      [Cite as Acuity v. Masters Pharmaceutical, Inc., 2020-Ohio-3440.]

                        IN THE COURT OF APPEALS
               FIRST APPELLATE DISTRICT OF OHIO
                         HAMILTON COUNTY, OHIO




ACUITY,                                        :          APPEAL NO. C-190176
                                                          TRIAL NO. A-1701985
      Plaintiff-Appellee,                      :

      vs.                                      :
                                                             O P I N I O N.
MASTERS PHARMACEUTICAL, INC.,                  :

      Defendant-Appellant.                     :




Civil Appeal From: Hamilton County Court of Common Pleas

Judgment Appealed From Is: Reversed and Cause Remanded

Date of Judgment Entry on Appeal: June 24, 2020




Gallagher Sharp and Gary L. Nicholson, and Dean & Fulkerson, P.C., and Karen
Libertiny Ludden, for Plaintiff-Appellee,

Garvey Shearer Nordstrom, P.S.C., and Jennifer K. Nordstrom, and Brouse
McDowell, Paul A. Rose and Amanda M. Leffler, for Defendant-Appellant,

Weston Hurd L.L.P. and Gary W. Johnson, for Amicus Curiae Complex Insurance
Claims Litigation Association and American Casualty Insurance Association,

Reed Smith L.L.P. and Jason E. Hazelwood, for Amicus Curiae United Policyholders.
                      OHIO FIRST DISTRICT COURT OF APPEALS




CROUSE, Judge.

       {¶1}   This case concerns an insurance company’s duty to defend and

indemnify an insured pharmaceutical distributor in lawsuits brought by

governmental entities for costs incurred combating the opioid epidemic.

       {¶2}   Defendant-appellant Masters Pharmaceutical, Inc., (“MPI”) was a

pharmaceutical wholesale distributor with its principal place of business in Hamilton

County, Ohio. As part of its business, MPI would fill and ship orders of prescription

opioids to pharmacies around the country. “Opioids” refers to a class of prescription

drugs primarily used to treat pain. Opioids can be highly addictive, a trait which has

contributed to hundreds of thousands of drug-overdose deaths in the United States,

in what is now commonly referred to as the “opioid epidemic.”1 MPI has been sued

by various cities and counties (“governmental entities”) from three different states—

West Virginia, Michigan, and Nevada—for costs incurred combating the opioid

epidemic (the “underlying suits”). At the time the underlying suits were filed, MPI

was insured by plaintiff-appellee Acuity under eight commercial general liability

(“CGL”) policies.    The insurance policies imposed upon Acuity, under certain

circumstances, a duty to defend MPI against lawsuits, and to indemnify MPI for

damages it may be legally obligated to pay as a result.

       {¶3}   The majority of the underlying suits were transferred to a federal

multidistrict litigation (MDL) court in the Northern District of Ohio as part of the

“National Prescription Opioid” litigation. In the underlying suits, the governmental

entities allege that MPI acted negligently in failing to investigate, report, and refuse


1Centers  for   Disease   Control   and   Prevention,    Understanding    the   Epidemic,
https://www.cdc.gov/drugoverdose/epidemic/index.html (accessed May 28, 2020).


                                               2
                     OHIO FIRST DISTRICT COURT OF APPEALS



to fill suspicious orders of prescription opioids, thereby failing to maintain effective

controls against the diversion of prescription opioids into “other than legitimate

medical, scientific, and industrial channels” in violation of federal and state laws.

They claim that MPI’s violations contributed to the opioid epidemic, resulting in

damages that included increased costs to the governmental entities for increased

police patrols, judicial expenditures, prison and public-works expenditures,

substance-abuse treatment, and emergency and medical-care services.

       {¶4}    Acuity sought a declaration that it does not have a duty to defend or

indemnify in the underlying suits.        Both parties filed motions for summary

judgment.     The trial court granted Acuity’s motion for summary judgment and

declared that Acuity does not owe MPI a duty to defend or indemnify it in the

underlying suits. MPI has appealed, and argues in two assignments of error that the

trial court erred in denying its motion for summary judgment and granting Acuity’s

motion for summary judgment. MPI’s first assignment of error states that the trial

court erred in determining that Acuity has no duty to defend in the underlying suits.

MPI’s second assignment of error states that the trial court erred in determining that

Acuity has no duty to indemnify it against future opioid settlements or judgments.

       {¶5}    For the following reasons, we sustain MPI’s assignments of error and

reverse the trial court’s decision granting summary judgment in favor of Acuity and

denying MPI’s motion for summary judgment.

                               Standard of Review


       {¶6}    A trial court’s grant of summary judgment is reviewed de novo.

Amankwah v. Liberty Mut. Ins. Co., 2016-Ohio-1321, 62 N.E.3d 814, ¶ 9 (1st Dist.).




