Retooling in the Midst of COVID-19: Statutory Protections for Manufacturers
From apparel companies that have shifted from making clothing to making face masks, to distilleries and breweries that are now producing hand sanitizer, to consumer goods and auto makers manufacturing ventilators and respirators, manufacturers nationwide have shifted their production lines to meet what consumers need during the COVID-19 pandemic.
|Businesses across the country are facing challenges, including lawsuits, as they grapple with how COVID-19 has impacted their operations, work forces, and supply chains. The wave of litigation is rising, and it appears that no industry is immune. Schiff Hardin’s Coronavirus Task Force is publishing this series to identify of-the-moment issues and potential liabilities facing businesses as they begin to re-open, transform their processes, and face the new reality.|
While the Defense Production Act (DPA) and the Public Readiness and Emergency Preparedness (PREP) Act can protect some manufacturers from contractual and tort liability, these statutes lack certainty and predictability in light of the dramatic manufacturing changes the country has seen over the past several months. Manufacturers and consumers could both benefit from additional regulations that provide “safe harbor” warning and instruction language, for example regarding how effective certain types of personal protective equipment (PPE) can be in protecting against the contraction or spread of COVID-19 or how consumers can use different types of PPE to most effectively mitigate risk.
During the Korean War, the U.S. government passed the DPA, in part to incentivize private companies to retool and mobilize defense production. The DPA has been used by every administration since then, often to encourage manufacturers to prioritize government contracts over private contracts. On March 18 of this year, the federal government invoked the DPA to help meet the country’s needs in fighting COVID-19. So far, the DPA has been used to direct certain manufacturers to produce ventilators for the Strategic National Stockpile, block exports of N95 respirators, and, recoup medical supplies being hoarded by private individuals.
The DPA provides that companies cannot be held liable for damages resulting from setting aside other contractual obligations to meet the demands of a contract or order under the DPA. But the DPA does not protect companies from tort liability. So that’s where the PREP Act kicks in.
The PREP Act provides some – but not all – manufacturers with limited immunity from contract and tort liability. On March 17, 2020, the U.S. Department of Health and Human Services (HHS) published an administrative declaration under the PREP Act that limited liability for entities, including manufacturers, engaged in “recommended activities,” such as manufacturing or distributing medical countermeasures against COVID-19. On May 19, 2020, HHS issued an Advisory Opinion giving additional details about the types of entities covered under the PREP Act and the activities for which they would be covered. The Advisory Opinion provides three important clarifications regarding liability:
It lists “covered countermeasures.”
It advises that entities, including manufacturers, in compliance with the PREP Act and Declaration are protected from liability, even if their products do not wind up being covered countermeasures, so long as the manufacturer “reasonably could have believed that the product was a covered countermeasure.”
It reminds manufacturers that they should be careful to document any “reasonable precautions” that they are taking to fall within the protections of the PREP Act so that manufacturers can show their decision-making process if someone challenges whether their products are protected.
The PREP Act and Declaration protect manufacturers and distributors from tort and contract claims for personal injury and property damage. To qualify for protection, manufacturers and distributors must meet certain conditions. HHS has interpreted these conditions broadly to include “activities” related to any arrangement with the federal government, or any activity that is part of an authorized emergency response at any level of government – federal, state, or local. Activities can be authorized through government arrangements like agreements, guidance, and requests for assistance. Manufacturers should remember, however, that PREP Act immunity is not absolute and that they will need to evaluate whether their specific products qualify for PREP Act protection.
While the DPA and the PREP Act provide some protection for manufacturers that are answering the increased demand for medical supplies needed to combat COVID-19, additional laws and regulations concerning “safe harbor” warnings could provide additional security to both manufacturers and consumers. For example, Prop 65, California’s statute regulating warnings for toxic chemicals, allows companies to use a “safe harbor” warning on their products. Companies that correctly include a Prop 65 warning on their products are protected from government enforcement actions, which also reduces the risk of private actions. In the COVID-19 context, a regulation setting out “safe harbor” warning language for manufacturers to use could provide similar peace-of-mind for manufacturers and consumers. Manufacturers that chose to use a COVID-19 “safe harbor” warning (for example about the effectiveness of a particular type of PPE) would have additional liability protection, and consumers could feel more confident understanding the use and effectiveness of various products.