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2018 Power Broker

Pharmaceuticals

Tackling Tough Risks

Grant Bell
Senior Vice President
Marsh, Atlanta

A client of Marsh’s Grant Bell, a relatively new privately held biotech company, has multiple subsidiaries and is acquiring assets but hasn’t yet introduced any products. With such rapid expansion, risk management issues can crop up unexpectedly.

For example, a state recently sought evidence of workers’ compensation coverage at a new subsidiary located outside the client’s state of domicile. Bell “quickly and effectively guided our human resources team in the process,” the client said.

Bell also helped the client implement a system to ensure that it could “remain proactive in procuring specific workers’ compensation solutions or placements” as the company grows and enters new jurisdictions.

The client’s portfolio of coverages includes both public and private company D&O liability programs.

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“Grant and his team delivered significant savings with our most recent D&O public company renewal, achieving more than $200,000 in savings while maintaining both the retention and the total purchased limit,” the client said.

Another client praised Bell for his assistance in defending against a D&O claim.

“We faced a frivolous lawsuit that threatened many aspects of our business,” the client noted. “Grant was quick to organize the team, even connecting us with his firm’s experts on handling D&O carriers in this type of situation.”

The client added: “We have the best broker who can help us navigate any threat to our business from a risk management view.”

Armed with Knowledge

Matthew Grove, CIC, ARM, AIS
Business Insurance Consultant
BB&T Insurance Service, Frederick, Md.

No matter which direction their risks are heading, clients count on Matthew Grove to help manage them.

When Aziyo Biologics was purchasing the assets of CorMatrix last year, its greatest risk management concern was “the generation of certificates of insurance for more than 50 hospitals,” noted Jeff Hamet, VP, finance. Without the COIs, Aziyo’s new salespeople could not have entered the facilities, he explained.

Hamet said that Aziyo’s expectations were exceeded with the “simultaneous close of the deal, binding of coverage and generation of the necessary COI documents.”

Grove’s efforts “ensured a seamless transition with no loss of sales to Aziyo — which would have occurred had we been shut out from the hospitals even for a short period.”

Ed Cordell, former CFO of KeraLink International, praised Grove’s efforts when he came on board as the company was beginning to downsize in 2015.

“Matt inherited our line from a retiring broker at BB&T. He impressed me at our first meeting by being fully briefed on our business and coverages. However, he wanted to learn more” about KeraLink’s industry, competitors and business environment.

A year later, Grove used that knowledge to successfully market the renewal of the downsized KeraLink “as an opportunity in the corneal transplant market and sold the carrier on creating a package that could be marketed to the approximately 50-plus eye banks around the country,” Cordell said.

Leveraging Renewal Opportunities

Natalie Marquess, ARM, CIC, CRM
Senior Broker
Aon, San Francisco

After joining VIVUS Inc. as CFO in 2015, Mark Oki soon realized that the company’s renewals had been treated as a last-minute “perfunctory event.”

That changed after Oki turned to Aon’s Natalie Marquess for the 2016 and 2017 renewals. The renewal process, which began at least three months ahead of the renewal date both years, yielded many coverage enhancements while cutting premiums 41 percent in 2016 and 10 percent more in 2017, Oki said.

Marquess converted the company’s $10 million product liability deductible to a $5 million self-insured retention, giving VIVUS much more control of claims handling with no program cost increase.

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She also secured punitive damages coverage and negotiated a $25,000 deductible within the product liability program for clinical trial exposures — a fraction of the $5 million SIR that losses from clinical trials previously were subject to.

Oki also noted that Marquess understands VIVUS’s potential growth and planned for it by recommending adding a carrier to the company’s tower of insurers.

“It sets us up to have an existing relationship with the new insurer to absorb future growth” of risk.

An official for another client also praised Marquess for her efforts during that organization’s 2016 and 2017 renewals.

The Right Solutions at the Right Time

Lars Sorensen
Director EMEA Life Science & Pharma
Aon, Chicago

When product liability crises arise, Lars Sorensen has the resources to help his clients avert disaster.

Sorensen assisted one multinational client facing a material coverage reduction due to an exchange rate issue. For years, the client had €700 million of limits — or $1 billion of indemnity in the United States — where it generates significant revenue.

