Article

Government contractor defense

The government contractor defense provides private contractors with protection from certain product liability claims when they do business with the U.S. government. There are two basic forms of the defense, a common law defense, which is described in the U.S. Supreme Court decision of Boyle v. United Technologies, and a statutory defense defined in the Support Anti-terrorism by Fostering Effective Technologies Act of 2002, also known as the SAFETY Act. This report provides an overview of the government contractor defense as defined in Boyle and the SAFETY Act, along with general recommendations that contractors may take for improving their ability to claim this defense.

Introduction

The U.S. government, particularly the military, is a large purchaser of products. Generally, the United States and its various agencies are immune from product liability actions under the principle of sovereign immunity. This immunity has been recognized and enforced by both federal and state courts throughout the United States. The government has consented to partially waive its immunity to tort liability under specific circumstances, which are defined in the Federal Tort Claims Act (FTCA).

Private contractors doing business with the U.S. government may be protected from state product liability claims by a common law defense called the "government contractor defense (GCD)." This defense allows private contractors to share the government's immunity from tort liability on public policy grounds. The modern requirements for the defense were set forth by the U.S. Supreme Court in the case of Boyle v. United Technologies Corp. In 2002, Congress codified this defense for manufacturers and sellers of anti-terrorism technologies (ATT) in the Support Anti-terrorism by Fostering Effective Technologies Act of 2002, also known as the SAFETY Act.

This report provides an overview of the government contractor defense as defined in Boyle and the SAFETY Act, along with general recommendations that contractors may take for improving their ability to claim this defense. Because the scope of the defense varies significantly by jurisdiction, it is important that knowledgeable counsel be consulted for specific legal advice.

The common law defense

Courts have recognized several formulations of "government contractor defense" or "military contractor defense" since the early 1900s. These formulations varied from court to court. In 1988, the U.S. Supreme Court decided the case of Boyle v. United Technologies, Inc. 487 U.S. 500 (1988). In this decision, the court defined the modern requirements for the defense.

The Boyle case

The Boyle case involved a product liability action brought against a military contractor by the estate of a helicopter co-pilot who died in a crash. Although he survived the crash impact, the co-pilot drowned when he could not escape from the helicopter before it sank in the ocean.

The co-pilot's estate brought a wrongful death action against the Sikorsky Division of United Technologies Corp., the manufacturer of the helicopter. The suit alleged that the manufacturer defectively designed the co-pilot's emergency escape system and that this led to his death. A jury returned a large verdict for the co-pilot's estate that was overturned by the U.S. Court of Appeals for the Fourth Circuit based upon a "military contractor defense" recognized by the court. The estate appealed the decision to the U.S. Supreme Court, arguing that there was no justification in federal law for shielding contractors from liability for design defects in military equipment and that even if such defense exists, that the Court of Appeals formulation of the conditions for its application was wrong.

The Supreme Court affirmed the Fourth Circuits' decision; however, it did not adopt the appellate court's justification or method. Instead, the Supreme Court found that in some circumstances, state liability laws may present a significant conflict with federal policy. In such circumstances, the conflicting law should be displaced by a federal common law. For the instant case, the federal interest identified was the government's ability to procure military equipment at the lowest reasonable price, since the imposition of liability would either affect the ability of the government to find a manufacturer to produce the equipment to government specifications or would increase the price of the equipment.

The court then defined a three-part test for determining when a state product liability claim, which was based on defective design, significantly conflicted with federal interests. Under this test, a contractor would not be found liable for design defects in military equipment if:

  • The United States approved of reasonably precise specifications.
  • The equipment conformed to these specifications.
  • The supplier warned the United States about dangers in the use of the equipment that were known to the supplier, but not the United States.

This three-part test is often referred to as the Boyle test. The first two of these conditions are necessary to assure that there was a strong federal interest in the features of the equipment and that the product met the terms of the contract. The court, however, made it clear that the simple selection of a commercially produced product by stock number would not show a strong enough federal interest or conflict to justify displacing state law. The third condition was necessary to prevent contractors from withholding knowledge of risks that might disrupt the contract.

Court decisions following Boyle

The Boyle case involved design defects in military equipment. Although the test is easily applicable in this context, the decision left several important questions unanswered that the lower courts have had to resolve. These include whether the defense may be extended to product defects other than design defects; whether the defense applies to non-military equipment provided to the military; and whether the defense applies to non-military contractors. The following sections briefly summarize how lower courts have addressed these issues.

Other types of defects

The Supreme Court provided for the defense in cases of design liability; however, it did not address the applicability of the defense in terms of manufacturing defects or warning defects, and the lower courts are divided on whether the defense would apply under these circumstances.

Most cases have held that the defense may apply to warning defects. The rationale used to arrive at this result has varied. A key consideration is whether the government specified the warning to be provided or if the contract specifications were silent as to warnings.

Most cases have held that the defense does not apply to manufacturing defects. A limited number of courts have indicated that the defense may be available under some circumstances, such as the case where the product is a single-use, single-purpose combat item that may not be field tested.

Non-military equipment provided to the military

In general, courts do not support the application of the defense for non-military commercial products provided to the military. There are numerous decisions concerning what is "military equipment" for the purposes of the defense. These decisions are varied; for example, government-specification paint used on military equipment was considered "military equipment"; however, asbestos used for insulation of the equipment was not. The federal government has shifted its purchasing so that when possible, they use commercially available products, or off-the-shelf items, rather than products designed to government specifications. These decisions lessen the likelihood that the contractor will be able to claim the defense; because the products are stock products, which are sold to others, it is difficult to demonstrate that there was a significant conflict between state law and federal policy.

