Specialty Podcast: Life Sciences - Fortify Your Company Against Product Liability Claims

Intro (00:00):
You're listening to the Alliant Specialty Podcast, dedicated to insurance and risk management solutions and trends shaping the market today.

Rich Leavitt (00:09):
Welcome back to another Alliant Specialty podcast. Most publicly held life sciences companies are prepared to address a scenario in which a material drop in their share price leads to shareholder litigation against the company and its directors and officers. But how well prepared are public and private companies alike when they are sued because one of their products allegedly causes bodily injury to one or more people? In today's podcast, we'll share our insight into best practices that life sciences companies can adopt to ready themselves for such a scenario. My name is Rich Levitt, and I'm one of Alliant's Life Sciences practice leaders. Joining me today are Rob Lane, our Senior Product Liability Claim Advocate, and Will Eustace, our Senior Product Liability Coverage Counsel. Rob tends to be viewed as the knight and shining armor that rides in to save the day on tough claims, but Will's work in negotiating fit-for-purpose coverage year after year makes him an invaluable part of any company's outsource risk management team. Rob and Will, if you would, say a few words about what you get involved with with our clients on a day-to-day basis, we'll take it from there.

Rob Lane (01:18):
Sure, Rich. It's Rob Lane, and Will and I are both part of the Alliant Resolutions team that is dedicated to maximizing insurance recoveries for our clients. We're both former coverage lawyers, and with that we feel like we've got standing and the respect of the coverage bar to help them and for them to assist us in facilitating expeditious recoveries for our clients, especially on contested insurance claims.

Rich Leavitt (01:46):
Great. Thanks Rob. Let's get started. Biotech Inc. has just become aware that the plaintiff's bar is about to bring a class action suit alleging that 200 people have suffered bodily injury because of its recently launched GLP-1 weight loss drug. Biotech Inc. needs to get out in front of this developing situation and issue an 8-K. Rob, can you please share your thoughts as to how companies might go about putting together a product liability event team, which would include both internal stakeholders, as well as professional advisors?

Rob Lane (02:23):
Sure. As we know product liability lawsuits attack not only the product itself, but almost more importantly the manufacturer's reputation. So the best advice I can give a client is to be proactive. Having the right team in place to help mitigate the exposure and minimize reputational damage inherent in litigation is mission critical in my opinion. It's like the old adage, Rich, "hope for the best, plan for the worst." That kind of litigation and product liability litigation, it's expensive, it's disruptive and clients need to be prepared and think out of the box and be proactive in terms of considering paying for and retaining traditional media and social media crisis communications individuals to put in place in the event they face this kind of litigation. They can be proactive by having a forensic investigation team in place at the outset because success in defending these kinds of cases, it often comes down to proving or disproving the scientific accuracy and reliability of the conclusions of these plaintiff's experts. So honestly, it's all about putting together the right team of people and the right processes to best defend these kinds of cases and do it in advance and being proactive about it. Part of that process is retaining the right outside lawyers, outside counsel, to work in tandem with their in-house lawyers and to ensure that the right experts also can be retained, right evidence developed, to defend the client. That also includes bringing in the experts from your brokerage and from your insurance carrier partners, which I think is essential to building a well-rounded team of experts. So it's all about being proactive.

Rich Leavitt (04:04):
And Rob, how often do you find that companies are proactive when you get involved in claims? Do you find that these teams are in place already or are most companies doing it on an ad hoc basis?

Rob Lane (04:18):
No, I think it's often reactive, to be honest. I think the clients see it in the news. They see it amongst their peers, but they don't necessarily think it's going to happen to them. There's an expense, and there's a resource commitment involved in the process of finding the right people in advance of having a problem. So I really think that clients, companies like this, manufacturing companies, are often more reactive than proactive. That's why my advice is be proactive and think of building the team early on. Like I said, it's back to "hope for the best, plan for the worst." And it comes down to just finding the right people in advance of the problem, so that if and when you do have a problem to address, you have your people in place already to address it as proactively and promptly as possible, so that your story can get out before the other side gets your story out.

Rich Leavitt (05:09):
Great, thanks Rob. Will, when you're involved in either a renewal or new placement, what are the key provisions within a policy as well as other discussion points that you would focus on with the client to assure alignment with carriers, client and outside counsel? And if you had the opportunity to meet with Biotech Inc's product liability event team, what would be your three most important messages?

Will Eustace (05:35):
Good compound question, right? The key provisions of the policy are pretty simple. It's all in the application. You got bodily injury or property damage, it arises out of your product, it's away from your premises. So the focus would be on the exclusions, and then you want to distill the facts into two groups. What do we do as a company? What do we make? What do we use? How do we sell? All that. What does our policy cover? And that's why I said we have to focus on the exclusions. So risk management and the legal department should be working hand in glove, alluding to what Rob just said. And they should share that information with the broker because the broker needs to know what your processes are, what your ingredients are, so they can protect you in the same way. You wouldn't go to your doctor and say "guess what's wrong with me." So tell us what you make, what ingredients make up the whole, what components are in your product, what's tried and true and has been around for 80 years and there have been no class actions, versus what's cutting edge, which is the neighborhood where the plans council lives, and you don't want to visit that neighborhood. And then once you have that information, we can assess the risks, and we break those down into those you retain and those you leave with or push to other parties like suppliers or component manufacturers. And then we look at your contractual risk transfer, what evidence of insurance Biotech has for those risks, how it passes that off by contract and all that comes in ahead of the curve, ahead of when you have to call Rob because you have a bad claim.

