What's Clinical Liability Insurance, And How Does It Work?

By Kristin Beaulieu, life science insurance specialist, Woodruff Sawyer - A Gallagher Company

Placing clinical liability insurance is one of the challenges a life sciences company faces when conducting human clinical trials. Depending on where the studies are conducted, there can be complex insurance requirements for underwriting data, timelines, and payment terms, as well as contractual obligations for reporting claims and serious adverse events.

Managing these insurance programs can be complicated, which makes it critical for companies to work with an insurance broker experienced in serving life sciences companies, one that can help them effectively navigate the process.

From the outset, it’s important for U.S.-domiciled sponsors of human clinical trials to understand the two main types of product liability policies: a master policy and, if applicable, a foreign local policy.

Master Policies Provide Broad Protection

Master policies insure claims alleging bodily injury or property damage arising from the manufacture, handling, or distribution of pharmaceuticals, biologics, or medical devices used in human clinical trials. Policies renew annually and cover all clinical trials conducted by the insured.

These policies feature strict claim reporting and defense provisions typical of their “claims-made” policy form. Master policies also require the placement of a run-off or an extended reporting period in the event the insured is acquired, merged into another entity, and/or otherwise ceases operations.

While each program is unique, master policy limits are often set at $5 million for Phase 1 and Phase 2 trials and at $10 million for Phase 3 trials. Available sub-limits include medical payments, product recall, and professional liability. The limits may seem lower than expected, given that humans are involved. However, clinical trials are conducted with strong safety procedures in place and with many protections to help mitigate the risk of patient injury.

Typical claim allegations include injury due to clinical trial design defects, failure to warn, and/or manufacturing defects.

Standard exclusions include:

• Exposures insurable elsewhere: These include abuse or molestation, asbestos, silica, damage to your property/products/work, employers’ liability, employment practices liability, workers’ comp, intellectual property, nuclear events, war, pollution, product recall, and professional services.
• Against public policy to insure: This refers to expected or intended injury and unauthorized or unsolicited communications.
• Also excluded are contractual liability, activities of unrelated third parties, unapproved goods or products, unapproved clinical trials, tobacco, specifically scheduled products, and prior claims that were known before the policy went into effect.

Master Policy Underwriting, Payment Terms, And Certificates

The insurance market for product liability insurance is robust, with insurers offering broad coverage terms and conditions at competitive pricing. Securing a quote requires submitting a completed life sciences application, financials, a clinical trial protocol, and informed consent forms. Once coverage is placed, the broker collects the premium and remits it to the insurance carrier. The broker also issues certificates of insurance to provide interested third parties with evidence of product liability insurance.

Master Policy Coverage Territory

Master policies include a worldwide coverage territory and will respond to covered claims anywhere in the world on a primary basis, where legally permitted. The master policy will neither respond on a primary basis in those foreign countries where “non-admitted” coverage is prohibited nor will it satisfy compulsory or customary local clinical trial insurance requirements.

Foreign Local Policies Often Are Required

When master policies cannot satisfy foreign local insurance requirements, life sciences companies may need additional insurance policies. For Phase 1 trials, this includes countries in most of Europe, Latin America, Asia, parts of Canada, and the U.K. Local insurance companies licensed to do business in these respective countries will issue these policies. They are written in the local language and usually run for the full term of the trial.

Limits are often in local currency, in an amount roughly equivalent to $1 million, although certain countries, such as Australia, require significantly higher limits. Companies can place the minimum limits required because the master policy responds on an excess basis.

While premiums for each individual policy are not especially high, the cost of foreign clinical trial insurance programs can add up when the company is conducting larger trials that include many countries where local coverage is required.

In some cases, foreign clinical trial policies include “no-fault” compensation, with broad protection for human clinical trial participant injuries. Some countries also require “travel accident” insurance, which covers clinical trial participants for injuries sustained while traveling to or from their applicable clinical trial site.

Foreign “Admitted” Local Policy Underwriting, Payment Terms, and Certificates

Depending on the country, securing foreign “admitted” local policies can be time-consuming. It’s best to start the process at least 60 days before the expected ethics committee submission date. However, local policies can sometimes be placed in less than two weeks, and submitting insurance documentation promptly helps avoid surprises and potential delays to the clinical trial start date.

Companies can secure quotes with basic information for each study, including where it will be conducted, the number of participants to screen and enroll, a draft protocol, and a target regulatory submission date.

Coverage terms, conditions, and information required to bind vary widely by country, and even by local insurer. Depending on the country, requirements may include the investigator list, the requirement for applications with original signatures by local legal representatives, official translation of study titles into the local language, payment of local taxes/fees, etc.

The U.S.-domiciled insured company can typically pay the premium for foreign policies. Payment is due within 30 days of the date coverage is bound. Prompt premium payment is required regardless of how far in the future the policy is effective. Several countries require prepayment, referred to as “cash before cover,” before quoting and/or binding coverage. Some countries even require the premium to be paid in local currency by local legal representatives.

Local insurers or other third-party intermediaries issue certificates, and this can take much longer than it does when a U.S. broker issues certificates for the master policy. Ask the broker about information needed, realistic timelines, and payment requirements for all potentially applicable countries, and plan accordingly.

Foreign Policy Coverage Territory

Foreign policies respond to claims brought in their specific country. To protect against potential gaps in coverage, be sure to report global clinical trial activity to the master policy underwriter and ensure the master policy provides excess and difference in conditions over the foreign “admitted” local policies. Note: The master policy will not drop down to provide coverage if there is no local policy in place.

Report Serious Adverse Events And Claims Promptly

Insurers require prompt reporting of any serious adverse events (SAEs) or claims. In fact, nondisclosure or late notice of these occurrences can prejudice coverage. A claim is defined in the policy but generally considered to be any written or oral complaints or demands for damages. An SAE is considered a circumstance that could give rise to a claim. To report claims and SAEs, the insured generally must provide the date and location of the event/injury, a brief description of what happened, copies of related correspondence, and details of involved third parties.

Keep Up With Changes

As clinical trials are unpredictable and evolve quickly, develop a strategy for scaling the product liability insurance program as cost-effectively as possible. In addition to providing underwriters with a complete picture of the clinical trial planned during the policy term, there can be benefits to negotiating certain terms in case actual enrollment differs from projections, whether due to routine delays or other clinical trial strategy changes.

It is important to inform the insurance broker about changes to the projected patient count, clinical investigator sites, and protocol and informed consent forms. Should a trial stop unexpectedly before the insurance policy expiration date, or if no patients are enrolled in a particular country, premium adjustments may be available. Review the insurance program periodically to ensure it stays in sync with exposures.

About The Author:

As a life sciences insurance specialist with Woodruff Sawyer - A Gallagher Company, Kristin Beaulieu, vice president, account executive, provides tailored risk management solutions, guiding clients and helping them to manage their commercial insurance programs seamlessly. Serving a diverse range from startups to large pharmaceutical companies, she collaborates closely with clients, specialized insurance underwriters, and the life science team to consistently offer competitive and comprehensive coverage options. Leveraging decades of experience and deep industry relationships, Kris crafts sophisticated solutions for clients, from effectively managing global clinical trial product liability insurance programs to placing directors & officers (D&O) insurance for IPOs.