                                               3
                     OHIO FIRST DISTRICT COURT OF APPEALS



      Summary judgment is proper under Civ.R. 56(C) when no genuine issues

      as to any material fact remain; the moving party is entitled to judgment

      as a matter of law; and it appears from the evidence that reasonable

      minds can come to but one conclusion, and viewing such evidence most

      strongly in favor of the party against whom the motion for summary

      judgment is made, the conclusion is adverse to that party.

Id.   The parties agree that there are no material facts in dispute, and that a

declaratory judgment is appropriate in this case. We are thus presented only with a

question of law concerning the correct construction of the insurance policies. See

Westfield Ins. Co. v. Factfinder Marketing Research, Inc., 168 Ohio App.3d 391,

2006-Ohio-4380, 860 N.E.2d 145, ¶ 14 (1st Dist.).

                          The Language of the Policies

       {¶7}   MPI purchased eight insurance policies from Acuity between July

2010 and July 2018. As is relevant to this case, the language in all eight policies is

substantially the same. The policies state that:

      [Acuity] will pay those sums that the insured becomes legally obligated to

      pay as damages because of bodily injury or property damage to which this

      insurance applies. [Acuity] will have the right and duty to defend the

      insured against any suit seeking those damages. However, [Acuity] will

      have no duty to defend [MPI] against any suit seeking damages for bodily

      injury or property damage to which this insurance does not apply.

       {¶8}   “Bodily injury” is defined as “bodily injury, sickness, or disease

sustained by a person, including death resulting from any of these at any time.” The

policies do not define “damages,” but do state that damages because of bodily injury




                                              4
                      OHIO FIRST DISTRICT COURT OF APPEALS



include damages “claimed by any person or organization for care, loss of services or

death resulting at any time from the bodily injury.”

                             First Assignment of Error

       {¶9}    In its first assignment of error, MPI argues that the trial court erred in

ruling that Acuity has no duty to defend MPI against the underlying suits.

       {¶10} In its ruling, the trial court found that the issues in this declaratory-

judgment action are the very same issues decided in Westfield Ins. Co. v. Masters

Pharmaceutical Inc., Hamilton C.P. No. A1401036 (Dec. 17, 2015) (“2015 Decision”).

In Westfield, the court granted a declaratory judgment in favor of Acuity and found

that Acuity had no duty to defend MPI against a lawsuit filed against it by the state of

West Virginia in 2015. The court held that Acuity had no duty to defend because the

state of West Virginia only asserted claims for its own economic loss, and not for

bodily injury, and because MPI failed to show that it did not know of any bodily

injury prior to the policy period.2

       {¶11} Applying the same rationale as the 2015 Decision, the trial court cited

two reasons in support of its decision that Acuity had no duty to defend: (1) “because

of bodily injury” did not include the claims brought by the governmental entities, and

(2) MPI filled suspicious orders before Acuity insured MPI, and MPI knew then of

the addiction to prescription opioids, invoking the loss-in-progress provision.

Although Acuity also requested summary judgment based on the doctrine of res

judicata due to the 2015 Decision, the trial court did not grant summary judgment on

that basis.




2 The state of West Virginia’s lawsuit was ultimately settled, and an appeal of the 2015
declaratory-judgment decision of the Hamilton County Court of Common Pleas was dismissed.


                                               5
                     OHIO FIRST DISTRICT COURT OF APPEALS



                                    Res Judicata

       {¶12} Acuity devotes one paragraph of its 35-page brief to the argument that

MPI’s claims are barred by res judicata, an argument it raised before the trial court,

but upon which the trial court made no ruling. In Ohio, the doctrine of res judicata

encompasses the two related concepts of claim preclusion, also known as res

judicata, and issue preclusion, also known as collateral estoppel.         State ex rel.

Schachter v. Ohio Pub. Emps. Retirement Bd., 121 Ohio St.3d 526, 2009-Ohio-1704,

905 N.E.2d 1210, ¶ 27. Acuity contends that claim preclusion applies in this case.

     Claim preclusion prevents subsequent actions, by the same parties or

     their privies, based upon any claim arising out of a transaction that was

     the subject matter of a previous action. The previous action is conclusive

     for all claims that were or that could have been litigated in the first action.

(Citation omitted.) Id.

       {¶13} Acuity points to the 2015 Decision, holding that Acuity had no duty to

defend West Virginia’s 2015 lawsuit against MPI, as the previous action that bars

consideration of MPI’s claims in the present case. We disagree. There is nothing in

the record to establish that the transactions that formed the subject matter of the

underlying suits brought by the governmental entities in Michigan, Nevada, and

West Virginia are the same as the transactions that formed the subject matter of the

2015 suit brought by the state of West Virginia. There is also nothing in the record to

suggest that the claims in the underlying suits could have been litigated as part of the

2015 case. Therefore, claim preclusion does not apply.




