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By Isabella K. Stankowski-Booker
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The abuse of illegal drugs continues to claim its victims in the entertainment industry, as the death of Academy Award winner Philip Seymour Hoffman shows. The 46-year old actor suddenly passed away on Feb. 2, 2014, due to “acute mixed drug intoxication” from heroin, cocaine, benzodiazepines and amphetamines.[1]

Most event cancellation and nonappearance policies bar coverage for “any loss directly or indirectly arising out of, contributed to by, or resulting from the illegal possession or illicit taking of drugs and their effects.” Yet, most policies fail to define the critical terms “illegal possession,” “illicit taking” or “drugs.” This lack of definitional guidance begs the question of what exactly this provision excludes. Does it only pertain to illegal drugs or does it also encompass prescription and over-the-counter drugs? What actually constitutes “illicit taking?” Is, for example, an accidental overdose of a prescription drug or over-the-counter drug an “illicit taking?”

Courts have held that an undefined term in an insurance contract is not automatically ambiguous and may be interpreted by consulting a dictionary.[2] By its plain meaning, the term “drug” arguably covers illegal drugs, such as heroin or cocaine, as well as legal substances, such as prescription and over-the-counter drugs, “intended for [the] use in the diagnosis, cure, treatment or prevention of [a] disease.”[3] The term “illegal possession” means the unlawful possession.[4] In common parlance, “illicit” is synonymous with “illegal” or “improper.”[5] Thus, “illicit taking” seemingly connotes illegal or improper consumption or use. Consequently, it would appear that an insured’s death resulting from the illegal or improper use — or abuse — of drugs, including prescription and over-the-counter drugs, is categorically excluded. However, Michael Jackson’s sudden death from a fatal dose of the surgical anesthetic propofol and the insurance dispute that ensued serve as an insightful reminder that the analysis is more complex.

To secure his This Is It comeback tour, Jackson and his promoter, AEG Live LLC, had purchased event cancellation coverage with Certain Underwriters at Lloyd’s. The policy, with effective dates from April 24, 2009, to Jan. 19, 2010, and a $17.5 million limit of liability, insured the singer’s company and promoter against ascertained net loss and additional costs from the necessary cancellation of any of the first 30 concerts in the tour.[6] The policy wording was rather standard, in that it insured, inter alia, the death of, accident to and illness of an insured as long as the peril is beyond the control of the assureds and Jackson. However, the policy also contained the following additional conditions:

In respect of [Michael Jackson], cover hereunder is restricted to losses resulting from accident only until such time as [UNDERWRITERS] have seen and agreed the medical report from the medical taking place in London and [UNDERWRITERS'] representative has attended the rehearsals taking place in London.[7]

Jackson died on June 25, 2009, after his physician, Conrad Murray, administered an overdose of propofol to help the singer sleep.[8] Following Jackson’s death, AEG and the singer’s estate submitted an insurance claim to the insurers, arguing that the cancellation of the tour due to Jackson’s death amounted to an insured event. The insurers investigated under a reservation of rights, but after AEG and Jackson’s estate refused to comply with repeated requests for information, the insurers filed a complaint for declaratory relief and rescission of the insurance contract in the Superior Court of California, Los Angeles County. [9]

In support of their cause of action that they did not owe a duty to indemnify the assureds, the insurers raised various arguments. First, relying on the above-quoted policy language that amended the peril “accident,” the insurers argued that “accident” was the only covered peril and that coverage was subject to the fulfillment of the conditions stated within the amendment. However, because the amended death certificate listed “homicide” as Jackson’s cause of death and because the additional conditions of a medical in London and an insurers’ representative attending the rehearsals were not fulfilled, the insurers alleged that Jackson’s death was not an accident. Second, the insurers asserted that Jackson’s death was not a peril beyond the control of the insured. Third, the insurers alleged that the assureds had failed to disclose Jackson’s pre-existing medical conditions during the insurance application process. Fourth, the insurers pointed to the violation of several policy conditions and to the applicability of several exclusions to the claim, including the bar of coverage for “any loss directly or indirectly arising out of, contributed to by, or resulting from ... the illegal possession or illicit taking of drugs and their effects.” [10]

