Pharmacy Law: Liability Coverage for Contaminated Compounds

Pharmacy Times
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When medication dosage forms compounded by a pharmacist are found to be contaminated, does a professional liability policy provide coverage for the pharmacist?

Dr. Fink is professor of pharmacy law and policy at the University of Kentucky College of Pharmacy, Lexington.

Issue of the Case

When medication dosage forms arecompounded by a pharmacist whohas a professional liability insurancepolicy and those injectable productsare found to be contaminated, doesthe insurance policy cover this, or iscoverage excluded under the provisionaddressing willful violations of law?

Facts of the Case

The injectable dosage form of methylprednisolonewas discontinued by amanufacturer, and several medicalpractices contacted the pharmacy toinquire whether it could compoundthe product for their use. The pharmacistsin a southeastern state respondedto this request, preparing morethan 1000 vials. Patients who receivedthe injections contracted fungal meningitis,and some died—allegedly asa result of using the medication. Thestate board of pharmacy conductedan investigation and concluded thata fungus mold linked to spinal meningitiswas in the product. The boarddid, however, conclude that this activitywas properly categorized as compoundingrather than manufacturing,because the products were not resoldor used outside the medical practicesthat bought them.

The insurer had issued an individualpharmacist liability insurance policyto the pharmacist-in-charge, not to thepharmacy business enterprise, and itwas the coverage of that pharmacist'spolicy that was the central issue. Therelevant language in the policy specifiedthat it applied to losses from occurrencesor personal injuries "arising outof your rendering or failure to renderpharmacy services" during a specifiedone-year time period.

The insurance company argued thatthe pharmacist was not engaged inthe practice of pharmacy at the timethe offending products were produced;rather, the pharmacist was engagedin manufacturing, a specific exclusionin the policy language. This insurancecompany filed an action in federal trialcourt seeking a declaratory judgmentthat the coverage of the insurancepolicy did not extend to these events.A declaratory judgment is a requestthat, absent a case or controversy to bedecided by the court, the judge declareor state what the law is on a particularpoint or issue.

The judge concluded that the insurancepolicy did cover the incidents atissue here. The insurer disagreed andappealed to the US Court of Appeals.

The Court's Ruling

The appellate court affirmed the decisionof the trial court that the policycoverage was available to the pharmacist.

The Court's Reasoning

The court first reviewed the argumentthat the policy's exclusion for "willfulviolations of law" acted to eliminatethe availability of insurance coveragefor these professional lapses. Theinsurance firm presented evidence thatthe pharmacist had indeed violatedthe state's pharmacy practice act butput forth nothing supporting an inferencethat the pharmacist broke thelaw deliberately. The court noted that"Given the ease of inadvertent violation,the leap from a bare violation toa conclusion of willfulness was toospeculative?."

The issue of compounding versusmanufacturing also was considered.Here, the court concluded that the "productionand distribution of the drugconstituted permissible compounding,rather than manufacturing." Lack ofpromotional activities was pivotal. "Therecord did not contain evidence thatthe pharmacy or its employees soughtto promote the specific drug product?triggering the definition of manufacturingunder state law, rather than simplypromoting the fact that they providedprescription compounding services."

Finally, there was an issue of timing.Several of the injured patients receivedan injectable medication that was compoundedand injected before the coverageyear of the policy. The insurancepolicy was an "occurrence policy,"meaning that coverage applied to anyoccurrence during the policy period.On the surface, that would appear tomean that, because the compoundingerror and subsequent injection intothe patient both took place before thepolicy period, the coverage would beunavailable. That was the view of theinsurance company.

For this policy, however, the relevantwording was, "?Occurrence' is definedas ?an act of rendering or failure to renderpharmacy services which resultsin bodily injury or property damage?during the policy period.'" The courtpointed to prior case decisions in thestate that clearly indicated that thiswording meant that the insurance coveragewas available for all damagethat occurred during the policy period,even if the compounding and injectionsleading to the damage occurred beforethe policy took effect.

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