Park Doctrine Insurance Offered to Cover Responsible Corporate Officer Liability

Mar 22, 2012   

The FDA has made clear that prosecuting individuals for strict liability misdemeanors under the Park Doctrine, also known as the “Responsible Corporate Officer Doctrine” (“RCO”), is a priority amid the clamor for the FDA to get “tough” on persons and companies in regulated industries, such as food and drug. The Park Doctrine allows a corporate official to be convicted of a misdemeanor based entirely on his or her position and responsibility in a corporation. There is no requirement that a person had any criminal intent or acted personally in any wrongdoing, or for that matter, was even aware of a violation. We have previously blogged about the re-discovery of the Park Doctrine by the FDA, here and here.

Now, given the heightened risk of Park Doctrine prosecutions by the government, Allied Insurance Company commenced issuing its “RCO Policy,” designed to provide coverage for control group executives for defense costs during an investigation or misdemeanor criminal proceeding, including potential losses resulting from debarment or exclusion from contracting with federal programs as a result of a misdemeanor conviction. Debarments or exclusions would result in substantial loss of income and livelihood for an RCO executive convicted of a misdemeanor under the Park Doctrine. However, the policies do not provide coverage for offenses for which the executive exhibited criminal intent, such as intent to defraud.

Under most current Directors & Officers (D&O) indemnity policies, coverage is provided for defense costs until there is a finding of criminal liability against the insured.  Under the Park Doctrine, such criminal liability can occur without the insured being shown to have intended or even been aware of the existence of the criminal violation. Under such a scenario, the insurer can deny coverage for the executive at the most critical stages of a criminal investigation, thereby leaving the executive to fend for him or herself in funding a defense, to his or her financial ruin.  This is tantamount to having no D&O coverage at all. It is often at the investigation stage where an adequately funded defense is most critical in order to stave off indictment.  Preventing indictment in the first place is paramount since post-indictment approximately 95 % of federal criminal cases result in a criminal conviction, either by plea or verdict.  It appears that this new RCO Policy could go a long way toward ensuring an adequately funded defense and avoiding the worst case scenario for executives.

The recent emphasis on Park Doctrine prosecutions by the Department of Justice and FDA, with the idea of increasing the deterrent effect of criminal prosecutions for violation of our nations food and drug laws, has elevated the potential liability of executives in regulated industries. The market is responding to these liability concerns by offering products insuring against these risks, although it remains to be seen whether the necessary premiums for such coverage will be acceptable to insurance customers.  Perhaps the best medicine is prevention”heightened recurrent training, invigorated compliance programs and revised policies and procedures to prevent violations in the first place.

Fuerst Ittleman PL is experienced in providing legal services to FDA regulated entities to address the prevention of violations and mitigation of potential Park Doctrine liability.  In this heightened enforcement environment, an ounce of prevention is worth more than a pound of cure.