Dr. Fink is professor of pharmacy law and policy at the University of Kentucky College of Pharmacy, Lexington.
When medication dosage forms are compounded by a pharmacist who has a professional liability insurance policy and those injectable products are found to be contaminated, does the insurance policy cover this, or is coverage excluded under the provision addressing willful violations of law?
The injectable dosage form of methylprednisolone was discontinued by a manufacturer, and several medical practices contacted the pharmacy to inquire whether it could compound the product for their use. The pharmacists in a southeastern state responded to this request, preparing more than 1000 vials. Patients who received the injections contracted fungal meningitis, and some died—allegedly as a result of using the medication. The state board of pharmacy conducted an investigation and concluded that a fungus mold linked to spinal meningitis was in the product. The board did, however, conclude that this activity was properly categorized as compounding rather than manufacturing, because the products were not resold or used outside the medical practices that bought them.
The insurer had issued an individual pharmacist liability insurance policy to the pharmacist-in-charge, not to the pharmacy business enterprise, and it was the coverage of that pharmacist's policy that was the central issue. The relevant language in the policy specified that it applied to losses from occurrences or personal injuries "arising out of your rendering or failure to render pharmacy services" during a specified one-year time period.
The insurance company argued that the pharmacist was not engaged in the practice of pharmacy at the time the offending products were produced; rather, the pharmacist was engaged in manufacturing, a specific exclusion in the policy language. This insurance company filed an action in federal trial court seeking a declaratory judgment that the coverage of the insurance policy did not extend to these events. A declaratory judgment is a request that, absent a case or controversy to be decided by the court, the judge declare or state what the law is on a particular point or issue.
The judge concluded that the insurance policy did cover the incidents at issue here. The insurer disagreed and appealed to the US Court of Appeals.
The appellate court affirmed the decision of the trial court that the policy coverage was available to the pharmacist.
The court first reviewed the argument that the policy's exclusion for "willful violations of law" acted to eliminate the availability of insurance coverage for these professional lapses. The insurance firm presented evidence that the pharmacist had indeed violated the state's pharmacy practice act but put forth nothing supporting an inference that the pharmacist broke the law deliberately. The court noted that "Given the ease of inadvertent violation, the leap from a bare violation to a conclusion of willfulness was too speculative?."
The issue of compounding versus manufacturing also was considered. Here, the court concluded that the "production and distribution of the drug constituted permissible compounding, rather than manufacturing." Lack of promotional activities was pivotal. "The record did not contain evidence that the pharmacy or its employees sought to promote the specific drug product? triggering the definition of manufacturing under state law, rather than simply promoting the fact that they provided prescription compounding services."
Finally, there was an issue of timing. Several of the injured patients received an injectable medication that was compounded and injected before the coverage year of the policy. The insurance policy was an "occurrence policy," meaning that coverage applied to any occurrence during the policy period. On the surface, that would appear to mean that, because the compounding error and subsequent injection into the patient both took place before the policy period, the coverage would be unavailable. That was the view of the insurance company.
For this policy, however, the relevant wording was, "?Occurrence' is defined as ?an act of rendering or failure to render pharmacy services which results in bodily injury or property damage? during the policy period.'" The court pointed to prior case decisions in the state that clearly indicated that this wording meant that the insurance coverage was available for all damage that occurred during the policy period, even if the compounding and injections leading to the damage occurred before the policy took effect.