For businesses looking to manufacturer COVID-19 test kits or those in the race for the vaccine, the reward is great and the risk is high. Insurance carriers take an extremely conservative approach in their assessment process for these types of organizations.
The public presents the first layer of liability. Tests that produce false positives or false negatives may affect a business’ credibility and possibly open it up to single-plaintiff or class action lawsuits alleging bodily injury/harm and/or mental anguish. After that, shareholder and regulatory liability can follow, based on a downward trend in stock performance, including missed earnings.
Healthcare businesses conducting such high-risk, high-reward R&D will want to make sure they’re adequately covered for the risks associated with both products liability and those related to the actions and inactions of the organization’s employees, directors and officers.
- Convene with your broker and outside counsel. Obtain a products liability policy to cover your business for consumer bodily injury and emotional distress caused by an alleged product failure. Directors and Officers (D&O) liability insurance should be procured to cover direct losses like product claims (where individual insured persons are named), consumer lawsuits, as well as, indirect losses such as shareholder lawsuits and regulatory investigations. When employees and/or directors and officers are named in a lawsuit, appropriate measures include review of several insurance policies knowing certain allegations may trigger more than one insurance contract. Product malfunctions can prompt any number of regulatory inquiries or investigation from the FDA, SEC, DOJ, FTC and more. These may result in not only a PR crisis but could also dramatically affect an organization’s ability to move past the crisis.
- Conduct a systems check of your overall insurance program. When setting out to develop a COVID-19 vaccine or test, you’re catapulting your business to another level of exposure via revenue and accountability by shareholders and regulatory agencies. This requires a recalibration of your entire insurance program. Ask the following questions:
- Has COVID-19 contributed to an increase in revenue expectations?
- Has the business experienced any significant supply chain disruptions, order cancellations or near-term financial obligations that may need to be renegotiated, deferred or for which an alternative supplier is required?
- Are there contracts that need to be terminated or renegotiated?
- Is there a succession plan in place to maintain continuity among key managers and directors/officers?
- Are your limits adequate? When considering the ideal limits to protect your new product, ask the following: What types of revenues will this product generate? Will this number justify increasing products liability and D&O policy limits? Consider an Excess Side A Difference In Conditions (DIC) D&O policy as well. Excess Side A DIC helps further shield the board and officers, and sits over the business’ suite of liability products, providing indemnification for directors and officers above and beyond the traditional D&O coverage held by the company. It has the potential to be negotiated to extend across all potential risk scenarios. To determine the right limits, ask your broker to analyze your business’ market capitalization to determine how to best protect the business from its unique risks.
- Be methodical about public communications. You don’t want to mislead the public when it comes to a breakthrough test or vaccine. Be careful how the development of the product and revenue potential and all progress is communicated, and consult with your outside counsel for guidance in this area. Insurance litigation is often connected to how public communication was disclosed. Underwriters will want to know if the business is overstating its progress, as this could lead to a regulatory claim. If a business says they’re on the “fast-track” to FDA approval, for example, it better be true.
Contact HUB Risk Services to learn how to develop a business continuity plan that will help protect your business and employees from the unexpected. Get the latest information, guidance and resources on Coronavirus (COVID-19) to help you protect what matters most on our Coronavirus Resource Center.