Liability in Life Sciences: Complex Ecosystem Raises Exposures for All Participants

The life sciences industry has become increasingly interconnected. Pharmaceutical manufacturers, medical device companies, dietary supplement brands, contract manufacturers, and distributors often operate within complex networks designed to accelerate innovation and improve efficiency. While this ecosystem has enabled organizations to bring products to market faster than ever before, it has also created a new reality: When something goes wrong, scrutiny is rarely confined to a single party.

Evolving Model

Traditionally, many life sciences companies maintained greater control over product development, manufacturing, and distribution. But today, organizations routinely rely on third-party partners to perform critical functions throughout a product’s lifecycle. For example, a pharmaceutical company may rely on a contract development and manufacturing organization (CDMO) to scale production of a sterile injectable therapy, including filling, packaging, and quality documentation. A medical device company may source sensors, batteries, packaging, and sterilization services from different vendors before the final product reaches hospitals, physicians, and patients.

Who’s Accountable?

But accountability does not disappear because an operation has been outsourced. A labeling error on a supply of pharmaceuticals for a clinical trial of a contamination issue at a contract manufacturing site, for example, can trigger a recall, regulatory investigation, litigation, and/or reputational harm. It is increasingly difficult to identify the true source of the problem, as outsourcing becomes more sophisticated and supply chains more fragmented.

Further, plaintiffs and regulators frequently focus on every organization involved in bringing the product to market following a problem. As a result, participating in the supply chain often creates exposure regardless of the underlying issue’s origin.

Limitations of Contractual Risk Transfer

Many organizations attempt to address this issue through contractual risk transfer. But while indemnification provisions and supplier agreements play an important role in defining responsibilities among business partners, contracts alone may not eliminate risk. Recovery may depend on a supplier’s financial strength, available insurance limits, or willingness to defend a claim. Even when indemnification ultimately applies, a company may still face significant defense costs, business disruption, and reputational damage while disputes are resolved.

Brokers’ Strategic Value

This shift to more outsourcing presents an opportunity for brokers to deliver strategic value as risk advisors. Brokers who examine how products are designed, manufactured, tested, and distributed, as well as the extent to which third parties perform critical functions, may uncover exposures not evident from surface-level observations. This in-depth knowledge enhances brokers’ advice and leads to more effective risk management.

Carriers’ Specialized Expertise

Insurers also play an important role in helping organizations navigate the evolving life sciences risk landscape. Specialized insurance solutions address complex liability concerns that can arise throughout the product lifecycle. Along with offering tailored coverage, carriers with experience in the life sciences sector can provide valuable insights into emerging risk trends, regulatory developments, and loss scenarios. When combined with sound risk management practices and contractual protections, insurance can serve as an important component of a broader strategy to help organizations manage uncertainty and build resilience.

Thinking About Risk Broadly

As the life sciences industry continues to evolve, liability is becoming increasingly shared across a network of organizations. As a result, participants should consider who is responsible and how responsibility is allocated.

Shared responsibility requires a broader risk management approach–one that seeks to optimize risk management programs, contractual protections, and insurance strategies in a coordinated way.

Bergan is Lexington’s Life Sciences Practice Lead.

Topics Liability