Closing CLIA Lab Insurance Gaps in Diagnostic Testing

Clinical Laboratory Improvement Amendments (CLIA) lab operations can create overlapping exposures that standard programs may not fully address. Here's how to reduce ambiguity before a claim arises.

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Author: Marissa Kearney

Key takeaways

CLIA-certified labs operate at the intersection of product, professional and operational risk. This makes diagnostic exposures potentially more complex.
Coverage gaps often don't show up until a claim arises. This is when insurers must decide whether a loss is a product, a professional service or a medical judgment issue.
Policy wording matters as much as the coverage itself. This is especially relevant where professional services or cyber technology exclusions exist.
A clearer program starts by aligning the policy structure with how the lab operates and includes technology, cyber and medical malpractice considerations.

Addressing diagnostic testing risks for CLIA labs

CLIA-certified labs operate within US regulatory frameworks designed to oversee facilities that examine human specimens for diagnosis, prevention, treatment and health assessment. While CLIA-certified labs aren't healthcare providers, their work often plays a critical role in medical and scientific decisions. Test results may influence treatment selection, medication dosing, clinical trial enrollment, patient eligibility and broader care strategies. This makes diagnostic accuracy and reliability essential. And from a risk perspective, it creates a unique challenge.

A single claim may allege various scenarios, such as:

A faulty test kit producing an inaccurate result
A laboratory process or specimen-handling error
A medical professional's failure to exercise appropriate judgment in interpreting or reporting the outcome
Or all of the above

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A single diagnostic claim may involve multiple exposures simultaneously. This is where making clear coverage allocation becomes critical to avoid ambiguity at claim time.

Marissa Kearney, client service manager, Gallagher

The cost of unclear coverage in diagnostic testing

Diagnostic testing risk can be easily misclassified. Testing occupies a unique and often misunderstood position within the life sciences and healthcare ecosystem. Operationally, it's delivered as a service, yet when something goes wrong, the resulting claim may involve product liability, professional liability and medical malpractice all at once.

Diagnostic errors can influence clinical decisions, trial outcomes and treatment pathways, ultimately affecting the financial outcome of a loss, regardless of whether the lab has direct patient contact. As a result, diagnostic errors create complex questions about responsibility and insurance coverage.

The cost of unclear diagnostic coverage can be even more substantial given:

Increased regulatory scrutiny in the life sciences market
Larger and more complex claims driven by social inflation
Ongoing capital market pressures that are prompting insurers to examine coverage triggers and policy wording more closely

At the same time, diagnostics are playing an increasingly strategic role in supporting drug development, guiding treatment decisions and enhancing investor confidence in life sciences organizations. And as their importance grows, so too does the need for greater clarity around how diagnostic-related risks are insured. This shifts the risk profile from operational to enterprise critical, potentially affecting how losses are recovered and how quickly claims can be resolved. Therefore, it's important for organizations with CLIA lab activity to first identify the diagnostic exposures and the coverage response, then review the policy wording with those exposures in mind.

Look to your risk advisor for support and to stress test how policies will respond to scenarios involving diagnostic errors. This can help identify and address any gaps in cover before a loss occurs.

Clarity matters

For diagnostic exposures, coverage outcomes are often determined by definitions, exclusions and endorsements rather than the policy's title. When evaluating coverage for diagnostic exposures, having a policy isn't enough.

The key question is: Will the language respond as intended when a claim arises?

One of the most important areas to review is the professional services exclusion. If diagnostic testing is classified as a professional service, coverage may depend on limited carve-backs or specific endorsements. These are designed to preserve protection for certain activities, creating uncertainty when a claim is filed.

Typically, that exclusion is intended to shift professional-services exposure elsewhere. If, for example, a lab technician or other medical professional is involved, the policy may not respond under the product liability form.

The deeper challenge is that diagnostic risk is rarely apparent when coverage is placed. This is why proactive policy review is critical. Clear policy wording helps reduce ambiguity, minimizes coverage disputes and offers the insured the confidence that claims will be handled as expected.

How to structure a coverage program

Since diagnostic exposures can trigger multiple policies, coverage should align with how the lab operates in practice. The following framework can serve as a guide.

