Newsletter Sign-up

By CYRIL TUOHY, managing editor of Risk & Insurance®

It just wasn't supposed to turn out this way. In March, the U.S. Supreme Court upheld the right of state courts to pre-empt federal drug-labeling rules on pharmaceutical products.

The doctrine says that companies regulated by federal agencies, in this case the Food and Drug Administration, need only follow the rules set by those federal agencies. But in this case, Kircher & Co. were caught flat-footed.

"In the past, I've discussed the Wyeth v. Levine case and predicted that the U.S. Supreme Court would favor the drug industry by immunizing it against state court personal injury lawsuits that attack the sufficiency of FDA-approved labeling," wrote Kircher, in a recent column. "Well, I was wrong."

He wasn't the only litigator to have gotten it wrong, of course.

Even before the U.S. Supreme Court's March 4 decision upholding a verdict from the Vermont Supreme Court, there were signs that the highest judges in the land might favor state laws and bid good-bye to federal pre-emption statutes.

Case in point: In Altria Group v. Good, a cigarette advertising case, the U.S. Supreme Court ruled that a group of Maine citizens could proceed against Altria's Philip Morris unit under state unfair-trade laws even through cigarette labeling is regulated by the federal Cigarette Labeling and Advertising Act.

Wyeth wasn't about advertising, however, it was about drug-labeling under the federal Food, Drug, and Cosmetic Act.

In the 6-3 Wyeth decision, the Supreme Court was deeply divided. Justices John Paul Stevens, Anthony Kennedy, David Souter, Ruth Bader Ginsberg and Stephen Breyer--all considered the liberal members of the Supreme Court--found themselves in the majoriy. Justice Clarence Thomas, filing his own opinion, also sided with the majority.

Delivering the majority decision, Stevens wrote: "The argument that Levine's state-law claims are pre-empted because it is impossible for Wyeth to comply with both the state-law duties underlying those claims and its federal labeling duties is rejected."

Wyeth could have "unilaterally added a stronger warning" regarding the intravenous-push administration method to its antinausea drug Phenergan, which ultimately caused Diana Levine, a musician, to lose her arm to infection and subsequent amputation, Stevens wrote.

The Supreme Court's conservative members, Justices Antonin Scalia, Samuel Alito Jr. and Chief Justice John Roberts, filed the dissenting opinion.

Delivering the dissent, Alito wrote: "To be sure, state tort suits can peacefully coexist with the FDA's labeling regime, and they have done so for decades. But this case is far from peaceful coexistence. The FDA told Wyeth that Phenergan's label renders its use 'safe.' But the State of Vermont, through its tort law, said: 'Not so.'"

PRE-EMPTION AT ISSUE

At its core, Wyeth is about little more than the simple federal pre-emption of state tort laws. "Wyeth is about pre-emption, and pre-emption is a standard front for almost every American corporation who makes products," says Rodney L. Eshelman, a partner with Carroll, Burdick & McDonough in San Francisco.

Bert Rein, a partner with Washington, D.C.-based Wiley Rein, who represented Wyeth, says the case guts the ability of federally sanctioned medical experts to issue labeling decisions on prescription drugs. "The medical and scientific experts at the FDA are in the best position to weigh the benefits and risks of a medicine and to assess how those benefits and risks should be described in the product's label," he says.

Ken Johnson, a spokesman for the Pharmaceutical Research and Manufacturers of America, which represents the large drug makers, including Wyeth, goes one step further. Patients "could ultimately suffer" if healthcare providers and patients are allowed to second-guess the FDA experts, he says.

With plaintiffs' lawyers and consumer groups hailing the decision as a victory for the fair treatment of "the little guy" at the hands of big business, few doubt the decision will raise the cost of litigation, particularly in an era when Democrats are in charge.

"Costs are going to be high. Plaintiffs have been given the yellow brick road, and I can't foresee they won't phrase their claims in exactly the way the court has told them they can do it to get by the pre-emption issue," says Eshelman.

The decision deals a "significant blow" to the pharmaceutical industry's ability to obtain early dismissal of state-law, failure-to-warn claims, according to a blog posting on the Edwards Angell Palmer & Dodge Web site, because it "vitiates one of the industry's primary tools for early termination of product liability suits based upon alleged failures to include adequate warnings on product labels."