                                               6
                     OHIO FIRST DISTRICT COURT OF APPEALS



                            Because of Bodily Injury

       {¶14} We now turn to the meaning of the “because of bodily injury” provision

in the policies. In resolving questions regarding a duty to defend, there is a strong

presumption in favor of the insured. City of Willoughby Hills v. Cincinnati Ins. Co.,

9 Ohio St.3d 177, 180, 459 N.E.2d 555 (1984).

     Where the insurer’s duty to defend is not apparent from the pleadings in

     the case against the insured, but the allegations do state a claim which is

     potentially or arguably within the policy coverage, or there is some doubt

     as to whether a theory of recovery within the policy coverage had been

     pleaded, the insurer must accept the defense of the claim.

Id.; Chiquita Brands Internatl., Inc. v. Natl. Union Ins. Co., 2013-Ohio-759, 988

N.E.2d 897, ¶ 8 (1st Dist.). A duty to defend attaches unless the conduct alleged is

indisputably outside the scope of coverage. Chiquita at ¶ 9. “Once an insurer must

defend one claim within a complaint, it must defend the insured on all the other

claims within the complaint, even if they bear no relation to the insurance policy

coverage.” Sharonville v. Am. Emps. Ins. Co., 109 Ohio St.3d 186, 2006-Ohio-2180,

846 N.E.2d 833, ¶ 13, citing Preferred Mut. Ins. Co. v. Thompson 23 Ohio St.3d 78,

80, 491 N.E.2d 688 (1986). “To defeat coverage, the insurer must establish not

merely that the policy is capable of the construction it favors, but rather that such an

interpretation is the only one that can fairly be placed on the language in question.”

(Emphasis added.) Andersen v. Highland House Co., 93 Ohio St.3d 547, 549, 757

N.E.2d 329 (2001).

       {¶15} Neither party disputes that physical harm from opioid addiction

constitutes bodily injury under the policies. However, the plaintiffs in the underlying




                                                7
                      OHIO FIRST DISTRICT COURT OF APPEALS



suits are governmental entities, not the individuals who suffered from opioid

addiction. The trial court determined that the underlying suits do not state a claim

that is “potentially or arguably within the policy coverage” because the governmental

entities are not seeking damages “because of bodily injury.”        Rather, the court

determined that they are seeking damages for economic losses caused by MPI’s

failure to prevent the diversion of opioids.

       {¶16} Several courts have interpreted the phrase “because of” broadly as it

relates to insurance policies. See, e.g., Medmarc Cas. Ins. Co. v. Avent Am., Inc., 612

F.3d 607, 616 (7th Cir.2010) (“because of bodily injury” is interpreted more broadly

than “for bodily injury”); Federated Mut. Ins. Co. v. Concrete Units, Inc., 363

N.W.2d 751, 757 (Minn.1985) (“we conclude that the most sensible reading of the

underscored phrase, ‘damages because of * * * property damage,’ requires the

insurer to pay all damages which are causally related to an item of ‘property

damage.’ ”).

       {¶17} Under the policies, “damages” includes damages “claimed by any

person or organization for care, loss of services or death resulting at any time from

the bodily injury.” (Emphasis added.) Thus, the policies expressly provide for a

defense where organizations claim economic damages, as long as the damages

occurred because of bodily injury.

       {¶18} The Seventh Circuit’s decision in Cincinnati Ins. Co. v. H.D. Smith,

L.L.C., 829 F.3d 771 (7th Cir.2016) is one of the most recent and persuasive decisions

on the matter. In that case, the court interpreted language in a CGL policy that is

identical to the language at issue here. The insurer was required to defend against

suits that alleged “ ‘damages because of bodily injury,’ including ‘damages claimed by




                                               8
                      OHIO FIRST DISTRICT COURT OF APPEALS



any person or organization for care, loss of services or death resulting at any time

from the bodily injury.’ ” Id. at 773. The state of West Virginia sued the insured

pharmaceutical company for money spent addressing the opioid epidemic. Id. at

775. In an attempt to avoid its duty to defend, the insurer advanced an argument

identical to Acuity’s argument in the present case—that the government was seeking

its own damages, not damages on behalf of its citizens, and so the damages were not

“because of bodily injury.” Id. at 774.

       {¶19} In its opinion, the court noted an example discussed during oral

argument that illustrated why the insurer’s argument was unpersuasive:

      Suppose a West Virginian suffers bodily injury due to his drug addiction

      and sues H.D. Smith for negligence. Cincinnati’s counsel acknowledged

      that such a suit would be covered by its policy. Now suppose that the

      injured citizen’s mother spent her own money to care for her son’s

      injuries. Cincinnati’s counsel acknowledged that her suit would be

      covered too—remember the policy covers “damages claimed by any

      person or organization for care ... resulting ... from the bodily injury.”

