Pharmaceutical Indemnity A Bane Or A Boon In The Pandemic Era
The pharmaceutical industry is a trillion-dollar industry worldwide. In India
alone, its valuation stands at over 18 billion dollars. It is the industry that
works towards researching, discovering, and developing pharmaceutical drugs to
be used as medicines by patients. These drugs can be of several kinds. They may
be curative drugs, vaccination drugs, or drugs that simply ease the symptoms of
certain diseases.
The pharma industry is an extremely profitable industry. In fact, it is not hard to guess that large pharma companies have profited a lot since the beginning of the Covid-19 pandemic. One must think that an industry that puts in so much research and work into trying to make lives better for people, often increasing their life expectancy, should be protected against arbitrary lawsuits filed by people, which will compel them to pay big damages.
Therefore, an insurance of indemnity exists in the medical and pharma fields. This has been especially true during the current pandemic, with most vaccine manufacturers demanding indemnity for their vaccines. But what happens to people who are adversely affected by the vaccines made by the pharma companies? An indemnity clause for a vaccine-making pharmaceutical company is crucial for them and can even be beneficial for those who receive doses of the vaccine.
But what is indemnity? The Indian Contract Act defines the contract of indemnity as a contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person[1]. A contract of indemnity has two parties, where one is the indemnifier and the other is the indemnity-holder.
An indemnifier is one who promises to save from a loss, and an indemnity-holder is one who is protected against the loss. An indemnity contract only arises where a promise to indemnify against loss has been made, either by the promisor himself, or any other person.[2] A contract of indemnity is basically insurance for the indemnity-holder, which protects him against losses incurred by him.
Section 125 of the Indian Contract Act specifies the rights of an indemnity-holder. An indemnity-holder is entitled to recover the cost that may have been incurred due to an impending suit of damages from the promisor or indemnifier. He can also recover the costs that may arise due to bringing or defending a suit on any matter that the indemnity was agreed upon, given he does not do anything contrary to how the indemnifier suggests him to do.[3]
Now that one knows what an insurance of indemnity is, one can get a sense of why it may be preferred by big pharmaceutical companies. But before that, one needs to know a little about the background of indemnity contracts in the medical and pharma fields. Doctors have indemnity too.
They can have what may be called a professional indemnity insurance which covers them against various kinds of professional risks like giving wrong treatment, wrong dosage of certain medicines, negligent diagnosis and even surgery practices. They are saved from patients (or third parties) who may have suffered injuries, physical or mental harm, financial losses or even death of a patient[4].
Similarly, Indemnity also applies to the pharmaceutical industry. What this means is that a third party promises to protect the pharma manufacturer from paying compensation in case any legal claim arises against its products.
So, it is the third party, who is the indemnifier, who is liable to pay the moment any loss or damage takes place. And this way, the pharma company, which is the indemnity-holder, becomes free from paying any compensation. Now, the obvious answer to why a pharma company would want indemnity is a very simple one.
Indemnity provides an incentive for pharma companies to keep doing what they do. If they are not burdened with the idea of having to pay liabilities for lawsuits, they have an incentive to keep working towards researching and developing drugs and vaccines.
So, having indemnity keeps the pharma companies going, where they can simply focus on doing their job, without worrying about paying heavy compensations. Another reason why pharma companies would want indemnity, which is also beneficial for most consumers, is that it reduces the cost of the drug or vaccine.
The logic behind this is that the price that a pharma company must pay to any injured party is already calculated and deducted from the final price of the drug or vaccine. This makes the drug more affordable for the general public is often considered a win-win for both the manufacturer and the consumer.
With the onset of the Covid19 Pandemic, the need for a vaccine to protect against the virus became very much necessary. Several people were infected with the virus and deaths became rampant, with the numbers only increasing, taking more and more down in almost all parts of the world. Large pharma companies were thus entrusted with the responsibility of coming up with a vaccine that would protect against the symptoms of the virus, as well as reduce the chances of mortality from it.
Pharmaceuticals from all around the world began working on coming up with a vaccine for the same as soon as possible with the virus taking a huge toll on so many people. It took almost a year for most pharmaceuticals to come up with their vaccines.
