Medical Device Link.

Originally Published MX January/February 2005

GOVERNMENTAL & LEGAL AFFAIRS

Bad things happen to good companies.
They need not destroy their financial health.

Kevin M. Quinley

Litigation disasters can befall all types of medical and life-sciences companies today. Medical innovations that bring new therapies to patients sometimes create new risks of product liability claims as well. Ten years ago, few would have guessed that we would now aim lasers at our eyes to improve vision or inject botulism toxin into our faces to smooth out wrinkles. Technologies like these may be laying landmines whose eventual explosion aggressive lawyers can exploit.

Mass-tort and class-action lawsuits are the legal contests du jour. Medical device firms can easily find themselves in the crosshairs of plaintiff attorney gun sights, targets of a well- organized personal-injury bar. These days, the tort and litigation climate holds the prospect of heavy weather for device companies.

Personal-injury attorneys are constantly seeking the next big thing in product liability litigation. Many law firms specialize in suing drug and device companies. They scour FDA databases and cruise the World Wide Web for adverse-event reports and news of recalls. Tort attorneys network in Internet forums and at legal conferences built around how-to workshops focused on approaches to suing purveyors of specific devices or drugs, or certain manufacturers.

Mealey Publications (King of Prussia, PA), a company that specializes in legal seminars, mass-mails a glossy brochure on drug and device litigation. Its headline asks, "What new drug or device complaint will turn into the next mass tort?" The brochure invites attorneys to telephone to "get the latest" on suits against blood products, hip and knee implants, aneurysm devices, drug-coated stents, insulin pumps, pacemakers and defibrillators, bone screws, tissue products, and more.

And magazines like Trial, a monthly publication for plaintiff personal-injury attorneys, carry articles discussing various niches of product liability litigation and methods of overcoming legal defenses mounted by drug and device companies. They also include back-of-book advertisements touting experts for hire in a wide range of testimony specialties. These media-based inducements, along with the abundance of attorneys, constitute a recipe for litigation against medical device companies.

With class actions—megaclaims—the stakes are higher than with the more common one-shot claims. Such lawsuits may have a high per-claim value, with six- or seven-figure recoveries for individual plaintiffs being possible. Another attraction for the lawyers is the likelihood that the defendant has deep pockets. The potential for a large payout may be due to company size—a Fortune 500 firm, say—or to the defendant's insurance coverage.

It can be tough to think clearly in crisis mode. A device company executive finding his or her firm the target of a product liability class action can easily enough yield to panic in planning a defensive reaction. But mismanaging a claims assault into a meltdown may have dire consequences for the company's solvency and viability. Potentially devastating outcomes include:

• Bankruptcy.
• Impaired financial health, short of bankruptcy.
• Extremely large settlements or jury awards.
• Rapidly compounding legal fees.
• Badly diminished market share.
• A collapse in the stock price.
• A soiled corporate reputation with customers and the general public.

Needless to say, these disasters for one company present opportunities for others competing with it, making matters even worse for the loser of the litigation.

It is true that more companies are developing crisis management plans than before—especially after 9/11—but these plans often focus on property risks. Medical device companies need some strategies to help them survive the crisis of a legal onslaught. This article examines possibilities.

National Coordinating Counsel

One step toward managing the megaclaim is to consider whether to select national coordinating counsel. This is one law firm that would oversee and coordinate the defense of similar claims on multiple fronts. The idea is that investing time with one firm is better than educating attorneys all around the country in a piecemeal way.

Having one law firm quarterback the defense fosters consistency in producing documents, in answering interrogatories, and in overall defense. Generating differing documents in similar cases or giving inconsistent answers to interrogatories can demolish an otherwise effective defense.

When claims volume reaches a certain threshold, companies become keener on appointing a single law firm to coordinate defense on many fronts. No one exact threshold exists, but a company can measure its own quantitatively or qualitatively.

