AIU Insurance Company v. McKesson Corporation

Background

McKesson Corporation is a distributor and seller of prescription drugs. Since 2016, it has been named as a defendant in thousands of lawsuits related to the opioid crisis. The insurers issued McKesson liability insurance policies between 1999 and 2017. In this action, the insurers seek a declaratory judgment—a court ruling defining the parties’ legal rights—that they are not required to defend or indemnify McKesson in the opioid lawsuits. McKesson seeks a ruling that the insurers are required to do so and that they breached the insurance contracts.

McKesson moved for partial summary judgment on its claim that the insurers had a duty to defend. Summary judgment is a decision without a trial when the law and undisputed facts are sufficient to resolve an issue. McKesson then moved to stay, or pause, all discovery and proceedings except its pending motion concerning the duty to defend and limited discovery relevant to that motion. The insurers opposed the requested stay.

Legal Standard

The court held that federal procedural law governed the request for a stay. It applied the three factors from Landis: the possible harm from granting the stay, the hardship or unfairness of requiring a party to proceed, and the orderly course of justice. The court also considered California decisions recognizing that simultaneous insurance-coverage litigation and underlying liability litigation can prejudice an insured by creating inconsistent factual findings, forcing the insured to fight on two fronts, or affecting later use of factual findings.

Ruling on the Discovery Categories

For Categories 1–3—selected written discovery and deposition transcripts from underlying opioid lawsuits—the court found that a stay was not warranted. The materials might be relevant to the duty to defend, particularly because some insurers were excess insurers whose duty could arise after exhaustion of a retention. The court also explained that extrinsic evidence, meaning evidence outside the insurance policies and underlying complaints, may be considered under California law in some circumstances if the insurer knew the facts and they conclusively showed no potential for coverage. McKesson had to permit the insurers to use documents they already possessed, subject to the applicable protective order.

For Categories 4–5—deposition materials from McKesson witnesses and expert reports and deposition transcripts—the court stayed discovery. The insurers had not shown that the unredacted materials were relevant to the duty-to-defend motion. The materials could be relevant to indemnity, including whether and when McKesson knew about alleged harms from its opioid distribution, but that did not justify using them in connection with the pending duty-to-defend motion.

For Category 6—documents concerning McKesson’s claimed defense fees and expenses and a deposition of a McKesson corporate representative—the court did not stay discovery. The court also did not stay further discovery and proceedings generally, except for the pending motion for partial summary judgment on the duty to defend.

Disposition

The court granted in part and denied in part McKesson’s motion to stay discovery and proceedings. Discovery was stayed as to Categories 4–5 and as to further discovery and proceedings except for McKesson’s pending motion for partial summary judgment on the duty to defend. Discovery was not stayed as to Categories 1–3 or Category 6. The parties were ordered to file a stipulated briefing schedule by August 19, 2021, and the hearing on the summary-judgment motion was to occur no later than January 2022. Judge Jacquelyn Corley did not decide the underlying duty-to-defend or indemnity questions in this order.