COVID-19 and the PREP Act: Product Liability Risks

What Is the PREP Act?

The Public Readiness and Emergency Preparedness (PREP) Act allows the Secretary of the Department of Health and Human Services to issue a PREP Act Declaration. This is meant to give certain businesses protection from liability claims.¹

In March 2020, a PREP Act declaration was issued for medical countermeasures against COVID-19. It protected certain businesses that provided medical materials to combat the pandemic and let the Food and Drug Administration (FDA) issue Emergency Use Authorizations (EUAs). The EUAs allowed for:

Shorter approval processes for medical products
The use of unapproved medical products
Unapproved uses of approved medical products in an emergency

Since it was first issued, there have been 10 amendments.²The latest amendment went into effect on Jan. 7, 2022 and clarifies the types of businesses and people that have protection through the PREP Act.³

Will a PREP Act Declaration Protect My Business From Liability?

While a PREP Act declaration offers immunity, it’s important to know that it’s not absolute. Businesses must meet specific guidelines and conditions to not be responsible for certain types of liability claims.

For example, the PREP Act doesn’t provide immunity:

Against federal enforcement actions
From every type of claim
To products used before or after the emergency period, which runs through Oct. 1, 2024
To claims of death or serious physical injury due to willful misconduct
For foreign claims where the U.S. has no jurisdiction or where U.S. law doesn’t apply

What Types of Businesses are Protected by the PREP Act?

Curious what types of businesses are protected by the PREP Act? Businesses can use our questionnaire to determine if they’re ready to provide COVID-19 countermeasures.

Question	Yes	No
1. Are you a manufacturer, distributor, program planner, or licensed professional that qualifies as a Covered Person?
2. Does your product and/or service involve a Covered Countermeasure under the scope of the Declaration?
3. Does your product meet or exceed all of the requirements of the FDA including the EUA?
4. Is the product being sold or distributed under a Federal government contract or to, or with the cooperation of a governmental authority that has issued a declaration of emergency and expressed an immediate need for the countermeasure?
5. Is there a warning label that describes the products limitation on use? Are October 1, 2024 expiration dates listed prominently on the products? Are return addresses listed on the product and packaging to assist with the recovery of these products?
6. Do you have traceability procedures in place in the event of a product recall or to collect a product that will have a limited use period under an FDA EUA?

Do Businesses Need Insurance if They’re Protected by a PREP Act Declaration?

Because immunity from the PREP Act isn’t permanent, it’s important that companies have the right type of large business insurance. The COVID-19 declaration is set to end in October 2024. Unless it’s extended, this means businesses are at risk of liability claims.

“The PREP Act declaration and its immunity will expire. So, what happens next?” said Marcos Perez, a Life Sciences portfolio manager for The Hartford’s International business. “Those businesses won’t have any immunity anymore. And if they get sued or there’s a claim, they’ll want to have the right insurance coverage to help them.”

Perez emphasized that companies can also face risks outside of the U.S., highlighting the need for insurance coverage.

“The PREP Act only exists in the U.S., and although other countries are facing pressure to enact something similar, companies doing business outside of the U.S. where the country’s laws don’t have an effect need coverage,” Perez explained.

What Types of Insurance Do Businesses Need?

According to Perez, a few types of coverage that businesses may want to get include:

Human clinical trial liability coverage
Product liability coverage
Errors and omissions (E&O) insurance
Public liability insurance
Employer’s liability insurance

Tips To Reduce Your Product Liability Risks

If a business decides to make, sell or donate safety materials, or participate in other countermeasures outlined in the PREP Act declaration, there are steps they can take to reduce product liability risks. Perez recommended taking these steps instead of solely relying on immunity granted from the PREP Act.

1. Establish a COVID-19 Task Force

Create a task force dedicated to the pandemic to ensure business operations follow best practices as outlined by the:

Centers for Disease Control and Prevention
FDA
Occupational Safety and Health Administration
State and local guidance where applicable

2. Always Consult With Legal Counsel

Have an experienced legal team to help:

Determine if there is immunity from the PREP Act
Make sure there’s appropriate contractually risk transfer
Better understand how to protect the business

3. Seek Advice From an Insurance Agent or Broker

Businesses should contact their local agent or broker to review current policies and identify any risk exposures.

4. Clearly Document Countermeasures

It’s essential that businesses follow FDA regulations and any EUAs. Document everything related to countermeasures, such as:

Having a list of suppliers the business will work with for COVID-19 countermeasures
Checking if suppliers have a quality management system
Having a record of EUAs that business’ products comply with

5. Seek a Partner With Expertise

An inexperienced business can partner with another company to provide advice on how to convert operations and what to be aware of when making the temporary change to provide countermeasures.

Companies can also work through an agent or broker to partner with an experienced insurer that specializes in complex risks. For example, The Hartford offers specialized products. And with over 50 life science specialists in the world, the company can analyze complex risks and develop tailored solutions.

Internationally, The Hartford has access to Lloyd’s of London Syndicate 1221, which offers specialized solutions for hard-to-place risks for companies around the world.

“There’s a science behind good insurance,” Perez noted. “We have a team dedicated to the life science space. They truly understand the risks that these companies face on a daily basis and in unique situations, like the PREP Act.”

6. Follow Product Safety Management Plan

A product safety management plan helps keep a business and its employees safe while making countermeasures. It’s important for companies to review this plan and notify employees of any changes.

Companies creating medical devices should have a post-market surveillance system in place. This provides a way to monitor medical devices that are created for public use.

7. Review Supply Chain and Revise Contracts

The ongoing pandemic and political unrest in the world have had significant, lasting supply chain impacts. Look at existing contracts with vendors and supplies to make sure business risks are appropriately transferred.

If a company needs to work with a new vendor or supplier, it’s essential to fully vet their business and consult with a legal team before signing a contract.

8. Examine Promotional Claims

The FDA and Federal Trade Commission (FTC) are targeting companies for making product claims that are:⁴

Unsubstantiated
Misleading
False

9. Report Serious Incidents to the FDA and CPSC

The U.S. Consumer Product Safety Commission (CPSC) emphasizes that companies still have to follow the rules outlined in Section 15(b) of the Consumer Product Safety Act. This means businesses must file a report within 24 hours of learning information about product safety or a defect that could create substantial risk of injury or death.

10. Notify an Agent or Broker About Claims

Businesses that learn of an incident that can lead to a claim, or if one was already filed, should immediately notify their agent or broker. They can help with the claims process and what information is needed to file.

Additional Resources

^1,2 U.S. Department of Health & Human Services, “Public Readiness and Emergency Preparedness (PREP) Act”

³ Federal Register, “Tenth Amendment to Declaration Under the Public Readiness and Emergency Preparedness Act for Medical Countermeasures Against COVID-19”

International Life Science coverage is underwritten by The Hartford Syndicate 1221 or Navigators Insurance Company UK Branch. Syndicate 1221 is managed by Navigators Underwriting Agency Limited. Registered office of these companies: Floors 7-8, 6 Bevis Marks, Bury Court, London EC3A 7BA. Navigators International Insurance Company is rated “A” and Navigators Insurance Company UK Branch is rated “A+” (Excellent) by A.M. Best and both are rated “A” (Strong) by Standard & Poor’s. Lloyd’s is rated ‘A’ (Excellent) by A.M. Best and ‘A+’ (Strong) by Standard & Poor’s. Underwriting coverage is subject to the language of the policy as issued. Products may not be available in all countries or localities and policy features may vary by country or locality. Please consult your insurance broker and review the policy for coverage limitations, restrictions, exclusions, terms and conditions.

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