CHAPTER § 5.01 Introduction to Insurance Coverage Issues

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§ 5.01 Introduction to Insurance Coverage Issues

Insurance is often understood in terms of risk: "risk sharing, risk management, risk control, risk transfer, risk distribution, risk pooling, risk allocation, risk retention (self-i nsurance), and reinsurance risk transference."1 "Essentially, insurance is a contract by which one party (the insurer), for a consideration that usually is paid in money, . . . promises to make a certain payment, usually of money, upon the destruction or injury of 'something' in which the other party (the insured) has an interest."2

Managing, transferring, and mitigating risk in the pharmaceutical industry is unique given the significant and varying risks that pharmaceutical manufacturers face. As one consulting company has noted, "In a politically and economically turbulent environment, the risks pharma companies face, especially in clinical-trial design and execution, drug approval, product quality, and global commercial practices, are increasing in both frequency and magnitude."3 These risks continue to evolve. For example, many companies store valuable research and development using cloud-based storage platforms that are increasingly targets of cyber attacks.4 Mass-tort suits, latent injuries, and long-tail claims also present significant risk for both manufacturers and insurers. Manufacturing facilities can be devastated by natural disasters or suffer other property damage that shuts down manufacturing and production for months. Medications are subject to widespread product recalls, which can prompt government investigations and halt sales.

This chapter will give an overview of insurance concepts and issues that all pharmaceutical companies should consider as they look to manage and mitigate risk. Insurance issues have spawned volumes upon volumes of commentary. It is beyond the purpose of this chapter to exhaustively probe all of these potential issues. Instead, the goal of this chapter is to highlight some common insurance-related issues and concepts, and to provide direction to other helpful resources. Although there are few reported cases in the coverage area specifically involving the pharmaceutical industry, this chapter will also note some decisions that may impact the industry.

This chapter approaches insurance concepts from a general point of view. It must be remembered, however, that insurance policies are not "off the shelf" and the language employed in those policies can vary, producing results that are at odds...

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