What Should Life Sciences Companies Do To Best Prepare Themselves In Anticipation Of Litigation?

Answer: Litigation is an unwelcome occurrence for life sciences companies operating in today’s litigious environment. There are several things responsible companies can do to ensure they are ready to defend themselves if or when a lawsuit is served on them.

Notice/Response Considerations

It is important to understand that the receipt of a lawsuit starts the clock ticking on your time to respond, and you must act quickly upon receiving notice. You may have had indicia (like a customer complaint) that a lawsuit may be forthcoming, or the lawsuit itself may be your first notice of an alleged adverse event.

Here is a quick checklist for the actions to take immediately following receipt of a lawsuit:

1. Review the contents of the suit and consider applicable deadlines.

2. Review insurance coverage and report the claim as soon as reasonably possible.

3. Consider the potential application of other insurance.

4. Determine applicable regulatory reporting requirements and report appropriately.

5. Meet with litigation counsel.

1. Consider applicable deadlines - the clock starts ticking upon service.

The moment you receive service of process, the clock starts ticking on when you must respond. To do business in a state, each company must have an authorized agent or employee that can receive service of lawsuits in that state. (For many companies, it is often another company that is designated as the proper channel for lawsuit receipt, such as CT Corporation.)

There is no hard-and-fast rule for how long a company has to respond to a complaint, once served. The amount of time varies by jurisdiction. In federal court, for example, you have twenty days to file a responsive pleading. Most state courts vary from 20-30 days. If the company fails to file a response by the deadline, there is a chance that the company will “default," losing the case right up front. There are often ways to cure a default, but this is generally a risk life sciences companies should not take, as their ability to stay in the case is at the discretion of the court once they have failed to meet the deadline to file a responsive pleading.

In addition to the deadline to file a responsive pleading, there is a narrow window of time in which a case can be removed to federal court (assuming the case is brought in state court). That deadline is also triggered upon service of the complaint on the defendant. In general, removal to federal court is possible so long as all of the defendants are citizens of different states than the plaintiff(s) (i.e., there is complete diversity), no defendant is a citizen of the forum state where the lawsuit was brought, and the amount in controversy is greater than $75,000. Removal may also be possible if there is a "federal question" involved in the case.

There are many reasons federal court can be more desirable to corporate defendants than state court, depending somewhat on the jurisdiction. Some of these benefits include:

• Discovery rules are applied with greater uniformity and consistency in federal courts than in state courts
• Federal court judges are generally more sophisticated and objective, whereas relationships between plaintiffs’ counsel and judges are more common at the state-court level
• Federal courts draw from a larger jury pool, often allowing for a more heterogeneous jury

Because such factors can have significant impacts on the costs and time of carrying out the case, and indeed even the outcome of the case, it is important to consider removal promptly upon service of the complaint so you are not foreclosed from doing so later. A notice of removal to federal court generally must be filed within 30 days of service of the lawsuit.

2. Review insurance coverage and report claim as applicable.

Another important step to take immediately after receiving service of a complaint is notify your insurer. Among the information you should expect to provide your insurer is the copy of the complaint.

Your policy may have specific requirements for how claims are reported, and most require reporting “promptly” or “as soon as is reasonably possible” in order to preserve coverage.

It is also important to note that a “claim” is often defined, as it is in the Medmarc policy, to include more than just service of an actual lawsuit. Indeed, a demand for money or services is also a “claim,” and must be reported. If such a demand is not reported, and it materializes into a lawsuit in a later policy period, your company's coverage for this lawsuit may be at risk.

Should you receive a complaint, your insurance broker can assist you with notifying your insurance carrier and meeting your reporting obligations under the terms of your policy.

3. Consider potential application of other insurance.

Depending on the content of the lawsuit, it is also important to consider whether other insurance may provide coverage, and you must note and comply with the corresponding reporting requirements of those policies. This may be especially applicable if the lawsuit(s) include allegations against individuals at the company or if the claim exceeds the limits of the company’s primary policy.

Depending on the facts of the suit, other insurance coverages that may be implicated include:

• Errors and Omissions (E&O)
• Directors and Officers Liability (D&O)
• Comprehensive General Liability (CGL)
• Excess/Umbrella

Your broker will be especially helpful in this situation, and can assist with determining whether other policies may be implicated by the lawsuit, and what your reporting duties are. When you have several policies that may be at play, it may be worthwhile to engage a coverage lawyer to discern the applicable coverages and your corresponding notice obligations.

4. Determine applicable regulatory reporting requirements and report appropriately.

Although most life sciences companies have an established complaint-handling department that is tasked with fielding customer/user complaints and determining whether each requires reporting to the FDA, a lawsuit does not often come through this department, and thus may escape reporting. There should be a mechanism within the company to make sure that a lawsuit also triggers applicable regulatory reporting.

Medical Device Reporting (MDR) regulations require that manufacturers “report to the FDA when they learn one of their devices may have caused or contributed to a death or serious injury. Manufacturers must also report to the FDA when they become aware that one of their devices has malfunctioned and would be likely to cause or contribute to a death or serious injury if the malfunction happened again.”

In addition to satisfying your regulatory obligations, prompt reporting to the appropriate regulatory authority may also become evidence in the course of litigation. While being able to demonstrate that you promptly and appropriately reported the incident that was the basis for a lawsuit may show nothing more than that you’re a compliant corporate citizen, the absence of such a report can be exploited by plaintiff’s counsel, and might be damaging to the jury’s perception of your company.

5. Meet with litigation counsel.

Lastly, it is imperative to engage litigation counsel—which your insurer will likely do for you—early in the suit so as not to be disadvantaged by inadequate preparation time.

At the outset—even before the first responsive pleading is filed—you will want to establish a comprehensive strategy for case resolution with outside counsel. Among the most important considerations in developing this strategy are the following:

• How strong a claim is it?
• Is this a one-time problem, or do you expect more claims?
• What damages are involved and how substantial is a damages award likely to be?
• Who else is involved? Are there other companies involved—other potential defendants with whom liability can be shared?
• Are there any problems with your insurance coverage for this claim?

How these questions are answered may determine whether it is best to settle, mediate, or litigate the claim.

Additionally, there are issues that materialize when an adverse event becomes a lawsuit that outside counsel is in the best position to advise you through—things such as preservation of evidence and the corresponding spoliation concern, including the use of litigation holds.

Conclusion

Although litigation may be among the unavoidable costs of doing business for life sciences companies today, there are several steps companies can take to ensure that they are prepared to respond to litigation appropriately to minimize its adverse effects on the company and the company’s bottom line.