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Future of Drug Capsules Said to Hinge on Insurance Companies

March 21, 1986

WASHINGTON (AP) _ The future of non-prescription drug capsules following the Tylenol and Contac tamperings may be decided by insurance companies unwilling to write liability policies on capsules, industry observers said Friday.

″If you were an underwriter and you saw this potential risk, what do you think you’d do?″ said Dennis Connelly, general counsel of the American Insurance Association.

″Any underwriter who was offered an exposure that includes capsule medication would have to look at the possibility that this kind of tampering could lead to liability in the current legal climate,″ he said.

The future for drug capsules became cloudy last month when a woman in Yonkers, N.Y., died after she took Tylenol capsules laced with cyanide. It became more uncertain Thursday when three more consumer drugs - Contac, Dietac and Teldrin - were pulled from the market because of tampering threats.

Dr. Frank Young, head of the Food and Drug Administration, is preparing a report to Congress on whether capsules should be ordered off the market.

But experts in the insurance and drug fields said that decision certainly will be influenced by, and may actually be decided by, insurers refusing to write liability policies.

Victor E. Schwartz, a Washingon attorney and nationally recognized authority on product liability law, said the capsule-tampering episodes have collided with the crisis in liability insurance.

That crisis, already being extensively debated in Congress, has seen insurers jolted by huge jury awards and increasingly refusing to cover activities they perceive as too risky or too uncertain.

″The insurance companies have learned that past events do not predict the future,″ Schwartz said in an interview. ″Once they see the chance of possible exposure, they retreat.″

″The insurers are going to retreat from areas that have very uncertain exposures,″ he said. ″You become risk-adverse. You go to things that become more predictable. Although there’s been few deaths (in tampering incidents), this could become a new fad. We have no idea what will happen.″

Schwartz said he first heard murmurs last month after the Tylenol poisoning of possible ″laser beam exclusions″ - narrowly written clauses to deny liability coverage for capsule tampering - and those exclusions are likely to become common in the wake of the Contac tampering case.

″My judgment?″ he said. ″They’ll exclude it. There are some risks that are just not worth taking.″

And without insurance, he predicted, capsules largely will disappear from the market.

The assessment was not unanimous. Dissenters agreed that the insurance industry will have a say, but they argued that drug manufacturers dedicated to capsules could find ways around the lack of insurance coverage.

Bill Ryan, chief counsel for the Senate Labor and Human Resources Committee and a former drug company executive, said he does not expect the insurers to make the final decision. But he said the companies also are ″not really out of order″ in considering the issue.

″If a consumer suffers injury from capsules, there’s going to be a greater likelihood of litigation, and the questions are going to be much harder about why capsules were not discontinued,″ Ryan said.

But he said drug companies already are looking at alternatives to ordinary insurance, adding that ″even without the issue of capsules, they’ve been a target defendant″ in lawsuits.

Myra Tobin, head of the chemical and pharmaceutical division of Marsh & McLennan, a huge New York insurance brokerage firm that handles several major drug companies, said options are available.

Drug companies deeply committed to capsule medicines could turn to exotic coverage attempts, such as pooled risk ventures among companies or specially capitalized offshore insurance companies organized exclusively to insure capsules, she said. Companies presumably could choose as well to ″go bare,″ or uninsured, she added.

Asked how she would handle a request from a drug company to negotiate a policy covering capsules, Ms. Tobin said: ″In light of the publicity, which certainly influences public opinion, it would influence the presentation to the underwriter.

″I don’t know what the result would be.″

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