There is a recent law requiring companys to report "serious" events for dietary supplements sold and consumed in the US. The implications of not disclosing SAE reports to their product liability insurance carrier could result in a loss of coverage.
On Dec. 22, 2007, a bill signed by President Bush a year earlier became law. It established a required notification procedure of profoundly adverse events (SAE) for dietary supplements sold and consumed in the United States. Amid supplementary requirements, it mandated the business whose brand appears on the product sustain records related to every report for six years from the time the report is first received.
In spite of this, only those adverse events that are “serious” is required to be reported. The definition of “serious” is understandable and includes, but is not restricted to, death, a life-threatening incident and in-patient hospitalization.
But has any person examined the implications of not disclosing SAE reports to their product liability insurance carrier? No, and the results of not doing so could be dire.
Nearly every application for product liability insurance for dietary supplement companies has a question identical or very similar will this: “Is the applicant aware of any fact, circumstance or situation which one might reasonably expect could give rise to a claim that would fall within the scope of the insurance being requested?” Companies subject to the new SAE reporting requirements must think about this question carefully before responding either “yes” or “no.” If a business is maintaining the required SAE records, can the company in good faith respond “no” to the question? Hardly.
And what are the results of answering the question imperfectly? Quite simply, if a lawsuit arises from a previously recorded SAE incident, the insurance company will of course reject the claim once it discovers (and it will) the SAE was recorded in the company’s records. The insurance company will allege fraud for inducing it to issue a policy based on hidden information. They will not simply deny the claim, but most certainly will seek to rescind the policy in its entirety.
So, the new SAE reporting requirements have introduced a new requirement to disclose such events to a product liability insurance company when applying for the insurance, or risk a claim denial when a claim is created.
The GMP (good manufacturing practice) inspection procedure holds comparable peril. It is well known the number of FDA inspections for GMP adaptability have risen spectacularly. According to FDA data, just seven GMP inspections occurred in '08, which amplified to 34 in '09 and to 84 in 2010. As of Sept. 13, there have been 145 inspections in 2011. Many of these inspections have resulted in warning notices to companies citing several violations and calling for a swift response outlining remedial steps to be followed. These letters are a matter of public record and can be seen on the FDA’s website. With the amount of inspections and enforcement undertakings altogether on an abrupt increase, it stands to reason that more companies will be getting a cautionary note of some gravity in the future.
Another inquiry on most product liability applications is virtually the same as or identical to this: “Have any of the applicant’s products or ingredients or components thereof, ever been the subject of any investigation, enforcement action, or notice of violation of any kind by any governmental, quasi-governmental, managerial, regulatory or oversight body?” Once more, a “yes” or “no” answer is called for. If a company has had an inspection that resulted in a warning note, it again should consider carefully before answering the question. If the company has been issued a warning letter, the only logical response to the question is “yes.”
Yet, a “yes” answer will lift the eyebrow of the insurance underwriter, who for a long time has been seeing honest “no” answers due to low enforcement activity before 2008. The underwriter will definitely want to find out the details about the enforcement action and what remedial steps were taken. Product liability underwriters have always been careful with the quality and safety of the manufacturing process for dietary supplements. Viewing this question answered “yes” is indeed gonna cause the insurer want more information.
The danger for answering the question dishonestly is exactly tantamount with the SAE reports issue. A liability claim, above all a big one, will precipitate an investigation not just of the fact situation encompassing the claim, but also of the application procedure and the honesty of the responses. As with the SAE reports, an incorrect answer, whether “accidental” or not, could lead the carrier to attempt to rescind the coverage at the moment a company needs it the most—after the lawsuit is served.
In summation, these two government regulations have forced a higher standard of disclosure and details on companies when applying for product liability insurance each year. As the saying goes, the devil is in the details, and insurance underwriters are seeking those specific details to be accurately disclosed as part of the application process.
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