unforeseen, or undesigned

happening or consequence from either a known or unknown cause.” Ledesma, 418

P.3d at 403 (quotation and alterations omitted). But “[a]n accident does not occur

when the insured performs a deliberate act unless some additional, unexpected,

independent, and unforeseen happening occurs that produces the damage.”

                                          3                                      22-16158
Navigators Specialty Ins. Co. v. Moorefield Constr., Inc., 212 Cal. Rptr. 3d 231,

245 (Cal. Ct. App. 2016). Thus, our task is essentially a two-step inquiry: do the

complaints in the Exemplar Suits allege anything other than strictly deliberate

conduct? And if not, do they countenance “some additional, unexpected,

independent, and unforeseen happening” which may have produced the damage?

See id. We conclude that the answer to both questions is “no.”

      1. The allegations in the Exemplar Suits describe exclusively deliberate

conduct. They expressly allege that McKesson intentionally flooded the market

with opioids and intentionally flouted safeguards. The complaints do not premise

liability on the mere fact that McKesson “shipped opioids to its pharmacy

customers,” as the company suggests. Rather, they seek to hold McKesson

accountable for the deliberate manner in which it distributed opioids: by flooding

the market, concealing facts, disregarding its duties, and ignoring risks. This is not

conduct which McKesson plausibly could have engaged in by accident, and more

importantly, the complaints never allege that McKesson engaged in such conduct

by accident.

      McKesson’s chief argument to the contrary is that the complaints include

standalone causes of action for negligence, as well as allegations about things

McKesson merely “should have known,” thus foreclosing the conclusion that only

deliberate conduct is alleged. While it is true that negligence claims may be proven

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by unintentional conduct, courts do not look to “the form or title of a cause of

action [to] determine[] the carrier’s duty to defend.” Travelers Prop. Cas. Co. of

Am. v. Actavis, Inc., 225 Cal. Rptr. 3d 5, 20 (Cal. Ct. App. 2017). “The proper

focus is on the facts alleged, rather than the theories for recovery.” Quan v. Truck

Ins. Exch., 79 Cal. Rptr. 2d 134, 139 (Cal. Ct. App. 1998) (quoting Michaelian v.

State Comp. Ins. Fund, 58 Cal. Rptr. 2d 133, 141 (Cal. Ct. App. 1996)). Looking to

the facts alleged in the Exemplar Suits, we reiterate our conclusion that the

underlying facts describe purely deliberate conduct. Negligence may be proven by

inadvertent conduct, but as here, it may also be proven by conduct that is

“allegedly negligent but nevertheless intentional.” Id. at 143. The mere fact that

such intentional conduct gives rise to causes of action for negligence does not

transform those allegations into allegations of merely accidental conduct.

      Similarly, references to what McKesson “should have known” throughout

the complaints do not suggest that the “Exemplar Suits allege … the inadvertent

failure to adopt better employee training and other procedures to prevent

downstream diversion,” as McKesson claims. To the contrary, the complaints

allege that McKesson did know that it was engaging in such conduct and

intentionally avoided taking remedial measures. When the complaints refer to

things McKesson “knew or should have known,” that language is deployed to

establish that there was a foreseeable risk of harm stemming from McKesson’s

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actions. Such a showing is necessary to prove that McKesson acted negligently.

See 1 Dobbs, The Law of Torts (2011) § 159 (“The term should have known … is

one way of saying that the reasonable person standard governs the question of

unreasonable risk and foreseeability, so the actor’s subjective inability to

appreciate a risk is immaterial.”). The language is thus included for its legal effect,

not as a factual contention that McKesson may not have actually known that it was

engaging in certain conduct.1

      2. Having concluded that the Exemplar Suits allege strictly deliberate

conduct, the only remaining question is whether they also allege “some additional,

unexpected, independent, and unforeseen happening” that may have caused the

alleged damage. We conclude that they do not. For guidance, we look to Travelers

Prop. Cas. Co. of Am. v. Actavis, Inc., 225 Cal. Rptr. 3d 5 (Cal. Ct. App. 2017). In

Actavis, the California Court of Appeals held that an insurer had no duty to defend

Watson, an opioid manufacturer, against similar underlying opioid litigation.

While there are certainly differences between Actavis and the instant case, we

nonetheless consider Actavis on-point and follow its lead in concluding that the

1
  To the extent the “should have known” language suggests that McKesson may
not have actually appreciated certain risks stemming from its intentional conduct,
but only “should have known” about them, “[t]he insured’s subjective intent is
irrelevant” with regard to the consequences of his deliberate actions. State Farm
Gen’l Ins. Co. v. Frake, 128 Cal. Rptr. 3d 301, 309 (Cal. Ct. App. 2011). Only the
intent to act is considered. Id. at 309-10.

                                           6                                    22-16158
Exemplar Suits allege no additional, unexpected, independent, and unforeseen

cause.

