The spread of COVID-19 continues to strain the health care industry, including by creating shortages of medical supplies. On March 17, 2020, the Secretary of the Department of Health and Human Services (HHS) published a declaration under the 2005 Public Readiness and Emergency Preparedness Act (PREP Act) to provide liability immunity for activities related to medical countermeasures against the ongoing COVID-19 pandemic. HHS amended the declaration on April 10, 2020. In order to address several questions and clarify the PREP Act’s scope, HSS published an advisory opinion on April 14, 2020.
The declaration provides liability immunity to certain individuals and entities — referred to as “covered persons” — against any claim of loss caused by, arising out of, relating to, or resulting from the manufacture, testing, development, distribution, administration, and/or use of COVID-19 medical countermeasures (covered countermeasures).
Who are the covered persons afforded immunity under the declaration?
Covered persons afforded liability immunity under the declaration include:
- Manufacturers: Any supplier or licenser of a component or service rendered in the design, development, testing, investigation, or manufacturing of a covered countermeasure.
- Distributors: Any entity engaged in the distribution of a covered countermeasure, ranging from re-packers to retail pharmacies.
- Program planners: A state or local government, including a person employed by the state or local government or another person who supervises or administers a program with respect to the administration, dispensing, distribution, provision, or use of a covered countermeasure. This includes those who establish requirements, provide policy guidance, supply technical or scientific advice or assistance, or provide a facility to administer or use a covered countermeasure in accordance with the PREP Act declaration. Under this definition, a private sector employer or community group or other person can be a program planner when it carries out the activities described above.
- Qualified persons: Licensed health professionals and others authorized to prescribe, administer, or dispense the countermeasure.
The April 14 advisory opinion clarifies that an entity or individual that complies with the PREP Act’s other requirements and the conditions of the secretary’s declaration will not lose PREP Act immunity even if:
- The medical product at issue is not a covered countermeasure, provided the entity or individual seeking immunity could have reasonably believed that it was a covered countermeasure.
- The person is not a covered person if the entity or individual reasonably believed the person was covered.
The HHS advisory also states that covered persons should take and document reasonable precautions under the current emergent circumstances to facilitate the safe use or administration of covered countermeasures and to make those documents publicly and easily available.
How are “covered countermeasures” defined?
HHS provided detailed information on covered countermeasures, which include:
- Any antiviral, other drug, biologic, diagnostic, other device, respiratory protective device, or vaccine used to treat, diagnose, cure, prevent, or mitigate COVID-19, the transmission of SARS-CoV-2, or a virus mutating from them, as well as any device used for the administration of any such product, and all components and constituent materials of any such product.
- Respiratory protective devices that may not be medical devices, provided they are approved by the National Institute for Occupational Safety and Health (NIOSH) and subject to the FDA’s Emergency Use Approval Pathway (EUA).
- Any drug, device, or biological product authorized for emergency use with respect to COVID-19 under the EUA, described in emergency use instructions and issued by the CDC, or being researched under certain investigational provisions.
These must be “qualified pandemic or epidemic products,” “security countermeasures,” or drugs, biological products, or devices authorized for investigational or emergency use, as defined in the PREP Act; the Federal Food, Drug, and Cosmetic Act; and the Public Health Service Act; or any respiratory protective device approved by NIOSH under 42 CFR part 84 or successive regulations.
The FDA must approve all medical devices and drugs prior to marketing, sale, or distribution. During the pandemic, approvals may be sought through the FDA’s EUA.
What protections does liability immunity provide?
Liability immunity protects covered persons from activities authorized in accordance with the public health and medical response of the authority having jurisdiction to prescribe, administer, deliver, distribute, or dispense the covered countermeasures following an emergency declaration.
The April 14, 2020, advisory opinion states that the PREP Act preempts state and local law. The opinion states that those seeking immunity are responsible for determining:
- Whether their products are covered countermeasures.
- Whether a person or entity is a covered person.
- Whether reasonable precautions have been taken to facilitate the safe use of covered countermeasures.
- Whether immunity applies to them and their activities.
What “recommended activities” are included?
Recommended activities under the declaration include the manufacture, testing, development, distribution, administration, and use of covered countermeasures.
What does liability immunity cover?
Liability immunity is afforded to covered persons only for recommended activities involving covered countermeasures that are related to:
- Present or future federal contracts, cooperative agreements, grants or other transactions, interagency agreements, memoranda of understanding or other federal agreements.
- Activities authorized in accordance with the public health and medical response, including activities to prescribe, administer, deliver, distribute, or dispense the covered countermeasures following a declaration of an emergency.
During which periods is liability immunity in effect?
The HHS declaration identifies the period or periods during which liability immunity is in effect for each covered countermeasure:
- Immunity for federally distributed covered countermeasures is effective from February 4, 2020, through October 1, 2024.
- Immunity for covered countermeasures outside of federal contracts or distribution channels is effective from February 4, 2020, through October 1, 2024 or the end of the emergency declaration by the relevant agency, whichever is earliest.
- Manufacturers will receive an additional 12 months of immunity for the disposal of both above countermeasures.
- Immunity for respiratory protective devices is effective from March 27, 2020.
Careful review of the various provisions must be completed to determine applicability.
Are there any limitations of the PREP Act and the HHS declaration?
Under the PREP ACT and the HHS secretary’s declaration, immunity from liability is limited and does not apply to liability for death or serious physical injury caused by willful misconduct. In addition:
- Immunity is not available for foreign claims where the US has no jurisdiction or where US law does not apply.
- The grant of immunity does not protect organizations from claims that are unrelated to covered countermeasures.
- Covered products must be “administered” to treat the coronavirus and used to treat the “population” of coronavirus patients. (There is no geographical limit on this, which means that covered products can be used to treat patients outside of the US.)
For companies working on solutions for the ongoing pandemic, the PREP Act provides limited immunity from liability. This does not eliminate the need for insurance coverage and proper risk management.
Policyholders should note that:
- Immunity from liability for products and premises may be available if certain criteria under the act and the HHS declaration are met.
- Not all types of potential liability claims will be covered by this immunity — there are exceptions.
- The facts of a particular loss may not fit the fact scenario needed to trigger immunity.
If working under government contracts, organizations should also seek to include the cost of insurance within those contracts.
Organizations that may be subject to the declaration should:
- Seek formal guidance from their counsel to understand how the immunity applies to them.
- Maintain records and documentation to support their PREP Act protection in the event they are asked to show they “believed” they were in compliance.
Companies should also be prepared to demonstrate to insurers regulatory/FDA compliance, and that they are currently proceeding through the FDA’s EUA pathway for approval.
For products liability, insurers in the life science space appear ready to provide claims-made coverage for these risks and capacity is readily available at present.
For more information, contact your Marsh representative.
The information contained in this document provides only a general overview of subjects covered, does not constitute legal advice, is not intended to be taken as advice regarding any individual situation, and should not be relied upon as such. Insureds should consult their insurance and legal advisors regarding individual situations and specific coverage issues. All insurance coverage is subject to the terms, conditions, and exclusions of the applicable insurance policies. Marsh does not speak for insurers and cannot provide any assurance that insurance can be obtained for any particular client or for any particular risk.