Nikhil S. Javali and Shiv Shankar, 2nd year law students at National Law University Odisha, discuss the difficulties of indemnity clauses and vaccines in India...
In India, with the daily Covid-19 cases plummeting about 90 percent from the peak of the first wave last year, the pandemic appeared to be under control by March 2021. In April 2021, however, India saw the world’s worst second wave, with new cases exceeding 400,000 a day, breaking the world record for the most cases in a single day. Vaccinations have not been administered at a rapid enough rate to counteract this second wave. India has administered 150 million doses, ranking third in the world. However, due to India’s huge population, just 9.1 percent of Indians have gotten at least one dose, and less than 2 percent are fully vaccinated. In this dire situation, one solution to solve the vaccine crunch was to import foreign vaccines. Pfizer and Moderna were the most viable candidates because of their high efficacy.
These manufacturers agreed to supply vaccines to India under a particular condition known as indemnity, which protects the businesses from liability resulting from possible side effects of the vaccine. India is in a terrible spot, and talks on this issue are still ongoing. This article focuses on the indemnity clause, the state’s accountability, the outlook on foreign jurisdiction, and the best approach to tackle this issue, in our opinion.
Indemnity contracts are special kinds of contracts called contingent contracts, i.e., the liability to indemnify arises out of an event whose occurrence is contingent on any loss that occurs. The legal provision for contracts of indemnity lies in Section 124 of the Indian Contract Act (“ICA”), which states that “A contract by which one party promises to save another party from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a contract of indemnity.” The party that grants indemnity is called the indemnifier (the Indian Government), and the one receiving this indemnity is called indemnified (Pfizer and Moderna). There are certain rights that the indemnity holder has in this regard, as mentioned in Section 125:
- Right to compensation for all damages that the indemnified will have to pay that arise out of any suit pertaining to matters to which the promise to indemnify applies
- Any expense that the indemnified spends to defend or bring a suit in the general conduct of business if the contract to indemnity did not exist
- Any compensation or settlements that the indemnified agrees to pay out of the suit in a court of law
These rights are not absolute. The indemnified needs to make sure that none of the orders of the indemnifier is contravened. There are many pros and cons of granting this indemnity. In the current scenario, India is facing an acute shortage of vaccine supply, so by granting this indemnity, which seems to be the only obstacle for entry of foreign vaccines, would help ease the dire situation in the country. The problem that may arise from granting this, however, is that the global players need not wait until actual losses occur. There is development of jurisprudence in the area with cases like Gunjan Moreshwar v. Moreshwar Madan, which stated that if the liability on the indemnity holder is absolute, the indemnity holder can ask the indemnifier to take care of this liability and compensation can be claimed. This might result in unnecessary expenses for the country, which is already facing a huge economic crisis amidst a global pandemic.
The peculiar situation that arises because of this is that local vaccine manufacturers like the Serum Institute of India (SII) have expressed their desire to get indemnity but have been rejected. If the Indian government does grant indemnity to the foreign players, it might have effects on the Indian market, and competition issues might arise. Moreover, just because the efficacy of foreign vaccines like Pfizer and Moderna is higher, whether it needs to be given this extra protection under the law while local vaccine manufacturers are left solely liable is unfair.
The Indian government’s stance is that it might eventually give in to the indemnity claims of the foreign manufacturers. But it is negotiating towards a middle-ground approach too. The need for vaccines in India will be the primary focus of the officials. India is likely to consider the cases of other nations like the UK’s approach and come to a reasonable conclusion. The foreign vaccine manufacturers want indemnity as a sort of protection against legal action against them in case any side effects arise in the future due to their vaccines. They want the state to take the liability that might arise from this. In this regard, it would be important for us to explore whether accountability of the state is indeed a viable alternative.
“The doctrine of Sovereign Immunity holds that the state or the sovereign can commit no legal wrong and is immune from civil suits and criminal prosecution.” This function is best articulated in the case of Peninsular and Oriental Steam Navigation Co. v. Secretary of State for India, where the apex Court held that the secretary of state would be accountable only for its commercial motive, not the sovereign function.
