Shoppers walk past a Target department store in Hackensack, New Jersey. (Photo: Northfoto/Shutterstock.com)

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An appellate court in California, affirming a trial court's decision, has ruled that Target Corporation was not entitled to coverage as an additional insured under a commercial general liability insurance policy purchased by its supplier, McKesson Corporation, for a customer's lawsuit over an allegedly mislabeled prescription drug.

The Case

A customer purchased a pharmaceutical product from Target that was distributed by McKesson.

The customer allegedly had an adverse reaction to the product that resulted in serious bodily injury. The customer sued Target, alleging that the instructions and literature regarding the description and use of the product that it provided and that she relied on were "inaccurate."

Target sought a defense from McKesson and its insurance carrier, Golden State Insurance Company Limited, based on an indemnification clause in the agreement between Target and McKesson.

After McKesson and Golden State declined to defend Target, it sued McKesson and Golden State, seeking coverage for the customer's lawsuit.

The trial court granted judgment in favor of McKesson and Golden State, reasoning that the customer's lawsuit was based not on a defective product distributed by McKesson within the meaning of the indemnification clause but, rather, on Target's alleged mislabeling of the product and failure to warn of possible adverse reactions to the product.

Target appealed.

The Indemnification Clause

The indemnification clause in the agreement between Target and McKesson required McKesson to:

indemnify, hold harmless, and defend [Target] . . . against any and all actions [or] claims . . . relating to or arising out of . . . [p]roducts purchased by [Target] from [McKesson], . . . provided however, that the foregoing indemnity shall not apply to any claims . . . arising out of or due to the negligence or willful misconduct or omission of [Target]. . . .

The agreement also provided that McKesson:

shall obtain and maintain . . . commercial general liability insurance . . . , including products liability/completed operations . . . [and] coverage for contractual indemnification obligations . . . [naming Target] as an additional insured.

The Golden State Insurance Policy

The commercial general liability insurance policy issued by Golden State, which designated McKesson as the named insured and Target as an additional insured, excluded coverage for:

[r]epackaging [of products or] [p]roducts which, after distribution or sale by you [supplier] have been labeled or relabeled.

The Appellate Court's Decision

The appellate court affirmed.

In its decision, the appellate court explained that the customer claimed that her injury arose not from a defective product but, rather, from Target's failure to warn of the risks and possible side effects of the product. The appellate court pointed out that McKesson did not distribute or have any role in preparing the information about the product that Target provided to the customer.

The appellate court also pointed out that the additional insured endorsement did not apply to "[r]epackaging" of products or "[p]roducts which, after distribution or sale by [McKesson]" were "labeled or relabeled."

Here, the appellate court observed, Target repackaged the product and labeled it before the customer purchased it.

Accordingly, the appellate court concluded that the additional insured endorsement did not apply because the customer's claim was based on Target's mislabeling of a product that was not defective.

The case is Target Corp. v. Golden State Ins. Co., No. B279995 (Cal. Ct. App. Oct. 10, 2019). Attorneys involved include: Manning & Kass, Ellrod, Ramirez, Trester, John M. Hochhausler and Steven J. Renick; Resnick & Louis and Martin D. Holly for Plaintiff and Appellant. Farella Braun Martel, Erica Villanueva and Shanti Eagle for Defendants and Respondents.