Last month, Eli Lilly and Company, along with its insurers, were awarded damages from a Florida District Court against Air Express International USA, d/b/a DHL Forwarding, for the mishandling of a temperature-sensitive shipment of insulin. The settlement was in the neighborhood of $10 million.

Lilly was able to document and successfully argue through the use of temperature data loggers that accompanied the product, that seven out of eight pallets in the shipment from Germany to Indianapolis were exposed to freezing temperatures while in possession of its contracted forwarding company, DHL, at Munich International Airport.

DHL unsuccessfully argued that Lilly did not present any admissible evidence of "physical loss" but rather "fear of loss," while experts from Lilly stated that insulin exposed to sub-frozen temperatures may undergo subtle changes that are not necessarily detectable by physical inspection, could prove harmful to the patient if administered, and that confirmation of the integrity of the product could not be performed without being destructively tested.

Rather than award Lilly the customary air carrier damage/loss amount of $4 per kilo, or even go so far as to recoup replacement or manufacturing costs, the Florida Court surprisingly ruled that Eli Lilly was entitled to nearly $10 million from the integrated freight forwarding company, which Lilly claimed was the inter-company transfer price of the product between its affiliates in Germany and the US.

This conclusion is one of the few cargo decisions which effectively confirms that a shipper or consignee is entitled to a certain level of profit in its pricing in its declaration of "loss." Given that the manufacture of drugs has become a multi-national process within companies, inter-company transfer is often the primary means of accounting. And as government regulators continue to dig deeper into the distribution and storage practices of drug manufacturers, the innovators themselves have developed much more sophisticated and complex controls over the distribution process - carefully tracking and documenting every nuance. Subsequently, transport service providers are having to step up their game. But healthcare companies should be careful for what they wish for - claims such as Lilly v. DHL can potentially lead to a virtual halt in healthcare transportation if service providers consider the liability risk too great. They can simply refuse to ship it. Folks, we are at the dawn of a new era.

You can read the entire Alert published by Cozen - O'Connor by clicking on the attachment icon below.