Underwriters were supportive of the U.S. Supreme Court's recent decision that generic drug manufacturers are not liable for defectively designed drugs, and the ruling is not expected to impact price and availability of liability coverage, say insurance brokers.
According to a June 24 decision in Mutual Pharmaceutical Co. Inc. v Bartlett, generic drug manufactures are not liable for an individual's claim that a defective design in the drug harmed them. The court reasoned that because federal regulation bars the manufacturer from deviating from the brand-name product, they are not liable for adverse results.
The ruling follows the 2011 decision in Pliva v. Mensing that says generics are not responsible for failure to warn about a drug's dangers because they must use the same safety label as the brand-name version.
Underwriters are clearly pleased with the decision, says Alysone Renner, a broker at A.J. Renner & Associates in Chicago, which runs the preeminent niche generic manufacturer liability program in the country. There is no immediate impact from the ruling in the areas of pricing or capacity, she says, and time will tell if there will be an assessment made by other brokers. Currently, rates on renewal have increased 5 to 12 percent, and capacity has not been an issue, Renner adds.
Marsh's National Life Sciences Casualty Advisory Leader Darlene Villoresi put the renewal percentage as high as 15 percent, but notes each client is different. The right risk mitigation strategy helps to bring prices down to acceptable levels for the insured. She says changes in the market deal with the aggregation of risk and how insurers decide to price that risk. Capacity is there, it's just a question of how much coverage clients are willing to buy.
While the court has afforded the generic manufactures protections from liability, it does not mean the plaintiff's bar will cease to find ways to sue, insurance industry representatives say.
David Shuey, North America Life Sciences Practice Leader for Willis, says some state courts have found reasons to set the Mensing decision aside and could do the same with Bartlett. Plaintiff attorneys may also develop other theories of liability that have yet to be tested. Then there is the issue of a manufacture's defect from contamination, incorrect compounding or packaging, all exposures neither ruling covers.
"We'll have to wait and see if there are any product liability settlements going forward," says Shuey.
What matters in underwriting, says Renner, is good manufacturing practices and good regulatory behavior. Foreign imported ingredients meeting U.S. manufacturing standards are a concern. The Food and Drug Administration has more money available to inspect plants and is establishing field offices in India and China to inspect products there, which should help assure quality and reduce risk.
"It continues to be regulatory, regulatory, regulatory—safety, safety, safety—good manufacturing," says Renner. "That remains the underlying risk management profile the underwriters look at."
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