Product Liability Insurance
Insurance and risk management consultant Holly Markham discusses the importance of due diligence when purchasing medical devices.
In the UK, medicines and medical devices are subject to the general product liability directive rules of the European Union. Where an injury or death has been caused by a potentially defective product, it can be possible to pursue a claim against the manufacturer or supplier of that product pursuant to the Consumer Protection Act 1987.1 Under Section 3 of the EU Directive, strict liability will be imposed on the manufacturer/supplier if the court is satisfied that the safety of the product was ‘not such as persons generally were entitled to expect’.1 The strict liability regime imposed in the Directive sets out three core requirements for establishing liability on the part of the producer:
- A product defect
- Damage
- A causal link between these two
One example, which was at the heart of a public healthcare scandal and proved to be a widespread issue, was Poly Implant Prothese (PIP), which left more than 300,000 women in 65 countries with substandard industrial-grade silicone gel breast implants.2 It is alleged that Jean-Claude Mas, founder of Poly Implant Prothese (PIP), switched the externally purchased medical grade CE-marked silicone for an inhouse produced industrial grade product to recoup market share and drive profits. These implants were then sold at a cost nine times less than medical graded implants. However, with PIP going into liquidation and owner and founder Jean-Claude Mas bankrupt, there was very little remedy for those who had been affected.3 Even if PIP had product liability insurance in place, Mas had acted illegally and insurers do not cover the liability of perpetrators of crime, fraud or dishonesty against the acts they have committed.4 It is important to note that the Product Liability Directive and the Consumer Protection Act (CPA) make the producer strictly liable.5 A producer is not just the manufacturer of the finished product but any component or person putting their name to it. The definition of producer also includes any importer bringing products to the European Economic Area (EEA), which could deem distributors and suppliers equally liable.5
Due diligence
In my professional opinion, the PIP scandal could have been avoided. Questions should have been asked, not only by the distributors and suppliers, but also by the medical professionals who purchased the implants. This is something known as due diligence. Aesthetic practitioners are often bombarded by distributors and sales representatives promoting the latest revolutionary medical equipment, next generation laser, breast implant, filler or cosmeceutical skincare range. You may already have a whole arsenal of equipment in your clinic, but have you ever asked your supplier or distributor if they hold products liability or product recall insurance Have you carried out any of your own due diligence on the supplier and/or the manufacturer?
Carrying out due diligence
Before purchasing any medical devices or products, it is vital that you carry out due diligence and consider the factors below.
Financial status
Check the financial status of your distributor, supplier and/or the manufacturer. This is important to ensure that you are purchasing from a financially sound, viable source and, should things go wrong, you and your patients will not be left without any remedy. Taking the PIP case as an example, the company started showing signs of financial difficulties in 2003, which can be traced through regulatory filings. Financial difficulties in this instance led to the company acting unscrupulously, the business going into liquidation, Mas bankrupt and imprisoned, and no redress for patients.7
Background check
Research as much as possible about any product or device you are looking to purchase. Thorough research on a product or device before you purchase is an important practice of carrying out your own due diligence on a product and the supplier/manufacturer to identify any potential issues that may arise.
Questions to consider
Below are some questions to consider to ensure you are carrying out due diligence.
Systematic controls, approvals and certification procedures by professional licencing authorities:
• What systematic controls, approval and/or certification procedures by professional licencing authorities have been carried out?
• Are they FDA approved? CE marked?
• Has there been a revocation of FDA authorisation? If so, why?
Were the products or device deemed unsafe in any way?
• Where are the products manufactured, within the EU or outside of EU territories?
• What safety rules and efficacy testing applies before the product or device reaches the market in the territory it was manufactured?
• Who is responsible for translating any instructions, warnings and safety precautions of the device or product? (If they are purchased from outside the EU, sometimes it is the supplier/distributor responsible for this).
• If instructions are in South Korean or Chinese, is the distributor able to translate adequately to ensure the safety of the patient and appropriately train users of the device or product?
Clinical research and data
• What clinical research and data on the product or device is available?
• What do the results demonstrate?
• Are the products effective for their intended use?
• Have there been any adverse reactions or issues?
• What are the risks and complications to patients and staff using the device/products?
Components in the product
• What ingredients are used in the product? A full list should be obtained to understand any contraindications of the products in line with a patients’ medical history.
• Who is responsible for devising the training programme of the device or product? Are they medically qualified?
• Does the trainer hold medical indemnity and professional liability protection?