I'm on the end where you try to avoid the problem before it starts. So if I had to meet with Biotech's product liability team, what are my three most important messages is what you asked. I'd say tell me what keeps the risk manager and the general counsel up at night. Tell me what your senior manager is most afraid of. Tell me what your top scientist is concerned about. And then I'd want to know, why do your competitors envy you to the extent they do? Are there some ingredients in your special formula? And really that list of ingredients is something that we need to know because a lot of them are going to show up in exclusions and endorsements, and you want to be ahead of that rather than find out after the fact. The last thing I'd probably say to him, Rich, is when's the last time somebody looked at a comprehensive review of your supply contracts, your distribution contracts and the controls around that. That is vitally important before you get into a problem.

Rich Leavitt (08:07):
And Will, that's music to our ears as part of the outsource management team, and hopefully we've seen the contracts before we get to this point, but as you're well aware, it doesn't always happen. Rob, when you become involved as a claim advocate, it's often because the claim process has come off the tracks. What are the most common derailing causes, and what's your advice as to how companies like Biotech Inc. can avoid them?

Rob Lane (08:33):
Actually, it's just to understand your insurance contract. We as brokers place insurance for companies, and we're experts in that arena. For example, in the life sciences arena like yourself, placing policies that for the most part are intended and do provide substantively the coverage that the client needs. Where the client runs into problems, where I see things get derailed, most often is in the context of the conditional aspects of coverage. Stuff like late notice, making voluntary payments, not securing the consent of your carrier for certain payments and failure to cooperate or thinking that you can't provide and share information with your insurers because your lawyers are telling you that you can't. It's the conditional aspects of coverage that truly derail most claims, and they create the most litigation. It's not the context of is this an occurrence or not? Is this covered or not? It's did you provide timely notice? Did you give the insurer sufficient information to make an informed decision and to be part of the process? And that's a simple fix. It's about educating our clients as to their obligations under the contract and making sure they understand their obligations in the contract as do their in-house lawyers and outside lawyers that would be otherwise involved in that process.

Rich Leavitt (09:57):
Will, you and I have spoken frequently about the proliferation of new specific materials, products, disease exclusions that are being added by product liability insurers. How concerned are you about this ongoing trend, and what's your counsel to clients for addressing these potentially material coverage changes?

Will Eustace (10:19):
It's for diseases, Rich. It's for ingredients. It's for anything with the hint of a class action coming down the pike. Insurance is all about the large and repetitive loss. And insurers sit at sort of the busy fire hose end of that with a voluminous number of claims, but big data allows them to sift through it and sort that out, put these claims into buckets. When insurers see a wrap that claims rising out of particular product or component, whatever it is, they decide whether it's manageable. By manageable, I would say they apply an SIR to it, where they put in a narrowly tailored exclusion for particularly harmful activity, or sort of the nuclear exclusion, a total exclusion, an absolute exclusion. I frankly don't see that trend changing in the near term. I think it's picked up speed. The field keeps growing. You know, every year you see something new. What are we seeing?

Certain weed treatments, right? Two hundred eighty-nine million dollar award in California. Benzene, benzoic acid, you'll see that in your colas. Someday there'll be a class action. Spray deodorants might have benzene. Sunscreen has benzene. Aluminum and deodorants, which is a heavy metal, even though it's in your beer can, it crosses the blood brain barriers. So, it just goes on and on and on, and I think it's not going to slow down. The best solution would be really to be proactive with your broker. Figure out what's on the list. Figure out if you can scope those exclusions back. Figure out the processes by which you acquire those goods. Pass that risk along in your trade contracts and your indemnification provisions. Get as much coverage as you can.

Rich Leavitt (11:59):
And that certainly is one of the big reasons that we've had you as integrally involved with our clients as possible. And it takes a lot to get the client to get into those details, but as we both know, and Rob does as well from claims, it's taking that time upfront that is really going to pay off if there's ever an event. Will and Rob, thank you both for sharing your unique insights with our life sciences community. In closing, I think there's three important takeaways for Biotech Inc. and any other life sciences companies out there. One is to create a standing product liability event team and have that team meet with Will and Rob on an annual basis. Certainly the second takeaway would be auditing and updating your product liability insurance program at least annually or anytime a new product is being launched or acquired. And finally, we think it's critical that you meet with your product liability underwriters on at least an annual basis. That wraps up today's podcast. Thank you for joining us.