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Appendix B A VACCINE SUPPLY PUBLIC INSURANCE OPTION A vaccine supply public insurance program would provide one solution to the vaccine supply problem caused by manufacturers' concerns over unknown but potentially large liabilities.* This option would not require controversial tort law reform. It would involve creation by Congress of a statutory mechanism to provide the manufacturers with insurance coverage against total costs (beyond a specified, manageable amount), including legal expenses and amounts paid after settlements and judgments, resulting from the manufacture and sale of vaccines in accordance with regulatory standards. It appears that such insurance is difficult to obtain at premiums considered by manufacturers to be reasonable. The federal yu-ve'~l-lil-lerlc cuuid Ovine such coverage to tne manufacturers in two ways. The government could simply obtain bids for such insurance on the commercial market and then pay whatever premiums are required. Alternatively, it could create a specialized insurance corporation to provide the insurance. There are no precise institutional analogies. The swine flu statute, although not specifically providing insurance, effectively performed the same function h~c~all.c:- the f=~=r=1 m^~=rnm~n~ =~=l~m~A _ primary liability. A ~ ~ ~ ~ ~ _ A ~1 41 1 ~ ~ _ ~- ~ ~ ~ ~ ~ w _ _ a s&~ ~ & _ ~ ~ ~ ~ ~ ^ A close analogy is the Price-Anderson Act, designed to encourage the construction of nuclear reactors. It requires owners of nuclear reactors to carry the maximum amount of private liability insurance available (determined to be at least $60 million per nuclear occurrence), provides for indemnification by the federal government in the amount of $500 million per occurrence, and limits total liability per occurrence to $560 million.2 In administering the program, the Nuclear Regulatory Commission is instructed to make use of the *Manufacturers in certain industries have formed captive insurance corporations to provide their liability coverage (e.g., the ladder manufacturers formed Safe Step Insurance Corporation of Bermuda). A similar arrangement by vaccine manufacturers could provide access to insurance; however, it would not provide long-term security of vaccine supply because overwhelming financial losses could bankrupt the insurance corporation, removing the coverage it had offered. 164

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165 facilities of private insurance organizations to "the maximum extent practicable. n3 Fees are charged to owners of nuclear power plants under this program.4 ~ ~ ~ ~ ~~ ~ - - - Power Co. v. Carolina Environmental Study Group, Inc.5 This statute was held constitutional in Duke The specialized government corporations that have been created to provide depositors with insurance against the risk of failure of financial institutions also could be used as models. The Federal Deposit Insurance Corporation for banks, the Federal Savings and Loan Insurance Corporation for savings and loan institutions, and the Small Investor Protection Corporation for brokerage houses are government corporations with independent boards of directors, funded by fees assessed on the covered institutions, and backed by lines of credit from the federal government. Although the insurance they provide is not liability insurance, their organizational forms could be adapted to provide coverage for vaccine manufacturers. The implementation of such a program would require a large number of technical decisions that Congress could delegate either to an administrative official or to a specialized corporation, with such guidance as Congress chose to provide. For example, to minimize the cost and administrative changes required to implement such a program, it probably would be desirable to leave the manufacturers with a basic level of liability up to amounts that do not create unmanageable risk. The firms could then continue to handle claims within these limits. The amount of such a "deductible" should be varied according to formulas that reflect the level of the manufacturer's business in the vaccine market. Other decisions would involve the allocation of responsibility for and control of the defense of claims, the provision of information by the manufacturers to the insurance carrier or government corporation, the powers of the carrier or corporation to inspect or control the operations of the manufacturers to minimize risk, the terms and conditions under which new manufacturers would become eligible for coverage under the program, the level of fees or premiums charged to the manufacturers, the amount necessary for a reserve fund, and the extent and form of the manufacturers' continuing liability for negligence in the production process. This option would enable Congress to protect vaccine manufacturers who have acted in accordance with regulatory standards from the risk of large losses, thereby ensuring continuation of the vaccine supply from private manufacturers. It would not require that Congress first resolve issues of tort law reform. REFERENCES sec. 2210. sec. 2210(g). 1. U.S. House of Representatives, Committee on Energy and Commerce, Subcommittee on Health and the Environment. Hearings held December 19, 1984 on H.R. 5810, Washington, D.C. 2. 42 U.S.C. sec. 2210. 3. 42 U.S.C. sec. 2210(g) 4. 42 U.S.C. sec. 2210(f). 5. 438 U.S. 59 (1978).