In its cross-complaint against the insurers for breach of contract and breach of the implied covenant of good faith and fair dealing, Jackson’s estate disagreed that the policy covered losses arising from accident only and that the singer’s death did not amount to an accident. Because Jackson neither designed nor anticipated his death, the cross-complaint alleged that the death was accidental.[11]

While the parties settled their dispute before the commencement of the trial,[12] the Jackson case identifies some of the difficult legal issues arising out of the insured’s overdose death from prescription drugs under an event cancellation policy. Predominantly, the issue to consider is whether or not the overdose amounts to an accident. Unfortunately, most event cancellation policies fail to define the term “accident” and, predictably, little case law exists that analyzes the phrase within the context of event cancellation policies. However, courts in the United States have grappled with the precise issue of whether a fatal dose of a prescription drug constitutes an accident in the context of health and accident insurance. To this end, the case of Andrus v. AIG Life Insurance Co. is instructive. [13]

In Andrus, the insured’s widow sued the carrier after it denied her claim for accidental death benefits following her husband’s fatal oxycodone overdose. The insured had accidental death and dismemberment coverage through his employer and had designated his wife as his beneficiary. The policy insured bodily injury caused by accident but excluded intentionally self-inflicted injury or suicide.

The evidence showed that after a severe back injury, the insured began taking oxycodone that his doctor prescribed. After using the drug for fourteen years, the insured successfully completed a detoxification program, which stopped his craving for oxycodone. However, he continued to take the drug — as prescribed by his doctor — to ease his constant pain. Approximately four years after completing the detoxification program, the insured died of a combined drug overdose of prescription drugs.

In denying the claim, AIG asserted that the insured’s “overdose was a conscious act rather than a mistake”[14] and that his death amounted to an intentionally self-inflicted injury. Because the insured had experienced addiction before, AIG maintained the insured had more than a general appreciation that injury was likely to occur when taking oxycodone.

In analyzing the policy, the District Court for the Northern District of Ohio noted that it did not define the term “accident.” Bound by federal common law, the court proceeded with its analysis by construing “accident” according to its “ordinary and popular sense.”[15] In doing so, it consulted other decisions that defined “accident” as “unexpected or unintentional” and as a “sudden event or change occurring without intent or volition though carelessness.”[16] In addition, the court called upon Black’s Law Dictionary, which defined “accident” as “an unintended and unforeseen injurious occurrence; something that does not occur in the usual course of events or that could reasonably be anticipated.”[17]

The court then applied these definitions to the facts before it. The record did not show that the insured knew that he ingested a lethal amount of oxycodone or that he intended to take an overdose. There was no evidence that the insured intended to die or injure himself, which was further substantiated by the coroner’s finding that the death was an accident. The record also did not support a finding of intentionally self-inflicted injury or suicide. Consequently, since the court could not rule out an accident, it found AIG liable under the policy.

According to the court’s rationale in Andrus, the evidence surrounding the insured’s death is of crucial importance. The court held that the insured’s death constituted an accident within the meaning of the policy because the insured neither intended to die nor intended to ingest a lethal amount of oxycodone. This is in line with the argument raised by Jackson’s estate in its cross-complaint. Notwithstanding, the insurers could have countered this assertion by availing themselves of the textual argument that the policy broadly excluded the illicit taking of drugs, regardless of what Jackson, or anyone else, intended, foresaw or anticipated when ingesting or administering the prescription drugs.

