The 'New Normal': SARS Liability Implications

Managing the threat of newly developing diseases and the potential liabilities attaching to them is easier once we understand the origins of emerging ailments. Many recent and ancient pathogens are animal-borne, such as hantavirus, which is transmitted to humans by field mice; and West Nile virus, which is transmitted by birds. Of course, diseases that leap from animal to human hosts are nothing new. Of the more than 30 new infectious diseases scientists have identified in the last quarter-century, most originate from animals. (“Animal-Borne Illnesses Abound,” USA Today, p. 13A, 6/18/03.)

Scientists believe that in coming years, dangerous new pathogens may become more common, heightening the odds of life-threatening plagues. According to Robert G. Webster, a virologist with St. Jude Research Hospital in Memphis, “SARS is probably just a gentle breeze of what one of these big ones is going to do some day.” (“Infections Now More Widespread,” The Washington Post, p. A1, 6/15/03.) The pace of pandemics may accelerate. Animal-borne pathogens will likely continue, experts fear, for various reasons, including these:

• Human development increasingly encroaches on animal habitats;
• Crowded and unsanitary mega-cities are offering fertile breeding grounds for pathogens;
• The frequency and speed of international travel creates new disease pathways;
• Experimental medical techniques — such as xenotransplantation — are increasingly being used; and
• There is increased trafficking in exotic pets, eg, prairie dogs, Giant Gambian rats, etc.

Much is known of the threat SARS poses to business continuity, since the disease's outbreak disrupted many supply chains. The prospect of employee sickness and workers' compensation claims from exposure to the disease is an obvious consequence for any type of business. These challenges may, however, confront medical device and life science firms to a greater degree than they do many other types of businesses because these companies may have employees in far-flung geographic locales, or may rely on key component suppliers (or customers) in areas affected by SARS or other pathogens.

The greatest risk to drug and device companies from SARS and similar diseases, however, may flow from possible product liability risks.

Product Liability Claim Scenarios

Though disease is unwelcome, new pathogens like SARS create new business opportunities for firms that are first to market with vaccines, cures and palliatives. Under-analyzed, but looming still, are potential product liability implications for life science companies due to SARS. Medical equipment manufacturers may face claims alleging that products failed to prevent the pathogen's spread. Claims could allege contamination, that a product was infected with the virus, or allowed the virus to multiply. New diseases may attract new products — products purporting to prevent pathogens. The lure of financially capitalizing on disease phobia may tempt companies to make overreaching marketing and advertising claims. In turn, this may trigger governmental sanctions, such as FDA fines for grandiose product claims. Thus, a genuine regulatory risk exists for firms that might be tempted to rush in, in order to be “first to market” with a product purportedly addressing a new disease or ailment.

Roche, the multi-billion pharmaceutical giant, developed a quick and accurate anthrax diagnostic test in 2001. Reportedly, it is trying to develop a comparable SARS product, as is Abbott Laboratories. Other life science companies have researched similar products. In this competitive environment, precision and accuracy are far from guaranteed. Tests may have 30% to 50% error rates in detecting targeted viruses. Roche and like companies are striving to lower that to around 5% through clinical trials. (“Who Will Pass the SARS Test?” Fortune 5/26/03, p. 38.) A new “gene chip” from Affymetrix of Santa Clara, CA, offers a weapon to detect and fight SARS. Regardless of the error rate, product liability claims, lawsuits and even class actions from plaintiffs might allege that a test is defective, and those plaintiffs may seek millions of dollars in damages.

Of course, product liability perils posed by SARS are not unique to that disease. The emergence of any disease — or the existence of “old” intractable ailments such as cancer – invites product development by drug and device firms. Therefore, the temptation may exist for the manufacturer to create liability by exaggerating or over-hyping the efficacy of SARS or other disease-related medicine and devices. To put it simply, drug and device firms should not do it.

This is easy to say, but in the real world this caveat can pose challenges. The lines between product puffing, aggressive advertising and misrepresentation are sometimes blurred and have ramifications that are different depending on the venue for redress, eg, through the FDA, truth in advertising laws, patent law, or the civil courts. However, any drug or medical device manufacturer that attempts to capitalize on the SARS hysteria by promoting a new cure with false claims will probably be on the losing end in any venue.

Plaintiffs could assert damages from false positives (“I suffered mental anguish, thinking I had the disease when I really didn't”) or from false negatives (“I passed up needed medical follow-up after relying on the clean bill of health your diagnostic test gave me”). Other patients could claim that zealous marketers profiteered from consumer fears of the latest disease and hyped their products. Conceivably, this kind of argument could inflame juries and spur them to award punitive damages against offending companies.

