Unprecedented times have brought unprecedented changes — changes that might shake up a business’ current coverage. The increased need for PPE and COVID-19-related equipment has encouraged many manufacturers to pivot their production to help add to the supply of this necessary equipment. For example, numerous companies are now producing masks for both medical professionals and average civilians alike; others still are beginning to produce hand sanitizer and additional cleaning products.
For all the good this increase in PPE production can bring, it can also pose some challenges for insurers and insureds — and it could result in insureds having their coverage nullified.
When insureds first sought out an insurance plan, they were given coverage under the conditions of their then-current production output. Switching to PPE production creates a material change in risk previously unaccounted for by the insured’s plan. This pivot means that the manufacturer’s present production may fall outside of the coverage of their current plan, leaving them vulnerable and uncovered. On the insurer side, they may not know that an insured has switched their production until an incident occurs, presenting challenges for both parties.
The reason for all of this confusion and trouble is the nature of PPE. PPE products are considered medical products, which means they fall into a specialized insurance market under which an insured might not already be covered.
Agents & brokers should be vigilant with their clients and make sure that their insureds are prepared for potential issues with producing PPE. For example, some manufacturers may be able to produce goods like hand sanitizer with few changes to their actual manufacturing processes; examples of such businesses include alcohol and perfume producers. However, just because they are able to produce these products, that does not mean they have the specialized knowledge required to do so. Insurance brokers should be asking their manufacturing clients if they are aware of the regulations and/or regulations that exist in this new field of production and if the client has access to the resources necessary to continue this type of production. If the client is hesitant in any of these areas, they may need to consider bringing on new staff to handle these potential problem areas.
On the manufacturing side, there are several ways a company can reduce its liability. To give an example, some companies are opting to produce face masks. There are several styles of face mask a company can produce, each with their own level of regulation. If a company intends to produce face masks that are “not intended for a medical purpose,” i.e. masks that are not “intended for use in the diagnosis of disease or other conditions or in the cure, mitigation, treatment, or prevention of disease,” then the FDA will allow them to produce such masks with zero prior authorization. However, in order to meet this requirement, the company must clearly label the masks as not being intended for use by a healthcare professional or in a healthcare facility/environment. Furthermore, they must also specify that the masks do not include drugs, biologics, or anti-microbial/anti-viral agents.
If the company wishes to produce medical-grade masks, however, the situation changes. While the FDA has loosened restrictions on PPE production during the present crisis, maintaining a good relationship with the FDA is essential if a company wishes to avoid issues. In addition to following the FDA’s guidelines for production, a company should also reach out to the FDA before their production starts announcing their intentions to produce PPE and how their PPE will follow the rules laid out by the FDA’s most recent guidance. Specifics for this kind of production are incredibly detailed, and more information can be found here.
As the situation is continually changing, some details about production and coverage are still unclear. For example, on March 10th of this year, a Declaration was issued by the Secretary of Health and Human Services saying that tort immunity will be provided to entities creating or distributing “countermeasures” to the COVID-19 virus until October 1st, 2024 under the Public Readiness and Emergency Preparedness Act, also known as the “PREP Act.” While this offers some comfort in the minds of the insured, it also opens up new vulnerabilities, which are explored in an article here.
Entering a new field of production is daunting, especially given the current pandemic. Conway E&S is determined to ease your entry with our dedicated team knowledgeable in the medical products space. Our relationships in these markets are strong, and we can provide the coverage you need when it comes to issues relating to communicable diseases and pathogens. We can also provide options for managing the aforementioned risks, including manufacturing and distributing PPE and running research facilities and diagnostic labs. If you have questions in the space or are seeking insight or coverage, contact Rachel Staph at Conway E&S.