In addition to exploring the scope of the term “accident,” the Andrus decision focuses on the insured’s pre-existing drug addiction/dependency or other condition. The “known pre-existing, physical, psychological or medical condition,” which most event cancellation policies exclude, could be the insured’s drug addiction/dependency itself or another ailment, like the insured’s chronic back pain in Andrus or Jackson’s insomnia, for which the insured took prescription drugs. At least some courts in the United States have found that an addiction to painkillers, which manifests itself in habitual use and some form of emotional and/or physical dependence as well as increased tolerance of the used substance,[18] constitutes a pre-existing condition.[19]

Conclusion

As demonstrated, a real potential for coverage disputes exists under many event cancellation policies if the insured dies from prescription drug abuse. The Michael Jackson case shows that these coverage disputes rarely remain confined to the court room. Instead, the media and the court of public opinion scrutinize these coverage battles as well. To avoid such disputes from reoccurring, the parties to an event cancellation contract may want to consider clearer language. For example, they could agree that the term “illicit taking of drugs” encompasses (1) the consumption or administration of illegal drugs; (2) the consumption or administration of prescription drugs other than medically prescribed and in contravention of their approved use; and (3) the consumption or administration of over-the-counter drugs in contravention of their approved use.

—By Isabella K. Stankowski-Booker, Zelle Hofmann LLP

Isabella Stankowski-Booker is a senior associate in Zelle Hofmann's New York office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Ray Sanchez, Coroner: Philip Seymour Hoffman Died Of Acute Mixed Drug Intoxication, CNN.

[2] Adamo v. Fire Insurance Exchange, 219 Cal.App.4th 1286, 162 Cal.Rptr.3d 489 (Cal. Ct. App. 2013); Bridge Metal Industries LLC v. Travelers Indemnity Co., 812 F. Supp. 2d 527, 535 (S.D.N.Y. 2011) aff'd sub nom. Bridge Metal Industries LLC v. Travelers Indemnity Co., 559 F. App'x 15 (2d Cir. 2014).

[3] Black’s Law Dictionary (10th ed. 2014); see also Controlled Substances Act, 21 U.S.C. §§ 801-971 (2012) .

[4] Black’s Law Dictionary (10th ed. 2014).

[5] Id.

[6] Complaint for Plaintiffs, Certain Underwriters at Lloyd’s Of London Subscribing To Contingency Non-Appearance And Cancellation Policy No. B0638C091985 v. AEG Live LLC; The Michael Jackson Company LLC and Does 1-75, (Cal.Super.).

[7] Complaint for plaintiffs, supra note 6.

[8] Peter Wehrwein, Propofol: The Drug that Killed Michael Jackson, Harvard Health Publication — Harvard Medical School (Nov. 7, 2011, 5:02 PM).

[9] Complaint for plaintiffs, supra note 6.

[10] Complaint for plaintiffs, supra note 6.

[11] Complaint for Cross-Complainant, The Michael Jackson Company LLC v. Certain Underwriters at Lloyd’s Of London; North American Capacity Insurance Co.; Homeland Insurance Company of New York, and Roes [sic] 1 through 15, inclusive, Case No. BC 462973 (Cal.Super. filed Aug. 16, 2011).

[12] Eric Kelsey, Michael Jackson's Estate, Lloyd's of London Settle Insurance Dispute, (2014).

[13] Andrus v. AIG Life Insurance Co., 368 F.Supp.2d 829 (N.D. Ohio 2005).

[14] Id. at 833.

[15] Id.

[16] Id. (citing Santaella v. Metro. Life Insurance Co., 123 F.3d 456 (7th Cir. 1997); Casey v. Uddeholm Corp., 32 F.3d 1094 (7th Cir. 1994); Chiera v. John Hancock Mutual Life Insurance Co., 3 Fed.App’x. 384 (6th Cir. 2001)).

[17] Andrus, 368 F.Supp.2d at 833 (citing Black’s Law Dictionary 15 (7th ed. 1999)).

[18] See, e.g., United States v. Moore, 486 F.2d 1139, 1185 (D.C. Cir. 1973).

[19] See, e.g., Andrus, 368 F.Supp.2d at 835.