Shopping for Medical Device Product Liability Insurance: Part 2

The Deadly Six Common Product Liability Insurance Coverage Gaps
By Kevin M. Quinley, CPCU

In our last column, we discussed five specific ways that device companies and professionals can become savvier shoppers for product liability insurance coverage. If that checklist was the appetizer, what follows is the main course. Consider the following tips as a menu of ideas to use for protecting your device firm's financial health from an often wacky tort and court system. Becoming an astute buyer of insurance is a key part of any medical device company's risk management program.

We continue by offering further questions to pose to your insurance agent or to the representative of candidate insurance companies providing you with bids (or "quotes" in insurance parlance) on product liability insurance coverage.

(See part 1 for questions 1-5.)

6. "How strongly are you committed to medical device risks?" Some insurers dabble in writing products or medical device liability coverage; a few specialize in it. Grabbing the cheapest premium quotation is no bargain if the insurer later cancels or won't renew your coverage because:

  • You have a large claim or a run of bad luck;
  • You have a voluntary recall or the FDA takes regulatory action against you;
  • Insurance company management no longer considers medical device risks attractive;
  • "20/20" or "Dateline" runs a medical exposé on your device or ones like it, and the insurer presumes guilt by association.

Medical device design and management professionals need insurers with proven track records in writing medical product liability coverage. Some insurance underwriters wouldn't know the difference between Class I and Class III devices or couldn't differentiate a 510(k) from a 401(k). Therefore, ask carriers:

  • "How long have you been writing medical product liability coverage?"
  • "Give me the names and phone numbers of existing clients in the medical device field."
  • "How can I be sure that your company will remain a stable market for my insurance needs and won't abandon me?"
  • "What long-term pricing trends can I expect?" (Caveat: Some insurers give a low-ball price as a loss leader to lure new business. Later, they hike premiums when you have claims. If a deal is too good to be true, there is probably a reason!)

Specific or vague answers to these questions are litmus tests for whether a prospective insurer is a good match with your needs.

7. "How does the insurance company define its terms?" Like medical device design, insurance has its own nomenclature: "personal injury", "suit", "occurrence", "medical payments to others", "bodily injury", "business", "insured location", "professional services", "property damage" and "the insured" may have different meanings to different insurers. This is particularly true in product liability insurance policies.

Determine in advance the meaning of key policy terms! Read the company's list of definitions to fully understand exactly what the policy covers and excludes.

8. "What protection does the policy give me?" The policy sections titled "Coverages" and "Limits" disclose what actions the insurer covers and for how much. Find out whether or not the policy covers you (and for how much):

  • during arbitration,
  • for loss or damage to the personal property of others,
  • for damage to employee's property,
  • for loss of earnings, and for any other expenses you incur while helping the company investigate or defend claims.

    9. "Am I adequately insured?" A million dollars in coverage may sound like a lot, but when seven-figure jury verdicts are common, medical device firms may have scant protection if they pick thin limits to save premium costs. No formula can determine the level of insurance limits a nursing home should carry. An experienced insurance agent or broker can help you decide, factoring in such variables as your firm's financial health, claims history and even your risk tolerance.

    10. "How do I notify the company when a problem arises?" The policy's "Conditions" include your specific duties if a claim or lawsuit surfaces. All insurers require prompt reporting of potential suits and may deny coverage if you ignore the rules for reporting such events. Do not take this reporting requirement lightly! Often, this section lists what you must do at the insurer's request: agreeing to settlements, attending hearings and trials, producing witnesses, and helping the insurer enforce any right of contribution if another party caused or contributed to the accident.

    "Conditions" also tell you what not to do. For example, you "must not voluntarily make any payments, assume any obligations, or incur any expenses without the company's consent."

    Most policies also include language about the insurer's right to settle out of court. Right now, without a claim, that may mean little to you. Faced with a lawsuit, however, you may be uneasy with the admission or implication of guilt. If you refuse to settle, the policy may let the insurer relinquish its duty to defend. You might then have to defend a claim at your own expense. Discuss this with the insurer, before—not after—you buy coverage and face a claim!

    11. "Can I use deductibles or retentions to cut my costs?" Some product liability policies have deductibles. The higher the deductible you are willing and able to absorb, the lower your insurance premium. Negotiate deductibles with the insurance company to obtain rate concessions.

    Finally: read the policy! If anything differs from what the company's representative told you, question it and keep careful records of all correspondence and conversations.

    With a little forethought, medical device professionals can design their insurance program as carefully as they would plan a new product roll-out. For device firms and professionals willing to invest the time, broader coverage and lower premiums will be their rewards.


    Kevin Quinley is Senior Vice President, Risk Services, MEDMARC Insurance Company, Fairfax, VA. He is a Chartered Property & Casualty Underwriter and can be reached at kquinley@medmarc.com.