A bill that President Bush had signed one year earlier was made law on Dec. 22, 2007. It required the notification of serious adverse events (SAEs) to be done for all dietary supplements sold or consumed in the United States. It also established alternative requirements that required the business whose name appears on the label to keep records for every report for 72-months from the date it was received.
Despite this, reporting is not required for adverse events that are considered “serious”. Clear definitions of “serious”, include death, life-threatening experiences, and hospitalization.
However, has anyone considered the consequences of not disclosing SAE information to their product liability insurer? It is not necessary and could have dire consequences.
Nearly every application for product liability insurance for dietary supplements companies asks the same question: “Is there any fact, circumstance, or situation that one could reasonably expect to give rise to a case that would fall within this insurance policy?” Before responding “yes” or not, companies subject to recent SAE reporting requirements should carefully consider the subject. Can a company keep the required SAE records? Hardly.
What are the consequences of incorrectly answering this question? Simply put, if a lawsuit arises from an SAE incident that was previously documented, the insurance company will almost certainly deny the claim once it finds (and it will) that the SAE was recorded in the company’s files. An insurance company will report fraud if it is found out that it issued a policy on the basis of hidden information. The insurance company will not only deny the claim but will also look to cancel the entire policy.
The new SAE reporting requirements make it mandatory to report such events to product liability insurance companies when you apply for coverage.
GMP (good manufacturing practices) inspection procedures are subject to a similar risk. The number of FDA inspections to ensure GMP adaptability has risen dramatically, as it is well-known. FDA data shows that only seven GMP inspections were conducted in 2008. This number grew to 34 in 2009 and 84 in 2010. Since Sept. 13, 2011, there have been 145 inspections. There have been 145 inspections in 2011 since Sept. 13. These letters are public records and can be viewed at the FDA’s website. It is likely that more companies will receive a warning notice of some gravity as a result of the sudden increase in enforcement undertakings and inspections.
A second inquiry is required for many product liability applications. It’s almost identical or identical: “Have any applicant’s products, ingredients, or components ever been subject to any investigation, enforcement action or notice of violation by any governmental or quasi-governmental managerial, regulatory, supervisory or oversight body?” A “yes” or a “no” answer will be required. A company that has been subject to an inspection and received a warning notice must again ponder the question carefully before answering it. The only correct answer to the question if the company has received a warning notice is “yes”.
A “yes” answer may raise eyebrows for the underwriter of insurance. He has seen truthful “no” answers for many years due to low enforcement activity prior to 2008. An underwriter will want to know all details about the enforcement action taken and the corrective actions taken. The quality and safety of dietary supplements’ manufacturing processes have been a top priority for product liability underwriters. The insurer will be interested in more information if this question is answered “yes”.
Answering the question in error is just as risky as the SAE report issue. An investigation will be initiated into the facts surrounding the claim and also the process of application and candor of responses in the event of a liability claim. Like the SAE reports, a wrong answer might cause the carrier to pull the coverage when a company is most in need.
These two regulations by the government have imposed a higher standard for disclosure and detail on companies applying each year for product liability insurance. Insurance underwriters want the right details disclosed in order to meet the requirements of product liability insurance applications.
