Makers of dietary supplement facing scant liability coverage

Source: Crain Communications

Business Insurance: With the stimulant cited in numerous wrongful death suits and linked by some to the high-profile deaths of college and professional athletes, manufacturers and distributors of dietary supplements containing herbal ephedra or the alkaloid ephedrine are facing a difficult, if not impossible, product liability insurance market.

"If you take the words 'ephedra' and 'ephedrine' out, there's a market," said Keith Feickert, a casualty broker at Swett & Crawford Group in Los Angeles. ``You put those two words in and there's no market."

Product liability insurers are essentially taking ephedra or ephedrine out of their coverages, excluding products containing them by endorsement, said Craig Simon, senior vp and head of the large account casualty marketing practice at Willis in New York.

"The ones that I have seen, they're doing specific exclusions for ephedra and ephedrine-based products," he said.

"I've worked on five or six accounts in the past six months and nobody would do it without putting an exclusion on," Mr. Feickert said.

In one case he's aware of, a company did get product liability coverage for ephedra products, but only by staying with an insurer whose rating had dropped into the B range and at a higher deductible, he said.

"I know of one account that was just renewed with a B carrier with a $1 million deductible," Mr. Feickert said. "They stayed with it even though it was a B carrier, just to have the coverage."

The problem facing dietary supplement companies has become so serious that many routinely note in financial statements that the adequacy and availability of insurance coverage for ephedra products may affect their future results.

Ephedra is found in hundreds of products including diet pills and supplements used to boost energy or to enhance workouts or promote body building, as well as over-the-counter nasal decongestants and asthma medications.

Though the products in question are typically marketed as dietary supplements and consequently are not subject to federal Food and Drug Administration pre- market review, for several years the FDA has been collecting information on "adverse events" linked to ephedrine.

Those events include "nervousness, dizziness, tremor, alternations in blood pressure or heart rate, headache, gastrointestinal distress...chest pain, myocardial infarction, hepatitis, stroke, seizures, psychosis and death," according to the agency, which has called for limits on the amount of ephedrine in dietary supplements, and for warning labels on the products.

Last summer, questions over whether ephedra had contributed to the deaths of two football players-Northwestern University's Rashidi Wheeler and the Minnesota Vikings Korey Stringer-during workouts cast additional attention on the stimulant.

While a medical examiner ruled Mr. Wheeler died from a chronic asthma attack, Northwestern sued the makers and distributors of supplements the defensive back took before the practice to recover any judgment levied against the university in a wrongful death suit filed by the football player's mother.

Medical examiners ruled Mr. Stringer's death was the result of complications from heatstroke. But, while the Vikings have not linked ephedra to the lineman's death, the team said ephedra supplements were in his locker the day he died.

The National Collegiate Athletic Assn., the National Football League and the International Olympic Committee all prohibit the use of ephedra, and the NFL recently announced plans to begin testing players for the substance in July.

"Our industry has serious problems in diet (supplements) specifically, most of that due to the ingredients ephedra or ma huang," which is a Chinese herb containing ephedrine, said Chris Tisi, chief executive officer of Health & Nutrition Systems International Inc.

Based in West Palm Beach, Fla., HNSI develops and markets weight management products in over 25,000 health, food and drug store locations.

For dietary supplement companies with ephedra products, insurance issues have "become a very material part of our business," Mr. Tisi said. "I've seen the insurance issue just grow over the years, and it's become a real problem in the last year."

"Some of those companies that do have insurance, maybe they have 10 brands and the six that don't contain ephedra have coverage and the four that do don't have coverage," Mr. Tisi said.

"Basically, if the product was regulated by the FDA, most likely it already would have been banned," he said, adding that "that doesn't mean" such a ban would be justified.

Willis' Mr. Simon said that while problems getting coverage for ephedra products are beginning to get more attention, it has been an issue for many companies for the past two years.

"Where you may be able to get some relief is up in the higher excess layers," he said. "You'd have to get it specifically covered." Finding such excess layer coverage is difficult, Mr. Simon said, "But down low it's impossible."

While his company has several ephedra products, Mr. Tisi said his company also has become "sort of a leader in the non-ephedra diet supplement market," Mr. Tisi said.

HNSI has been able to obtain product liability coverage on its entire range of products, but only after being very "pro-active" in making the company's case to insurers about its product testing and other risk management procedures, Mr. Tisi said.

"Our company hasn't had a problem," he said. "As a matter of fact, we were able to secure an extra $5 million in product liability coverage at a time when most other companies were being dropped or being priced out of the market."

"I can't tell you that next year I won't have a problem, but this year I don't have a problem," Mr. Tisi said.

Cam Monk, a senior vp and mass tort practice leader at Marsh Inc. in San Francisco, said he's not sure the problems facing ephedrine products will reach the mass tort level like those that have caused serious product liability insurance issues for some other products.

"The real question is whether ephedrine will ever get to that status," he said. "There's evidence that the product may have caused some problems, but whether the plaintiffs' bar will ever get to that state with it, I think the jury's still out."

"I don't know if for ephedrine you're going to see a concerted effort mounted, because at this point I don't think there's sufficient evidence," Mr. Monk said. And, he added, "For something to really get to class status, the plaintiffs bar has to believe there's a cash cow out there. I'm not sure it's to that point yet."

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