         In Actavis, the court considered the underlying complaints and found that

they alleged strictly deliberate conduct before turning to the question of whether

the complaints also alleged an intervening cause. Actavis, 225 Cal. Rptr. 3d at 15-

17. It described that task as a determination of whether the alleged injuries were

“‘indirect unintended results’ caused by ‘mere negligence or fortuities outside

Watson’s control[,]’ [o]r were … the direct result of ‘the flood of opioids that

entered the market’ resulting from Watson’s alleged scheme to increase the sale of

opioid products.” Id. at 18. The court concluded that the underlying complaints

alleged the latter. Id. at 17-19.

         Undertaking the same analysis, we reach the same result. The alleged

injuries in the Exemplar Suits stem from opioid “addiction, overdoses, and death,”

which the complaints exhaustively demonstrate “were the direct result … of

[McKesson’s] alleged scheme to increase the sale of opioids.” See id. at 18.

McKesson asserts that the conduct of downstream actors including doctors,

pharmacists, and opioid addicts who turned to heroin more immediately produced

the injuries and must be deemed an additional, unexpected, independent, and

unforeseen happening. We reject this argument. McKesson may not have

“intended to cause injury, or mistakenly believed its deliberate conduct would not

                                           7                                    22-16158
or could not produce injury,” but such injuries were “not unexpected or

unforeseen” in light of McKesson’s intentional acts. See id. As the Actavis court

bluntly stated, “[t]he role of doctors in prescribing, or misprescribing, opioids is

not an independent or unforeseen happening.” Id. at 19. The same is true here for

the doctors, pharmacists, and drug users upon whom McKesson seeks to lay

blame.2

2
  McKesson raises two major categories of objections to our following Actavis.
First, McKesson points out several differences between Actavis and this case.
McKesson notes that Actavis involved opioid manufacturers, not distributors. But
the Actavis court made no principled distinction on that basis. Rather, it
distinguished cases brought against manufacturers on state law grounds, noting that
those cases had found a duty to defend opioid manufacturers against similar
litigation by applying Kentucky and South Carolina law, which both hold that a
deliberate act may be an accident so long as “the resulting injury is unintentional”
– a conclusion which is not permitted under California law. Actavis, 225 Cal. Rptr.
3d at 19-20. This court must also apply California law, so the out-of-state and
-circuit decisions pressed by McKesson are of limited value.
        McKesson also asserts that Actavis is inapposite because Actavis involved a
deceptive marketing scheme, while this case involves a distribution scheme, and
also because the bulk of the causes of action against Watson turned on “claims of
fraud, deceit, and misrepresentation.” But Actavis’ reasoning is no less applicable
simply because of differences in its fact pattern and theories of liability. Its core
holding – that deliberate conduct as part of a scheme to sell more opioids is not
converted into an accident by the presence of downstream actors (such as doctors
or drug abusers) in the causal chain – is equally applicable here.
        Second, McKesson argues that Ledesma called into question certain legal
propositions relied upon in Actavis. That argument is unpersuasive for two separate
reasons. First, Ledesma was explicitly limited to cases involving “negligent hiring,
retention, and supervision” and thus does not control here. Ledesma, 418 P.3d at
402; see also Ghukasian v. Aegis Sec. Ins. Co., 292 Cal. Rptr. 3d 923, 924 (Cal. Ct.
App. 2022), review den. July 27, 2022 (recognizing limited scope of Ledesma).
Second, the California Supreme Court initially granted review of Actavis and held
it pending its decision in Ledesma, Traveler’s Prop. Cas. Co. of Amer. v. Actavis,

                                           8                                    22-16158
      At bottom, the complaints charge McKesson with intentionally

oversupplying opioids on a massive scale. It is simply not credible that when

doctors prescribed the drugs McKesson allegedly pushed, when pharmacists filled

those prescriptions with drugs McKesson distributed, and when end users became

addicted to those drugs, overdosed, resorted to heroin, and died, that was a mere

“matter of fortuity.” See Navigators, 212 Cal. Rptr. 3d at 246. The complaints

allege that these happenings were the functionally inevitable and entirely

foreseeable results of the deliberate conduct McKesson is alleged to have engaged

in. They were not unexpected or unforeseen.

      Having concluded that the Exemplar Suits do not allege an accident, we hold

that there is no potential for coverage and thus Insurers have no duty to defend. As

such, we need not reach the issue of whether the district court correctly determined

that the Exemplar Suits allege a “bodily injury.”

      AFFIRMED.

410 P.3d 1221 (Cal. 2018) (granting review), and then dismissed review after
Ledesma was decided. Traveler’s Prop. Cas. Co. of Amer. v. Actavis, 427 P.3d 744
(Cal. 2018) (dismissing appeal). That leaves the Court of Appeal’s decision in
Actavis as clear and controlling guidance that this court must follow. See Lone Star
Sec. and Video, Inc. v. City of Los Angeles, 827 F.3d 1192, 1200 (9th Cir. 2016).

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