The Law

Legal Spotlight

A look at the latest legal cases impacting the industry.
By: | October 15, 2016 • 4 min read

Bodily Injury Definition at Crux of ‘Pill Mill’ Suit

In June 2012, West Virginia sued H.D. Smith and other pharmaceutical companies, accusing them of contributing to the state’s prescription drug abuse epidemic that costs it hundreds of millions of dollars each year. The state asked for a court order barring them from distributing controlled substances.


West Virginia accused H.D. Smith of distributing “huge quantities” of opioids and other drugs to “pill mills” — pharmacies that distributed the drugs “to fuel and profit from the citizens’ addictions,” according to court documents.

H.D. Smith sought defense and indemnification from its general commercial liability insurer, Cincinnati Insurance Co., saying the policy was triggered “because of bodily injury” coverage.

The insurer sought a judicial determination that the policy did not cover the claim, and the U.S. District Court for the Central District of Illinois agreed, saying the state was seeking “economic damages” resulting from the drug epidemic.

On July 19, the U.S. 7th Circuit Court of Appeals, reversed the decision, ruling that West Virginia’s allegation that it spent money caring for drug-taking citizens who suffered bodily injury is no different than the claim of a mother seeking payment on a claim relating to her taking care of her son’s drug-induced injuries.

Pills Spilling From BottleThe state, it said, alleged that H.D. Smith “ ‘interfered with the right of West Virginians to be free from unwarranted injuries, addictions, diseases and sicknesses.’ H.D. Smith’s actions caused West Virginia to spend money ‘addressing and combating the prescription drug abuse epidemic.’ ”

Scorecard: Cincinnati Insurance must provide a defense to H.D. Smith on the state’s lawsuit.

Takeaway: The court said the policy’s phrase “because of bodily injury” provided broader coverage than if the policy covered damages “for bodily injury.”

Court: Broker Lied About Investigations

In 2014, executive professional insurance consultants (executive) was sued by AZ Air Time, an indoor trampoline park, after finding out it had no liability insurance following three personal injury lawsuits, although it had paid premiums for the coverage. Executive sought a defense from Admiral Insurance Co., which had issued a professional liability insurance policy.

The insurance company denied coverage, contending that Executive lied in its application when asked whether any agency personnel had been the “subject of complaints filed, investigations and/or disciplinary action by any insurance or other regulatory authority or convicted of criminal activity.”

In fact, Cynthia Rose-Martin, co-owner of the brokerage, voluntarily surrendered her license and was fired from another brokerage in 2010 after an Arizona Department of Insurance investigation on allegations of fraud and embezzlement. She was accused of enrolling clients in AFLAC supplemental coverages without their consent or knowledge, according to court documents.

In 2012, the DOI investigated another claim that Rose-Martin asked a client to provide a “blank check that could not include the word ‘void’ on the check.” She later agreed to a consent judgment that she engaged in “fraudulent, coercive or dishonest practices” as well as forged another’s name to a document relating to an insurance transaction. She was fined $2,500.

On Aug. 10, the U.S. District Court for the District of Arizona granted Admiral Insurance Co.’s request to rescind the policy for the firm, whose owners reportedly fled to Mexico after AZ Air Time filed suit against them.

Scorecard: Admiral Insurance does not have to provide a defense to the brokerage.

Takeaway: The policy to the brokerage would not have been issued if it had disclosed the Department of Insurance investigations.

Court Rules on Defective Product Coverage

In the spring of 2010, three customers of phibro animal health corp. reported to the company that its Aviax II feed additive, which was designed to prevent a parasitic disease in chickens, stunted the growth of their chickens. Phibro filed notice of a potential liability claim with Chartis Insurance Co., an affiliate of National Union Fire Insurance Co., which had issued commercial general liability and umbrella insurance policies. Phibro eventually settled the claims of the three customers.

Close-up of chicken eating grain from feederThe company filed a lawsuit seeking a judgment from the Superior Court of New Jersey in Bergan County after Chartis denied coverage.

On June 24, 2014, the court dismissed the case, concluding that the losses did not constitute “property damage” caused by an “occurrence,” because the chickens “were not physically injured and were subsequently sold for human consumption,” albeit at a lower price because of their smaller size.

The Superior Court’s appellate division reversed, in part, noting that “an accident” was part of the policy’s definition of “occurrence.”

“A manufacturer naturally would not have wanted to market this feed additive if it knew in advance its customers’ chickens would experience such an undesirable reaction,” the court ruled on July 14.


It rejected the insurer’s argument that the adverse side effects could have been foreseen and that the incident resulted in only economic losses. “The term ‘physical injury’ under the policies does not require that the property that is damaged be unsalable,” it said.

The court returned the case to the lower court to determine whether the chickens could have been “restored to use” if given more time before slaughter, which could exclude coverage under the “impaired property” clause.

Scorecard: Depending on additional proceedings, Phibro may be covered for losses associated with its feed additive.
Takeaway: The ruling casts doubt on the state’s prior rulings that a policyholder’s defective products are excluded from coverage. &

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.


That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.


Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]