The United States came up with Pfizer and Moderna's vaccines. Russia developed the Sputnik V. Britain's AstraZeneca created a vaccine. Similarly, other vaccines were developed in some other countries as well. India came up with two (and is now working towards launching a third as well) vaccines of its own. Bharat Biotech developed the Covaxin vaccine and Serum Institute India (SII) created the Covishield with AstraZeneca. SII is also creating the Covovax vaccine with Novavax (as of October 2021).
Even with all its own vaccines, India still needed more vaccines to vaccinate its 1.3 billion people. That's why it decided to let vaccines from international vaccine manufacturers enter the Indian market. But there was a catch to this. These pharmaceutical companies kept one condition and that was to be granted indemnity for their vaccines. At the forefront of this issue were the pharma giants Pfizer and Moderna, both belonging to the United States of America.
Before going any further, a little background on US's healthcare system and its legalities will make this more comprehensible. According to US law, a vaccine manufacturer is not to be held liable for damages that arise from any injury or death due to the unavoidable side effects of their vaccine if it was administered properly.[5]
Furthermore, ever since Moderna and Pfizer came out with their vaccines against the Covid19 virus, it became practically impossible to sue them if one had severe adverse side effects from their vaccine shot in the US since the government granted the manufacturers immunity from liability.[6] One cannot even sue the government body (FDA) that approved the vaccines in the first place.
Enjoying such immunity in their home country, it seemed natural for them to demand indemnity from the Indian Government before entering the Indian market. Its demand was once again backed by the rationale that indemnity would also make the vaccine cheaper and would thus cost less for the Indian government to buy millions of doses of the same from them.[7]
As mentioned before, this is because the cost of the vaccine will adjust the cost of compensation that the manufacturers might have to pay in case any liability occurred. And with this started the long indemnity debate which continues to go on till now.
Historically, none of the Indian pharma companies have ever been granted indemnity for their vaccines before. So, the question of whether to grant the same to foreign vaccine makers is both new and very challenging for the Indian Government. India at present has inserted a liability clause in the contracts it wishes to enter with the vaccine manufacturers which makes the pharma companies liable to pay compensation that arise due to injury or death from vaccine.[8]
Another challenge which comes with this are the allegations of being partial and discriminatory. If the Indian government decides to grant indemnity only to the foreign pharmaceuticals and not to the domestic ones, it will be a discriminatory policy against the country's own vaccine makers.
This turned out to be true since India's Serum Institute India (SII) started demanding indemnity for its vaccine Covishield alongside Pfizer and Moderna. This made the whole scenario even more complicated than how it was before. India's reluctance to providing indemnity to vaccine manufacturers stems from the government's fear of people developing adverse effects from the vaccine and then not being compensated for the same.
The government believes 'indemnity to not be feasible in its present form' and wants to give top priority to the interests and health of the people.[9] It believes indemnity to be harmful for the general public, who may be denied of their right to compensation if something goes wrong with their vaccine shot.
But does indemnity really mean that those who get a shot of the vaccine do not get any compensation paid for what they have to suffer in case something goes wrong? This is not the case. Indemnity does not necessarily mean that no compensation is paid to the affected parties. It only shifts the liability from the pharmaceutical companies to the indemnifying party to pay in case a lawsuit arises.
Moreover, even in a country like the United States where the recent laws around pharmaceutical immunity for vaccines seem more beneficial for the vaccine makers than the general public, there exist government funds and Compensation Programs for immunized people who may have suffered from some serious injury from the vaccines.[10] In Australia, a No Fault Covid-19 Indemnity Scheme is all set to be launched in the country which will offer protection to health care workers who administer the vaccines, and will also give compensation to injured people who were given the vaccine.[11]
Such a scheme by the government is better since it broadens the scope for injured people to avail compensation. A similar scheme is active in the United Kingdom as well, where a one-off tax-free payment is given to a severely injured or disabled person from the vaccination.[12]
Therefore, with the right amount of government intervention and people-friendly schemes, granting indemnity to pharma companies for their vaccine may not be a bad decision after all. It has several benefits too, some of which have been discussed previously. It lowers the price of the vaccine, making it easier for the government to buy and sell to the people.
It also makes the vaccine more affordable for the Indian consumers. Moreover, granting indemnity, with proper government intervention will also mean more vaccines flowing into the second most populous country in the world with the largest vaccine drive.
