Risk Management

Liability and Coverage for Contaminated-Product Claims

Kimberly Wynkoop,
 OMIC Legal Counsel

Digest, Fall 2012

The plethora of meningitis cases due to contaminated steroid injections has put compounding pharmacies under the microscope. Physicians are also being scrutinized for their part in prescribing and administering the tainted drugs. This article will look at ophthalmologists’ potential liability and the coverage OMIC’s policy provides should an OMIC insured be sued for prescription or use of contaminated compounded products.

As of November 7, 2012, 28 lawsuits in states from Minnesota to Florida had been filed against the New England Compounding Center (“NECC”), the pharmacy that compounded the steroids in the meningitis cases. Not only have the NECC corporate entity and executives been named as defendants, plaintiffs looking for deeper pockets are suing the physicians and clinics who supplied and administered the tainted injections.

Ophthalmologists use compounding pharmacies for a variety of products, including bevacizumab, Brilliant Blue-G (BBG), triamcinolone acetonide, and 5 percent Betadine. Compounded Trypan Blue, BBG, and Avastin have all been implicated in outbreaks of endophthalmitis. While no cases of ophthalmic injury from NECC products have been reported, its compounded betamethasone suspension was recalled due to potential contamination.

If a physician is named in a contaminated-product lawsuit, potential liability will depend on whether the plaintiff alleges product liability or professional liability (“medical malpractice”) and whether the court finds those claims applicable to the physician. Most state’s product liability laws provide for strict liability, which means a defendant can be held responsible without proof of fault. With strict product liability, all people or entities in the distribution chain are potentially liable. However, under some state’s laws, product liability claims against health care providers are not permitted. Product liability claims can also be based on negligence. A finding of negligence requires that the defendant breached a duty owed to the plaintiff, which caused the plaintiff to suffer damages.

There are three types of product liability defects: manufacturing, design, and failure to warn. A manufacturing defect occurs when the product is different than its design due to the manufacturing process. This includes contamination of the product during compounding as occurred at NECC.

A design defect means that the actual intended design of the product makes it unreasonably dangerous. In drug cases this usually means unreasonably severe side effects.

Failure to warn defects, also called marketing defects, occur when a product has improper or insufficient labeling, instructions, safety warnings, or recommendations for use. These marketing omissions can occur at the manufacturer, pharmacist, or provider level and often require a finding of negligence. The prescribing provider and even ancillary staff who instruct the patient on proper use of a drug or device may be liable as “learned intermediaries” between a drug’s manufacturer (or compounder) and the patient.

Medical malpractice, unlike product liability, always requires a finding of negligence. In this case, the breach of duty applies to the provision of medical services to the patient, not the sale of products. Therefore, in order for the court to determine whether product liability or malpractice should apply to a claim, it may attempt to determine if the provider “sold” the product. One way the court could do so is to look at the medical bills. Separate prices for the service (e.g. an injection) and the product (e.g. a steroid) could indicate a sale, whereas a global service charge or non-itemized bill would suggest a service.

If the prescription or administration of the contaminated product is considered a service, the plaintiff must show that the provider was negligent. For instance, did the provider fail to investigate the safety of the product being prescribed? Did the physician not obtain proper informed consent by failing to discuss all of the risks that went along with the use of the product? If the plaintiff can prove the physician breached this duty of care and the patient was harmed, the physician will be liable.

OMIC does not exclude coverage for an ophthalmologist’s prescription or use of compounded drugs or devices. OMIC respects the provider’s prerogative to select the most appropriate drug or device for a particular procedure or treatment for an individual patient even if it is off-label, unapproved, or compounded. OMIC’s policy covers insureds for allegations of medical malpractice based on an ophthalmologist’s direct patient treatment. This includes the prescribing or dispensing of medical supplies, devices, and drugs, including compounded products. However, OMIC’s policy does not cover product liability claims; it expressly excludes claims based on the designing, producing, manufacturing, assembling, distributing, marketing, or selling of any medical device or other product, including the failure to provide warnings or instructions with the product. If ophthalmologists will be reselling or otherwise participating in the distribution of products beyond direct patient treatment, they should secure separate coverage for product liability on a stand-alone basis or as part of a general liability package.

Sources:

American Academy of Ophthalmology, “Deadly Meningitis Outbreak Prompts Lawmakers to Consider Tighter Regulations on Compounding Pharmacies,” Member Alert, November 19, 2012.

Nick Brown, “Meningitis Lawsuits: Product Liability or Medical Malpractice?” The Insurance Journal, October 24, 2012.

Han W. Choi & Jae Hong Lee, “Pharmaceutical Product Liability,” Chapter 55, http://mofo.com.

Sarah Sellers and Wulf H. Utian, “Pharmacy Compounding Primer for Physicians: Prescriber Beware,” Drugs 2012: 72 (16): 2043-2050.

“Compounding Pharmacies – What Every Retina Specialist Needs to Know,” American Society of Retina Specialists Website.

“Overview of Medical Product and Drug Product Liability Cases,” Attorneys.com, http://www.attorneys.com/products-liability/overview-of-medical-product-and-drug-product-liability-cases/ (accessed November 8, 2012).

“Pharmaceutical Drug Liability,” Findlaw, http://injury.findlaw.com/product-liability/pharmaceutical-drug-liability.html (accessed November 8, 2012).

“Product Liability Claims Involving Pharmaceutical Drugs,” Nolo Law For All, http://www.nolo.com/legal-encyclopedia/product-liability-claims-pharmaceutical-drugs-30314.html (accessed November 8, 2012).

“Products Liability and Prescription Drugs,” Louisiana Insurance Litigation Blog, Thornhill Law Firm, October 31, 2008, http://www.louisianainsurancelitigation.com/2008/10/products_liability_and_prescri.html.