New pathogens create business opportunities. In turn, though, they create new product liability exposures.

Litigation Fever

Personal injury attorneys are well connected and are constantly on the prowl for “the next big thing” in product liability litigation. Many firms specialize in suing drug and medical device companies. They vigilantly scour FDA databases and Internet resources for notices of recalls and adverse event reports. They network in on-line forums and at legal conferences that are often built around “how-to” practicums on suing specific manufacturers or making claims concerning specific devices or drugs.

Mealeys – a company specializing in year-round seminars for lawyers — mass mails a glossy brochure on drug and device litigation. The tag line asks, “What new drug or device complaint will turn into the next mass tort?” They invite attorneys to phone to “get the latest” on suits against blood products, hip and knee implants, aneurysm devices, drug-coated stents, insulin pumps, pacemakers/defibrillators, bone screws, tissue products and more. It takes but a few keystrokes to add SARS products to that list.

Monthly magazines like Trial contain articles on various niches of product liability litigation, overcoming legal defenses asserted by drug and device companies, and back-of-magazine ads featuring experts for hire in a wide range of testimony. These factors, combined with an abundance of personal injury attorneys, yield a situation where supply creates its own demand and is a recipe for litigation against life science companies. Even groundless claims can create the financial drag of legal fees, court costs, compromise settlements or aberrational jury awards.

The Danger of Being 'Lumped In' with Charlatans

SARS-like pathogens attract legitimate companies and cures. They may, unfortunately, also attract overblown claims as companies try to exploit business opportunities. Legitimately useful products may be branded as fake cures if they are surrounded by companies making false claims about the efficacy of questionable products. Assertions that certain products could cure SARS spiraled out of control on the Internet during the recent worldwide scare. A few companies, for example, offered “natural” remedies for the disease. SARS is so recent, though, that no claims, legitimate or otherwise, enjoy scientific backing. Even the former FDA Commissioner Mark McClellan observed, “Bogus products from questionable Web sites do no good, and can actually make matters worse, by providing a false sense of protection.”

Some companies touted products on the Internet, pushing paper masks, latex gloves, disinfectants, air filters, nutritional supplements and other items purporting to prevent SARS, preying on consumer phobias. According to Mark Rosen, chief of pulmonary and critical care at New York's Beth Israel Medical Center, “This is the perfect scam opportunity.”

Examples of products that were advertised to prevent SARS included:

• Diet supplements that contained beta gluten as an immune booster that “defends against all infectious viral diseases,” and possibly SARS;
• Air filter devices promising to catch up to 99% of particulates;
• “SARS travel kits” that included gloves, masks and antimicrobial wipes;
• Disposable toilet seat covers said to guard against contact with the virus on public toilet surfaces.

(“For SARS, a Bull Market,” The Washington Post, 4/29/03, pp. F1, F4.)

Drug and Device Manufacturers As Scapegoats?

There are other situations in which life science companies may become caught in the crossfire of civil litigation arising from medical malpractice claims. Many product liability lawsuits against life science firms arise as a byproduct of medical malpractice claims against health care professionals. In defending their professional reputations, practitioners may argue that an adverse outcome was really due to some defect or malfunction in a medical device or drug, not due to any lapse in exercising reasonable professional care.

Health care liabilities transcend relevance to drug and device manufacturers. SARS and similar diseases could spawn new types of professional liability claims against doctors and health care providers. Medical professionals have a duty to exercise reasonable care in diagnosing and treating SARS and other diseases. Physicians, hospitals and allied health professionals who do not see SARS cases in their daily practices may be deemed, due to heightened publicity about SARS, sufficiently on notice of its symptoms and dangers to create duties. One can envision malpractice claims arising from failure to accurately diagnose SARS, delay in diagnosing and/or negligent treatment of the disease.

Early-stage SARS mimics flu symptoms. Doctors may misdiagnose early SARS as the flu. This could cause the illness to worsen. Due to the rarity of certain diseases or their ability to resemble different ailments, odds are ripe for misdiagnosis and professional liability exposures. Such concerns challenge attorneys who represent health care entities – hospitals, medical centers, HMOs, physician practice groups and clinics.

Legal finger-pointing is a bonanza for plaintiffs' attorneys, who may be able to sit back and watch a defendant in another action help make his or her own case. This kind of “hot potato” game of buck-passing responsibility can either inflame or baffle juries. Outrage or confusion may lead jurors to conclude that “someone screwed up,” and they may award injured plaintiffs hefty sums, even if they can't decide which party — the doctor, hospital, drug manufacturer or device maker — is guilty of the actual harm.