Both Pfizer and Moderna can supply millions of doses of the covid vaccines. Moreover, a huge disadvantage of keeping a liability clause in the contract with pharma companies is the risk of malicious and misconceived claims against a vaccine which puts unfair and unnecessary liability on the manufacturer and is also harmful for the society at large which is just beginning to trust vaccines for a new disease.[13]
An indemnity scheme like those in countries like UK and Australia may be highly beneficial for India. Furthermore, creating designated vaccine courts can also be a good option since it makes vaccine related lawsuits easier to handle. This has been recommended by the World Health Organisation as well.
With this, it becomes clear that importance of an indemnity clause with pharmaceutical companies serves as important not only for the ones who are making it, but also for those who are to be eventually shot with it. Legal experts too believe the benefits of indemnity to far outweigh the cons of it. And therefore, India too should begin negotiating on indemnity with foreign, as well as domestic, pharmaceuticals, over their vaccines, instead of rejecting them completely.
End-Notes:
The pharma industry is an extremely profitable industry. In fact, it is not hard to guess that large pharma companies have profited a lot since the beginning of the Covid-19 pandemic. One must think that an industry that puts in so much research and work into trying to make lives better for people, often increasing their life expectancy, should be protected against arbitrary lawsuits filed by people, which will compel them to pay big damages.
Therefore, an insurance of indemnity exists in the medical and pharma fields. This has been especially true during the current pandemic, with most vaccine manufacturers demanding indemnity for their vaccines. But what happens to people who are adversely affected by the vaccines made by the pharma companies? An indemnity clause for a vaccine-making pharmaceutical company is crucial for them and can even be beneficial for those who receive doses of the vaccine.
But what is indemnity? The Indian Contract Act defines the contract of indemnity as a contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person[1]. A contract of indemnity has two parties, where one is the indemnifier and the other is the indemnity-holder.
An indemnifier is one who promises to save from a loss, and an indemnity-holder is one who is protected against the loss. An indemnity contract only arises where a promise to indemnify against loss has been made, either by the promisor himself, or any other person.[2] A contract of indemnity is basically insurance for the indemnity-holder, which protects him against losses incurred by him.
Section 125 of the Indian Contract Act specifies the rights of an indemnity-holder. An indemnity-holder is entitled to recover the cost that may have been incurred due to an impending suit of damages from the promisor or indemnifier. He can also recover the costs that may arise due to bringing or defending a suit on any matter that the indemnity was agreed upon, given he does not do anything contrary to how the indemnifier suggests him to do.[3]
Now that one knows what an insurance of indemnity is, one can get a sense of why it may be preferred by big pharmaceutical companies. But before that, one needs to know a little about the background of indemnity contracts in the medical and pharma fields. Doctors have indemnity too.
They can have what may be called a professional indemnity insurance which covers them against various kinds of professional risks like giving wrong treatment, wrong dosage of certain medicines, negligent diagnosis and even surgery practices. They are saved from patients (or third parties) who may have suffered injuries, physical or mental harm, financial losses or even death of a patient[4].
Similarly, Indemnity also applies to the pharmaceutical industry. What this means is that a third party promises to protect the pharma manufacturer from paying compensation in case any legal claim arises against its products.
So, it is the third party, who is the indemnifier, who is liable to pay the moment any loss or damage takes place. And this way, the pharma company, which is the indemnity-holder, becomes free from paying any compensation. Now, the obvious answer to why a pharma company would want indemnity is a very simple one.
Indemnity provides an incentive for pharma companies to keep doing what they do. If they are not burdened with the idea of having to pay liabilities for lawsuits, they have an incentive to keep working towards researching and developing drugs and vaccines.
So, having indemnity keeps the pharma companies going, where they can simply focus on doing their job, without worrying about paying heavy compensations. Another reason why pharma companies would want indemnity, which is also beneficial for most consumers, is that it reduces the cost of the drug or vaccine.
The logic behind this is that the price that a pharma company must pay to any injured party is already calculated and deducted from the final price of the drug or vaccine. This makes the drug more affordable for the general public is often considered a win-win for both the manufacturer and the consumer.
With the onset of the Covid19 Pandemic, the need for a vaccine to protect against the virus became very much necessary. Several people were infected with the virus and deaths became rampant, with the numbers only increasing, taking more and more down in almost all parts of the world. Large pharma companies were thus entrusted with the responsibility of coming up with a vaccine that would protect against the symptoms of the virus, as well as reduce the chances of mortality from it.
