The Perils of Product Liability Insurance When Mass Litigation Strikes

Based on a report yesterday from the Cook County Register, a settlement has apparently been reached between Abbvie and plaintiffs in the testosterone replacement therapy drug cases.  Currently there are 25,000 cases pending and this settlement could bring to a close the latest chapter in life science mass product litigation.  What has most likely prompted this settlement is the cost and the fact that 5 cases have went to trial and ruled on.  Abbvie successfully defended three and two others are on appeal after Abbvie was deemed not liable for the plaintiffs’ health conditions but it still resulted in large verdicts against Abbvie because they misled doctors and consumers about their product.

What can we learn from this most recent settlement?  These claims happened over a number of years and resulted in a large number of claimants.  A large number of claims over a number of years emanating from a similar product brings up “batch coverage” which I have talked about in prior posts. For life science companies it is so important to understand how batch coverage works within your policy(ies) as it could greatly impact the amount insurance companies pay and how much your company could be personally liable for out of pocket when all is said and done.  To find out more about “batch coverage” I suggest you ask your broker how your policies are structured and how they address batch coverage or reach out me directly.

The individual cases involved what appears to be punitive damages based on the large initial verdicts that went against Abbvie, $140MM and $150MM.  Insurance in many states is not permitted to pay punitive damages but if your policy is setup correctly there are workarounds. The first thing you should always do is have “most favorable venue” wording on your policy, this will allow your policy to respond according to the law of the jurisdiction most favorable to the insurability of punitive damages as long as certain conditions are met.  The second thing you can do is add what is called a “Puni-Wrap” to your program.  This is provided by an offshore insurance carrier and allows punitive damages to be paid by the insurance carrier regardless of the state.

Finally, all companies who have any connection to testosterone or any other hormones should pay close attention to their policy.  Almost every carrier now excludes these type products in their policy form automatically so it is something that needs to be something that is given consideration.  There are a long list of products that insurance companies exclude from the outset that many life science companies are not made aware of and end up being very costly.  As part of our due diligence when engaging with a new prospect we always offer to do an insurance audit of their current policies at no cost to them.  Let me know if you would like to find out more.

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