On Dec. 22, 2007, a bill signed by President Bush a year earlier became law. It established a required notification procedure of serious adverse events (SAE) for dietary supplements sold and consumed in the United States. Together with alternative requirements, it mandated the business whose brand appears on the label retain records related to every report for 72 months from the day the report is first received.
In spite of this, only those adverse events that are "serious" are required to be reported. The clarity of "serious" is straightforward and includes, but is not limited to, death, a life-threatening experience 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 each 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 recent SAE reporting requirements need to consider this subject carefully before responding either "yes" or "no." If a company is keeping the required SAE records, can the company in good faith answer "no" to the question? Hardly.
And what are the aftereffects of answering the question incorrectly? Put simply, if a lawsuit comes up from a previously documented SAE incident, the insurance company will most certainly deny the claim after it discovers (and it will) the SAE was documented in the company's files. The insurance company will flag fraud for inducing it to issue a policy based on hidden information. It will not only deny the claim, but most definitely will look to rescind the policy in its entirety.
So, the new SAE reporting requirements have introduced a new necessity to disclose such events to a product liability insurance company when applying for the coverage, or take the risk of a claim turned down when a claim is created.
The GMP (good manufacturing practice) inspection procedure holds comparable risk. It's commonly known the number of FDA inspections for GMP adaptability have risen spectacularly. According to FDA data, just seven GMP inspections occurred in 2008, which amplified to 34 in '09 and to 84 in '10. From Sept. 13, there have been 145 inspections in 2011. Many of these inspections have resulted in warning letters to companies citing several violations and calling for a quick response outlining corrective steps to be taken. These letters are a matter of public record and can be viewed on the FDA's website. With the amount of inspections and enforcement undertakings overall on an abrupt increase, it stands to reason that more companies will be receiving a cautionary notice of some gravity in the future.
An additional inquiry on numerous product liability applications is nearly 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 notice, it again must ponder carefully before answering the question. If the company has been issued a warning notice, the only logical response to the question is "yes."
Though, a "yes" answer will raise the eyebrow of the insurance underwriter, who for years has been viewing truthful "no" answers because of low enforcement activity before 2008. The underwriter will certainly want to know the details regarding the enforcement action and what corrective steps were taken. Product liability underwriters have almost always been careful with the quality and safety of the manufacturing process for dietary supplements. Seeing this question answered "yes" is definitely going to make the insurer want more details.
The risk for answering the question dishonestly is precisely the same as with the SAE reports issue. A liability claim, especially a large one, will precipitate an investigation not just of the fact situation surrounding the claim, but also of the application process and the candor of the responses. As with the SAE reports, an incorrect answer, whether "accidental" or not, might lead the carrier to attempt to withdraw the coverage at the time a company needs it the most-after the lawsuit is served.
To sum up, 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 details to be appropriately disclosed as part of the application procedure.
Greg Dooherty is a dietary supplement product liability insurance broker for supplement companies based in Los Angeles. He's a member of CANI & AHPA. You may reach him at (818)449-9317 or gdoherty@pomsassoc.com
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