"Removing federal pre-emption will create a 'mother lode' of litigation for plaintiffs' lawyers in states throughout the country," says Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform. "If the trial lawyers get their way, expect more lawsuits not only against the pharmaceutical and medical-device industries, but against virtually every industry that is now regulated in some way by the federal government."

So, litigation costs are going to go up as companies now have to drag their teams of lawyers across 50 jurisdictions to defend themselves against state tort juries. Whether Wyeth will raise rates on product liability insurance coverage is another matter.

Many of the largest U.S. pharmaceutical companies have enormous self-insured retentions. Some even choose to go bare and not take out any insurance at all.

Tom Konopka, senior vice president of business development and marketing with the Chantilly, Va.-based medical liability underwriter Medmarc Insurance Group, says the court's decision will have a "negligible" effect on prices.

Indeed, the insurance industry's most skillful underwriters may have already taken this decision into account in their pricing models.

The most alert of the green eyeshades toiling in the cubicles of the nation's insurance carriers possibly saw this decision coming, given the court's past decisions on pre-emption.

Altria Group v. Good, decided last December, clearly signaled the court's decision to allow state tort claims to pre-empt federal rules. Even in Geier v. American Honda Motor Co., the Supreme Court, in a 5-4 decision, narrowly upheld federal pre-emption over District of Columbia tort law.

"If you're a student of pre-emption and you felt that it was going to go this way and you'd looked at Geier carefully and said they'll never win this pre-emption argument, then you've built this charge in," said Eshelman. Pricing repercussions will thus be negligible.

Muting the shrill warnings of trade groups about the impending "mother of all litigation battles," for just a second, the court decision, broadly speaking, does not render the pharmaceutical industry and the insurance companies that insure them any favors, say lawyers who represent insurance carriers.

Future pre-emption litigation looks like it's just going to be more expensive and messy, with the millions of dollars put aside for out-of-court settlements burning through the self-insured retentions in record time.

"On the insurance front, then, it seems to me that anything that makes it clearer and easier to bring claims in 50 different states using 50 different proposed standards by numerous numbers of juries is not helpful," says Eshelman.

"Everybody gets to go to their own jury and say they should have says something in addition to what they say, and that's not helpful for pharmaceutical companies and that's not helpful for insurance companies because they are insuring that risk."

No, it's not, but buyers don't need to panic, at least not yet. From a pricing perspective, the market for pharmaceutical liability coverage is drowning in capacity, according to Philadelphia-based broker Bruce Belzak, managing director and National Life Sciences Practice leader for Marsh. "We still see product liability underwriting being highly competitive in this market," he says.

WYETH'S TWIST

The Supreme Court's Wyeth opinion is the last of three issued recently by the court on the matter of pre-emption.

In Riegel v. Medtronic Inc., decided in January 2008, the Supreme Court found 8-1 in favor of federal rules governing medical devices pre-empting state requirements.

But in Altria Group v. Good the Supreme Court, in a 5-4 majority, found that plaintiffs could pursue legal action through state laws despite a product being governed by federal labeling laws.

And now, in Wyeth, the court once more upheld, in a 6-3 majority, a state Supreme Court ruling based on state tort laws over federal rules governing the labeling of a prescription drug.

But there's another twist to this case that makes it worth watching, particularly by product liability carriers, according to Eshelman.

Efforts by companies to get the FDA to clarify rules by making pronouncements in favor of a product or a process are not going to be as helpful as they once were. "To the extent that you try and rely on pronouncements of the agencies to interpret the scope of pre-emption, that's just not going to as useful as people thought it might be, so that affects all product cases, in my view, any product and anybody who's trying to rely on pre-emption," Eshelman says.

For any corporation invoking pre-emption as a defense and finding supporting evidence in a federal agency's regulatory history, that too may not hold anymore, particularly if it's not based on public hearings of official findings.

"That's a general item that has a much broader application that many people hadn't thought through when they first looked at this," Eshelman says.

June 1, 2009

Copyright 2009© LRP Publications