Risk Management Strategies and Solutions

Medical device and life sciences firms should approach the potential liability challenges of SARS as they would any other possible ground for legal liability. There are no “magic bullets” to immunize firms from tort liability claims arising from SARS and like pathogens, but there are at least six strategies that life science companies can embrace:

• Temper marketing claims. Have all marketing and promotional material reviewed by outside legal counsel skilled in product liability litigation.
• Adopt a rigorous regulatory compliance strategy. Obtain a separate review by seasoned regulatory counsel to ensure that no FDA tripwires are triggered by overzealous claims.
• Avoid specific cure-all claims. Be cautious about, if not averse to, promoting devices as a cure or answer to the problem of a specific disease.
• Don't get entangled in the Web. Subject Internet ads and Web site material to the same standards of circumspection and rigor that you would apply to any other form of journal or print media advertising.
• Check the insurance safety net for holes. Make sure that clients have product liability insurance coverage or the designated funds earmarked to pay claims if they opt to self-insure. Make certain that product liability insurance policies contain no exclusion that might preclude coverage for claims arising from SARS or other, relevant, specific diseases.
• Establish swift intake mechanisms to address any adverse outcome reports from physicians and hospitals. These often serve as “early warning systems” of potential product liability claims and can offer early opportunities to defuse volatile situations before they metastasize into lawsuits.

Conclusion

According to Julie Gerberding, Director of the Center for Disease Control, having to face the onslaught of emerging health threats such as SARS is becoming the “new normal.” Life science companies may not find the answer to SARS. The realms of science and medical research offer few guarantees. Those within health care organizations who manage risks, however, may find smaller answers — with a lower-case “a” — to cushion the financial impact of new liabilities in the ongoing war between man and microbe.

Without disease and illness, there would be no need for life science companies or the products that they develop. Some modern maladies and ailments present more challenges than opportunities for biotech and medical device firms. Severe Acute Respiratory Syndrome (SARS) and comparable pathogens present medical device and life science manufacturers with new and daunting risks. One such peril lies in the realm of product liability.

The issue of product liability from SARS cases is a particularly ripe one, given that on Jan. 24, the first class action was commenced in Ontario, Canada, relating to last years' SARS outbreak. The claim seeks damages against the City of Toronto, Health Canada and the Ministry of Health and Long Term Care. The claim relates to the second outbreak (after officials thought the first outbreak had been contained) and alleges that officials were lax and failed to take protective steps that would have prevented additional transmission. To date, however, it does not appear that any manufacturers have yet been sued as a result of the SARS outbreak.

The Diseases

Managing the threat of newly developing diseases and the potential liabilities attaching to them is easier once we understand the origins of emerging ailments. Many recent and ancient pathogens are animal-borne, such as hantavirus, which is transmitted to humans by field mice; and West Nile virus, which is transmitted by birds. Of course, diseases that leap from animal to human hosts are nothing new. Of the more than 30 new infectious diseases scientists have identified in the last quarter-century, most originate from animals. (“Animal-Borne Illnesses Abound,” USA Today, p. 13A, 6/18/03.)

Scientists believe that in coming years, dangerous new pathogens may become more common, heightening the odds of life-threatening plagues. According to Robert G. Webster, a virologist with St. Jude Research Hospital in Memphis, “SARS is probably just a gentle breeze of what one of these big ones is going to do some day.” (“Infections Now More Widespread,” The Washington Post, p. A1, 6/15/03.) The pace of pandemics may accelerate. Animal-borne pathogens will likely continue, experts fear, for various reasons, including these:

• Human development increasingly encroaches on animal habitats;
• Crowded and unsanitary mega-cities are offering fertile breeding grounds for pathogens;
• The frequency and speed of international travel creates new disease pathways;
• Experimental medical techniques — such as xenotransplantation — are increasingly being used; and
• There is increased trafficking in exotic pets, eg, prairie dogs, Giant Gambian rats, etc.

Much is known of the threat SARS poses to business continuity, since the disease's outbreak disrupted many supply chains. The prospect of employee sickness and workers' compensation claims from exposure to the disease is an obvious consequence for any type of business. These challenges may, however, confront medical device and life science firms to a greater degree than they do many other types of businesses because these companies may have employees in far-flung geographic locales, or may rely on key component suppliers (or customers) in areas affected by SARS or other pathogens.

The greatest risk to drug and device companies from SARS and similar diseases, however, may flow from possible product liability risks.