      The mother’s suit is covered even though she seeks her own damages (the

      money she spent to care for her son), not damages on behalf of her son

      (such as his pain and suffering or money he lost because he missed work).

      Legally, the result is no different merely because the plaintiff is a state

      instead of a mother.

Id.   The court held that “because of bodily injury” included claims brought by

governmental entities to recover damages sustained due to the opioid epidemic, and

so the insurer had a duty to defend against the underlying suit. Id. at 775.




                                                9
                      OHIO FIRST DISTRICT COURT OF APPEALS



       {¶20} The court made clear that while West Virginia alleged numerous legal

theories and sought a variety of remedies in its complaint, “the duty to defend arises

‘even if only one of several theories is within the potential coverage of the policy.’ ”

Id. In the complaint, West Virginia alleged that it “incurred excessive costs related to

diagnosis, treatment and cure of addiction,” and has “provide[d] necessary medical

care, facilities, and services for treatment of citizens who cannot afford their own

care.” Id. West Virginia sought “reimbursement for such ‘damages and losses

sustained as a proximate result’ of H.D. Smith’s negligence.” Id. The court found

that those allegations were sufficient to trigger Cincinnati’s duty to defend. Id.

       {¶21} Although not an opioid case, the District of Maryland addressed a

similar issue in Beretta U.S.A. Corp. v. Fed. Ins. Co., 117 F.Supp.2d 489

(D.Md.2000), aff’d, 17 Fed.Appx. 250 (4th Cir.2001). The CGL policies covered

“damages because of bodily injury,” to include “damages claimed by any person or

organization for care, loss of services, or death resulting at any time from the bodily

injury.” Id. at 496. The court held that the governmental entities’ lawsuits for costs

spent providing medical care and emergency services in response to violence caused

by the insured’s firearms invoked the insurer’s duty to defend. Id.

       {¶22} H.D. Smith and Beretta applied Illinois and Maryland law,

respectively, but they comport with Ohio law.

       {¶23} The trial court in this case followed the rationale set forth in the 2015

Decision in finding that Acuity has no duty to defend. The problem is, the 2015

Decision is based on a web of case law that is either no longer good law, has been

distinguished as relating to opioid cases, or has been declined to be followed.




                                               10
                     OHIO FIRST DISTRICT COURT OF APPEALS



       {¶24} The 2015 Decision was based in part on the district court’s ruling in

H.D. Smith, which, as discussed above, was reversed by the Seventh Circuit. Also,

the 2015 Decision relied on Cincinnati Ins. Co. v. Richie Ents. LLC, W.D.Ky. No.

1:12-CV-00186-JHM, 2014 WL 3513211, *5 (July 16, 2014). In Richie, the court held

that the underlying suit by the state of West Virginia against the pharmaceutical

company did not seek damages “because of bodily injury,” but instead sought

damages for West Virginia’s own economic losses sustained combating the opioid

epidemic, and so the insurer had no duty to defend. Id. However, Richie relied on a

Seventh Circuit case, Medmarc Cas. Ins. Co., 612 F.3d at 616, which was

subsequently distinguished by H.D. Smith. In MedMarc, there was no claim of

bodily injury in any form, much less bodily injury as a result of the insured’s conduct,

and MedMarc concerned coverage “for bodily injury” and not “because of bodily

injury.” H.D. Smith, 829 F.3d at 774-775.

       {¶25} The 2015 Decision also cited Travelers Property Cas. Co. of Am. v.

Anda, Inc., 90 F.Supp.3d 1308 (S.D.Fla.2015), aff’d, 658 Fed.Appx. 955 (11th

Cir.2016). In Travelers, the court held that the state of West Virginia asserted

“claims only for its own economic loss and not ‘for bodily injury.’ It does not purport

to assert claims on behalf of individual citizens for the physical harm sustained

personally by those citizens, for instance.”    Id. at 1314. But, the Travelers court

relied upon the Richie court’s analysis. Also, although the Eleventh Circuit affirmed

the district court’s decision, it expressly declined to address the “because of bodily

injury” issue. Travelers Prop. Cas. Co. of Am. v. Anda, Inc., 658 Fed.Appx. 955, 958

(11th Cir.2016).




                                               11
                     OHIO FIRST DISTRICT COURT OF APPEALS



       {¶26} Acuity cites to Cincinnati Ins. Co. v. Anders, 99 Ohio St.3d 156, 2003-

Ohio-3048, 789 N.E.2d 1094, for the proposition that the economic damages

claimed by the governmental entities in the underlying case are outside the scope of

the policy’s coverage. In Anders, the property owners sued the sellers of their home

for failing to disclose certain defects in the home. Id. at ¶ 2. The property damage at

issue on appeal was “allegedly caused by installation of fiberglass insulation with the

vapor barrier on the wrong side, leading to the eventual deterioration of the floor

joists.” Id. The policies required that the property damage must “arise out of an

occurrence, that is, an accident resulting in property damage,” in order for coverage

to apply. Id. at ¶ 35. The property damage was alleged to have been caused by the

faulty installation of insulation in the house sold to the plaintiffs. Id. The claims in

the underlying suit pertained to the insured’s nondisclosure of the faulty installation

of the insulation, not the faulty installation itself. (Emphasis added.) Id. at ¶ 36.

The court held that “the occurrence for the purposes of the policy was not the

nondisclosure of the damage.” Id. at ¶ 35. Since the occurrence resulting in property

damage was the faulty installation, the claims alleging nondisclosure were outside

the scope of coverage. Id. at ¶ 36. The court thus excluded coverage because there

was no causal connection between the conduct of the insured (failing to disclose the

damage) and the property damage (the structural deterioration of the house). Id. at

¶ 35-36.

       {¶27} In this case, the policies at issue require the bodily injury to be “caused

by an occurrence” and that the damages are “because of bodily injury.” Acuity

contends that the “occurrence” for the purposes of the policies is the alleged

negligent distribution of prescription opioids by MPI. Acuity argues that like the




                                              12
                     OHIO FIRST DISTRICT COURT OF APPEALS



Anders case, there is a “mismatch” between the occurrence and the damages alleged.

Acuity argues that the alleged conduct of MPI may have caused bodily injury to a

person, and thus damages because of bodily injury to that person, but, because MPI's

alleged conduct did not cause damages because of bodily injury to the governmental

entities, the entities’ claims for economic damages fall outside the scope of coverage.

       {¶28} We find Acuity’s reliance on Anders misplaced. Anders concerned

whether there was a causal connection between the conduct of the insured and the

property damage. The court in Anders found that the conduct of the insured was not

the “occurrence” and did not cause the property damage. In the present case, Acuity

admits that the conduct of MPI is the “occurrence.” Thus, we must examine whether

there is a causal connection between MPI’s alleged conduct (the occurrence) and the

bodily injury. We find that there is arguably a causal connection between MPI’s

alleged conduct and the bodily injury suffered by individuals who became addicted to

opioids, overdosed, or died, and the damages suffered by the governmental entities

(money spent on services like emergency, medical care, and substance-abuse

treatment). As stated by the MDL court, “Perhaps it can be said . . . [that] the

provision of medical treatment and emergency response services arise directly out of

the personal injury of the citizens because they are effectively claims to recoup the

costs of medical expenses.” In re Natl. Prescription Opiate Litigation, N.D.Ohio No.

1:17-md-2804, 2018 WL 6628898 (December 19, 2018).

       {¶29} We find the Seventh Circuit’s rationale in H.D. Smith to be persuasive,

and hold that the policies potentially cover some of the claims and damages in the

underlying suits, and so Acuity has a duty to defend against the underlying suits. It

is not unprecedented for insurers to defend insureds against claims asserted by




                                              13
                     OHIO FIRST DISTRICT COURT OF APPEALS



governmental entities, even where the government itself did not sustain bodily injury

or property damage. See, e.g., Beretta U.S.A. Corp., 117 F.Supp.2d at 495 (insurer

required to defend against government entities’ suits to recover costs incurred

providing medical care to victims of gun violence and additional funds spent on

emergency services);    Kipin Industries, Inc. v. Am. Universal Ins. Co., 41 Ohio

App.3d 228, 230-231, 535 N.E.2d 334 (1st Dist.1987) (“when the environment has

been adversely affected by pollution to the extent of requiring governmental action

or expenditure or both for the safety of the public, there is ‘property damage’ whether

or not the pollution affects any tangible property owned or possessed exclusively by

the government”).

       {¶30} The governmental entities are seeking their own economic losses, but

some of those losses (such as medical expenses and treatment costs) are arguably

“because of” bodily injury. Acuity has failed to show that its interpretation of the

policies is “the only one that can fairly be placed on the language in question.” See

Andersen, 93 Ohio St.3d at 549, 757 N.E.2d 329. Some of the claims in the

underlying suits are potentially within the policies’ coverage. Therefore, the trial

court erred in ruling that Acuity has no duty to defend under the “because of bodily

injury” provision.

                        The Loss-in-Progress Provision

       {¶31} The trial court held that Acuity was excused from defending against

the underlying suits not only under the “because of bodily injury” provision, but also

under the “loss-in-progress” provision. The court reasoned that before Acuity ever

insured MPI, MPI knew of the opioid epidemic, and yet continued to fill suspicious

orders and fail to report those orders, further contributing to the epidemic. For the




                                             14
                       OHIO FIRST DISTRICT COURT OF APPEALS



reasons discussed below, we hold that the trial court erred in finding no duty to

defend under the loss-in-progress provision.