But in 2017, greater parity between the Euro and the dollar cut the client’s U.S. coverage by about $250 million.

Stressing that the organization could not shoulder a €200 million uninsured loss, the client noted that finding more than €100 million of additional coverage was a real challenge.

“Lars came with an Aon treaty, allowing us to benefit from an additional €200 million capacity immediately and following the conditions of our lead insurers in product liability without negotiations on wording and pricing,” the client said.

“This allows our company to continue to meet our future financial forecasts.”

For another client facing a claim, Sorenson collected documentation and developed arguments to rebut the plaintiffs’ allegations, ultimately compelling the plaintiffs to drop their claim.

Then Sorensen proactively developed “strategic risk management initiatives to improve internal controls and documentation, especially regarding quality controls,” which will allow the company to more efficiently confront future claims, the client said.

Coming Through in the Clutch

Nick Tait, AU
Principal
Marsh & McLennan Agency, San Diego

A client of Nick Tait’s invested considerable time and resources in a state-of-the-art facility.

Unfortunately, a sprinkler-head malfunctioned shortly before the operation was set to open in mid-2016. The malfunction occurred in the facility’s clean room but flooded the entire plant, causing substantial damage and a significant delay in opening the facility.

The client had business interruption insurance but faced significant complications with its claim.

First, “because the facility had not opened yet, there was not a historical revenue/income number to base the claim on,” the client said, adding that Tait and his team at Barney & Barney, a Marsh & McLennan Agency company, “were invaluable working with me to properly show the forecasts and impact on our income as a result of the flood.”

Recovering the loss of approximately $860,000 was an urgent matter. “Importantly, as a company, we were struggling with cash flow, and the BI claim payment was extremely important to bridge us from point A to point B while we recovered,” the client said.

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“Without a quick and good outcome for us, the company would likely be in trouble.”

Another client praised Tait for shepherding the company through a difficult renewal of its D&O liability insurance coverage while defending itself against a class-action claim.

Tait was able to renew the coverage with an increase in limits “without a meaningful increase in premium,” the client said. “The CEO and board were pleased with the revised D&O program that met our needs and fell within budget.”

Achieving Goals with Tailored Solutions

Darlene Villoresi
Managing Director
Marsh, Morristown, N.J.

When clients need their risk-financing plans fixed, Darlene Villoresi tops their call list.

Teva Pharmaceutical Industries Ltd. began self-insuring its U.S. product liability exposure in 2014 for economic reasons, explained vice president Limor Sagiv, head of global insurance. But after a few years, company officials “were not confident this was the right path,” he said.

Teva wanted insurers, however, to address its top three concerns: wording, deductibles and premium.

Villoresi “suggested a novel concept, and we drafted together a manuscript policy, based on the Bermuda form, which was shared with some key insurers — who are our partners on other lines — for their input,” Sagiv explained.

“After a very long process — over a year — we were able to bind a policy which answered the triple target,” including cutting Teva’s previous commercial program’s deductible by more than two-thirds, Sagiv noted. The program also includes a hedging tool to protect Teva’s balance sheet from a catastrophic event.

Sagiv ascribes Villoresi’s success to her determination, ability to simplify complex matters, skill in managing her team, great relations with markets, and her aptitude for “making things look achievable and possible by creating good process.”

Another client, whose acquisitions over the years required it to maintain multiple product liability programs, turned to Villoresi for an economical risk-financing approach.

Finalist: 

Brett Pizer
Vice President
Marsh, Philadelphia

 

More from Risk & Insurance

More from Risk & Insurance

Pharma Under Fire

Opioids Give Rise to Liability Epidemic

Opioids were supposed to help. Instead, their addictive power harmed many, and calls for accountability are broadening.
By: | May 1, 2018 • 8 min read

The opioid epidemic devastated families and flattened entire communities.

The Yale School of Medicine estimates that deaths are nearly doubling annually: “Between 2015 and 2016, drug overdose deaths went from 33,095 to 59,000, the largest annual jump ever recorded in the United States. That number is expected to continue unabated for the next   several years.”

