Ninth Circuit Upholds Broad Interpretation of “Arising out of” in Goods & Products Exclusion

Applying California law, the United States Court of Appeals for the Ninth Circuit has held that a goods and products exclusion in a D&O policy precluded coverage for costs related to complying with government subpoenas.  Sentynl Therapeutics, Inc. v. U.S. Specialty Ins. Co., 2022 WL 706941 (9th Cir. Mar. 9, 2022).

In 2018 and 2019, the insured pharmaceutical company received two government subpoenas in connection with an investigation into the company’s opioid drugs and marketing practices.  The company incurred significant costs in responding to the subpoenas, and it sought coverage and reimbursement of those costs under its D&O policy.  The insurer denied coverage on the basis that the policy’s goods and products exclusion precluded coverage.  That exclusion barred coverage for “Loss in connection with a Claim arising out of, based upon or attributable to any good or products manufactured, produced, processed, packaged, sold, marketed, distributed, advertised or deployed by [the company].”  

In the ensuing coverage action, the Ninth Circuit affirmed the trial court’s ruling that the exclusion applied.  In doing so, it found that the exclusion lead-in language “arising out of” is broad and unambiguous, and means “growing out of” or “incident to, or having connection with,” and is of “much broader significance than ‘caused by.’”  The court explained that the company’s involvement in the investigation grows out of or flows from its opioid products.

The court also addressed the company’s assertion that the exclusion rendered coverage illusory.  The court stated that an exclusion does not render coverage illusory unless it “entirely eliminates coverage,” and found that coverage was not, in fact, illusory by pointing to types of claims that could be brought against the company that have “no conceivable connection” to the products that it sells.   

Categories

Tags

Practice Areas

Wiley Executive Summary

Sign up for updates

Necessary Cookies

Necessary cookies enable core functionality such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions.

Analytical Cookies

Analytical cookies help us improve our website by collecting and reporting information on its usage. We access and process information from these cookies at an aggregate level.