Government Contractors Defense

1. Government Contractors Defense

2. Government Contractors Defense The views, information and content expressed herein are those of the authors and do not necessarily represent the views of any of the insurers of The Chubb Group of Insurance Companies. Chubb did not participate in and takes no position on the nature, quality or accuracy of such content. The information provided should not be relied on as legal advice or a definitive statement of law in any jurisdiction. For such advice, an applicant, inured, listener or reader should consult their own legal counsel.

3. Government Contractors Defense Framing the Issues The Risk: • Liability stemming from injury and/or property damage to others, caused by a product and/or delivery of a service.

4. Government Contractors Defense Potential Defense? • The Government Contractors Defense (GCD)

5. Government Contractors Defense The GCD

6. Government Contractors Defense The GCD

7. Government Contractors Defense Who are potential claimants? • Servicemen and women • General Public • Other FGC’s • The Federal Government

8. Government Contractors Defense Origin of the GCD Boyle vs. United Technologies • Landmark case (1980’s) • Heard by the US Supreme Court (SCOTUS) • SCOTUS decision established current case law which underlies the GCD

9. Government Contractors Defense The “Boyle” Case • Boyle was a US Naval Aviator • His helicopter crashed off the coast of VA • Boyle survived the crash, unfortunately he drowned after being trapped in the helicopter • Boyle’s estate sued United Technologies/Sikorsky, mfg. of the helicopter

10. Government Contractors Defense The “Boyle” Case • Appears to be a standard Product Liability case • a product is claimed to be faulty due to design flaw • the faults are claimed to be the proximate cause of the injury • The defendant had a duty to provide a safe, effectively designed product

11. Government Contractors Defense The “Boyle” Case: Outcome • Ultimately heard by US Supreme Court • Decision was in favor of the defendant • Why? Reasons include: • Products used for National Defense differ than ordinary products: “unique federal concern” • Firms must have a reasonable expectation of protection from liability to encourage providing products used for National Defense • The situation met three “tests” established by this case

12. Government Contractors Defense The “Boyle” Case: Three Tests A firm could not be held liable if: • US Government provided and/or approved a product’s specifications • The product is manufactured to those specifications • The manufacturer warns the US Government of inherent design flaws

13. Government Contractors Defense The “Boyle” Case: Consider • Specific Case w/specific circumstances • Related to a product failure • Concepts will be applied to different circumstances, in different jurisdictions

14. Government Contractors Defense The “Boyle” Case: Key Considerations • How will the decision apply to services? • How “specific” do specifications need to be? • What constitutes approval by the US Government? • Sub-to-Prime Relationships: GCD likely not applicable between sub & prime

15. Government Contractors Defense Loss & Litigation trends/examples • Services – injury to service members • Product – financial injury due to faulty product • Infringement of Intellectual Property

16. Other Defenses Available to Government Contractors Presented by: The Willis Government Contracting Practice

17. Government Contractors Defense State Secrets Privilege Bentztlin v. Hughes This case arises out of the accidental deaths of six members of the United States Marines Corps on January 29, 1991 during the Persian Gulf War. Plaintiffs are family members of Marines who were killed in combat near the border of Kuwait and Saudi Arabia. According to plaintiffs, the Marines were riding in a light armored vehicle toward enemy Iraqi land forces, when a Maverick AGM-65D missile, fired from a U.S. Air Force A-10 aircraft, struck the vehicle and killed the Marines. Plaintiffs claim that a manufacturing defect caused the missile to deviate from its intended target and strike the Marines.

18. Government Contractors Defense State Secrets Privilege Bentztlin v. Hughes • Court dismissed case holding that - (i) “Government Contractor Defense” precludes manufacturing defect claims against the manufacturer of the missile; and - (ii) governments assertion of the “State Secrets Privilege” precluded adjudication of claims against manufacturer. The state secrets “privilege barred disclosure of information necessary to establish both plaintiff’s prima facie case and manufacturer’s defense.”

19. Government Contractors Defense Political Question Doctrine Whitaker v. Kellogg, Brown, Root Bareford v. General Dynamics In 1987, during the Iraqi-Iranian war, an Iraqi F-1 Mirage fired two missiles at the USS Stark resulting in 37 crewmembers dead and many more injuries. The Navy investigation concluded that one of the causes was the lack of proper weapon readiness. 23 of the 37 sailors brought suit against General Dynamics alleging that the Phalanx weapon system sold to the US military was defectively manufactured and designed. • The government intervened and filed a 12(b)(6) motion to dismiss the complaint. • The Court dismissed the case on two grounds: • the case presented a non-justiciable “political question”; • the subject of the lawsuit was a state secret that was privileged under the “state secrets doctrine.”

20. Government Contractors Defense Derivative Sovereign Immunity Murray v. Northrop Grumman Information Technology James Murray and Ruth Gould, the Appellants, came to the United States on nonimmigrant visas under the Irish Peace Process Cultural and Training Program (“IPPCTP”), a program established by Congress. Northrop Grumman Information Technology, Inc. (“Northrop”) was hired by the U.S. to be the the Program Administrator of the IPPCTP. When Murray and Gould’s relationship with their American employer soured, the employer told Northrop that Murray and Gould had never actually worked for him and that they were threats to national security.   • Based on these allegations, the Immigration and Naturalization Service (“INS”) detained Murray and Gould, and Northrop terminated them from the Program. The INS initiated deportation proceedings based principally on Northrop’s transmittal of the employer's accusations to the USG. Murray and Gould sued Northrop, upon a claim of injuries as a result of Northrop's alleged negligence, negligent misrepresentation, defamation, and breach of contract.

21. Government Contractors Defense Derivative Sovereign Immunity Murray v. Northrop Grumman Information Technology • Court held that Northrop is absolutely immune from state tort liability for claims resulting from any information-sharing by Northrop. • Court determined that Northrop was a private contractor hired to perform a quintessential governmental function. • In the course of its official duties, Northrop merely conveyed information with possible national security implications to the agency charged with its oversight.

22. Government Contractors Defense Loss Control – USG Indemnification FAR Clause 52.228-7: Insurance – Liability to Third Persons • Provides indemnification for certain losses that exceed amount of required insurance Public Law 85-804 Indemnification • “Unusually hazardous or nuclear risks” • Used when contractors cannot obtain adequate insurance given the level of risk The Safety Act • When qualified, creates certain liability limitations for "claims arising out of, relating to, or resulting from an act of terrorism" where qualified anti-terrorism technologies have been deployed.