Pharmaceutical Entrepreneurs vs. Contract Manufacturers: Who (real-ly) bears the risk of liability under Section 84 of the German Medicines Act (AMG)?

Liability under Section 84 AMG is strict liability. This means that the pharmaceutical entrepreneur is liable for any damage caused by a human medicinal product placed on the market by the pharmaceutical company, regardless of whether it is at fault (negligence or intent). The liability includes personal injuries such as harm or death resulting from the use of the medicinal product.

Pharmaceutical entrepreneurs are obliged to secure insurance coverage for potential claims arising from Section 84 AMG, see Section 94 AMG. This coverage can be provided only in two ways: (1) by taking out sufficient liability insurance or (2) by means of an indemnity or warranty obligation from a credit institution. The minimum cover must correspond to the amounts specified in Section 88 sentence 1 AMG, i.e. at least €120 million per claim. In practice, due to the high sums involved, cover is provided almost exclusively through insurance contracts and only rarely through banks/credit institutions.

Most pharmaceutical entrepreneurs  join together to form reinsurance pools, known as pharma pools. The pharma pools combine coverage amounts and thus enable particularly strong protection against claims for damages that could threaten the existence of individual companies. 

From a business perspective, it is understandable that pharmaceutical entrepreneurs  want to shift their liability risks internally to contract manufacturers. As a rule, extensive indemnification obligations and unlimited liability for all claims are demanded. However, this effective assumption of liability under Section 84 AMG is existentially threatening for contract manufacturers. Unlike pharmaceutical companies, contract manufacturers are not members of these pharma pools, which significantly weakens their protection in the event of damage.

Contract manufacturers therefore do not have comparable insurance coverage. Usually, contract manufacturers agree on coverage amounts of € 10 million or € 20 million annually with insurers.

For contract manufacturers, it is particularly crucial to limit their liability at least in amount through contractual liability caps. Unlimited liability and the effective assumption of liability risks under Section 84 AMG are hardly feasible from an insurance perspective and economically unsustainable. Moreover, such an assumption does not correspond to the clear legislative intent.