        {¶32} The policies provide coverage only if certain conditions are satisfied:

      b. This insurance applies to bodily injury and property damage only if:

                (1) The bodily injury or property damage is caused by an

                occurrence that takes place in the coverage territory;

                (2) The bodily injury or property damage occurs during the

                policy period; and

                (3) Prior to the policy period, no insured * * * knew that bodily

                injury or property damage had occurred, in whole or in part. If

                insured * * * knew, prior to the policy period, that the bodily

                injury or property damage occurred, then any continuation,

                change or resumption of such bodily injury or property damage

                during or after the policy period will be deemed to have been

                known prior to the policy period.

        {¶33} The (b)(3) provision is at issue in this case. It is sometimes referred to

as a “loss-in-progress,” “known-risk,” or “known-loss” provision.3 Hastings Mut.

Ins. Co. v. Village Communities Real Estate, Inc., 10th Dist. Franklin No. 14AP-35,

2014-Ohio-2916, ¶ 16.

        {¶34} First, we must decide whether the loss-in-progress provision is a

prerequisite to establishing coverage or if it is an exclusion to coverage. MPI argues



3There is also a legal doctrine called the “known-loss” or “loss-in-progress” doctrine, but this
doctrine, although similar, is distinct from any language in an insurance policy, has not been
adopted by Ohio law, and is not at issue in this case. See Tunnell Hill Reclamation, LLC v.
Endurance Am., Specialty Ins. Co., S.D.Ohio No. 2:15-CV-2720, 2016 WL 3689100, *5 (July 12,
2016).



                                                  15
                     OHIO FIRST DISTRICT COURT OF APPEALS



that it is an exclusion and Acuity argues that it is a prerequisite to establishing

coverage. “The insured bears the burden to show that its loss was covered under the

policy.”   Chiquita Brands Internatl., 2013-Ohio-759, 988 N.E.2d 897, at ¶ 9.

Therefore, if the loss-in-progress provision is a prerequisite to establishing coverage,

then MPI has the burden to demonstrate that the policies provide coverage.

       {¶35} Although it did not consider a loss-in-progress provision, the Ohio

Supreme Court in Physicians Ins. Co. of Ohio v. Swanson, 58 Ohio St.3d 189, 191,

569 N.E.2d 906 (1991), distinguished between a definition and an exclusion when

interpreting an insurance policy. The court found that both of the insurance policies

at issue precluded coverage, but determined that they achieved preclusion in

different ways. Id. at 908. “The difference is that one policy achieves this result by

way of an express exclusion for such injuries, whereas the other policy does so by

way of definition and an exclusion.”        Id.    Thus, the definition and exclusion

provisions in an insurance agreement function independently.

       {¶36} In this case, the loss-in-progress provision, (b)(3), appears under the

“Insuring Agreement” section, not the “Exclusions” section. Also, the policies apply

to bodily injury “only if” the loss-in-progress provision does not apply.

       {¶37} Although it did not interpret a loss-in-progress provision, in

Lightening Rod Mut. Ins. Co. v. Southworth, 2016-Ohio-3473, 55 N.E.3d 1174, ¶ 7

(4th Dist.), the Fourth District interpreted a (b)(2) provision identical to the (b)(2)

provision in the policies in the present case—“the bodily injury or property damage

occurs during the policy period.” Also, just like in this case, the (b)(2) provision

appeared under the “Insuring Agreement” section, not the “Exclusions” section. Id.

The court treated the (b)(2) provision as a prerequisite to coverage, not an exclusion.




                                              16
                        OHIO FIRST DISTRICT COURT OF APPEALS



It stated that “[b]ased on the plain language of the Policy, these claims do not fall

within Policy coverage,” and “coverage did not exist under the plain language of the

policy * * *.” Id. at ¶ 34-35.

       {¶38} The plain language of the loss-in-progress provision and its location in

the insurance policies lead us to conclude that it is a prerequisite to establishing

coverage, not an exclusion from coverage.          Therefore, the burden is on MPI to

demonstrate that the loss-in-progress provision does not apply.

       {¶39} The underlying suits claim that an opioid epidemic existed prior to

2010. The effective date of the insurance policies was July 26, 2010. In October

2008, the DEA issued a show-cause order to MPI alleging that MPI had failed to

maintain    effective   controls   against   the    diversion   of   opioids.   Masters

Pharmaceutical, Inc. v. Drug Enforcement Administration, 861 F.3d 206, 213

(D.C.Cir.2017). The show-cause order alleged, inter alia, that “throughout 2007 and

2008, [MPI] . . . continued to fill orders for controlled substances from rogue

Internet pharmacies and . . . failed to file suspicious order reports on such orders, in

circumstances in which [it] knew or should have known that the pharmacies were

operating illegally.”    Masters Pharmaceuticals, Inc.; Decision and Order, 80

Fed.Reg. 55418-01, 55422 (September 15, 2015). The DEA alleged that MPI violated

the “reporting” and “shipping” requirements imposed upon it by 21 C.F.R. 1301.74 by

failing to notify the DEA of suspicious orders, and then filling those suspicious orders

without performing due diligence. Masters at 213. “Suspicious orders” are orders of

unusual size, frequency, or pattern. 21 C.F.R. 1301.74(b).