Pharmaceuticals from all around the world began working on coming up with a vaccine for the same as soon as possible with the virus taking a huge toll on so many people. It took almost a year for most pharmaceuticals to come up with their vaccines.
The United States came up with Pfizer and Moderna's vaccines. Russia developed the Sputnik V. Britain's AstraZeneca created a vaccine. Similarly, other vaccines were developed in some other countries as well. India came up with two (and is now working towards launching a third as well) vaccines of its own. Bharat Biotech developed the Covaxin vaccine and Serum Institute India (SII) created the Covishield with AstraZeneca. SII is also creating the Covovax vaccine with Novavax (as of October 2021).
Even with all its own vaccines, India still needed more vaccines to vaccinate its 1.3 billion people. That's why it decided to let vaccines from international vaccine manufacturers enter the Indian market. But there was a catch to this. These pharmaceutical companies kept one condition and that was to be granted indemnity for their vaccines. At the forefront of this issue were the pharma giants Pfizer and Moderna, both belonging to the United States of America.
Before going any further, a little background on US's healthcare system and its legalities will make this more comprehensible. According to US law, a vaccine manufacturer is not to be held liable for damages that arise from any injury or death due to the unavoidable side effects of their vaccine if it was administered properly.[5]
Furthermore, ever since Moderna and Pfizer came out with their vaccines against the Covid19 virus, it became practically impossible to sue them if one had severe adverse side effects from their vaccine shot in the US since the government granted the manufacturers immunity from liability.[6] One cannot even sue the government body (FDA) that approved the vaccines in the first place.
Enjoying such immunity in their home country, it seemed natural for them to demand indemnity from the Indian Government before entering the Indian market. Its demand was once again backed by the rationale that indemnity would also make the vaccine cheaper and would thus cost less for the Indian government to buy millions of doses of the same from them.[7]
As mentioned before, this is because the cost of the vaccine will adjust the cost of compensation that the manufacturers might have to pay in case any liability occurred. And with this started the long indemnity debate which continues to go on till now.
Historically, none of the Indian pharma companies have ever been granted indemnity for their vaccines before. So, the question of whether to grant the same to foreign vaccine makers is both new and very challenging for the Indian Government. India at present has inserted a liability clause in the contracts it wishes to enter with the vaccine manufacturers which makes the pharma companies liable to pay compensation that arise due to injury or death from vaccine.[8]
Another challenge which comes with this are the allegations of being partial and discriminatory. If the Indian government decides to grant indemnity only to the foreign pharmaceuticals and not to the domestic ones, it will be a discriminatory policy against the country's own vaccine makers.
This turned out to be true since India's Serum Institute India (SII) started demanding indemnity for its vaccine Covishield alongside Pfizer and Moderna. This made the whole scenario even more complicated than how it was before. India's reluctance to providing indemnity to vaccine manufacturers stems from the government's fear of people developing adverse effects from the vaccine and then not being compensated for the same.
The government believes 'indemnity to not be feasible in its present form' and wants to give top priority to the interests and health of the people.[9] It believes indemnity to be harmful for the general public, who may be denied of their right to compensation if something goes wrong with their vaccine shot.
But does indemnity really mean that those who get a shot of the vaccine do not get any compensation paid for what they have to suffer in case something goes wrong? This is not the case. Indemnity does not necessarily mean that no compensation is paid to the affected parties. It only shifts the liability from the pharmaceutical companies to the indemnifying party to pay in case a lawsuit arises.
Moreover, even in a country like the United States where the recent laws around pharmaceutical immunity for vaccines seem more beneficial for the vaccine makers than the general public, there exist government funds and Compensation Programs for immunized people who may have suffered from some serious injury from the vaccines.[10] In Australia, a No Fault Covid-19 Indemnity Scheme is all set to be launched in the country which will offer protection to health care workers who administer the vaccines, and will also give compensation to injured people who were given the vaccine.[11]
Such a scheme by the government is better since it broadens the scope for injured people to avail compensation. A similar scheme is active in the United Kingdom as well, where a one-off tax-free payment is given to a severely injured or disabled person from the vaccination.[12]
Therefore, with the right amount of government intervention and people-friendly schemes, granting indemnity to pharma companies for their vaccine may not be a bad decision after all. It has several benefits too, some of which have been discussed previously. It lowers the price of the vaccine, making it easier for the government to buy and sell to the people.
