white paper - Ensuring You're Insured - Unpacking the Insurance Provisions of Clinical Trial Research Contracts
This article is for educational purposes only and does not constitute legal advice, because it does not analyze your specific organizational risks or other unique requirements. Your attorney will provide legal advice. For best results, obtain additional input from your risk manager and insurance broker.
Insurance laws and compliance requirements are always part of a medical institution’s daily operations, even when clinical trials are not part of the process. Engaging in research adds a layer of risk, and understanding the insurance provisions of your research contracts can be overwhelming. In this article, you’ll get the chance to unpack some of the basic (but nonetheless complex!) insurance coverage terms and how they apply to sponsor-provided, study-specific coverage. We’ll also explore the specifics of site liability coverage, and discuss some risk assessment and negotiation tactics that can help you ensure you’re insured.
Why Should We Care About Insurance in Clinical Trials?
Where there is risk, there exists the potential to encounter claims. One of the most common risks we think of when talking about clinical trials is the risk of patient injury due to the investigational drug, therapy, or device. With this risk comes the risk of a lawsuit against the providing physician. After a claim is filed in this case, any settlement or final judgement will likely involve a payout of a sum of money, on top attorney fees for the defense process. This can all be very costly, so an insurance policy is really a safety net in the event of a lawsuit so that the individual or entity being sued is not the sole bearer of the entire cost. This safety net is meant to protect your organization’s assets, or keep your institution running if you don’t have sufficient assets to cover the payout on your own.
While injuries are often the first risk we think of when considering the risks of clinical research, lawsuits can arise with other clinical trial risks. Property damage, the misuse or disclosure of data, intellectual property infringement, or non-compliance with laws, among a variety of others.
Insurance Basics: Know the Terms
Before we get into some of the specifics of the language provisions in research contracts, it’s important to have a basis for the meanings behind some of the most common insurance terms and understand how these apply to the services delivered by your organization during a clinical trial.
1. Fully-Insured and Self-Insured
As the two primary types of insurance plans, these terms speak to the source of the funds available for a claim when an insurance policy is required to pay out. With a more traditional fully-insured plan, an entity (research organization) pays premiums to an insurance company based on the insurance provider’s risk pool (among other factors). The insurance company is responsible for managing the funds and assumes the risk for paying all claims-related expenses.
A self-insured plan means that the insured entity is the holder of the plan and is responsible for paying the cost the claims. Rather than paying premiums to an insurance company, the organization essentially pays premiums to itself, building its own source of funding for claims payouts. If no claims occur, the organization benefits from saving the cost of premiums that would have been paid to an insurance company under a fully-insured plan. Most self-insured plans have a saturation point indicating the amount the organization could pay for claims before risking its assets. At that point, an insurance policy would kick in. This is known as stop-loss coverage.
2. Per-Occurrence and Aggregate (or Annual Aggregate) Limits
The per-occurrence limit is the size of the pool of money available to pay a single claim, while the aggregate (or annual aggregate) limit refers to the overall amount available to pay all claims in total. As you can imagine, the per-occurrence limit is lower than the annual aggregate; if the organization has a per-occurrence limit of $1 million per claim and a $5 million-dollar annual aggregate, it can afford to cover five $1 million dollar claims in one year before no claims would be covered.
3. AM Best Rating of Financial Size Category
AM Best is a credit rating organization that focuses on insurance companies. By imposing a certain rating or financial size requirement in a contract, your organization will essentially gain some extra protections from an insurer’s financial strength and creditworthiness. A newer/smaller insurer may end up folding because it failed to underwrite premiums correctly and isn’t able to absorb the claims it has promised to pay. Requiring a larger, more experienced insurer mitigates that risk.
4. Claims-Made vs. Occurrence-Based
These terms reference the policy type and timeframe limitations for claims. A claims-made policy will only cover a claim that is asserted during the policy term. An occurrence-based policy will cover a claim that is asserted at any time, so long as the incident or injury actually occurred during the term the policy was in effect.