       {¶40} In April 2009, the DEA and MPI settled the show-cause order.

Masters at 213. MPI did not admit to the allegations, but was required to pay




                                               17
                     OHIO FIRST DISTRICT COURT OF APPEALS



$500,000 and implement a compliance system to detect and report suspicious

orders and prevent the diversion of opioids. Id.

       {¶41} MPI created a suspicious order monitoring system (“SOMS”) to

identify orders of unusual size, frequency, or pattern. Id. Suspicious orders were

supposed to be investigated by MPI staff. Id. In August 2013, the DEA issued a

second show-cause order alleging that MPI had continued to fill and fail to report

suspicious orders. Id. at 214. This time, there was no settlement, and the DEA

administrator revoked MPI’s registration in 2015 after finding that it had violated the

reporting requirement. Id. at 215. The D.C. Circuit Court of Appeals determined

that the registration was revoked for violations of the reporting requirement, and not

the shipping requirement. Id.

       {¶42} Nevertheless, it is clear from the administrator’s decision that,

although he based his revocation on MPI’s failure to report suspicious orders, he also

found that MPI had filled suspicious orders.        Masters Pharmaceuticals, Inc.;

Decision and Order, 80 Fed.Reg. at 55500.

     [T]he evidence shows that those orders were frequently released without

     contacting the pharmacy and obtaining an explanation for the order.

                                         ***

     While the evidence shows that in numerous instances, the SOMS held an

     order because it resulted in the pharmacy’s orders exceeding its

     [controlled substance limit (“CSL”)] on a rolling 30-day basis, many of

     the orders were subsequently filled because [MPI] then counted the

     pharmacy’s orders on a calendar-month basis. And again, [MPI] filled the

     orders without obtaining an explanation from the pharmacy. Whether




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                     OHIO FIRST DISTRICT COURT OF APPEALS



      the orders were filled because they were supported by the [utilization

      report], or because [MPI] counted them on a calendar-month basis, this

      also frequently resulted in the CSL being increased even though [MPI]

      had entirely failed to investigate whether there was a legitimate basis for

      the increase in the orders. This resulted in an even greater amount of

      oxycodone being shipped without being held by the SOMS for review.

Id.

       {¶43} In the present case, the underlying suits allege that MPI breached its

duty to monitor, detect, investigate, refuse and report suspicious orders of

prescription opioids, and that MPI’s failures were a direct and proximate cause of

prescription opioid abuse, addiction, morbidity, and mortality resulting in increased

governmental expenses such as substance-abuse treatment and emergency and

medical-care services.

       {¶44} MPI does not contend that it did not know about opioid addiction

generally prior to July 26, 2010. Instead, it argues that its failure to report and

refuse to fill suspicious orders “indicates only that MPI knew of a risk that

prescription drugs it distributed wholesale could eventually be diverted into illegal

channels far down the supply chain or be misused and abused by individuals.” MPI

contends that general awareness of the risk of addiction prior to the policy periods

cannot establish the applicability of the loss-in-progress provision.

       {¶45} In cases in which a loss-in-progress provision barred coverage, the

claims were specific as to the damage or injury caused, the victim of the injury, and

the nature of the injury. Also, coverage was only barred under the loss-in-progress

provisions where the damage forming the basis of the underlying suits was a




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                      OHIO FIRST DISTRICT COURT OF APPEALS



continuation of the same damage from before the policy period. See, e.g., Ohio Cas.

Ins. Co. v. Mansfield Plumbing Prod., L.L.C., 5th Dist. Ashland No. 2011-COA-009,

2011-Ohio-4523, ¶ 20 (holding that the loss-in-progress provision barred coverage

because the insured knew prior to purchasing the policies that the products it

manufactured were defective and causing damage to third parties); Hastings Mut.

Ins. Co., 10th Dist. Franklin No. 14AP-35, 2014-Ohio-2916, at ¶ 21 (holding that the

loss-in-progress provisions barred coverage because the property damage that was

the subject of the underlying suits began prior to the policy period, continued into

the policy period, and the insured knew of the damage prior to the policy period);

but see Kaady v. Mid-Continent Cas. Co., 790 F.3d 995, 999 (9th Cir.2015) (holding

that coverage was not precluded because the property damages claimed in the

underlying suit were different from the property damages which the insured was

aware of prior to the policy period).