Two other related concerns are the use of commercial products adapted for military use and the use of uprated commercial components in military equipment. Adapted commercial items are commercial items that have been modified to meet government specifications. Whether contractors may invoke the defense for claims involving such products likely will depend upon the extent of the modifications made. Uprating is a practice where component parts are used under conditions other than those for which they are specified. This practice is used for automobiles and avionics equipment, as manufacturers are eliminating military-specification components that have been ruggedized for harsh environments. It is unclear how courts will treat such products.

Non-military contractors

Decisions are inconsistent on whether the defense applies to non-military contractors. Decisions that support the application of defense rely on the argument that the same, uniquely federal interests implicated in military contracts also exist in non-military contracts. Decisions that disallow the defense find that the public policy considerations used to justify tort liability (i.e., that the manufacturer is in a better position to take actions to prevent injury and harm and is better able to bear the costs of the injury) are more important than the federal interest.

Recommendations for satisfying the Boyle test

The government contractor defense is judicially created, and whether it will apply in particular product-liability litigation will depend upon the facts of the case. At the same time, there are pro-active steps that a contractor, who is doing business with the U.S. government, may take to ensure that the defense is viable.

These steps include:

  • Seeking advanced government approval of any contractor-proposed or developed specifications.
  • Documenting any government involvement in the development, review, and approval of specifications, standards, and product design.
  • Ensuring that the contract accurately describes the scope of the parties' obligations with respect to design decisions.
  • Establishing a quality management system to ensure that products are manufactured according to specifications.
  • Documenting the government's acceptance of the product along with concurrence that the product conforms to contract specifications.
  • Documenting the effectiveness of the quality management system.
  • Warning the government in writing of all potential product safety hazards, even obvious hazards.
  • Documenting any recommendations made to the government for changes to address identified hazards.
  • Ensuring that all safety issues are satisfactorily closed and documented.

SAFETY Act

The SAFETY Act was enacted by Congress as part of the Homeland Security Act of 2002, Public Law No. 107-296. The purpose of the law is to ensure that the threat of liability does not deter potential manufacturers and sellers of anti-terrorism technology from developing and commercializing technologies to reduce the risks or mitigate the effects of a large-scale terrorist event. One of these incentives is to codify the availability of the government contractor defense against lawsuits arising out of, or related to, Acts of Terrorism when Qualified Anti-Terrorism Technologies (QATT) have been deployed.

A QATT can be any technology designed, developed, modified, procured, or sold for the purposes of preventing, detecting, identifying, or deterring acts of terrorism or limiting the harms such acts might otherwise cause, which has received a formal designation by the Department of Homeland Security (DHS). QATT designations are granted by the government after successful completion of a formal application process.

To be eligible for the government contractor defense, the QATT must also be certified as an Approved Product for Homeland Security. This entails undergoing an additional application and approval process. In addition to meeting the criteria to be designated a QATT, a QATT must also be shown to:

  • Perform as intended.
  • Conform to the seller's specifications.
  • Be safe for use as intended.

The certification is valid for as long as the related designation is in effect and will terminate automatically when the designation ends. The certification may be renewed or transferred, along with the designation.

The regulations defining the criteria for becoming designated or certified are set out in Title 6 of the Code of Federal Regulations Part 25 (6 CFR Part 25). Application information is available at a special DHS website, www.safetyact.gov.

If invoked in litigation, the only way that the government contractor defense may be rebutted is by showing clear and convincing evidence of fraud or willful misconduct in the seller's representations to DHS. The DHS has issued guidance to sellers of certified QATT regarding the scope of the defense which provides the comment that a plaintiff must show "knowing and willful" intent to deceive the government to provide fraud or willful misconduct.

Differences with the common law defense

There are three basic differences between the common law defense and the SAFETY Act defense. First, the SAFETY Act expressly provides that the government contractor defense is available not only to government contractors, but also to those who sell to state and local governments and the private sector. Second, the law codifies static requirements to provide sellers with certainty rather than relying on common law. Third, the SAFETY Act expressly states the limited circumstances under which the applicability of the defense may be rebutted.

References

  1. 63A Am. Jur. 2d Products Liability §§ 1347-1389 (2018).
  2. 6 CFR Part 25. Regulations Implementing the Support Anti-terrorism by Fostering Effective Technologies Act of 2002. (the SAFETY Act).
  3. Boyle v. United Technologies Corp., 487 U.S. 500 (1988). 9 September, 2018.
  4. Brian Sheppard, Annotation, The Government Contractor Defense to State Products-Liability Claims, 53 A.L.R.5th 535 (2018).
  5. Department of Homeland Security. Safety Act for Liability Protection. DHS, Washington, DC: 2016.
  6. National Contract Management Association. 2016 Annual Review of Government Contracting. NCMA, Ashburn, VA: 2017.

Copyright © 2018, ISO Services, Inc.

This material is provided for informational purposes only and does not provide any coverage or guarantee loss prevention. The examples in this material are provided as hypothetical and for illustration purposes only. The Hanover Insurance Company and its affiliates and subsidiaries (“The Hanover”) specifically disclaim any warranty or representation that acceptance of any recommendations contained herein will make any premises, or operation safe or in compliance with any law or regulation. By providing this information to you, The Hanover does not assume (and specifically disclaims) any duty, undertaking or responsibility to you. The decision to accept or implement any recommendation(s) or advice contained in this material must be made by you.

LC JAN 2019 11-115
171-0899 (12/18)