COVID-19: Understanding Liability Immunity Under the PREP Act

On March 17, 2020, the Secretary of the Department of Health and Human Services (HHS) issued a declaration under the 2005 Public Health Service Act (PREP Act) to provide liability immunity for activities related to medical countermeasures against the ongoing COVID-19 pandemic. 

As the spread of COVID-19 continues to put a strain on the health care industry, including creating shortages of medical supplies, 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). The declaration is retroactive from February 4, 2020, and extends through October 1, 2024. Manufacturers and distributors will be given an additional 12 months of liability protection to dispose of and collect countermeasures or otherwise limit their use.

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. 
• 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.

Definitions in the PREP Act

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. These include those who establish requirements, provide policy guidance, or 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.
  

Covered countermeasures are defined as any antiviral, biologic, diagnostic, or other drug; any other device; or any vaccine used to treat, diagnose, cure, prevent, or mitigate COVID-19, or the transmission of the virus causing the pandemic or another mutation of the virus. Any devices used in the administration of any such product, and all components and constituent materials of that product, are also included. It is important to note that 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.

Recommended activities under the declaration include the manufacture, testing, development, distribution, administration, and use of covered countermeasures.

Limitations

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.)

Recommendations 

For companies working on solutions for the ongoing pandemic, the PREP Act provides limited immunity from liability. But 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.  
  

In consultation with their legal counsel, companies should consider seeking affirmation from HHS that they are “covered” entities and that their products and work constitute “covered countermeasures” to have greater certainty that immunity applies. Companies should also be prepared to demonstrate to insurers regulatory/FDA compliance, and that organizations are currently proceeding through the FDA’s Emergency Use Authorization pathway for approval.

Insurers will likely want confirmation that an insured has an affirmation from HHS and authorization from the FDA (or is working toward it). 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.

It will be essential to work with insurers in an effort to eliminate potential gaps in coverage due to some wordings that may exist on policies with respect to medical products and/or FDA approval timing.

For more information, contact us.

Darlene Villoresi
Managing director, Life Sciences – Casualty

Disclaimer:

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.