Court Sinks Subrogation
On March 17, 2012, the commander, a vessel owned by Nature’s Way Marine, ran aground in the mouth of a narrow channel of the Mississippi River near Crown Point, La., owned and operated by Crown Point Holdings LLC.
As it maneuvered to free itself, the movements created “extreme wave wash” that broke the mooring lines of two of Crown Point’s vessels, the Port Gibson and the Buccaneer, grounding them on a mud bank.
On March 21, the Port Gibson began to take on water and sank, pulling the Buccaneer down with it. After raising the ships, it was discovered Port Gibson’s hull was punctured by a bolt-studded piece of timber.
Osprey Underwriting Agency Ltd., which issued Crown Point marine hull insurance on the Port Gibson and the Buccaneer, paid for salvage and damage expenses and then, as subrogee, it sued Nature’s Way for reimbursement, arguing the Commander’s maneuvers caused the sinking of Crown Point’s vessels.
A district court in Louisiana ruled against Osprey. It said Osprey failed to prove the Commander’s actions caused the sinking, and even if the causation could be determined, Crown Point’s failure to warn anyone of the timber impaled in the hull was a superseding cause of the sinking.
On March 25, the U.S. 5th Circuit Court of Appeals upheld that decision. It concluded that experts from both sides “vehemently” disagreed with how the hull impalement occurred, and that marine law required negligence to be a “substantial factor” in the damage.
Scorecard: Osprey will not be reimbursed for its costs to salvage and repair the vessels.
Takeaway: Under general maritime law, “negligence must be a ‘substantial factor’ in the injury.”
Legal Fees Contested
On Dec. 29, 2011, William R. Kowalski and Hawaii International Seafood filed suit against Anova Food LLC, claiming patent infringement and false advertising. The lawsuit accused Anova of using Kowalski’s “tasteless smoke” process to treat tuna, although Anova advertised the fish were treated by a “clearsmoke” process.
Anova retained Gary Grimmer as local counsel in Hawaii to represent it.
On Oct. 12, 2012, Anova requested a defense from the Hanover Insurance Co. and its subsidiary, Massachusetts Bay Insurance Co. (“Hanover”). Defense was granted under a reservation of rights, and the insurer agreed to pay Grimmer in accordance with its litigation guidelines and fees.
Hanover’s claim that it only agreed to hire Grimmer and not Zobrist conflicted with its payment of some of Zobrist’s legal fees, the court ruled.
Hanover stated it would not pay, however, for any fees paid by Anova prior to the claim being made.
The insurer said it would not apply the exclusion for injuries “arising out of” infringement of intellectual property, but would not indemnify Anova for any punitive damages.
On Dec. 11, 2012, the Zobrist law firm, which had a history with Anova’s intellectual property issues, filed its appearance as counsel of record for Anova, and was subsequently paid $284,624 by Hanover.
A year later, Hanover informed Anova it was transferring defense in the case from Grimmer to two other attorneys. At that time, it said that any continued involvement by Zobrist “will need to be funded directly” by Anova.
On June 19, 2014, Hanover asked for a court determination that it need not defend nor indemnify Anova. The insured filed a counterclaim for breach of contract and bad faith, arguing Hanover owed it a defense, and the unpaid balance to Zobrist of $385,153.
Anova reached a settlement with Kowalski in April 2015.
The U.S. District Court for the District of Hawaii ruled on March 24, 2016 that Hanover did have a duty to defend Anova but did not have to pay for legal services prior to Anova’s request for a defense.
Because factual questions remained about the legal fees paid to Zobrist, the court denied Anova’s motion for summary judgment on its claim that Hanover breached its contract.
Scorecard: Additional court proceedings will determine whether Hanover must pay $385,153 for Zobrist’s legal fees.
Takeaway: Hanover’s claim that it only agreed to hire Grimmer and not Zobrist conflicted with its payment of some of Zobrist’s legal fees, the court ruled.
Request for Defense Denied
In 2009, Larry Naquin was using a land crane owned by Elevating Boats LLC (EBI) to move a “test block” when the welding holding the crane to its base failed.
Naquin jumped from the crane house, breaking both feet and sustaining a lower abdominal hernia. He was never able to return to physical work.
In May 2012, a federal jury in Louisiana awarded Naquin $2.4 million for physical and emotional pain and lost wages. EBI appealed and the negligence verdict was upheld.
Subsequently, EBI sued State National Insurance Co. and London insurers, accusing them of breaching their contracts by denying EBI’s request for defense and indemnification.
On March 22, the U.S. 5th Circuit Court of Appeals agreed with a lower court in dismissing EBI’s lawsuit.
Scorecard: The insurers are not responsible for indemnifying EBI.