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That’s roughly 160 deaths every day — and it’s a count that’s increasing daily.

In addition to deaths, the number of Americans struggling with an opioid disorder disease (the official name for opioid addiction) is staggering.

The National Institute on Drug Abuse (NIDA) estimates that 2 million people in the United States suffer from substance use disorders related to prescription opioid pain relievers, and roughly one-third of those people will “graduate” to heroin addiction.

Conversely, 80 percent of heroin addicts became addicted to opioids after being prescribed opioids.

As if the human toll wasn’t devastating enough, NIDA estimates that addiction costs reach “$78.5 billion a year, including the costs of health care, lost productivity, addiction treatment, and criminal justice involvement.”

Shep Tapasak, managing principal, Integro Insurance Brokers

With numbers like that, families are not the only ones left picking up the pieces. Municipalities, states, and the federal government are strained with heavy demand for social services and crushing expenditures related to opioid addiction.

Despite the amount of money being spent, services are inadequate and too short in duration. Wait times are so long that some people literally die waiting.

Public sector leaders saw firsthand the range and potency of the epidemic, and were among the first to seek a legal reckoning with the manufacturers of  synthetic painkillers.

Seeking redress for their financial burden, some municipalities, states and the federal government filed lawsuits against big pharmaceutical companies and manufacturers. To date, there are more than 100 lawsuits on court dockets.

States such as Ohio, West Virginia, New Jersey, Pennsylvania and Arkansas have been hit hard by the epidemic. In Arkansas alone, 72 counties, 15 cities, and the state filed suit, naming 65 defendants. In Pennsylvania, 16 counties, Philadelphia, and Commonwealth officials have filed lawsuits.

Forty one states also have banded together to subpoena information from some drug manufacturers.

Pennsylvania’s Attorney General, Josh Shapiro, recently told reporters that the banded effort seeks to “change corporate behavior, so that the industry can no longer do what I think it’s been doing, which is turning a blind eye to the effects of dumping these drugs in the communities.”

The volume of legal actions is growing, and some of the Federal cases have been bound together in what is called multidistrict litigation (MDL). These cases will be heard by a judge in Ohio. Plaintiffs hope for a settlement that will provide funding to be used to help thwart the opioid epidemic.

“From a societal perspective, this is obviously a big and impactful issue,”  said Jim George,  a managing director and global claims head with Swiss Re Corporate Solutions. “A lot of people are suffering in connection with this, and it won’t go away anytime soon.

“Insurance, especially those in liability, will be addressing this for a long time. This has been building over five or six years, and we are just now seeing the beginning stages of liability suits.” 

Basis for Lawsuits

The lawsuits filed to date are based on allegations concerning: What pharma knew or didn’t know; what it should have known; failure to monitor size and frequency of opioid orders, misrepresentation in marketing about the addictive nature of opioids; and false financial disclosures.

Opioid manufacturers, distributors and large drugstore chains together represent a $13 billion-a-year industry, meaning the stakes are high, and the pockets deep. Many have compared these lawsuits to the tobacco suits of the ’90s.

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But even that comparison may pale. As difficult as it is to quit smoking, that process is less arduous than the excruciating and often impossible-to-overcome opioid addiction.

Francis Collins, a physician-geneticist who heads the National Institutes of Health, said in a recorded session with the Washington Post: “One really needs to understand the diabolical way that this particular set of compounds rewires the brain in order to appreciate how those who become addicted really are in a circumstance where they can no more [by their own free will] get rid of the addiction than they can get free of needing to eat or drink.”

“Pharma and its supply chain need to know that this is here now. It’s not emerging, it’s here, and it’s being tried. It is a present risk.” — Nancy Bewlay, global chief underwriting officer for casualty, XL Catlin

The addiction creates an absolutely compelling drive that will cause people to do things against any measure of good judgment, said Collins, but the need to do them is “overwhelming.”

Documented knowledge of that chemistry could be devastating to insureds.

“It’s about what big pharma knew — or should have known.  A key allegation is that opioids were aggressively marketed as the clear answer or miracle cure for pain,” said Shep Tapasak, managing principal, Integro Insurance Brokers.