It also makes the vaccine more affordable for the Indian consumers. Moreover, granting indemnity, with proper government intervention will also mean more vaccines flowing into the second most populous country in the world with the largest vaccine drive.
Both Pfizer and Moderna can supply millions of doses of the covid vaccines. Moreover, a huge disadvantage of keeping a liability clause in the contract with pharma companies is the risk of malicious and misconceived claims against a vaccine which puts unfair and unnecessary liability on the manufacturer and is also harmful for the society at large which is just beginning to trust vaccines for a new disease.[13]
An indemnity scheme like those in countries like UK and Australia may be highly beneficial for India. Furthermore, creating designated vaccine courts can also be a good option since it makes vaccine related lawsuits easier to handle. This has been recommended by the World Health Organisation as well.
With this, it becomes clear that importance of an indemnity clause with pharmaceutical companies serves as important not only for the ones who are making it, but also for those who are to be eventually shot with it. Legal experts too believe the benefits of indemnity to far outweigh the cons of it. And therefore, India too should begin negotiating on indemnity with foreign, as well as domestic, pharmaceuticals, over their vaccines, instead of rejecting them completely.
End-Notes:
- The Indian Contact Act, 1872, No. 9, Acts of Imperial Legislative Council, 1872 (India).
- Avtar Singh, Contract and Specific Relief 593 (12 ed. 2020).
- The Indian Contact Act, 1872, No. 9, Acts of Imperial Legislative Council, 1872 (India).
- Professional Indemnity Insurance for Doctors, Bajaj Finserv, https://www.bajajfinserv.in/professional-indemnity-insurance-policy-for-doctors
- 42 U.S. Code § 300aa–22 (2012)
- MacKenzie Sigalos, You can't sue Pfizer or Moderna if you have severe Covid vaccine side effects. The government likely won't compensate you for damages either, CNBC (Dec. 17, 2020, 08:36 AM), https://www.cnbc.com/2020/12/16/covid-vaccine-side-effects-compensation-lawsuit.html
- Explained: What is indemnity? Why foreign and Indian COVID-19 vaccine-makers insisting on it? CNBC TV18 (Jun. 3, 2021, 05:25 PM), https://www.cnbctv18.com/healthcare/explained-what-is-indemnity-why-are-foreign-and-now-even-indian-covid-19-vaccine-makers-insisting-on-it-9529791.htm/amp
- Priyanshi Bhageria and Khushboo Sharma, Liability or Indemnity: The New Debate In India's Vaccination Program, Bar and Bench (Jun. 1, 2021, 09:00 AM), https://www.barandbench.com/apprentice-lawyer/liability-clause-or-indemnity-clause-the-new-debate-in-the-vaccination-program
- Abantika Ghosh, India unlikely to give indemnity to foreign vaccines, may consider only if shortage persists, The Print, (Aug. 7, 2021, 09:08 AM), https://theprint.in/health/india-unlikely-to-give-indemnity-to-foreign-vaccines-may-consider-only-if-shortage-persists/710493/
- MacKenzie Sigalos, You can't sue Pfizer or Moderna if you have severe Covid vaccine side effects. The government likely won't compensate you for damages either, CNBC (Dec. 17, 2020, 08:36 AM), https://www.cnbc.com/2020/12/16/covid-vaccine-side-effects-compensation-lawsuit.html
- Bill Madden and Tina Cockburn, What's the new COVID vaccine indemnity scheme? Two legal experts explain, The Conversation (Jul. 1, 2021, 05:00 PM), https://theconversation.com/whats-the-new-covid-vaccine-indemnity-scheme-two-legal-experts-explain-163717
- Kaunain Sheriff M, Explained: Covid-19 vaccine makers and indemnity, The Indian Express (Jun. 25, 2021, 09:47 AM), https://indianexpress.com/article/explained/explained-vaccine-makers-and-indemnity-7374643/
- Priyanshi Bhageria and Khushboo Sharma, Liability or Indemnity: The New Debate In India's Vaccination Program, Bar and Bench (Jun. 1, 2021, 09:00 AM), https://www.barandbench.com/apprentice-lawyer/liability-clause-or-indemnity-clause-the-new-debate-in-the-vaccination-program
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