Product liability and product recall insurance
• Does the distributor, supplier or manufacturer have appropriate products’ liability and or product recall insurance? Any business that designs, manufactures or supplies a physical product that is sold or given away for free can be held legally responsible for injuries and damages resulting from a faulty product.8 If you are purchasing any medical device or product that is intended for use on your patients, it is vitally important that you check that the supplier, distributor or manufacturer (if purchasing direct) has the appropriate cover in place.
What is product liability?
Product liability insurance covers the cost of compensating anyone who is injured by a faulty product that a business designs, manufactures or supplies. Most policies, whether it is an office, clinic or medical indemnity policy, will provide Public and Product Liability as standard. However the standard cover is not intended to protect you if you manufacture, distribute, supply medical devices or products. If you have not disclosed these activities as a material fact to your broker or insurer and it is not stipulated on the policy schedule, then it is likely that it is not covered.9
Who needs it?
Any business can be held liable for faulty products even if you did not manufacture them. You may be liable if:
• Your business’s name is on the product or you have rebranded them
• Your business repairs, refurbishes or changes a product
• If you re-label, provide instructions, training and guidance in conjunctions with a product
• Goods are damaged and not fit for purpose due to how your business has stored the products
• You imported the product from outside the European Union
• You cannot identify the product’s manufacturer, or the manufacturer has gone out of business – as in the case of PIP where the business went into liquidation. Therefore the supplier/ distributors can be held liable
What does it cover?
Product liability insurance protects a business that designs, manufactures or supplies medical devices and products against the cost of compensation for:
• Personal injuries caused by a faulty product
• Loss of or damage to property caused by your faulty product
• Unforeseeable circumstances such as product faults that your quality control system could not identify
Product liability insurance may not cover you for:
• Faulty products resulting from bad workmanship – an efficacy extension can usually be provided on request to cover this
• Financial losses to a business or person caused by your faulty product If you do not manufacture the product but you distribute it, you should be covered if you can show that:
• The products were faulty when they were supplied to you
• You gave customers adequate safety instructions and warnings about misuse
• You included terms for the return of faulty goods to the manufacturer
• Your supply contact with the manufacturer covers product safety, quality control and returns
• You have good quality control and record-keeping systems
Buying product liability and recall insurance
You can buy product liability insurance directly from an insurer or broker, however it is imperative that you choose a provider that fully understands your industry. The risks faced by your business, specifically in relation to the products you use and/or supply, are unique and specialist advice will be needed. If you purchase cover from an insurance broker who does not have an in-depth understanding of medical devices, life sciences and products liability in relation to your industry, how are they going to be able to provide suitable advice? Working with a specialist broker will provide you with the assistance you need to establish not only how best to insure against these risks posed but also how, via effective due diligence and risk management, you can reduce the exposure to your business. With an influx of products and devices available on the market, there is probable cause to take extra precaution to avoid another PIP scandal. A repeat of PIP could
quite easily be avoided if a culture of effective due diligence on the distributors, manufacturers and suppliers of these medical and aesthetic devices is adopted within your business. This coupled with an ongoing commitment to risk management will provide some safeguards to the risk of a repeat of PIP and give a little more protection for your business, its reputation and more importantly your patients.
References
- Product Liability under the Consumer Protection Act
- BBC News, Health, ‘Q&A:PIP breast implants health scare’ (2013)
- BBC News, Europe, ‘Breast implants: PIP’s Jean-Claude Mas gets jail sentence’ (2013)
- Insurance Europe, ‘Key Messages on Compulsory Liability Insurance for Manufacturers of Medical
Devices and In-Vitro Diagnostic Devices’ (2013) - Consumer Protection Act 1987http://www.legislation.gov.uk/ukpga/1987/43
- Cambridge Dictionary ‘Due Diligence’ http://dictionary.cambridge.org/dictionary/english/duediligence
- Choosing a Breast Implant, ‘Background and History of Poly Implant Prothèse (PIP)’
- Association of British Insurers, ‘Product liability insurance’ (2014) https://www.abi.org.uk/Insuranceand-savings/Products/Business-insurance/Liability-insurance/Product-liability-insurance
- Financial Ombudsman Service, Issue 46 ‘Non-disclosure in insurance cases’ (2005)
- Association of British Insurers, ‘Product liability insurance’ https://www.abi.org.uk/Insurance-andsavings/Products/Business-insurance/Liability-insurance/Product-liability-insurance
