Can I Be Liable For That?  Issues of Liability During the COVID-19 Pandemic

Thursday, April 23, 2020

Whether you’re a new manufacturer to the personal protective or healthcare equipment space or you’re shifting gears to ramp up production for COVID-19 specific products, it’s likely that you’re thinking about what happens if something goes wrong with a product. 

Indeed, the hard lesson of who bears liability was learned by Hercules Inc. and the W.T. Thompson Company when they produced the defoliant known as “Agent Orange” under contract with the U.S. government through the use of the Defense Production Act.  The Supreme Court, in Hercules v. U.S., found no intent for Congress to relieve companies of the liability that flow from orders under the DPA.  Any such protections would have to be found either in the contract or in other legislation, which left the companies open to liability despite the fact that the military had formulated the chemical composition of the design.

Today, however, is one of those special times that calls for special measures.  Manufacturers may find themselves with additional protections in certain circumstances under the PREP Act.

What is the PREP Act?

The Public Readiness and Emergency Preparedness Act (“PREP Act”) was enacted in 2005 to allow the Secretary of the Department of Health and Human Services (“HHS”) to issue a declaration that would provide certain immunity from tort liability claims for those Covered Persons who manufacture, distribute, or dispense medical countermeasures.   

On March 17, 2020, HHS Secretary Alex Azar issued a COVID-19 related Declaration that was retroactively deemed effective on February 4, 2020.  Further clarification with respect to the Declaration was issued on April 14, 2020, in the form of an Advisory Opinion issued by HHS’ Office of the General Counsel. 

Who Are Covered Persons?

Covered Persons include manufacturers, distributors, program planners, and qualified persons along with their corporate officials, agents, and employees.  The definitions for each of these categories are fairly broad:

  • Distributor: a person or entity engaged in the distribution of drugs, biologics, or devices, including but not limited to manufacturers; repackers; common carriers; contract carriers; air carriers; own-label distributors; private-label distributors; jobbers; brokers; warehouses, and wholesale drug warehouses; independent wholesale drug traders; and retail pharmacies.
  • Manufacturer: a contractor, subcontractor, supplier, licenser, intellectual property service, research organization, design or development teams, clinical testing teams, investigation organizations.
  • Person: an individual, partnership, corporation, association, entity, or public or private corporation, including a Federal, State, or local government agency or department.
  • Program Planner: a State or local government, including an Indian tribe, a person employed by the State or local government, or other person who supervised or administered a program with respect to the administration, dispensing, distribution, provision, or use of a security countermeasure or a qualified pandemic or epidemic product, including a person who has established requirements, provided policy guidance, or supplied technical or scientific advice or assistance or provides a facility to administer or use a covered countermeasure.

What Is a Covered Countermeasure?

Covered Countermeasures include any drug, device, or biological product that is approved, cleared, or licensed by the FDA and is used to diagnose, mitigate, prevent, treat, cure, or limit the harm or transmission of COVID-19.  This includes any of the devices used in the administration of the product, and all components and constituent materials that comprise the product.

Any drug, device, or biological product authorized for emergency use with respect to COVID-19 under an Emergency Use Authorization (“EUA”), described in Emergency Use Instructions (“EUI”) issued by the CDC, or being researched under certain investigational provisions to treat COVID-19 is also a covered countermeasure. 

Further, any “qualified pandemic or epidemic product” is a Covered Countermeasure as long as it is used for COVID-19 and is (1) approved, licensed or cleared by the FDA; (2) authorized under an Emergency Use Authorization; (3) described in an Emergency Use Instruction; or (4) used under an Investigational New Drug application or an Investigational Device Exemption.  

On April 10, 2020, the Secretary of HHS amended the PREP Act Declaration to expand the scope of the countermeasures allowed to combat COVID-19 to include NIOSH approved respirators (under 42 CFR part 84) as authorized by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

According to the Advisory Opinion, there is a large number of products that would meet one of these definitions.  With the “broad scope of PREP Act immunity, Congress did not intend to impose a strict liability standard on covered persons for determining whether a product is a covered countermeasure.”  The Advisory Opinion suggests that a company will not lose its immunity, “even if the product is not a covered countermeasure – if that person or entity reasonably believed that the product was a covered countermeasure.”

How long does immunity last?

The PREP Act Declaration extended immunity for Covered Countermeasures from February 4, 2020, through October 1, 2024. 

The CARES Act amended the original effective time periods to include immunity for any respiratory protective device approved by NIOSH under 42 CFR part 84 beginning on March 27, 2020, and extending through October 1, 2024.

How Broad Is PREP Act immunity?

The Act provides immunity for:

claims of loss caused, arising out of, relating to, or resulting from administration or use of countermeasures to diseases, threats, and conditions determined by the Secretary to constitute a present, or credible risk of a future public health emergency to entities and individuals involved in the development, manufacture, testing, distribution, administration, and use of such countermeasures.

These losses include “(i) death; (ii) physical, mental, or emotional injury, illness, disability, or condition; (iii) fear of physical, mental, or emotional injury, illness, disability, or condition, including any need for medical monitoring; and (iv) loss of or damage to property, including business interruption loss.”

Despite the broad protection, it is clear that the PREP Act is not a magical panacea that would allow any business to manufacture any COVID-19 related product without a risk of consequences.  On April 14, 2020, the General Counsel for HHS issued an Advisory Opinion on the PREP Act, further discussing the breadth of immunity under the March 10th Declaration. 

The General Counsel’s Advisor Order makes it clear that the PREP Act is not a grant of absolute immunity.  Specifically, the Act does not:

  • Provide immunity against federal enforcement actions, regardless of whether they are civil, criminal or administrative;
  • Cover claims under federal law for equitable relief;
  • Cover those who commit acts of willful misconduct;
  • Provide immunity for products that do not meet the definition of “covered countermeasure”; or
  • Cover violations of civil rights laws, the Americans with Disabilities Act, or other claims that to not relate to an underlying tort.

What does this mean for me?

Depending on the product you’re manufacturing, you may be shielded from immunity by the PREP Act and the COVID19 Declaration.  If so:

  • Assess whether your product(s) launched to fight COVID-19 can be considered a Covered Countermeasure and whether the immunity provisions of the PREP Act may apply. We recommend that you document your analysis should a challenge be raised in the future.
  • Continue to assess your risk and insurance coverage appropriately based on the type of product you are creating.
  • Do not abandon potential contractual strategies to address liability, even with the potential for tort immunity.

Please contact the authors of this alert or any member of the Butzel Long Healthcare Industry Team with any questions regarding the PREP Act.  For more information resources on all COVID-19 related legislation, programs, and orders from both federal and state authorities, see the Butzel Long Coronavirus Resource Center.

Jennifer Dukarski
734.213.3427
dukarski@butzel.com

Deb Geroux
248.258.2603
geroux@butzel.com

Ashley Glime
734.213.3631
glime@butzel.com

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