Preparation to Carry Out the Insurers' Responsibilities

Subsequently in September 1976, and almost as soon as

the insurance underwriting commitments were certain, four of the principal subscribing insurers met to plan for the efficient and economical investigation, adjustment and defenses of claims or potential claims against their insureds. Each of the more than forty subscribing insurers is entitled to a voice in such matters should they arise and as they affect its interest. Consequently, it was essential to have in place in advance a common, indeed centralized, generally agreed upon procedure, so that expense and duplication of effort might be avoided in, and unified supervision provided for, claims servicing.

Those four insurers met on several occasions, discussed proposed procedures with Neil R. Petersen, Assistant Chief, Tort Section, Civil Division, Department of Justice, and during October prepared a Servicing Carrier Agreement which was distributed to the 19 insurers subscribing to the first layer of coverage. A transmittal memorandum dated November 10, 1976 outlined the claims administration procedures proposed. of that memorandum and one of the Servicing Carrier Agreements are annexed as exhibits hereto.

A copy

Each of the 19 insurers subscribing to the first layer

of coverage executed and returned the agreements to the insurers'

Claims Administration Committee.

the Committee.

Several other insurers joined

The Committee, as then permanently organized

under the Chairmanship of Aetna Casualty & Surety Company, retained the Hogan & Hartson law firm to maintain regular liaison on its behalf with Mr. Petersen's office at the Department of Justice and to assist the Committee in monitoring incidents which might give rise to claims against the manufac

turers under P.L. 98-340.

While the Committee has not yet had any such incident called to its attention, close to a thousand claims, we are informed, have been filed so far under P.L. 98-340. The Committee continues, and expects to continue indefinitely, to perform its functions of oversight and readiness to respond as required by the agreements among the participating insurers.

Mr. Chairman, and members of the Subcommittee, we appreciate the opportunity to make this report today.

Respectfully submitted,

/jdw

attachments

T. Lawrence Jones
President

Alternative #1

1.

Insurers issue 125 million products liability coverage

to cach manufacturer, including all claim expense in the

$125 million aggregate limit.

2. Policy covers the manufacturer and anyone else other than the government who is legally liable for injury resulting from the vaccine and its administration. The policy is primary to all other applicable insurance.

3.

4.

5.

The premium for the first $10 million is determined on a cost basis and paid by the manufacturer,

The premium for $40 million excess of $10 million is determined on a cost basis with a minimum premium of $2 million and a

maximum premium of $30 million (again, paid by the manufacturer). The government "reinsures" the policy 100 percent excess of $50 million aggregate.

6. The term "aggregate" includes indemnity, allocated loss expense,

Alternative #2

1. Aggregate limit of $50 million shared by the four manufacturers

2.

and protecting only the manufacturers from third party claims

(subject to mutually acceptable IIEW contract dividing all

responsibilities).

Government pays on behalf of the manufacturers

in excess of the $50 million aggregate limit.

The premium for the $50 million coverage is determined as follows: $1.20 for each $1.00 of indemnity or expense subject to $2 million

minimum and $40 million maximum.

3. Each manufacturer obtains its own excess insurance program protesting it from a government claim for "bench error. The suggested amount

4.

of coverage is $50 million for each manufacturer (including defense cost regardless of outcome) with a cost estimated to be $375,000 per manufacturer.

The term "aggregate" includes indemity, allocated claim expense, and unallocated claim expense.

Alternative #3

1.

Government restricts by contract and legislation the liability

of manufacturers to failure to manufacture vaccine according to

specifications.

2. Individual manufacturer purchases insurance to cover this retained liability only when government successfully asserts failure to

3. Industry offers to provide claim investigation service for third party claims if requested.