These cases, Tapasak said, have the potential to be severe. “This type of litigation boils down to a “profits over people” strategy, which historically has resonated with juries.”

Broadening Liability

As suits progress, all sides will be waiting and watching to see what case law stems from them. In the meantime, insurance watchers are predicting that the scope of these suits will broaden to include other players in the supply chain including manufacturers, distribution services, retail pharmacies, hospitals, physician practices, clinics, clinical laboratories and marketing agencies.

Litigation is, to some extent, about who can pay. In these cases, there are several places along the distribution chain where plaintiffs will seek relief.

Nancy Bewlay, global chief underwriting officer for casualty, XL Catlin

Nancy Bewlay, XL Catlin’s global chief underwriting officer for casualty, said that insurers and their insureds need to pay close attention to this trend.

“Pharma and its supply chain need to know that this is here now. It’s not emerging, it’s here, and it’s being tried. It is a present risk,” she said.

“We, as insurers who identify emerging risks, have to communicate to clients. We like to be on the forefront and, if we can, positively influence the outcome for our clients in terms of getting ahead of their risks.”

In addition to all aspects of the distribution chain, plaintiffs could launch suits against directors and officers based on allegations that they are ultimately responsible for what the company knew or should have known, or that they misrepresented their products or signed off on misleading financial statements.

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Shareholders, too, could take aim at directors and officers for loss of profits or misleading statements related to litigation.

Civil litigation could pave the way, in some specific instances, for criminal charges. Mississippi Attorney General Jim Hood, who in 2015 became the first state attorney general to file suit against a prescription drug maker, has been quoted as saying that if evidence in civil suits points to criminal behavior, he won’t hesitate to file those charges as well.

Governing, a publication for municipalities and states, quoted Hood in late 2017 as saying, “If we get into those emails, and executives are in the chain knowing what they’ve unleashed on the American public, I’m going to kick it over to a criminal lawsuit. I’ve been to too many funerals.”

Insurers and insureds can act now to get ahead of this rising wave of liability.

It may be appropriate to conduct a review of policy underwriting and pricing. XL Catlin’s Bewlay said, “We are not writing as if everyone is a pharma manufacturer. Our perception of what is happening is that everyone is being held accountable as if they are the manufacturer.

“The reality is that when insurers look at the pharma industry and each part of the supply chain, including the pharma companies, those in the chain of distribution, transportation, sales, marketing and retail, there are different considerations and different liabilities for each. This could change the underwriting and affect pricing.”

Bewlay also suggests focusing on communications between claims teams and underwriters and keeping a strong line of communication open with insureds, too.

“We are here to partner with insureds, and we talk to them and advise them about this crisis. We encourage them to talk about it with their risk managers.”

Tapasak from Integro encourages insureds to educate themselves and be a part of the solution. “The laws are evolving,” he said. “Make absolutely certain you know your respective state laws. It’s not enough to know about the crisis, you must know the trends. Be part of the solution and get as much education as possible.

“Most states have ASHRM chapters that are helping their members to stay current on both passed and pending legislation. Health care facilities and providers want to do the right thing and get educated. And at the same time, there will likely be an uptick in frivolous claims, so it’s important to defend the claims that are defensible.”

Social Service Risk

In addition to supply chain concerns, insurers and insureds are concerned that even those whose mission it is to help could be at risk.

Hailed as a lifesaver, and approved by the Food and Drug Administration (FDA), the drug Naloxone, can be administered to someone who is overdosing on opioids.  Naloxone prevents overdose by blocking opioid receptor sites and reversing the effects of the overdose.

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Some industry experts are concerned that police and emergency responders could incur liability after administering Naloxone.

But according to the U.S. Department of Justice, “From a legal standpoint, it would be extremely difficult to win a lawsuit against an officer who administers Naloxone in good faith and in the course of employment. … Such immunity applies to … other professional responders.”

Especially hard hit are foster care agencies, both by increased child placements and stretched budgets. More details in our related coverage.

While the number of suits is growing and their aim broadening, experts think that some good will come of the litigation. Settlements will fund services for the addicted and opioid risk awareness is higher than ever. &

Mercedes Ott is managing editor of Risk & Insurance. She can be reached at [email protected]