Key Points

  • The Alabama Supreme Court affirmed summary judgments for Nationwide and two insurance agencies in a coverage dispute over a $4.75 million consent judgment against OMS Pharmacy.
  • The court held that compounding medication is a professional service and that the policy's exclusion for injuries arising from service in the practice of pharmacy barred coverage.
  • The court held that the exclusion's "arises out of" language covers all of the injured customer's claims, including products-liability and warranty theories, because each flowed from the compounding error.
  • The court held the pharmacy contributorily negligent as a matter of law on its negligent-procurement claim against its agent because its owner did not read the policy exclusions, and it found insufficient evidence of wantonness.
  • Justice Parker concurred in part and in the result, writing that the agent's lack of malicious intent is irrelevant to wantonness and that the inquiry focuses on what the agent actually knew.

The Alabama Supreme Court held on Oct. 9 that a compounding pharmacy's liability insurer does not have to pay a $4.75 million judgment won by a customer who was poisoned after the pharmacy prepared her stomach medication with belladonna 1,000 times stronger than prescribed.

Chief Justice Stewart, writing for the court, affirmed summary judgments for Nationwide Property and Casualty Insurance Co. and two insurance agencies that OMS Pharmacy Inc. had blamed for its lack of coverage. Six justices joined in full. Justice Parker concurred in part and in the result, and Justice Shaw recused himself.

The court held that the policy's exclusion for "[s]ervice, treatment, advice or instruction in the practice of pharmacy" bars products-liability and warranty claims, not just negligence claims, when they stem from a compounding error. It also held, applying the state's rule that insureds must read the policies they receive, that the pharmacy cannot recover from its insurance agent because its owner did not read the exclusions until after the injury.

Tim Wright, an Alabama-licensed pharmacist, founded OMS. Compounding is the mixing of ingredients to create a medication tailored to one patient. In March 2013, Hannah D. Browne's doctor prescribed a "pink cocktail" of phenobarbital, Maalox and belladonna for stomach pain. A pharmacy technician entering the formula into OMS's computer system recorded the belladonna in grams instead of milligrams.

Browne took one tablespoon, suffered belladonna poisoning and was treated in intensive care. She sued OMS and Wright in Tuscaloosa Circuit Court in October 2013 on negligence, products-liability, warranty and failure-to-warn theories. Nationwide declined to defend the pharmacy. In April 2015 the case settled with a $4.75 million consent judgment against OMS.

While Browne's suit was pending, OMS sued Nationwide for breach of contract and bad faith and, alternatively, sued the agencies for failing to procure proper insurance. Browne intervened to seek payment directly from Nationwide. The trial court granted summary judgment to Nationwide in September 2022 and to the agencies in February 2025.

The Nationwide policy, obtained in 2008 to replace one issued by Zurich American Insurance Co., excluded bodily injury that "arises out of or is a result of the rendering of, or failure to render, any professional service, treatment, advice or instruction," and it listed pharmacy among its examples. Stewart wrote that Alabama regulates compounding as part of the profession of pharmacy and requires a licensed pharmacist to perform or supervise the work.

Browne argued that the mistake was a "keyboarding error," not a professional act. The court disagreed, writing in a footnote that "it is within a pharmacist's professional responsibility to confirm that medications are correctly compounded as prescribed."

Browne also argued that her defective-product claims concerned the purchase of a product rather than a service. She cited decisions refusing to apply such exclusions to an opioid wholesaler and a medical-equipment seller. Stewart wrote that "those cases involved the sale or distribution of existing commercial commodities," while compounding Browne's medication "required the use of professional skill and training and was performed solely for the purpose of filling Browne's immediate need for a prescription."

The court held that the exclusion's "arises out of" wording "is broad, but unambiguous, and it encompasses all claims for bodily injury arising from the rendering of a professional service, regardless of the claimant's theory of recovery." Stewart wrote that "all of Browne's claims—even her defective-product claims—have their origin in, grow out of, or flow from OMS's error in compounding her prescription medication."

The court then turned to Roger Downs Inc., the agency that placed the Nationwide policy, and Baldo-Downs Insurance LLC, which OMS contends is the first agency's successor. In 2008, Wright asked agent Roger Downs to replace the Zurich policy with like coverage, and he gave Downs at least the Zurich policy's two-page declarations form.

The policies differed in a respect that, the court wrote, "was not evident from a mere review of the policies' declarations pages." Zurich's exclusion did not apply to pharmacological services if the insured did business as a retail drug store that did not compound in bulk for sale by others. Wright, who received the Nationwide policy at each renewal, admitted that he did not read the exclusions until after Browne was injured.

In Alabama, contributory negligence, a plaintiff's own failure to exercise reasonable care, is a complete defense to a claim that an agent negligently failed to procure insurance. The court relied on Alfa Life Insurance Corp. v. Colza, a 2014 decision in which it said it had "essentially held that it is almost never reasonable for an individual to ignore the contents of documents given him or her in association with a transaction."

OMS argued that even a full reading would not have made clear to Wright that product-liability claims were excluded, because he recalled policy language about "products." Stewart wrote that the exclusion "contains the only direct reference to the practice of pharmacy in the Nationwide policy" and would have given Wright "a clear indication that the Nationwide policy did not provide the same coverage as the Zurich policy." The court held OMS contributorily negligent as a matter of law.

The court also upheld judgment against OMS on its wantonness claim, which required evidence that the agents were conscious that injury would "likely or probably result." OMS argued that Downs agreed to replicate the Zurich coverage without reviewing that policy. The court noted that Downs reviewed the Zurich declarations page and that Wright testified he did not believe Downs had "any malicious intent."

Justice Parker, concurring, wrote that wantonness does not require proof of intentional conduct, so "it should not matter whether, as the main opinion puts it, Downs 'had any malicious intent in failing to procure the requested coverage.'" Parker added that "the focus must remain on what Downs actually knew about the likely consequences of his conduct."

The decision leaves in place the trial court's judgments for Nationwide and both agencies. The opinion is subject to formal revision before publication in the Southern Reporter.