5. Tail Coverage
This is additional coverage that can be purchased to cover claims asserted after the policy term in a claims-made policy. It is important to think about tail coverage when considering potential side-effects of investigational drugs, which may not surface for months or even years after the study has ended. This coverage can be purchased for a limited number of time after the study (i.e. five years), or you can pay higher premiums for higher coverage. The length of the tail should correspond to the risk level of the study.
6. “Insured” or “Named Insured” and “Additional Insured”
Insured or named insured refers to the entity specifically covered by a policy, whereas additional insured is someone who is added to the policy in addition to the named insured. This is done via endorsement or through the contract/written agreement. Your broker and legal counsel can help determine if another entity should be covered under your policy and how to do this.
Specific Policies in Clinical Trials
1. Commercial Liability
It’s beneficial for both sites and sponsors to have commercial general liability insurance, as this covers claims for injury or property damage arising from daily operations—regardless of whether these claims are related to clinical research.
2. Product Liability
This is coverage for a drug or device-specific study. Typically, this policy is held by the manufacturer of the product, but in the case of clinical trials, this policy can be held by other entities to protect from any risk assumed by administering another company’s drug or device.
3. “Clinical Trials Insurance”
This is a more generic term used when discussing contract language, and it could mean a few different things. For instance, it could refer to the medical malpractice insurance for the investigator, as many medical malpractice policies don’t specifically include research, and it could also refer to the sponsor’s liability insurance—the lines of coverage for the product and the protocol.
4. Umbrella Coverage
Coverage above and beyond a policy’s claim limits that protects against any claims of unprecedented amounts. An organization may have a $1 million per-occurrence, and a $5 million annual aggregate policy with an $8 million umbrella that kicks in if claims exceed these policy limits.
5. Professional Liability, Medical Malpractice, and Errors and Omissions
In many contexts, these can be used interchangeably. For each, the objective is the same: to keep the organization in operation if a client (patient) is harmed by a major mistake made by someone offering services on behalf of your business.
6. Indemnification Insurance
This refers to contractual liability. When an entity in a contract is promising to indemnify the other party, the other party wants to be sure that the coverage in place will cover those obligations. An agreement to indemnify a party in a contract may be an exclusion on a commercial general liability policy, so the concept of the indemnification insurance could refer to a separate line of coverage for contractual liability, or an actual circumstantial change to a policy—called an endorsement—that would include these liabilities assumed under the contract.
Exclusions to liability may include liability assumed under oral or written contract because an insurance company expressly does not want to pick up the cost of defending or indemnifying another party. Some policies may state something like, “where required under contract,” though this might look different from policy to policy.
As a side note, breaches of an agreement can affect what an insurance company will cover. If a sponsor breaches an agreement and a claim is then filed against the research organization running the sponsor’s study, their insurance carrier may not agree to cover the claim—even if the sponsor accepted indemnification in the contract.
7. Cyber Liability
This generally covers your organization’s liability for a data breach involving personal information, such as health records and Social Security, credit card, or account numbers.
Even if the sponsor stores electronic case report forms (eCRFs) on a local server once received and aren't providing the cyber environment/electronic data capture (EDC) to the site - that can be hacked. The sheer cost of employing the legally-required security measures in the event of a breach puts a large number of affected businesses out of business each year. A site may want to make sure they don't have to financially shoulder the burden if the sponsor isn't insured for those legally-required measures, since it would be very likely they could fold.
How to Set Your Policy Limits
Now that we’ve established a basic definition of common clinical trial insurance terms and policy types, how do you determine the appropriate policy limits for your organization? You must first assess the risk involved in the study and the liability you are being asked to assume under the contract.
You can assess risks by determining:
The party agreeing to pay for claims
Whether the study is testing a drug, device, or is simply a data collection study
The phase of the study—Phase I studies are inherently riskier than post-market studies
A best practice is to create “buckets” of risk levels and set insurance level requirements for each. For example, you may decide that Phase II studies must always be insured with limits of $5 million per-occurrence and $10 million annual aggregate, but only $2 million per-occurrence and $4 million aggregate for post-market studies. If you check the protocol, identify which risk bucket it falls into, and you only have to plug those numbers into the contract rather than reinventing the wheel.
