Risk & Insurance - April 2012

of pharmaceuticals in drinking water, the threat to human health is so low that the WHO didn’t even think it necessary to develop a formal health-based guideline for pharmaceuticals and drinking-water quality.

That won’t stop the plaintiff’s bar.

“Plenty of smart attorneys will want to test the waters,” said Mark Ware, vice president and director at brokerage IMA Financial, who then asked forgiveness for the pun. The dearth of evidence demonstrating correlation, he added, does not mean people can’t bring class actions against pharmaceutical companies.

Vetter agreed that third-party legal claims are “really where things could get potentially challenging.” Nonmeritorious types of claims will be a challenge, he said.

We can only surmise whether Big Pharma knows the risk of its products tainting drinking water, year after year, pill after pill. Perhaps a smoking-gun document will emerge during lawsuits 20 years from now, just as such damning evidence came out regarding cigarettes and Big Tobacco’s knowledge about adverse effects and addition.

In any case, pharmaceutical companies can act now to mitigate some of their exposure by creating “defensible space,” demonstrating that they managed the issue even before regulators passed guidance, said Ware.

One way, Ware said, would be for the drug manufacturers to design drugs that have higher absorption rates in the human body. They might also develop procedures, perhaps in partnership with pharmacies, for consumers to return unused drugs (instead of, say, dumping them in the toilet.)

Getting out in front of this risk could be a wise move for the largest drug-makers in particular, given their largely self-insured risk-transfer program.

Firms with coverage in the traditional insurance market may find a duty to defend or requirement for indemnification with their general liability and product liability policies,;Ware;said. Sure, these policies will have a pollution exclusion. But it might not be broad enough to exclude coverage when the product itself is the pollutant.

Insurance could be available for another sector exposed to this risk, municipal water treatment facilities, according to Vetter. The coverage he has in mind, pollution legal liability environmental is for more traditional pollution scenarios—a water treatment plant being fined or sued for releasing toxins, for example, or by the drug companies themselves having a spill at one of their facilities.

“That has a lot of potential cost,” Vetter said.

When Vetter approached
environmental insurance markets a
few years ago when this issue first
appeared on the radar, some markets
were willing to entertain such risk-
transfer products for these scenarios.