When a Vaccine Maker Asks for Indemnity, Does the Government Debate Pennies?

Granting indemnity to Pfizer against claims for injury or death would reduce the purchase price of the vaccine for the government since Pfizer would no longer have to take the risk of payment of compensation.

The Indian government and Pfizer have been in discussions about an agreement for importing Pfizer’s COVID-19 vaccine. Unfortunately, a satisfactory conclusion to these discussions does not seem likely any time soon.

Pfizer, as best as we can tell, has taken the position that it will supply vaccines on terms that are similar to agreements it already has with other countries. These terms include an indemnity against any claims for injury or death caused by the vaccine.

Indemnity seems like an onerous and ominous provision – it is not. Indemnity simply means protection from legal liability arising from one’s actions. When you purchase car insurance, for example, you are indemnifying yourself against the losses that might arise from an accident that occurs while you are driving the car.

Pfizer is simply saying this: if there were to be adverse effects for having taken Pfizer’s vaccine, Pfizer will not be liable to pay damages that any court may award.

Why, one may well ask, should we agree to this? If they have made the vaccine, and if they are selling it to us, shouldn’t they be responsible for any adverse effects? Well, as with everything else in life, it comes down to who has greater negotiating power. And the global market for COVID-19 vaccines is very much a seller’s market. There is a global scarcity for these vaccines, and if we choose to be picky about the terms of the contract, Pfizer will simply move on to the next prospective buyer. Of which, remember, there are plenty.

Our recommendation, therefore, would be to treat this just like any other business contract, and secure a supply of these vaccines as quickly as possible. If that means giving in to their request for granting indemnity, so be it.

Pfizer has clearly stated its preference for negotiating with the central government alone. It is unlikely that they will change their stance anytime soon. There is then only one way that vaccine procurement and distribution will work: the Centre procures from Pfizer for an agreed price, and then gives or sells these vaccines to the state governments. Our personal preference would be for the Centre to pay, but that remains an issue separate from our central argument in this article.

Also read: Pfizer Demands Governments Gamble With State Assets To Secure Vaccine Deal

What if Pfizer were to not get indemnity from the Centre, and it still wishes to sell to the Indian government? Although we do not think this to be likely, for reasons explained above, here is what might happen next. Pfizer will either buy product liability insurance against claims in India and overseas or it will self-insure.

An insurance company with experience of insuring against product liability claims, especially in the pharmaceuticals sector, is best placed to handle such risks. The insurance company could easily add this to its existing basket of insured risks and the cost of such insurance should not be a significant addition to the cost of the vaccine. If such an insurance product is either unavailable or if the premium turns out to be too high, Pfizer could simply self-insure. This would mean setting apart a sum of money to pay out as compensation.

A healthcare worker administers the Covishield vaccine to a woman in Bikaner. Photo: PTI

In either case, these costs of taking on the risk will have to be added to the negotiated price for vaccines. Creating a whole new financial (and if done in-house, organizational) structure to deal with this issue of handling claims and compensation is a disincentive for Pfizer to sell vaccines in India.

This is not a problem for Pfizer. Many other countries are willing to buy these vaccines without imposing indemnity clauses. It is, however, a problem for India, since it leaves us with one less major supplier for vaccines – a position we can obviously ill-afford right now.

On the other hand, if the Centre grants an indemnity to Pfizer against claims for injury or death caused by the vaccine, then the purchase price of the vaccine would be lower for the Indian government. Pfizer no longer has to take the risk of payment of compensation for injury or death caused by the vaccine, and this will be reflected in the price.

One of the most important functions of a contract is risk allocation. How much risk should the seller assume, and should the seller, therefore, get a higher price? Or should the buyer assume the risk, and therefore get a lower price?

In this case, Pfizer believes that compensation for injury or death caused by the vaccines is a risk that is best handled by the Indian government rather than itself or an insurance company. And in this seller’s market, we have no choice but to go along.

If the government grants an indemnity to Pfizer, it would still be able to assess the risk of any injury or death when the vaccines are tested at CDL, a government laboratory based in Kasauli. If the vaccines meet the standards that the Indian government sets, they should be safe and efficacious to use and the risk of causing injury or death should be low. It would be easy to argue that even if there were compensation claims, the Indian legal system is capable of dealing with them effectively. We know this from the limited number of successful medical negligence and product liability claims in India.

Also read: India and Pfizer at Impasse Over COVID Vaccine Indemnity Demand

The data on clinical trial compensation payments doesn’t give potential victims any hope either. Even if there is injury (or worse), it is unlikely that any significant compensation will ever have to be paid out. As a benchmark, the US has a compensation fund created by a “cess” which ranges from $0.75 to $4.50 on each vaccine dose which may cost anything from $12 – $220 per dose. An indemnity by the Indian government would therefore not cost much and could well get India the vaccines that it desperately needs.

Let us be very clear: we are firmly against a scenario in which the government imports the vaccines and then applies the 50-25-25 formula for allocation to the central government quota, states and multiple private entities. This seems like a complex arrangement for the small quantities that are to be imported in 2021.

But that being said, what if the government were to “help” private entities purchase these vaccines from Pfizer? The Indian government could purchase these vaccines from Pfizer after granting them indemnity, and sell them on to these private entities. These entities could in turn be required to undertake all liability for injury or death caused by the vaccine.

It is important to note that none of what we are suggesting takes away the right of any person injured or killed by the vaccine to be compensated. In the first scenario, the Indian government will pay up and in the second, the private entities who purchase the vaccine from the government will do so. The liability to compensate does not diminish and no one gets immunity from liability in either scenario.

A phial of the Pfizer/BioNTech COVID-19 vaccine concentrate is diluted with 1.8ml sodium chloride ready for use at Guy’s Hospital. Photo: Victoria Jones/Pool via Reuters

A criticism of our suggestion could be that the government is discriminating between domestic and foreign vaccine manufacturers. Our response is that the government is already paying different prices to domestic vaccine manufacturers. This would suggest that the government is willing to negotiate independently with each manufacturer.

We would support a significant reduction in the price that the Centre is paying for the vaccines if the domestic manufacturers would like to be indemnified. We believe that the domestic vaccine manufacturers would rather not reduce prices since the risk of paying any compensation is low given how the Indian legal system works.

The central issue here is a simple one: who pays for injury or death caused by the vaccine? Who buys insurance for Indians getting the vaccine? It boils down, ultimately, to risk allocation, and therefore price.

Also read: A Brief History of Pharmaceutical Profiteering

Will the Indian government walk away because it won’t pay a “market price” for the vaccines? Will it use national honour and national pride as excuses for being unable to negotiate a commercial deal? We certainly hope not.

“Hope” is the thing with feathers –
That perches in the soul –
And sings the tune without the words –
And never stops – at all –

And sweetest – in the Gale – is heard –
And sore must be the storm –
That could abash the little Bird
That kept so many warm

–  Emily Dickinson

Murali Neelakantan is the founder and principal lawyer at amicus. Ashish Kulkarni is an assistant professor at the Gokhale Institute of Politics and Economics, Pune. He blogs at econforeverybody.com.