Local players like the Serum Institute of India have raised their voices for indemnity. However, they cannot be granted indemnity because SII, which is responsible for the vaccine drive in India, is reaping large profits, and this is a commercial function, not a sovereign one. As a result, companies such as SII would be held liable for injuries caused by the vaccine.
Companies like Pfizer and Moderna are just mere producers, and with the state being the regulator for the supply and distribution of these vaccines, the state will be held vicariously liable, this best articulated in the case of State of Rajasthan v. Vidhyawati, where the Supreme Court ruled that the state was obligated to pay the damages since the wrongdoer’s actions were not a sovereign function.
Countries have established compensation funds due to various policy issues. One purpose is to address vaccine safety panics. Twenty-five jurisdictions with no-fault compensation programs are present. The specifics of filing claims and receiving compensation vary by country.
The way to tackle vaccine-injury compensation is by a broad no-fault compensation regime that exists in Scandinavian countries for both medical assistance and pharmaceuticals. The health departments administer this in Norway and Denmark, while Finland and Sweden’s systems are voluntary for drug companies and are not run by the government. Following the thalidomide catastrophe in the early 1960s, the worldwide pharmaceutical sector in Sweden partnered with the insurance sector and the government to construct a “Swedish vaccine-injury compensation plan,” to which the pharmaceutical industry voluntarily contributes. Denmark approved a Vaccine Compensation Act in 1978 and a statutory medical program in 1992. In 1989, it also enacted the Product Liability Directive. In Denmark, the health minister oversees claims decisions, and the Danish Patient Insurance Association is in charge of investigating and administering claims. These bodies make judgements based on the facts, cause, and suitable compensation.
In the US, the Vaccine Injury Compensation Program (VICP) was established by the National Childhood Vaccine Injury Act of 1986 (NCVIA) for addressing vaccine injury claims for immunizations. The United States Court of Federal Claims’ Office of Special Masters, often known as “vaccine court,” administers a no-fault system that substitutes the traditional tort proceedings vaccine damage claims. These claims against vaccine manufacturers cannot be filed in state or federal civil courts; instead, they must be heard in the United States Court of Federal Claims, which does not have a jury.
There are many things that India can implement by learning from these foreign jurisdictions. Right now, India is in dire need of foreign vaccines. Establishing a special bench or a court like the United States would speed up the process of addressing the harm caused by vaccines. The liability of injury caused by these vaccines can be given to the insurance sector by product liability and must be insured like the system of Sweden.
The government should keep in mind pricing for these foreign vaccines and has to look at the option of a proportion of tax levied on the cost of the vaccine being used to pay for insuring the vaccine injury claims. Holding the states accountable for vaccine regulation is not the smart option, as the states are facing a financial crunch. The central government must take the role and protect the states from lawsuits by stepping up and making sure public health is not compromised at any cost.
The most effective way to tackle this virus is by developing crowd immunity. This is possible only through mass vaccination and taking health and safety precautions at a large country-wide level. The entry of these foreign players will help in reaching this goal. The Union government has assured its citizens that talks will conclude, and that the vaccines will come to India as soon as possible. The only point of friction seems to be the indemnity clause. By learning from other countries, we can tackle this issue too.
Nikhil S. Javali and Shiv Sankar are both 2nd year law students pursuing their BBA LLB at National Law University Odisha.
Suggested citation: Nikhil S. Javali and Shiv Sankar, The Entry of Foreign Vaccines and the Indemnity Impasse, JURIST – Student Commentary, August 9, 2021, https://www.jurist.org/commentary/2021/08/Nikhil-Javali-Shiv-Sankar-foreign-vaccine-indemnity/.
This article was prepared for publication by Katherine Gemmingen, Commentary Co-Managing Editor. Please direct any questions or comments to her at email@example.com
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