Product Liability Claim Scenarios

Though disease is unwelcome, new pathogens like SARS create new business opportunities for firms that are first to market with vaccines, cures and palliatives. Under-analyzed, but looming still, are potential product liability implications for life science companies due to SARS. Medical equipment manufacturers may face claims alleging that products failed to prevent the pathogen's spread. Claims could allege contamination, that a product was infected with the virus, or allowed the virus to multiply. New diseases may attract new products — products purporting to prevent pathogens. The lure of financially capitalizing on disease phobia may tempt companies to make overreaching marketing and advertising claims. In turn, this may trigger governmental sanctions, such as FDA fines for grandiose product claims. Thus, a genuine regulatory risk exists for firms that might be tempted to rush in, in order to be “first to market” with a product purportedly addressing a new disease or ailment.

Roche, the multi-billion pharmaceutical giant, developed a quick and accurate anthrax diagnostic test in 2001. Reportedly, it is trying to develop a comparable SARS product, as is Abbott Laboratories. Other life science companies have researched similar products. In this competitive environment, precision and accuracy are far from guaranteed. Tests may have 30% to 50% error rates in detecting targeted viruses. Roche and like companies are striving to lower that to around 5% through clinical trials. (“Who Will Pass the SARS Test?” Fortune 5/26/03, p. 38.) A new “gene chip” from Affymetrix of Santa Clara, CA, offers a weapon to detect and fight SARS. Regardless of the error rate, product liability claims, lawsuits and even class actions from plaintiffs might allege that a test is defective, and those plaintiffs may seek millions of dollars in damages.

Of course, product liability perils posed by SARS are not unique to that disease. The emergence of any disease — or the existence of “old” intractable ailments such as cancer – invites product development by drug and device firms. Therefore, the temptation may exist for the manufacturer to create liability by exaggerating or over-hyping the efficacy of SARS or other disease-related medicine and devices. To put it simply, drug and device firms should not do it.

This is easy to say, but in the real world this caveat can pose challenges. The lines between product puffing, aggressive advertising and misrepresentation are sometimes blurred and have ramifications that are different depending on the venue for redress, eg, through the FDA, truth in advertising laws, patent law, or the civil courts. However, any drug or medical device manufacturer that attempts to capitalize on the SARS hysteria by promoting a new cure with false claims will probably be on the losing end in any venue.

Plaintiffs could assert damages from false positives (“I suffered mental anguish, thinking I had the disease when I really didn't”) or from false negatives (“I passed up needed medical follow-up after relying on the clean bill of health your diagnostic test gave me”). Other patients could claim that zealous marketers profiteered from consumer fears of the latest disease and hyped their products. Conceivably, this kind of argument could inflame juries and spur them to award punitive damages against offending companies.

New pathogens create business opportunities. In turn, though, they create new product liability exposures.

Litigation Fever

Personal injury attorneys are well connected and are constantly on the prowl for “the next big thing” in product liability litigation. Many firms specialize in suing drug and medical device companies. They vigilantly scour FDA databases and Internet resources for notices of recalls and adverse event reports. They network in on-line forums and at legal conferences that are often built around “how-to” practicums on suing specific manufacturers or making claims concerning specific devices or drugs.

Mealeys – a company specializing in year-round seminars for lawyers — mass mails a glossy brochure on drug and device litigation. The tag line asks, “What new drug or device complaint will turn into the next mass tort?” They invite attorneys to phone to “get the latest” on suits against blood products, hip and knee implants, aneurysm devices, drug-coated stents, insulin pumps, pacemakers/defibrillators, bone screws, tissue products and more. It takes but a few keystrokes to add SARS products to that list.

Monthly magazines like Trial contain articles on various niches of product liability litigation, overcoming legal defenses asserted by drug and device companies, and back-of-magazine ads featuring experts for hire in a wide range of testimony. These factors, combined with an abundance of personal injury attorneys, yield a situation where supply creates its own demand and is a recipe for litigation against life science companies. Even groundless claims can create the financial drag of legal fees, court costs, compromise settlements or aberrational jury awards.

The Danger of Being 'Lumped In' with Charlatans

SARS-like pathogens attract legitimate companies and cures. They may, unfortunately, also attract overblown claims as companies try to exploit business opportunities. Legitimately useful products may be branded as fake cures if they are surrounded by companies making false claims about the efficacy of questionable products. Assertions that certain products could cure SARS spiraled out of control on the Internet during the recent worldwide scare. A few companies, for example, offered “natural” remedies for the disease. SARS is so recent, though, that no claims, legitimate or otherwise, enjoy scientific backing. Even the former FDA Commissioner Mark McClellan observed, “Bogus products from questionable Web sites do no good, and can actually make matters worse, by providing a false sense of protection.”