Takeaway: EBI’s policy offered indemnity for the company “as owner of the Vessel,” and it was not triggered because the accident occurred on land. &
Gene Editing: The Devil’s in the DNA
SCENARIO: The Verde avocado was one of several fruits introduced by biotech pioneer AgriBoundless. The Verde was a biotech success story — a genetically edited variety with flesh that was very slow to brown after cutting.
Restaurants and other establishments across the food service spectrum gave Verde the thumbs-up for helping to cut down waste caused by the short shelf-life of avocados — a popular but costly ingredient. National Tex-Mex chain Meximillion was the largest purchaser of Verde, ordering them chain-wide after a brief trial in numerous California locations.
Nearly a year after its introduction, however, a paper published by UC San Diego School of Medicine’s immunology division traced a series of mysterious allergy cases back to the Verde avocado.
Only a small percentage of people developed an allergy to the Verde avocado, but it was enough for a sizable class action.
The paper sparked a flurry of interest from immunologists across the country grappling with similar cases.
Agriculture officials ordered a recall of Verde, pending an investigation. Meximillion and other establishments struggled to secure alternate suppliers. Restaurants in some regions had to take guacamole and other popular items off of their menus.
The investigation wasn’t yet complete when the lawyers came knocking. Only a small percentage of people developed an allergy to the Verde avocado, but it was enough for a sizable class action.
A few of the affected consumers, including one child, nearly went into anaphylactic shock. AgriBoundless and its distributors were named in the suit, as well as Meximillion and four other restaurant chains.
Long before the case ever got to trial, Meximillion was tried and found guilty in the court of public opinion for putting genetically edited food on its menu. Its actions conflicted with its brand, which was wrapped around its fresh and natural ingredients and its “No to GMO” stance.
A crisis management team immediately launched an educational campaign to help people understand that the Verde avocado was non-GMO, but the public presumed that even if it wasn’t GMO, it had to be just as bad.
Competitors were eager to let their customers know that they only used “real” avocados.
The next meeting of Meximillion’s shareholders was a grim one indeed.
ANALYSIS: In a 1923 essay, scientist J. B. S. Haldane imagined the invention of a purple alga called Porphyrococcus, which so accelerated wheat yields that it led to a food glut, virtually collapsing the economy of agricultural states.
In Haldane’s scenario, an errant strain of the algae escaped into the ocean and multiplied, creating so many nutrients that it resulted in an explosion of the fish population.
Oh, by the way, it also turned the ocean purple, permanently.
Haldane was ahead of his time, yet no prophet … the Atlantic remains blue. But just shy of a century later, the science that Haldane imagined is our reality.
New organisms like Haldane’s purple algae are being created from scratch by mankind rather than Mother Nature. And mankind is taking nature’s existing creations and altering their genetic structure to better suit our needs. Thanks to recent advances, these feats can be accomplished with stunning speed and at less cost than ever before.
The discovery of a system known as Crispr-Cas9 is a massive lunge forward in biotechnology. Crispr-Cas9 is a like a DNA scissor — a genetic equivalent of the find and replace function of a word processor. It gives scientists the ability to delete or swap out pieces of a genome in order to change or eliminate traits.
A snip here, a snip there and voila — two bulls born recently in Iowa will never grow horns. Neither will their offspring. What used to take many generations to accomplish via selective breeding can be achieved in just one, with more precision.
Crispr-Cas9 is also a game-changer because it makes genome editing accessible to an unprecedented degree. An edited genome can now be produced in a matter of days. And the process is so straightforward that a grad student can master it in about hour, say scientists.
UC Berkeley biochemist Jennifer Doudna explains what Crispr-Cas9 is and what researchers hope to accomplish with it.
The possibility for advances in medicine and pharmaceuticals is breathtaking. Scientists are hard at work on projects such as engineering cancer patients’ immune cells to more effectively attack tumors.
A company called Intrexon may be on the verge of editing out the ability to transmit the Zika virus in the wild mosquito population.
Man-made yeasts and algae are being tested to produce everything from new biofuels to cosmetic oils to “natural” vanilla flavoring.
Synthetic yeasts in development are being tested for their ability to change the flavor of yogurt, bread, beer and pickles. Gene editing is being tested for its ability to edit fruits and vegetables to increase their edible flesh, resist browning and retard ripening.
“We, as responsible members of the risk management community, want to encourage a balance. We want to encourage innovation.”— Walker Taylor, managing director, life sciences practice, Arthur J. Gallagher & Co.
Gene-editing research on animals is yielding stunning results. Scientists produced pigs that are easier to fatten up, cattle that produce more tender meat (and more of it), cashmere goats that grow longer hair, and chickens that produce only female offspring for egg-laying, among many other apparently successful improvements upon what nature created.
Keep in mind that the first synthetic genome was created in 2010, and Crispr-Cas9’s true potential came to the fore just two years later — these breakthroughs haven’t even scratched the surface of what may come.