         {¶46} MPI claims that it was an upstream wholesaler that “could not and did

not know of injuries to [certain individuals].” It argues that there is no evidence that

any particular suspicious orders resulted in diversion of opioids that caused bodily

injury, much less the same bodily injuries that formed the basis of the underlying

suits.

         {¶47} Acuity argues that MPI was a distributor of powerfully addictive

opioids and it was put on notice that (1) it was violating the law in filling and failing

to report suspicious orders, and (2) these violations were contributing to an

epidemic. Thus, Acuity contends, MPI did not just know of a general risk, but rather

knew that its failure to maintain effective controls against diversion of opioids was a

cause of the opioid epidemic.




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                     OHIO FIRST DISTRICT COURT OF APPEALS



       {¶48} None of the cases cited by the parties or found by this court have

examined a loss-in-progress provision in the context of an opioid epidemic resulting

in damages to governmental entities as alleged in the underlying suits.

       {¶49} A loss-in-progress provision is included in an insurance contract

because insurance policies are only meant to cover fortuitous events, not losses that

are certain to occur. See Westfield Ins. Co. v. Custom Agri Sys., Inc., 133 Ohio St.3d

476, 2012-Ohio-4712, 979 N.E.2d 269, ¶ 13, citing Cincinnati Ins. Co. v. Motorists

Mut. Ins. Co., 306 S.W.3d 69, 74 (Ky.2010) (“Indeed, ‘[t]he fortuity principle is

central to the notion of what constitutes insurance * * *.’ ”). The awareness that

there is a risk that an insured’s conduct might someday result in damages is not

equivalent to knowledge of the damages. See, e.g., Buckeye Ranch, Inc. v. Northfield

Ins. Co., 134 Ohio Misc.2d 10, 2005-Ohio-5316, 839 N.E.2d 94, ¶ 30 (C.P.) (holding

that “there is no ‘known risk’ doctrine” and declining to apply the loss-in-

progress/known-loss doctrine, which is a similar concept, but distinct from any

language in an insurance policy, and has not been adopted by Ohio law); Tunnell

Hill Reclamation, LLC, S.D. Ohio No. 2:15-CV-2720, 2016 WL 3689100, at *5;

Burlington Ins. Co. v. PMI Am., Inc., 862 F.Supp.2d 719, 733 (S.D.Ohio 2012).

       {¶50} In this case, it is unclear at this stage in the proceedings whether some

of the governmental entities’ damages, such as increased costs for medical and

addiction treatment, were due to diversion of MPI’s products or were known to MPI

prior to the policy period. We agree that MPI may have been aware there was a risk

that if it filled suspicious orders, diversion of its products could contribute to the

opioid epidemic, thus causing damages to the governmental entities. But, we hold




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                      OHIO FIRST DISTRICT COURT OF APPEALS



that mere knowledge of this risk is not enough to bar coverage under the loss-in-

progress provision.

       {¶51} Accordingly, MPI’s first assignment of error is sustained.

                          Second Assignment of Error

       {¶52} In its second assignment of error, MPI argues that the trial court erred

in determining that Acuity has no duty to indemnify MPI in future opioid settlements

or judgments. MPI argues that because Acuity owes MPI a defense in the underlying

suits, a decision on the duty to indemnify should be deferred until a settlement or

final judgment in the underlying suits.

       {¶53} The duty to defend is broader than the duty to indemnify. Sharonville,

109 Ohio St.3d 186, 2006-Ohio-2180, 846 N.E.2d 833, at ¶ 13. Since we hold that

Acuity has a duty to defend, a decision on its duty to indemnify would be premature

until a final judgment in the underlying suits. See Sherwin-Williams v. Certain

Underwriters at Lloyd’s London, 813 F.Supp. 576, 591 (N.D.Ohio 1993) (where

insurer owed a duty to defend, the court deferred ruling on the duty to indemnify);

Transamerica Ins. Co. v. S.A.I. Marketing Corp., 8th Dist. Cuyahoga No. 49256,

1985 WL 6860, *5 (June 13, 1985) (deferring ruling on the insurer’s duty to

indemnify because such a ruling “would be premature until the precise nature of

those losses had been established”). Accordingly, MPI’s second assignment of error

is sustained.

                                    Conclusion


       {¶54} MPI’s assignments of error are sustained. The judgment of the trial

court granting summary judgment in favor of Acuity and denying MPI’s motion for

summary judgment is reversed, and this cause is remanded with instructions to the


                                            22
                      OHIO FIRST DISTRICT COURT OF APPEALS



trial court to grant summary judgment in favor of MPI requiring Acuity to defend the

underlying lawsuits, and for further proceedings consistent with the law and this

opinion.

                                               Judgment reversed and cause remanded.



MYERS, P.J., and WINKLER, J., concur.



Please note:
       The court has recorded its own entry on the date of the release of this opinion.




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