Some companies touted products on the Internet, pushing paper masks, latex gloves, disinfectants, air filters, nutritional supplements and other items purporting to prevent SARS, preying on consumer phobias. According to Mark Rosen, chief of pulmonary and critical care at New York's Beth Israel Medical Center, “This is the perfect scam opportunity.”

Examples of products that were advertised to prevent SARS included:

• Diet supplements that contained beta gluten as an immune booster that “defends against all infectious viral diseases,” and possibly SARS;
• Air filter devices promising to catch up to 99% of particulates;
• “SARS travel kits” that included gloves, masks and antimicrobial wipes;
• Disposable toilet seat covers said to guard against contact with the virus on public toilet surfaces.

(“For SARS, a Bull Market,” The Washington Post, 4/29/03, pp. F1, F4.)

Drug and Device Manufacturers As Scapegoats?

There are other situations in which life science companies may become caught in the crossfire of civil litigation arising from medical malpractice claims. Many product liability lawsuits against life science firms arise as a byproduct of medical malpractice claims against health care professionals. In defending their professional reputations, practitioners may argue that an adverse outcome was really due to some defect or malfunction in a medical device or drug, not due to any lapse in exercising reasonable professional care.

Health care liabilities transcend relevance to drug and device manufacturers. SARS and similar diseases could spawn new types of professional liability claims against doctors and health care providers. Medical professionals have a duty to exercise reasonable care in diagnosing and treating SARS and other diseases. Physicians, hospitals and allied health professionals who do not see SARS cases in their daily practices may be deemed, due to heightened publicity about SARS, sufficiently on notice of its symptoms and dangers to create duties. One can envision malpractice claims arising from failure to accurately diagnose SARS, delay in diagnosing and/or negligent treatment of the disease.

Early-stage SARS mimics flu symptoms. Doctors may misdiagnose early SARS as the flu. This could cause the illness to worsen. Due to the rarity of certain diseases or their ability to resemble different ailments, odds are ripe for misdiagnosis and professional liability exposures. Such concerns challenge attorneys who represent health care entities – hospitals, medical centers, HMOs, physician practice groups and clinics.

Legal finger-pointing is a bonanza for plaintiffs' attorneys, who may be able to sit back and watch a defendant in another action help make his or her own case. This kind of “hot potato” game of buck-passing responsibility can either inflame or baffle juries. Outrage or confusion may lead jurors to conclude that “someone screwed up,” and they may award injured plaintiffs hefty sums, even if they can't decide which party — the doctor, hospital, drug manufacturer or device maker — is guilty of the actual harm.

Risk Management Strategies and Solutions

Medical device and life sciences firms should approach the potential liability challenges of SARS as they would any other possible ground for legal liability. There are no “magic bullets” to immunize firms from tort liability claims arising from SARS and like pathogens, but there are at least six strategies that life science companies can embrace:

• Temper marketing claims. Have all marketing and promotional material reviewed by outside legal counsel skilled in product liability litigation.
• Adopt a rigorous regulatory compliance strategy. Obtain a separate review by seasoned regulatory counsel to ensure that no FDA tripwires are triggered by overzealous claims.
• Avoid specific cure-all claims. Be cautious about, if not averse to, promoting devices as a cure or answer to the problem of a specific disease.
• Don't get entangled in the Web. Subject Internet ads and Web site material to the same standards of circumspection and rigor that you would apply to any other form of journal or print media advertising.
• Check the insurance safety net for holes. Make sure that clients have product liability insurance coverage or the designated funds earmarked to pay claims if they opt to self-insure. Make certain that product liability insurance policies contain no exclusion that might preclude coverage for claims arising from SARS or other, relevant, specific diseases.
• Establish swift intake mechanisms to address any adverse outcome reports from physicians and hospitals. These often serve as “early warning systems” of potential product liability claims and can offer early opportunities to defuse volatile situations before they metastasize into lawsuits.

Conclusion

According to Julie Gerberding, Director of the Center for Disease Control, having to face the onslaught of emerging health threats such as SARS is becoming the “new normal.” Life science companies may not find the answer to SARS. The realms of science and medical research offer few guarantees. Those within health care organizations who manage risks, however, may find smaller answers — with a lower-case “a” — to cushion the financial impact of new liabilities in the ongoing war between man and microbe.