Anti-Terrorism Contractors Get Liability Relief

Part of the Homeland Security Act has altered the nation’s tort laws with the intent of stimulating development of anti-terrorism products and services. Under the law, companies can ask the federal government to evaluate and certify their anti-terrorism offerings. Certification provides a presumption of dismissal from any lawsuit alleging that the failure of an anti-terrorism product or service contributed to harm caused by an act of terrorism.

“If an X-ray machine is certified, and a bomb gets through the screening process and causes damage to an airplane, the manufacturer has a presumption of dismissal of lawsuits related to the event,” says John Clerici, an attorney with the Washington, D.C. firm of McKenna Long and Aldridge LLP, which represents many of the nation’s largest defense contractors.

Presumption of dismissal means that the case will be dismissed unless a plaintiff can prove that the company committed fraud in getting the certification from the federal government.

Called the Support Anti-terrorism by Fostering Effective Technologies (SAFETY) Act, the statute appears at Subchapter VIII, Part G of the Homeland Security Act (6 U.S.C. sections 441-444), passed in 2002.

Clerici recommends that government program managers incorporate the SAFETY Act into their procurement methods and mention it in requests for proposals (RFPs) issued in connection with anti-terrorist technology. “It is a big carrot to hang out there to get companies interested in selling to you,” he says.

DHS administers the certification program. Contractors may obtain applications for SAFETY Act protection at www.safetyact.com. Certification will go a long way toward eliminating liabilities contractors may face in providing products and services to federal, state and local governments.

Acquiring a certification is a two-step process. Contractors first apply for an anti-terrorism designation for their product or service. Receipt of a designation means that all lawsuits related to the product or service may be removed to federal court. A designation also caps legal liability at the amount of insurance available. Finally, a designation eliminates punitive damages.

Contractors with a designated product or service may then apply for a certification to take advantage of the presumption of dismissal.

Clerici recommends that contractors apply for both the designation and the certification at the same time.

By the end of February 2004, contractors had submitted 18 full applications for designation and certification, according to research conducted by Clerici. To date, none of those applications has received approval. In addition, another 90 pre-applications had been submitted. “The pre-application process is a way to get a quick read from DHS to see if your product is right for certification or not,” Clerici says.

While the SAFETY Act seems to revise tort law for the benefit of a single industry, it actually codifies the government contractor defense. In 1988, the Supreme Court recognized this defense in a case alleging defective military equipment, providing immunity from state tort actions if three criteria were met:

1. A contractor must prove that the federal government dictated product specifications or work procedures that determined how a product was built or a service was delivered;

2. The contractor must prove that it followed the directions given by the government; and

3. All known risks involving the product or service must have been disclosed to the federal government. Given proof of all three, a court will grant a motion to dismiss a lawsuit, Clerici says.

After the terrorist attacks of Sept. 11, 2001, federal, state and local governments requested a host of anti-terrorism products and services from contractors. Contractors, however, hesitated to respond for two reasons. First, insurance carriers had inserted war and terrorism exclusions into general liability insurance policies. And second, the government contractor defense, while eventually effective, carried costs in terms of time and legal fees.

To bring contractors into the loop, federal agencies began issuing agreements to indemnify contractors involved in high-risk anti-terrorism projects. In January 2002, however, the Office of Management and Budget clamped down on such indemnification agreements, fearing the government would incur liabilities that it could not meet.

Later in 2002, Congress passed the SAFETY Act and the President signed it. Generally speaking, the process by which a contractor can obtain SAFETY Act designations and certifications mirrors the process of assembling a government contractor defense.