On 5 May 2020, Cooley trans-Atlantic team of expert lawyers, Sarah-Jane Dobson (EU product liability/safety), Andrew Barr (US product liability/safety and, Richard Hopley (insurance), presented a webinar moderated by Rod Freeman (Head of Cooley's International Products Law Practice) that considered the longer-term international product safety, product liability and related insurance issues that might arise for manufacturers and suppliers of COVID-19 products.
Given the stage of the COVID-19 global crisis, where many companies have already taken the decision to pivot their production or dramatically increased production volume by relying on extraordinary regulatory flexibilities, the webinar focused on thinking ahead, considering the following topics in respect of COVID-19 product issues:
- Minimising future international product safety and liability issues
- Defence of product liability claims if they arise
- How to maximise impact of relevant insurance policies and available indemnities and costs protections
The key-takeaways from the webinar, in respect of unique geographical and legal sector specific angles, are as follows:
EU/UK Product Safety and Product Liability
Whilst companies might have relied on extraordinary regulatory relaxations to produce and supply their COVID-19 products, ultimately companies remain liable under the ordinarily applicable EU product safety and product liability regimes in the event there is a problem with the products.
Companies should adopt strategies with this in mind, including by considering the following regulatory aspects in detail, and with relevant experts:
- Position within the supply chain, including whether the another entity can be considered primarily responsible for the product within the EU (i.e. the "producer" under EU legislation)
- Nature of supply, including whether this is for "own use" or to be used more broadly, as application of regulatory regimes may depend on the same based on the fact that many regimes require "placing on the market" and "own use" may not constitute the same
- Aspects of future liability, including product presentation and markings, for example making it clear the product is for COVID-19 use specifically (though this will have to be considered carefully in the context of the specific regulatory regime applicable, as claims about viruses may trigger application of more specialised regimes, such as medicines regime for hand sanitizers for example)
- Documentation of product compliance, including requesting written confirmation of any exemptions/derogations granted and applicable to the products and following usual due diligence processes to the extent at all possible
- Impact on the longevity for sales plans for products where regulatory pathway relied upon to produce/market are withdrawn or otherwise no longer exist
If litigation does arise, the COVID-19 may be relevant to any defence of a product liability claim that a defective product led to the contraction of the disease and any resultant injuries, as follows:
- COVID-19 context can be emphasised, in terms of timing, purpose and consumer's expectations (if that can be argued to be lower, rather than higher in the circumstances) in determining whether the product was defective
- Causation can be questioned in terms of inevitable contraction of the disease regardless of products and/or a long line of intervening events
- The state of scientific knowledge in respect of the products and their impact on COVID-19, especially given the state of flux in respect to this disease given its relative newness
- Reference to existing product compliance, including the documentation of any derogations and exemptions granted by authorities alongside adherence to usual due diligence procedures
- Involvement of any third-parties, and apportionment of liability
- Due diligence efforts
Outside the above, some companies may be able to benefit from the very narrow indemnities the UK government has taken the unprecedented step of extending to some ventilator manufacturers.
US Product Safety and Product Liability
In these constantly changing times, manufacturers and distributors are weighing the costs and benefits of producing devices, vaccines, and other products and services in response to COVID-19. In making this decision, three parallel forms of protection should be considered:
- COVID-19 Specific Protections. The United States Department of Health and Human Services has provided guidance on compliance with the US PREP Act. The PREP Act provides broad immunity from all US-based litigation for qualifying persons. The PREP Act is a robust tool that can help prevent lawsuits from being filed and, if filed, can help dispose of cases quickly and cost efficiently. Compliance with the PREP Act should be a high priority for any manufacturer or distributor in the US.
- Non-COVID-19 Specific Protections. Beyond the PREP Act, manufacturers and distributors should still pursue traditional protections, including indemnification, liability shifting, liability waivers, limited warranties, and releases. Simply because PREP Act protections exist, it does not affect the importance of traditional defences. Notably, if a product claim is brought outside of the US, the PREP Act will not apply.
- Insurance. Insurance is the backstop to address both defense costs as well as any liability that arises. Given the uncertainty with how lawsuits will develop out of the COVID-19 environment, insurance is a must.
Insurance is a valuable asset and so any business that is "repurposing" should consider the possible implications for its insurance. Changes to the business or its operations (such as manufacturing a different product; operating at different sites; selling to new end-users or into new territories) are likely to alter the risk that insurers have underwritten and that alteration may have to be notified to insurers. The changes would be potentially relevant to most policies: Commercial General Liability/product liability; product recall; property; D&O; and employment liability.
Different forms of policy issued in different jurisdictions will have a wide variety of requirements in relation to notification of changes to the risk; when an obligation to notify arises; and the consequences of not complying. Those consequences may, in the worst circumstances, include the complete loss of coverage under the policy.
Insurance is still relevant even if a business appears to have the protection of a government indemnity or of a regulatory relaxation or exception. The scope of such a protection could be uncertain and there may be territorial limits. A business may need the insurance cover to pay for defence costs incurred in litigation to assert the protection against a third party claim.
Insurance policies should be reviewed to identify any obligation to notify insurers of changes. The relevant policy provisions can be complex and so it may be prudent to seek the advice of brokers or lawyers.
For further information on these topics, please see our previous relevant blog posts and resources:
- EU/UK Product Safety and Product Liability: We've outlined initial considerations for pivoting production here
- US/EU Insurance: We've given a checklist for considering insurance matters related to COVID-19 here
We will continue to keep you updated on the rapidly changing developments in this space.
Originally published 20th May 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.