Debates and hand-wringing are in full swing over human genome editing as well as the potential bioweapon applications of gene editing and synthetic biology (synbio). But threats related to commercial applications are no less controversial, from the possible effects on human health to concerns about the environment and biodiversity.
“We would expect such products to be thoroughly tested at every stage of their development,” said an insurance executive, “but there are no guarantees — you can never completely eliminate the risk that they might interact with the wider environment in unexpected ways.”
A complex regulatory environment is expected to keep the risk level in check for medical and pharmaceutical industries. But the regulation of agricultural and food products is a very different process.
“Remember Olestra? They put it out in the food chain and then went, ‘Whoa! This is not good for our bodies.’ ”— Sandie S. Mullen, senior vice president, national life science practice leader, RT Specialty
Established regulatory environments do address biotechnology products. From a risk management standpoint, experts noted it should be reassuring to insurers and others that these technologies “are not operating in a regulatory vacuum.”
There are subtleties still to be sorted out, however. While an edited genome is modified, it is not currently considered GMO. That distinction is reserved for organisms with foreign DNA added to their own. Edited genes contain no foreign DNA. The result is the same species, just altered somewhat.
Current regulatory structures don’t address this kind of modification, so edited genomes are not subject to the more stringent approval process that governs GMOs. The U.S. Department of Agriculture is studying Crispr-Cas9 and plans to make recommendations in the near future.
In the meantime, seemingly benign products of biotechnology will quietly work their way through the agricultural and manufacturing sectors, into our homes and businesses as well as onto our plates. If there are problems, they will eventually make themselves known.
“Remember Olestra?” asked Sandie S. Mullen, senior vice president, national life science practice leader with RT Specialty. “They put it out in the food chain and then went, ‘Whoa! This is not good for our bodies.’ ”
As long as a product is deemed generally safe for the public, it’s going to be sold.
“If you come up with a new vanilla or a new oil, you can put it out in the marketplace. And if it doesn’t immediately cause [harm], it could be out in the marketplace for years,” said Mullen, also citing asbestos as an obvious example of how significant hazards can lurk in the shadows.
Current regulations, however, could soon change the way companies weigh the use of biotech products in their own operations.
In July of 2015, the White House directed the EPA, FDA and USDA to overhaul the federal Coordinated Framework for Regulation of Biotechnology, which has not been updated since 1992. As part of that directive, the agencies were to develop a strategy “to ensure that the federal regulatory system is well-equipped to assess efficiently any risks associated with the future products of biotechnology.” The first public meeting on the update was held this past October.
For now, products created through synthetic biology or gene editing technology are considered distinct from GMOs and don’t need to be labeled as such, allowing manufacturers to avoid association with the GMO stigma that has been created by the media and certain public interest groups.
But the lack of transparency could eventually backfire, as in our avocado scenario. If the information is made public unexpectedly, the potential for reputational risk can be quite severe.
Insurers’ Key Role
Though in its infancy, this science has the attention of numerous industries. This presents some thorny challenges for risk managers and insurers. Risk managers will need to weigh the specific benefits of biotech products against their potential risks — no easy feat when the risks are largely unknown.
In gene editing, the problem of “off-target mutations” is well established. Scientists are already making strides in reducing these mutations, but there’s no ironclad guarantee that some latent mutation won’t produce an unforeseen effect down the road.
Switching to a biotech ingredient could yield significant cost savings, but companies must be open to discussing the possible latent issues that might arise with brokers and carriers.
“We’re talking about risks that are low frequency, high severity — I think this industry presents a lot of that,” said Walker Taylor, area president and managing director of the life sciences practice at Arthur J. Gallagher & Co.
“It makes good sense for the insurance industry to be involved in these issues,” he said.
While these newer products of biotechnology may be distinct from GMOs, experts say that insurers are likely to take a similar approach, applying their experience with genetic engineering to gene editing and synbio.
“We have never excluded GMOs completely from our policies,” said Dr. Markus Kalin, head of global casualty risk engineering at XL Catlin, “and I think we would apply a similar approach to synthetic biology.”
Kalin pointed out that GMOs once posed a similar degree of unknown risk and fears of hidden dangers. Overwhelmingly though, “those fears have not been realized in this field.”
Taylor noted that the system of checks and balances in insurance allow it to undertake such risks in a controlled fashion, and the important part it will play as science advances.
“We, as responsible members of the risk management community, want to encourage a balance. We want to encourage innovation,” Gallagher’s Taylor said. &
2016’s Most Dangerous Emerging Risks
The Fractured Future Infrastructure in disrepair, power grids at risk, rampant misinformation and genetic tinkering — is our world coming apart at the seams?
Crumbling Infrastructure: Day of Reckoning Our health and economy are increasingly exposed to a long-documented but ignored risk.