Position diagnostic testing within product liability coverage

Where appropriate, define diagnostic testing as part of "your product" within products/completed operations coverage. This doesn't eliminate risk, but it helps:

Establish product liability as the primary framework for analyzing diagnostic-related claims.
Reduce the likelihood that claims become centered on healthcare or professional services exclusions.
Gain greater clarity at the outset of the claims process.

Separate clinical and professional liability exposures

Not all diagnostic-related claims belong under product liability. This prevents coverage from being stretched beyond its intended purpose and creates clearer boundaries between different liability exposures. Consider allocating:

Physician standard-of-care allegations to medical malpractice coverage
Laboratory professional activities for appropriate professional liability coverage
Entity-level operational exposures to the policies designed to address those risks

Review technology and cyber dependencies

Many diagnostic workflows rely on software, automated platforms and digital systems. This makes it essential to review technology-related exclusions, cyber policy triggers and definitions as well as software-driven testing activities. This matters because technology exclusions may unintentionally limit coverage for testing-related losses.

Consider manuscript endorsements

If standard policy language doesn't adequately address diagnostic operations, a manuscript endorsement may provide a tailored solution. However, the endorsement may require carrier approval and careful drafting to avoid creating overly narrow coverage.

Benefits of this approach include:

Allows direct negotiation of wording with insurers
Addresses unique or nonstandard exposures
Can help close gaps that standard forms don't cover

Your coverage review checklist before renewal

Definition of "product"
Diagnostic services: included or excluded?
Scope of the professional services exclusion
Medical malpractice coverage allocation
Technology and cyber exclusions
Policy wording: does it match actual lab operations?

Seeing the full picture: A real-life scenario

Challenge

A life sciences client expanded from a traditional clinical-stage biotech company to operating its own CLIA-certified diagnostic laboratory. The company's risk profile had been largely centered on a small number of therapeutic programs in clinical trials.

The addition of diagnostic testing, laboratory operations and employed pathologists introduced a new set of professional liability and diagnostic exposures. These didn't fit neatly within a standard product liability framework.

Solution

It was important to approach several insurance carriers to evaluate how each would respond to diagnostic testing activities, lab-developed tests and pathologist involvement. Our team of experts focused on negotiating policy wording and ensured the client's evolving operations were properly represented in the insurance program.

The coverage also needed to address the potential liability of lab technicians, pathologists and others working in the lab if an allegation of breach of duty of care arose under medical professional liability. It was also important to avoid a professional services exclusion that could weaken product liability coverage for diagnostic claims.

Where policies didn't clearly address CLIA lab operations, we worked to secure endorsements or manuscript wording to better align the coverage with the exposure.

Outcome

The result was a more tailored coverage structure with greater certainty around claim response. The organization achieved:

A clearer understanding of how diagnostic activities would be treated under the insurance program
Improved awareness of potential coverage gaps and claims response considerations
Increased confidence in evaluating and structuring diagnostic-related coverage

Close CLIA lab insurance gaps before a claim

As operations evolve, it's critical for organizations to understand the full scope of their exposures and carefully review how diagnostic activities and professional services are defined within policy forms. The experienced team in Gallagher's Life Sciences Practice helps reduce uncertainty, improve coverage consistency and support growth through specialized market access and prenegotiated solutions.

Inaccurate wording can create a costly, undesired outcome. That's where clarity becomes the differentiator.

If you operate a CLIA lab or are considering doing so, contact your Gallagher representative today to discuss your specific risk exposures.

Connect with us

Marissa Kearney

Client Service Manager, Life Science Practice

Phone Number (617) 204-6729

Disclaimer

The information contained herein is offered as general industry guidance regarding current market risks, available coverages, and provisions of current federal and state laws and regulations. It is intended for informational and discussion purposes only. This publication is not intended to offer financial, tax, legal or client-specific insurance or risk management advice. No attorney-client or broker-client relationship is or may be created by your receipt or use of this material or the information contained herein. We are not obligated to provide updates on the information contained herein, and we shall have no liability to you arising out of this publication. Insurance brokerage and related services provided by Arthur J. Gallagher Risk Management Services, LLC License Nos. IL 100292093 / CA 0D69293 and its US licensed retail brokerage affiliates.