Elvis lives. The moon landing was staged in a Hollywood studio. Brett Favre is too old to play pro football. Legions of believers tenaciously have held these views, which have proven to be akin to urban myths. Before we snicker at those harboring such beliefs, we should consider that some medical device industry professionals likewise embrace their own misconceptions.
These myths, though, can undermine a company’s risk management program and wreak financial havoc. Let us, therefore, look at five common risk management myths in an effort to sidestep them.
MYTH #1
“Insurance is a commodity.”
Buyers at many medical device firms often think that all insurance is alike; a policy is a policy is a policy. Admittedly, insurance is not a high cache product. At cocktail parties, no one boasts, “I just bought a AAA+ rated insurance policy!” In our personal lives, the advertising theme drummed into consumers is low cost, the best price and the cheapest quote. A prominent personal lines insurer boasts that 15 minutes could save you 15 percent or more off the current cost of coverage.
In truth, though, insurance is no more a commodity than stocks are a commodity. You can buy stocks in highly leveraged,financially shaky companies. Alternatively, you can buy blue chip securities. Thedegree of financial risk often is inverselyrelated to the price. Likewise, insurance protection is not a commodity. Just like in stocks, there are meaningful differentiators from one insurance company or policy to another. These differences, aside from price, may include:
• The insurer’s financial healthand stability;
• The insurer’s claim-paying history and tendencies (policyholder-oriented or hard-nosed in contesting everything?);
• Scope of coverage—narrow or broad, bland/generic or tailored to a firm in the medical technology realm?;
• Post-loss services: loss control, risk management, education services, etc.; and
• Ease of doing business.
Moral: Not all insurance companies—or insurance policies—are created equal. Flour, eggs or 20 lb. bags of sugar from Costco may be commodities. Insurance, however, is not.
MYTH #2
“If I forego insurance, plaintiff lawyers cannot touch me.”
When injured patients and plaintiff lawyers sue device firms, they have no way of knowing at that point if the defendant has liability insurance or not. They may assume that some kind of insurance exists and that any prudent business has liability protection. So, they file the lawsuit. Uncertainty over whether or not insurance exists is no deterrent to filing lawsuits.
Typically, only later in the lawsuit’s “discovery” or fact-finding phase does the issue arise.
Interrogatories are written questions that each side serves on the other, requiring written responses within a certain time frame. Usually, one interrogatory question is, “Please list each and every liability insurance policy to which this claim applies, including the name of the insurance company, policy number and policy limits.” At this point, the existence or non-existence of insurance will surface. If the device firm company has no insurance, it is unlikely that the injured patient or lawyer will just drop the claim. More probably, they will see that as the manufacturer’s problem – how to come up with the money to pay defense lawyers and any settlement or jury award.
Bottom line: Forgoing insurance coverage is unlikely to cause patients from asserting claims or lawyers from filing lawsuits. The presence of insurance coverage is more a result of lawsuits, not the cause of them.
MYTH #3
“Why invest in loss prevention? That’s why I buy insurance.”
This is what insurance folks call morale hazard. Morale hazard is an attitude of indifference toward loss due to insurance cushioning some of the financial consequences of loss. The best accounts, however, blend risk management with insurance as a one-two punch against financial uncertainty. Insurance companies—throughtheir underwriting processes—often grant the most favorable coverage terms to the best risks.
One way to qualify as a good risk is to be loss-free, i.e., having no claims. Another way is to show that the company has a strong risk management program that boosts product quality and prevents malfunctions and defects. This may include tight legal review of all warnings, labels, promotional and marketing materials. It may encompass state-of-the-art manufacturing and design. It may embrace a track record of spotless U.S. Food and Drug Administration (FDA) compliance and an absence of recalls, warning letters or 483s. It may reflect a documented history of responding promptly and appropriately to FDA concerns. Strong loss control programs and insurance are complementary features of sound risk management.
MYTH #4
“Any claims I get will likely be defeated due to the fact that adverse outcomes are due touser error.”
Device professionals take understandable pride of ownership, regardless of whether their companies make infusion pumps, motorized scooters or disposable tubing. There can develop a mentality that “our products are idiot-proof—unless you are a genuine idiot.” Firms may cling to the notion that only a dummy could fail to use the device in an intended matter. Ergo, the only way a malfunction could occur would be from user error. The user could be a nurse, a patient or even a physician.
What this theory ignores is the reality that, in medical product litigation, user error defenses typically evoke an allegation of failure to warn. Plaintiffs likely will assert that the device manufacturer failed to adequately and properly label the device, failed to warn about potential misuse of the device and consequences thereof, and failed to adequately instruct or train users in how the device should be safely used. Plaintiffs also may counter that some types of product misuse reasonably were foreseeable by the device company and were avoidable through proper training, better warnings or alternative designs. Therefore, “user error” is not an airtight defense. Instead, it throws the focus back on to the Watergate-type question, “What did the manufacturer know, and when did it know it?”
Further, asserting user error as a claim defense also often can be the risk management equivalent of cutting off your nose to spite your face. Device firms’ “users” are their customers: doctors, nurses and other healthcare personnel. These are often the people who buy medical devices or who drive purchasing decisions. In business, blaming your customers is not a sound strategy. Business aside, in litigation, finger-pointing at customers can be disastrous. Plaintiff attorneys prefer situations where the device manufacturer and doctor each blame the other. ”Divide and conquer” strategies can create situations where the plaintiffs do not even have to prove their case; the co-defendants in the lawsuit are doing such a great job for them. After hearing the conflicting testimony, was it a defect or a user error that caused the patient’s injury? Jurors may figure both had culpability and award
damages accordingly.
The moral is not that device companies always should forgo “user error” defenses or always “take the fall” in cases of clear product misuse. It is to say that “user error” has risks from a claim defense standpoint and can win the litigation battle but lose the business war. Use it selectively.
MYTH #5
“The “Federal preemption”defense will protect me from product liability claims.”
In the wake of the Supreme Court’s early 2008 decision in Riegel v. Medtronic, many device firms thereafter thought that FDA approval would bar or “preempt” state tort claims alleging product defects. Euphoria was premature, though. First, Riegel only applied to Class III devices that had gone through the pre-market approval (PMA) process. Most devices are not PMA devices and thus cannot count on Riegel preemption.Most claims—suits against non-PMA devices—will still survive, as will claims for manufacturing defects. Plaintiffs also can sue makers of devices not conforming to the specifications or safety processes approved during PMA review. Riegel was a good start, but no panacea for medical device firms managing product liability risk.
Elvis has left the building permanently and is not coming back.The Apollo moon landing was real. Bret Favre may unretire yet again. Medical device firms should be aware of these risk management fallacies and avoid them in structuring sound risk management programs that can protect their firms’ financial health, brand and reputation.
Kevin Quinley is Vice President, Risk Management Services for Berkley Life Sciences, LLC. Berkley Life Sciences LLC is a provider of insurance for the life science industry. The views expressed here do not constitute legal advice, are those of the author alone and do not necessarily reflect those of Berkley Life Sciences or its customers. You can reach Kevin at kquinley@berkleyls.com.
