 |
 |
|
|||
|
In 1993 the Technology Group was formed to address the unique insurance needs of the emerging technology industry. | ||
Manufacturers Sharing Liability with Distributors and Independent Sales Reps
Michael Cremeans is a Sr. Vice President with Britton-Gallagher & Associates Inc. He can be reached at 800 607 4711 or michael_cremeans@britton-gallagher.com
In last month's OrthoKnow, we looked into the increased liability burden of contract manufacturers and suppliers to the orthopaedic industry. Another important trend in medical products litigation is the increased scrutiny of distribution activities, especially where a manufacturer uses independent reps to sell their products. The majority of medical device lawsuits end up being failure-to-warn cases and, if litigation ensues, the plaintiff's attorney is sure to discover a distributor or sales representative's involvement, thus forcing you to defend yourself. Plaintiffs' attorneys are looking more and more closely at how companies market their products, and are attempting to use those marketing efforts to prove liability. This article discusses the potential liability that may be assumed by distributors and methods to manage the risk, including the purchase of insurance.
Should a distributor or independent sales rep be concerned about liability? You are probably getting pressure from more and more manufacturers to prove that you have insurance coverage for claims arising out of "your negligence." The bigger companies "self insure" the first $100,000 to $5,000,000 of their own liability, so unless they can transfer potential liabilities to others (you), that money comes out of their own pocket. If your manufacturing client is a start up or smaller player, they may not purchase adequate insurance to cover their own liability, let alone yours, which means that you may be drawn into a lawsuit. The burden is shifting to distributors and independent reps because manufacturers are wary of paying for claims that, in their opinion, are not their fault.
You can't count on the manufacturers' insurance policy and you should never assume that your defense will be picked up by someone else's policy. If a claim or lawsuit alleges negligent activities on the sales rep's part, all bets are off as to the manufacturer and its insurance company picking up your defense. It may not matter that the allegations have little or no merit. Mere allegations may remove the sales rep from the orbit of a manufacturer's product liability insurance coverage. Even if ultimately the allegations against a sales representative are exposed as fallacious, it may take the court system years to reach this level of certainty. In the interim, sales reps definitely need their own defense to lawsuits.
1. Have your attorney review the contract. An insurance company will want the contract to be very specific. As an example, if the manufacturer is asking you to hold them harmless, then you should consider asking the manufacturer to hold YOU harmless as well. You should ask to be named as an "additional insured" under the manufacturer's general liability, professional liability and umbrella policies. It's also important to be added as an insured under "management liability" policies, such as employment practices coverage. You also need to watch out for contracts which state that you are responsible for payment of the deductible of an errors and omissions claim arising out of an incident that is deemed to be your fault.
2. The contract has a direct impact on the availability and pricing of both general liability and product liability insurance. Make sure you have general liability including products liability coverage to defend you for your alleged negligence (aka "Gap Liability").
3. Don't count on the manufacturer's insurance picking up injury to your employees. It may be your responsibility – Workers comp laws are different in each state, so check with an insurance professional for compliance.
4. Ask "Who's responsible for products in my possession?"
5. The manufacturers' automobile insurance coverage will provide limited benefits, if any. Watch out for "who is insured" provisions in the manufacturers' coverage. Also, it might make sense to read the fine print on the back of a rental car agreement to determine what protection is available.
6. If you travel overseas, never assume that your workers compensation or health insurance will follow you. It might make sense to invest in a "foreign insurance" policy which may also include "repatriation" coverage – the cost to get you back home.
1. Find an insurance professional with specific experience in placing insurance for distributors of medical devices. Specialists will know the right questions to ask, which will save you time and money. Many times, these brokers have checklists which are specific to your industry.
2. Investigate "group buying." You may be able to save money by joining a buying group, which might provide some premium savings, but remember – you are now sharing limits of liability with others. One claim may reduce the limits available for future claims. It won't matter how much money you saved if you have an uncovered claim! Be extra careful when looking at "who is insured" provisions – you may not be getting what you paid for.
3. Value, Value, Value. Specialty insurance carriers (those who have specific policies for medical device exposures) provide more than just policies. Take advantage of the value added services they offer, such as loss control and risk avoidance advice.
4. Even though you may not be familiar with insurance policies, there are a few "safe" questions to ask your broker or insurance professional: Why are you recommending this insurance carrier? What are the important exclusions? How many insurance carriers offered a bid on my business? What value added services are available? Did the insurance carrier look over our contracts?
Make the time to review liabilities as a distributor of medical devices by seeking out professionals in the industry. As the burden of liability increases all along the supply chain, independent agents will find that protecting their businesses in the future will require more attention to risk management.
Michael Cremeans is a Senior Vice President with Britton-Gallagher & Associates, Inc., a privately owned, independent insurance brokerage located in Cleveland, Ohio. The firm specializes in developing insurance and risk management solutions for medical device companies. Britton-Gallagher is the endorsed insurance broker for several technology associations throughout the Midwest.
Britton-Gallagher & Associates, Inc.
800.607.4711
www.britton-gallagher.com
michael_cremeans@britton-gallagher.com
Copyright 2005 Michael Cremeans, Britton-Gallagher & Associates, Inc. All rights reserved.