A coordinating counsel structure has both advantages, already cited, and drawbacks. Potential negatives include:

• Higher costs, with two layers of lawyers—local counsel and coordinating counsel.
• Risk of communication snafus, with more people on the defense team increasing the odds of misunderstandings, mistakes, and turf-war clashes of viewpoint and ego.
• Risk of sending a message to opposing counsel that the defendant regards the litigation as a big deal (otherwise, national coordinating counsel would not have been appointed).

Also, using coordinating counsel can be like passing the Full Employment for Lawyers Act. This does not mean that appointing coordinating counsel is bad. It has advantages and some pitfalls. Any medtech firm that appoints national coordinating counsel, therefore, should invest time in developing a written request for proposal (RFP).

The company should identify four or five law firms that look promising and send each an RFP, asking for a written response within a specified number of days. Costs, staffing, creativity, and prior experience in handling nationwide, multidistrict litigation are key things to examine in weighing the proposals. Once the list is narrowed to the top three candidates, the finalists should be invited to visit, give brief presentations, and answer questions.

The decision to appoint national coordinating counsel is one not to take lightly. Because it has huge financial consequences, a fully informed and reasoned decision is essential.

The Best Defense Is a Good Offense

Handling a claims crisis is like waging a war on many fronts. In a sense, each lawsuit is a battle. The defendant company wins by taking the offensive.

Device firms make tempting targets in the tort system. Many defense efforts are purely reactive, a matter of waiting for a well-organized plaintiff's bar to do something and then responding with countermeasures. But effective crisis management flows from taking the initiative and operating strategically rather than reactively. Anticipatory measures that can help in managing megaclaims include:

• Building a network of defense counsel long before a claims meltdown can occur.
• Developing contacts with supportive experts, both inside and outside the organization.
• Aggressively pursuing motions for summary judgment early in any litigation, before the defendant company becomes enmeshed in discovery.
• Filing motions to compel a plaintiff to prove the defendant's involvement in the medical mishap.
• Pursuing sanctions for frivolous lawsuits.

Early summary judgment motions often deliver knockout punches to specious claims. These may be particularly appropriate in so-called shotgun lawsuits where plaintiffs sue every seemingly related entity they can identify. Perhaps the attorney is uncertain who made a product, so he sues every known manufacturer of the type of device in question. Or the lawyer knows who made the device, but he is unsure how the failure occurred and so he sues all individuals and all manufacturers of products that were within 30 feet of the adverse event.

A motion to force the plaintiff to prove that the defendant's product was in some material way responsible for the mishap is an apt defense against shotgun lawsuits. This keeps the pressure on the opposing side to present firm evidence or let the aggressive defendant out of the suit.

The important thing is to seize the initiative—to make things happen and not simply wait for the opposing side to deliver the next blow. The savvy device company executive will send a signal to the opponent that his or her company is not just another passive defendant. Taking the initiative in handling a claims assault is mainly a matter of mind-set. Plaintiff's bar is generally unaccustomed to taking its own medicine, so an aggressive attitude exhibited by the defendant can improve the odds of a successful defense.

Insurance Archaeology

Claims crises are expensive. Often, the buffer between solvency and bankruptcy is insurance. Therefore, a device firm should maximize its insurance for coverage of a megaclaim.

The company can do several things to ensure maximum coverage. One is to report claims promptly to all insurance carriers who might conceivably have coverage. Another is to notify all excess and umbrella carriers. Meltdown claims are more likely to penetrate such layers. A vulnerable company does not want to jeopardize its insurance status by letting an excess carrier claim it breached a policy provision of prompt notice. Finally, the company should notify all of the insurers it had over the time period spanned by the loss. Many megaclaims that go into meltdown involve exposure over long time periods, or involve implants or other latent circumstances. Increasingly, courts embrace multiple-trigger theories, saying that all carriers on the risk from the date of exposure until date of claim have coverage triggered.

