Risk Management: Insurance implications of FDA MAUDE reporting (Part 2)

By Kevin M. Quinley CPCU

This is the second in a three-part series of articles. Click here for part one.

Insurance and risk management implications abound from the FDA MAUDE reporting strictures. In our last discussion, we reviewed issues pertaining to insurance reporting obligations and punitive damages. These are just the start, though. The Medwatch and MAUDE reports have other risk management repercussions as well.

Intentional acts exclusions
On many product liability insurance policies, the first exclusion reads: "This insurance does not apply to bodily injury or property damage expected or intended from the standpoint of the insured."

If a device maker is on notice of a product problem, files Medwatch and MAUDE reports but doesn't do anything (or enough) to correct the underlying problem, at some point you can't say it's an accident. At some point, it becomes expected from the manufacturer's standpoint. The exclusion doesn't say that the act has to be intended, only expected or intended. "Or," not "and."

So an insurer may "reserve coverage rights," saying that the Medwatch or MAUDE reports create a paper trail which, when combined with lack of remediation, show that the losses were expected from the insured's standpoint.

This may be an uphill battle by the insurance company, but it can still cloud coverage and create uncertainty over the status of your financial protection. If enough money is at stake, some insurers will be willing to challenge the coverage. In a way, this isn't so much a problem with MAUDE or Medwatch reporting per se but rather with MAUDE/Medwatch reporting and a lack of remediation or follow-up. Moral: Make sure you document that you took specific corrective measures to address the safety factors surfacing in MAUDE and Medwatch reports. Otherwise, you may be facing insurance coverage headaches related to punitives and/or "expected or intended" acts.

New avenue of discovery in product liability claims
MAUDE reports will definitely give plaintiffs new avenues of attack and discovery. In one recent case, the plaintiff's main liability theory was that a different design should have been used in implantable catheter material. The basis for this was the number of MDRs that reported incidents of catheter puncture, fracture, abrasion, etc.

Unfortunately, such complaint records are easily obtained and can lead to much "discovery," including requests for product complaint files. Plaintiffs can also use them to show trends like a spike in complaints, associational trends like lot numbers, and related items. Often, plaintiff attorneys have tried to use Medwatch reports in fact-finding investigations and as tools for deposing company witnesses.

The key factors for medical device and design professionals are:

• Respond only to the questions asked on the form
  
• Be very specific without volunteering additional information or speculating
  
• Be consistent with reports to the insurance carrier (notice of claim and follow-up correspondence)

Device manufacturers must file MDRs when they get reports of death of serious injury related to product use. Most companies will have a Field Report as well as an MDR. Savvy plaintiff lawyers will seek these in discovery. Many know how to get this information themselves on the Internet. Device firms are not always successful in blocking plaintiffs' requests for Reports or MDRs. Most judges seem to feel this is "discoverable."

Can a Medwatch or MAUDE report be used against you in a product liability claim? Possibly, but a couple of arguments can be used successfully.

First, these reports are based on hearsay. Some courts have excluded them on that basis. However a good plaintiff should be able to argue around that and say they're a business record or "back door" them with their expert.

Second, your defense attorney can argue the reports provide little information for the plaintiff to cross the threshold of proving substantial similarity with the plaintiff's incident. This eliminates lots of reports because often the information is cursory.

However, this may not be the case if the company did a good job of investigating and followed up the report with a product inspection for example. Nevertheless, expect to be confronted with at least some of the MAUDE/Medwatch reports at trial.

Most judges will find a way to admit a portion of the MAUDE reports on the basis of notice in a negligence claim or "defective and unreasonably dangerous" in a strict liability or warning claim.

MAUDE/Medwatch reports can also be used constructively by device companies who find themselves defendants. In one case, the three MDRs admitted were ones we wanted to come in. The reason was that they showed the company went to great lengths to investigate the complaint, inspect the product and determine the failure's cause. Also, the explanation of failure coincided with the plaintiff's failure, i.e. patient misuse.

In other words, show that you were a good, concerned corporate citizen. Often a company that's careful about MDR reporting and takes follow-up and report tracking seriously has a better all-round product and is easier to defend in a lawsuit.

In our next installment, we will look at some other risk management aspects to the MAUDE reports and database.

Kevin M. Quinley CPCU is Senior Vice President, Risk Services, MEDMARC Insurance Company, Fairfax, VA. He can be reached at kquinley@medmarc.com This article is adapted from a recent presentation he gave to the Regulatory Affairs Professionals Society (RAPS) in Washington, DC.