We are filing with multiple states an excess liability exclusion that contains a controlled substance exclusion. The exclusion is identical to ISO's controlled substances exclusion in multiple forms:

Controlled Substances “Bodily injury” or “property damage” arising out of the use, sale, manufacture, delivery, transfer or possession by any person of a Controlled Substance(s) as defined by the Federal Food and Drug Law at 21 U.S.C.A. Sections 811 and 812. Controlled Substances include but are not limited to cocaine, LSD, marijuana and all narcotic drugs. However, this exclusion does not apply to the legitimate use of prescription drugs by a person following the lawful orders of a licensed health care professional.

One state particularly has objected to this language (even though it has approved this language in ISO filings) citing new concerns about the opioid epidemic, and that catch-all exclusions such as this could potentially exclude any claim that can be tied back to opioids, rendering an insured without coverage for a loss that would have otherwise been covered but for the tie to opioids.

It is our opinion that the intent of this exclusion is not to exclude a covered loss solely because it can be traced back to the use of opioids, but rather to exclude losses that arise directly out of illegal drug use, such as an overdose or the selling or manufacturing of drugs. Our question is, is there potential that an insurer could exclude a loss solely because of illegal opioid use? For example, an employee on non-prescription opioids drives a forklift into a propane tank and causes third-party property damage or bodily injury. Could this exclusion apply due to the “use” of a controlled substance?

Massachusetts Subscriber

Yes, it would. The exclusion is specific in that drugs that fall into a certain category according to the Federal Food and Drug law are excluded unless the person is using them under the guidance of a medical professional. Opioids are not available over the counter; therefore, any non-prescription opioid is illegal.

If an employee is using opioids at work that he obtained from a relative, friend, or bought off the street and because of using the drug causes injury or damage, then that loss will be excluded. If the employee has a prescription from a health professional then there will be no problem, the language is clear that when the drug is used under the guidance of a health professional the exclusion does not apply. Any other use of the drug however, will be excluded.

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