Cyber Grid Attack: A Cascading Impact The aggregated impact of a cyber attack on the U.S. power grid causes huge economic losses and upheaval.
Fragmented Voice of Authority: Experts Can Speak but Who’s Listening? Myopic decision-making fostered by self-selected information sources results in societal and economic harm.
Compounding: Is it Coming of Age?
The WC managed care market has generally viewed the treatment method of Rx compounding through the lens of its negative impact to cost for treating chronic pain without examining fully the opportunity to utilize “best practice” prescription compounds to help combat the opioid epidemic this nation faces. IPS stands on the front lines of this opioid battle every day making a difference for its clients.
After a shaky start cost-wise, prescription drug compounding is turning the corner in managing chronic pain without the risk of opioid addiction. A push from forward-thinking states and workers’ compensation PBMs who have the networks and resources to manage it is helping, too.
Prescription drug compounding has been around for more than a decade, but after a rocky start (primarily in terms of cost), compounding is finally coming into its own as an effective chronic pain management strategy – and a worthy alternative for costly and dangerous opioids – in workers’ compensation.
According to Greg Todd, CEO and founder of Integrated Prescription Solutions Inc. (IPS), a Costa Mesa, Calif.-based pharmacy benefit manager (PBM) for the workers’ compensation and disability market, one reason compounding is beginning to hit its stride is because some states have enacted laws to manage it more effectively. Another is PBMs like IPS have stepped up and are now managing compound drugs in a much more proactive manner from an oversight perspective.
By definition, compounding is a practice through which a licensed pharmacist or physician (or, in the case of an outsourcing facility, a person under the supervision of a licensed pharmacist) combines, mixes, or alters ingredients of a drug to create a medication tailored to the needs of an individual patient.
During that decade, Todd explains, opioids have filled the chronic pain management needs gap, bringing with them an enormous amount of problems as the ensuing addiction epidemic sweeping the nation resulted in the proliferation and over-consumption of opioids – at a staggering cost to both the bottom line and society at large.
As an alternative, compounded topical cream formulations also offer strong chronic pain management but have limited side effects and require much reduced dosage amounts to achieve effective tissue level penetration. In fact, they have a very low systemic absorption rate.
Bottom line, compounding provides prescribers with an excellent alternative treatment modality for chronic pain patients, both early and late stage, Todd says.
Time for Compounding Consideration
That scenario sets up the perfect argument for compounding, because for one thing, doctors are seeking a new solution, with all the pressure and scrutiny they’re receiving when trying to solve people’s chronic pain problems using opioids.
Todd explains the best news about neuropathic pain treatment using compounded topical analgesic creams is the results are outstanding, both in terms of patient satisfaction in VAS pain reduction but also in reduction potentially dangerous side effects of opioids.
The main issue with some of the early topical creams created via compounding was their high costs. In the early years, compounding, which does not require FDA approval, had little oversight or controls in place. But in the past few years, the workers compensation industry began to take notice of the solid science. At the same time, medical providers also were seeing the same science and began writing more prescriptions for compounding – which also offers them a revenue stream.
This is where oversight and rigor on the part of a PBM can make a difference, Todd says.
“You don’t let that compounded drug get dispensed when you’re going to pay for it without having a chance to approve it,” Todd says.
Education is Critical
At the same time, there is the growing, and genuine, need to start educating the doctors, helping them understand how they can really deliver quality pain management to a patient without gouging the system. A good compounding specialty pharmacy network offering tight, strict rules is fundamental, Todd says. And that means one that really reaches out to work with the doctors that are writing the prescriptions. The idea is to ensure that the active ingredients being chosen aren’t the most expensive sub-components because that unnecessarily will drive the cost of overall compound “through the ceiling.”
IPS has been able to mitigate costs in the last couple years just by having good common sense approach and a lot of physician outreach. Working with DermaTran Health Solutions and its national network of compounding pharmacies, IPS has been successfully impacting the cost while not reducing the effectiveness of a compounded prescription.
In Colorado, which has cracked down on compounding profiteering, Legislative change demanded no compound could be more than $350.00 period. What is notable, in an 18-month window for one client in Colorado, IPS had 38 compound prescriptions come through the door and each had between 4 and 7 active ingredients. Through its physician education efforts, IPS brought all 38 prescriptions down 3 active ingredients or less. IPS also helped patients achieve therapeutic success (and with medical community acceptance). In that case, the cost of compound prescriptions was down to an average of $350, versus the industry average of $788. Nationwide IPS has reduced the average cost of a compound prescription to $478.00.
Todd says. “We’ve still got a way to go, but we’ve made amazing progress in just the past couple of years on the cost and effective use of compound prescriptions.”
For more information on how you can better manage your costs for compound prescriptions, please call IPS at 866-846-9279.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with IPS. The editorial staff of Risk & Insurance had no role in its preparation.