Abstract: A life sciences broker recently contacted Medmarc regarding a company that was interested in expanding into the medical device supply market. The company was under the mistaken impression that it did not need to purchase products liability insurance because biomaterial suppliers are protected under the Biomaterials Access Assurance Act (BAAA) of 1998. While this act does provide substantial protection to biomaterials suppliers, it does not provide absolute immunity from liability. There are a number of circumstances under which a supplier could find itself outside of BAAA’s protective shield and vulnerable to expensive liability lawsuits. In addition, a company that is under the protection of the BAAA still can incur legal fees while in the process of convincing a court that they merit such protection. This article discusses the BAAA, explaining the reasons for its creation, the requirements to qualify for its protection, and a few ways companies can minimize risk beyond the legal protection of the BAAA.
In 1982, DuPont began supplying small amounts of Proplast—a Teflon composite—to a jaw implant manufacturer named Vitek. The end product, a joint cushion, was implanted in thousands of patients with temporomandibular joint (TMJ) problems. However, in many of these cases the implant materials fragmented, causing searing pain and hindering jaw function. By 1988, several lawsuits had been filed against Vitek, and the product was pulled from the market. Hundreds of cases followed thereafter and, in 1990, Vitek declared bankruptcy. Plaintiff attorneys shifted attention to DuPont to recover damages. DuPont spent eight million dollars annually for five years to defend its role in supplying Teflon to the manufacturer. In 1994, DuPont stopped supplying materials used in medical implants altogether, claiming the profits were insufficient to justify risking excessive litigation fees.
DuPont was not alone. In the early 1990s, biomaterials suppliers – suppliers of component parts and raw materials used in implantable medical devices – were rapidly pulling out of the U.S. medical device market, citing rising liability costs as the reason. One report claimed that seventy-five percent of suppliers of implantable medical devices had banned sales to U.S. device manufacturers. In response to this growing crisis, Congress determined that biomaterials suppliers warranted special protection from excessive litigation expenses. They reasoned that the suppliers’ role in providing life-saving and life-enhancing medical devices—as well as the economic impact of their withdrawal from the market—called for federal action.
In 1998, Congress created a federal protection for biomaterial suppliers by passing the Biomaterials Assurance Access Act (BAAA). The BAAA states that a biomaterials supplier will not be liable for harm to a claimant caused by an implant unless the supplier acts as a manufacturer or seller of the implant, or if the supplier fails to furnish raw materials or component parts that meet applicable contractual requirements.1 The BAAA also provides biomaterial suppliers with expeditious procedures to dispose of unwarranted liability lawsuits at a reasonable cost, allowing them to escape from litigation aimed primarily at the device manufacturer. In essence, the BAAA gives biomedical suppliers a protective legal shield from liability caused by implants that were assembled by manufacturers using their parts or materials. The act assures the continued supply of materials for lifesaving medical devices.
Illustration: Supply Inc. is a raw materials supplier of titanium alloys—metals used in a wide variety of products, such as airplanes, sports cars, and consumer electronics. It considers expanding its market to include medical devices and has an opportunity to supply a particular alloy to MedCo, an intra-vascular stent manufacturer. Supply Inc. is concerned about the potential liability associated with products liability lawsuits against MedCo and initially concludes that the liability risks do not outweigh the benefits. However, Supply Inc. soon learns that biomaterials suppliers have special legal protection under the BAAA, significantly decreasing their potential liability. Supply Inc. ultimately decides to supply the alloy to MedCo.
While the BAAA provides broad protection to biomaterials suppliers, such protection is not absolute. There are four situations under which a supplier may be liable for damages.2
Exclusion 1: Acting as a Manufacturer
A company that supplies biomaterials may be denied liability protection under the BAAA if it also acts as the manufacturer of the implanted device. A company qualifies as a manufacturer if it meets a three part test:
Exclusion 2: Acting as a Seller
A biomaterial supplier may also be liable for damages if it acts as a seller of an implant. If the supplier holds title to an implant then acts as a seller of the implant after the manufacturer initially sold it, the supplier will be considered a seller for BAAA purposes. Additionally, if a supplier acts as a seller under contract to coordinate the direct transfer of the implant to the claimant after the manufacturer first sold it, the supplier will also be considered a seller.
Exclusion 3: Non-Conforming Specifications
Biomaterials suppliers that fail to meet the contract specifications of the manufacturer may also be liable if the failure caused the plaintiff’s injury. For example, if a supplier provides a synthetic hormone to a drug company whose specifications require a natural hormone, the supplier will not receive BAAA protection if it is later discovered that the substitution caused adverse reactions in patients.
Exclusion 4: Economic Ties
Lastly, if the biomaterials supplier has substantial economic ties to the manufacturer or seller, it is not protected by the BAAA. For example, if the supplier is found to be related by common ownership or control to a seller or manufacturer, the court may impose liability on the biomaterials supplier if the other entity lacks the resources to allow a claimant to recover damages.
Upon receiving notice of a complaint, a biomaterials supplier may file a motion to dismiss or a motion for summary judgment with the court. These motions, which may be supported by affidavits, must demonstrate that the supplier is truly not a manufacturer or seller of the end product and that the materials it supplied met the required manufacturers’ specifications. When such a motion is filed, the plaintiff may only obtain discovery to the extent necessary to determine whether the supplier should be included as a defendant in the case. This expedited process saves biomaterials suppliers a substantial amount in legal fees associated with the discovery process.
While the BAAA does provide a substantial shield to qualified suppliers, it is important to note that they will still have legal costs associated with filing the necessary motions. Suppliers must still go through the process of demonstrating to the court that they are truly just a supplier of the product. They may also be involved in some limited discovery if the plaintiff tries to prove the company deviated from the contractual requirements or specifications. Given the potential costs of defending suppliers under the BAAA, biomaterials suppliers should consult with their insurance brokers to determine which products liability policies would be appropriate.
Biomaterials suppliers need not rely solely on the BAAA for liability protection. There are a number of risk management practices a supplier can implement in order to minimize products liability risk, such as the following: