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SUNNYVALE, Calif.-Products liability coverage is plentiful for manufacturers of medical devices, in spite of the big-claim potential of some of their products.
While incidents like the recent deaths of two patients implanted with cardiac defibrillators manufactured by Ventritex Inc. still generate headlines, they aren't having much effect on coverage availability and price, insurance market experts say.
Claims also are low, perhaps in part because of industry efforts to defend their products against those claims.
"There seems to be an adequate amount of coverage and limits," said Thomas A. Konopka, senior vp at MEDMARC Mutual Insurance Co. in Fairfax, Va. "Availability and price are not an issue anymore."
In the case of Ventritex, the Sunnyvale, Calif.-based company says it is adequately insured to cover claims that might result from the patients' deaths. The deaths-one of which occurred earlier this month-occurred apparently because defibrillators implanted in the patients failed and caused their hearts to beat too rapidly.
"What is unusual about the failure is that the devices were in the patients for two years and there were no problems," said Mark Meltzer, general counsel at Ventritex. "It's not what you would expect."
The company's product liability coverage is written under an arrangement whereby National Union Fire Insurance Co. of Pittsburgh, Pa., provides limits of $5 million and in turn cedes $2 million of that to MEDMARC.
Mr. Meltzer said Ventritex assumes a $250,000 per-occurrence deductible with a $1 million aggregate.
No claims had been filed related to the deaths of any of the approximately 5,600 units Ventritex installed in patients as of last week, Mr. Meltzer said. Most of the units can be reprogrammed in a doctor's office, but some that are identified with defects may
have to be surgically removed.
Mr. Meltzer said it is uncertain how many might have to be removed. "It's not really clear what the number will be. Estimates are ranging from 5% to 10%" of the total, but that could be lowered if an analysis pinpoints which lot of devices contained the defect.
Much of the product liability coverage for medical device manufacturers is written in the surplus lines market.
"The top 15 to 20 surplus lines markets would all be markets for medical products," said Ron Austin, senior vp at General Star Management Co. in Stamford, Conn.
A sister company, surplus lines insurer General Star Indemnity Co., writes medical products liability coverage to limits of $25 million. "You certainly can get limits on top of that without any difficulty," Mr. Austin said. "It wouldn't be difficult to find $25 million excess of $25 million."
"For a well-run company that makes a good submission, with a decent track record, there's coverage out there," said James A. Freeman III, president of Litigation Management Specialists Inc., a Nashville, Tenn.-based risk management consulting firm whose specialties include medical devices.
"For a new company with a product that has no track record, it may be difficult to find that," he added. "But that's not impossible by any means."
Coverage prices depend on the medical product.
"When you talk about medical devices, it could be anything from tongue depressors to defibrillators," said Mr. Austin. "There is a very wide band of exposures" and a "wide disparity of rate," he added.
Mr. Konopka pointed out that some risks, like permanent implants, "provide a greater challenge" in finding adequate limits at a price that will satisfy a customer, but for most products, "generally speaking, pricing is coming down."
While insurers are willing to provide capacity for products liability coverage, they are not as keen to insure against the risk of recalling a medical device.
Ventritex's coverage with National Union and MEDMARC, for example, pays bodily injury and property damage claims if the manufacturer is found to be negligent. It does not cover the cost of a recall of the defibrillators, according to Mr. Konopka.
"We don't provide recall coverage," he added. "And, where I've seen it, it is inadequate and costly."
The coverage is available, said Mr. Austin, but General Star Indemnity does not provide it.
And, despite the news of high-profile problems like those related to breast implants, the frequency of claims related to medical devices is not a big problem, experts say.
"Claim frequency overall seems to be dropping, regardless of what area you are in," said Mr. Freeman of Litigation Management Specialists.
One reason for fewer claims is the "vigorous defense of cases by the medical device industry," he said, which is causing claimants to consider the cost of bringing suits that may lack merit.
Estimates aren't available on the cost of removing or reprogramming the devices, Mr. Meltzer said, adding that sufficient coverage is in place to respond to patient claims.
And manufacturers are doing as much as they can on the risk management side to limit the chance of problems with devices, Mr. Freeman pointed out.
Manufacturers have to meet U.S. Food and Drug Administration requirements before some devices can be sold, and "the best risks don't stop with the FDA requirements," according to Mr. Freeman.
"They look for other things that can be done to reduce the risk," like beefing up product warnings beyond the standards that the Food and Drug Administration requires, he added.
Mr. Austin emphasized that manufacturers have to be certain that product distributors-whether in-house or outside vendors-do not misrepresent the product to customers.
The loss experience at Kinetic Concepts Inc. of San Antonio bears out the notion that claim frequency is not a big problem among most medical device manufacturers.
Kinetic Concepts manufactures and markets therapeutic hospital beds and medical devices that help correct circulatory problems, pulmonary complications and other medical conditions in patients who are immobilized.
"Product liability losses have been minimal over the 20-year history of the company," according to Melvin A. Millsap, director of benefits and risk management. "Risk management at KCI involves strong adherence to Occupational Safety and Health Administration and federal drug administration standards."
Kinetic has insured the product liability exposure in its Cayman-based captive, KCI Insurance Co. Ltd. for five years. Fronting services for the captive are provided by American International Group Inc. units Insurance Co. of the State of Pennsylvania and National Union.
The captive, which also insures the company's automobile liability, workers compensation and general liability exposures, retains the first $500,000 of risk while AIG provides excess coverage and $30 million in umbrella coverage.
"Manufacturers are doing everything they can to limit the risks," said Donnellda Rice, general counsel at the Washington-based Health Industry Manufacturers Assn.
However, there is no way to eliminate the risk associated with some products, particularly implant devices, she acknowledged.
Research, testing and educating doctors and the public on how to use devices are ways to limit risk, Ms. Rice said. "But you have to realize some devices are inherently risky."