Insurance considerations for manufacturers pivoting to PPE production

Insurance considerations for manufacturers pivoting to PPE production | Insurance Business

Insurance considerations for manufacturers pivoting to PPE production

Bombardier Inc., a Canadian multinational manufacturer of business jets and rail, announced last week that it is helping to produce 18,000 ventilators for the Ontario government at its plant in Thunder Bay, ON. It’s the latest in a string of manufacturing firms, including automakers and retailers, to pivot their operations to non-traditional production amid the COVID-19 pandemic.

Canada Goose is another Canadian company that has re-tooled its facilities and refocused its teams for the production of personal protective equipment (PPE). The apparel manufacturing giant has reopened all of its eight Canadian facilities, which were temporarily shuttered due to the coronavirus, to produce at least 60,000 medical gowns and scrubs per week. Other organizations to lead the way include Ontario Power Generation, which is now using 3D-printing technology to make face shields, and the Labbatt Brewing Company, which has shifted production to make much-needed hand sanitizer. The list goes on.

When manufacturing companies restructure their business operations and pivot to non-traditional production, they also create a material change in risk. In the most extreme cases, this shift could nullify some of their existing insurance coverage, so it’s vitally important for manufacturers to reach out to their brokers in advance of making any changes in order to ensure they’re adequately protected.

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“Pivoting production to manufacture COVID-19 medical devices may change the risk profile for some manufacturers given the context in which the products will be used,” wrote lawyers Lindsay Lorimer, Charlotte Conlin, and J.R. Beaudrie in a McMillan litigation bulletin. “The potential for a higher standard of care is something every manufacturer must take into account in deciding whether it will pivot production and, if so, what additional research, testing and quality assurance steps it must impose. This clearly will be a disincentive to some manufacturers.

“In the United States, Congress encouraged private industry participation by explicitly addressing the added litigation risk to manufacturers. The Coronavirus Aid, Relief and Economic Security (CARES) Act protects manufacturers and distributors of PPE and medical supplies from civil liability. The Canadian response to the COVID-19 related shortages of PPE and other medical equipment does not provide manufacturers and distributors similar legislated protection against liability. Health Canada approval for any medical device, drug or vaccine does not discharge a manufacturer’s duty of care. Regulatory approval, however, has been viewed as corroboration when presented with expert evidence that a manufacturer conducted appropriate and sufficient testing that met industry and regulatory standards.”

The lawyers go on to suggest that any manufacturers that are considering pivoting their operations to produce PPE should review their existing insurance coverage to make sure that any new products approved by Health Canada under the Interim Order falls within current insurance coverage. If not, they may have to obtain additional policy endorsements from insurers. This is a sentiment shared by Karim Jaroudi, environmental specialist at Burns & Wilcox Canada.

He told Insurance Business: “Manufacturers that are contemplating the production of PPE or medical equipment during the coronavirus pandemic should talk to their brokers to ensure they remain without any coverage gaps on their insurance program. They might be bringing larger volumes of chemicals and/or brand-new chemicals and resins on to their sites. A lot of them are going to be switching into industries that involve a lot of plastic, whether that’s in handling, fabricating or production, which could pose new risks. And then they need to consider things like bulk storage, how to handle and process new materials, and the resulting waste streams of their new operation. These are all things that may not have been conceived of or contemplated in their initial risk management strategy.”

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On March 20, the Government of Canada called on Canadian businesses and manufacturers to help deliver PPE and critical health supplies. The government launched a call to action to Canadian businesses under Canada’s Plan to Mobilize Industry to fight COVID-19, through which it is offering support to market through procurement agreements, expedited regulatory process through Health Canada, and additional technical or financial assistance. 

“A term I’ve heard more than once in the past few weeks is ‘speed versus accuracy’. It suggests we’re applying an expeditious model, and perhaps loosening certain regulatory, licensing and compliance requirements in order to get these emergency industries up and running and get the product out the doors as quickly as possible,” said Jaruodi. “That’s a very positive approach, but at the same time, as an insurer, an underwriter, and somebody who assesses risk every day of their life, I can’t help but think about the uncertainty, the insurance risk, and therefore the potential exposure this creates on the clients’ balance sheets. That’s something worth talking about in order to protect these industries during this time of flux.”

Another thing for manufacturers to consider from an environmental exposure standpoint - which many probably aren’t because of the fast-evolving nature of the COVID-19 pandemic - is what happens when things eventually get back to normal. Is it safe to convert your plant back to its original use? Are you still storing different chemicals or hazardous materials? How has your environmental exposure changed since you made the switch? Are you going to switch back or do you plan to keep producing PPE? One of the questions being asked by Canadian leadership, particularly Ontario premier Doug Ford, is: ‘Why don’t we manufacture more of this locally?’ That might refer to PPE or medical supplies and so on – and it implies that there might be a need, or at least a desire, for some companies to stick to their current path rather than pivoting back to their original operations. Therefore, some of the questions above would not apply, but for most companies, the reverse pivot will need consideration.

“I think we cross that bridge when we get to it,” Jaroudi commented. “There is absolutely an underwriting endeavour to be had there. Brokers will have to work closely with their manufacturing clients to understand their way back and what is being done to facilitate that. I just don’t think anyone’s thinking that far ahead right now, primarily because of the fact that we have no idea how long this coronavirus situation is going to last.”