Possible Opioid Settlement and the Role of Product Liability Insurance

The recent headline, “Opioid Lawsuits Look More Like A Tobacco Settlement Every Day” in Forbes grabbed my attention for reasons I will explain.  As you know, I help life science companies develop and implement insurance programs that enables them to transfer risk to the insurance company.  So when you see a headline that reads like the clients you serve will be suffering a financial loss it makes you stand up and notice.  Granted, the fact that companies involved in opioids agreeing to a settlement does not come as a surprise to anyone but there are definitely things we can learn from this.  Different insurance policies could play a role in such a settlement but let me explain from a high-level how Product Liability insurance might respond.

First, product liability is structured to provide coverage when a third party suffers bodily injury or property damage, it does not provide coverage for financial loss.  This is important because if it the settlement is for the financial loss suffered by the government then Product Liability would not respond and the companies would be responsible to pay the settlement.  Most likely this settlement is for the financial loss suffered by the government and therefore no insurance proceeds will be used.

Conversely, if this was a class action lawsuit by individuals who suffered bodily injury this could possibly be covered.  This is no slam dunk though.  Many insurance carriers have put opioid exclusions on their policies so companies that did not think they had an opioid exposure but were somehow involved could find they don’t have coverage.  Companies could also run into issues with “batch” coverage and this can be a positive or a negative; it is a thorny issue and varies by carrier and even policy period.  “Batch” coverage is essentially treating all similar claims as one claim instead of individual claims.  This can be good or bad.  On the positive side it means there is one deductible instead of a separate deductible for each individual claim.  The negative is that depending on when claims occur and are reported you could run into and exhaustion of limits, meaning you have no insurance left because they are lumped into one policy period.  This can be even more problematic when you change carriers and have large excess programs where carriers might not be in agreement with how their policy responds.

All too often earlier stage companies are under the assumption that all insurance policies are pretty much the same, but when it comes to the life science industry that is not the case.  Because Product Liability policies are structured as claims made policies it is even more important that companies set their policies up correctly from the start so they do not have any surprises years down the road.  If your broker is not well versed in the life science space you could be leaving yourself vulnerable to uninsured losses down the road.

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