It’s also important to know your own insurance limits and identify your level of risk aversity, which can be unique for each business depending on size, number of studies being conducted, location, patient population, and/or study type. Consult your risk management and legal teams to identify how much risk you are able to absorb.
When negotiating on behalf of a client, we typically request that sponsors have clinical trials liability and general commercial liability insurance policies for any device or drug studies. These policies should be broad form and cover contractual liabilities as well, although the sponsor (not the research organization) is responsible for any out-of-pocket coverage should they fail to include these coverage terms in their policy.
Sponsors are often willing to accept a site’s insurance terms—if they make the terms mutual. A small, research-only site likely does not have the buying power for a policy with the high dollar limits of a large pharmaceutical company. So, to approach these negotiations, look at the assumed risk. Evaluate who—between the sponsor, the drug manufacturer, or the entity that stands to commercially benefit from the research—will assume indemnification and subject injury obligations under the contract.
If the manufacturer of the drug is the entity that stands to commercially benefit from the research, don’t agree to let the sponsor come down in insurance limits to match the limits of the research organization. In this case, it’s fair to request that the sponsor impose limits that match the risk it’s assuming and the benefit it stands to gain.
When it comes to making sure a liability policy will cover all entities the contract assumes liability for, the term “agents” can create a gray area in contracting based on the interpretation of the term. If an agent isn’t specifically an officer or employee of the party, there’s a chance the insurance coverage won’t include them in a claim. If a party is agreeing to indemnify another party’s agents, they want to know exactly how to define those agents so they can have them endorsed onto the policy as “additional insured.”
Sponsors that require “approved” agents aren’t necessarily trying to police who a site uses. They want to make sure they are covered under the insurance policy for the trial – the best way to do that is by adding each individual to the policy so there are no gray areas. Some sponsors don’t have room for a gray area due to their size or financial power.
Risks Depend of Sponsor Size
Risks change depending on the size of sponsor. With a large sponsor, trials are ongoing and they may have more funds available to cover more comprehensive coverage premiums. Also, a large sponsor is likely to have a large asset pool if coverage is insufficient, and their established business practices or products indicate longevity. If your study sponsor is small, there is a higher likelihood that this might be their first or only trial. Coverage may be limited to the premium your sponsor can afford, and the smaller size and likely young age means that few to no assets exist in the event that coverage would show to be insufficient. Unsuccessful trials or claims can extend past coverage limits, and liability could become a general ledger expense, leading the sponsor to fold.
Adding language asking to be a named insured-- and ensuring they have good termination rights—should leave your organization in a good position. To some extent working with small sponsors is a risk regardless of the language—if they fold, there isn’t an entity to hold responsible. If this happens, at least you know you will not have to assume their liability, and you won’t have to continue a study if payments aren’t being made.
Do your research! Look up the sponsor’s business information to properly assess the risk.
Duration of Coverage – What Claims can Arise After a Study Ends?
The duration of coverage depends on the type of study being conducted. There are several reasons you might want to consider coverage post-study, such as injuries or side-effects from experimental treatments that take a while to manifest, data breaches that affect stored patient records, or other claims that might take a while to materialize, such as the misuse of results well after a study is closed.
Another factor that will affect whether your trial coverage should run post-study is if your policy is claims-made or occurrence-based. Duration and post-study obligations aren’t as important for sites who either don’t have study-specific coverage or have coverage that applies to any future studies. As long as site remains in the business of conducting research, this coverage will be in place anyway; however, if a sponsor has study-specific coverage and claims may not arise until far after study closes, this makes post-study coverage important.
When carrying out clinical trials, mitigation of the risks to your organization must be carefully considered. Study type, phase and sponsor size should all factor into your assessment of the level of risk your research organization must cover in each individual trial, and a thorough understanding of the insurance provisions of your research contracts can help you better protect your institution and your patients.