Carefully keeping detailed insurance records can pay off handsomely. A historical log of all liability policies should be maintained over a long term. Some experts say that 30 to 40 years is prudent. A company's insurance broker can be resourceful in unearthing old policies that might be triggered by the megaclaim. Evidence of old insurance policies may be available from former brokers as well.

So, meticulous records of all insurance policies should be retained for future use. Years later, a policy viewed as insignificant when written might assume dramatic importance. This recordkeeping might encompass not only original hard copies of policies but also backups on microfiche and CD-ROM in off-site storage. A combination of such storage approaches builds in redundancy as a safeguard.

In cases where liability exposure covers a long time period, device firms may have difficulty locating old insurance policies. Often, these ancient policies will have been occurrence forms with unlimited legal defense coverage. The problem of policies going missing may be correctable, however, if the financial stakes are high enough. Service firms exist that specialize in locating old policies or, perhaps more important, evidence that there were insurance policies that are still in effect and could be located. In mining old records, companies can increase the financial assets they bring to bear in funding defense against the megaclaim.

Settlement

Occasionally, companies settle claims on a global basis. Global settlements can resolve long-standing intractable claims. They have, notably, funded resolution of Dalkon Shield IUD litigation and claims involving PVC tubing, asbestos, and, more recently, silicone breast implants.

Companies have various reasons for considering settlement as a tool for ending the misery of a megaclaim. These include:

• Weak legal defenses.
• The sheer volume of individual claims.
• Exorbitant legal costs involved in piecemeal defense.
• Negative publicity resulting from a prolonged legal battle.
• An adverse jury award or court ruling that hamstrings future defense.
• The desire to rid financial statements and auditor's reports of a sizable contingent liability.

The legal costs of defending the megaclaim are so high that, often, even if you win, you lose. A pyrrhic victory may be the best-case scenario, the legal equivalent of the sardonic medical joke about the operation being a success though, unfortunately, the patient died. Sadly, even the defendant winning cases may not deter copycat litigation. Another attorney may figure that he or she has a better case, a better plaintiff, a better venue, or better litigating skills than were possessed by the one the defendant beat elsewhere.

In today's tort system, the modus operandi of the plaintiff's bar is often, "Heads I win, tails—we flip again." Cigarette companies once won all the product liability lawsuits they faced. Despite those victories, the suits continued. Merrell Dow Pharmaceuticals Inc. won defense verdicts in more than 30 lawsuits involving Bendectin before losing any. One loss opened the legal floodgates, though, and caused the company to remove the morning sickness drug from the market, despite the lack of credible scientific evidence linking it to birth defects. Wyeth prevailed in many suits involving the diet drug Fen-Phen before a Texas jury socked it with a billion-dollar award in May 2004.

A dam needs but one hole to spring a leak. Not only must companies win more suits than they lose, they often cannot afford to lose once, lest the litigation floodgates open.

Settlement becomes a more attractive option to device firms as a megaclaim challenge evolves into management of a claims meltdown. Bled dry by ongoing litigation, companies often discover that settlement is more appealing than appalling. Prolonged litigation can be demotivating, in which case, achieving closure may be vital. Settlement offers a way for beleaguered companies to stem the bleeding that comes with drawn-out litigation on multiple fronts.

Conclusion

Managing a megaclaim crisis is clearly not for the faint of heart. The task is like running a marathon. Those who win marathons are thoroughly trained and prepared, and they run a smart race.

By the same token, medtech executives who survive claims crises—who thrive rather than succumbing to a meltdown—can use the ideas presented here to empower themselves and pursue their corporate mission despite the perils of today's litigation climate.

Yes, bad things happen to good companies. But with a sound corporate product liability survival strategy in place, the mass-tort story doesn't have to have the worst ending.

Kevin M. Quinley is senior vice president of Medmarc Insurance Group (Chantilly, VA).

Illustration by JONATHAN EVANS

Copyright ©2005 MX