Defense and Space Industry Insurance News and Government Contractor Legal Defense by Attorney Jason Kemp.

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The Aerospace Division of Insurance Office of America (IOA) provides risk management and insurance expertise for
Defense and Space contractors. We study the industry and participate in industry groups to make sure our clients
are up to date on the latest risk management trends and trends with insurance underwriters that are active in these
industries.
Current Market Conditions and Premiums
Depending on your needs, prices for insurance for defense contractors can vary greatly depending on a needs based
analysis including such factors as type of operation and operational history, location, loss history, contract value and
payroll. Generally speaking the first quarter of 2015 has brought about additional capacity in the market, causing pric-
ing to be competitive. Underwriters are still looking for clients’ that have a positive loss history and a management staff
that is proactive with loss control techniques.
Defense Base Act Coverage:
Currently there are six insurance companies that underwrite Defense Base Act insurance coverage (DBA). Two of the
players are showing inconsistent underwriting trends and three of the companies, AIG, Starr and AWAC are consis-
tently looking to grow their business. All three of these companies have pricing models that are similar but there are
other key differentiators, such as loss control services that can make a big difference.
A solid loss control program can truly help set you apart when it comes to negotiating with underwriters. Being proac-
tive in this area can pay solid dividends by avoiding or minimizing losses. Some elements of loss control that have
proven to be effective include procedures for hiring and screening (including physical stress testing), training pro-
grams, return to work programs and in depth accident investigation programs. Depending on your DBA underwriter,
you may be able to utilize their resources to help develop a robust loss control program.
Government Contractor Defense:
One area of defense contracting that is commonly misunderstood is the Government Contractor Defense. Jason Kemp
of Hardy Law is contributing to this newsletter with this summary. Jason is an aviation and space law attorney with
Kemp Legal Counsel, LLC and is Of Counsel with Hardy Law, LLC. He holds a Master of Law (LL.M.) degree in Avia-
tion and Space Law and has experience both on the plaintiff’s and defense’s side of legal consultation and litigation.

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The government contractor defense 1
is essential to private sector participation in highly specialized government ac-
tivities. Immunity from liability is one of the highest incentives the government can offer the private sector to encour-
age contracting with the government. But the government contractor defense is just that—a defense. As such, it is a
doctrine that can still cost a contractor thousands upon thousands of dollars in legal bills in order to assert its rights.
Contractor immunity from liability for governmental functions makes good public policy sense. It is hard to imagine
what the taxpayers would have to send to Washington to employ enough qualified government workers to engineer
and manufacture aircraft, spacecraft, and missiles. It stands to reason that companies with expertise in these fields
that perform unique government functions should be protected from liability in the same manner as the government
under the doctrine of sovereign immunity. Immunity is, however, not a cloak of protection as many contractors believe.
It is not governmental indemnification from suit. It is not even guaranteed to apply as it is analyzed on a case-by-case
basis. It is merely making a defense available to a private party that otherwise could not be asserted, and it is a de-
fense that must be asserted then proven in court when a plaintiff brings suit. That being said, it is a reactionary remedy
rather than a protective shield.
Contractor defense, not indemnification
One misnomer among contractors is that the federal government will indemnify contractors against claims made by
plaintiffs. Not only is this incorrect, contractors often find themselves sitting at the defendant’s table with the U.S.
government as a co-defendant where the government’s strongest argument is it is not liable because the contractor
is to blame. This is often true when the government was alleged to be negligent so even its protection from liability is
waived under the Federal Tort Claims Act. A plaintiff’s dream is multiple co-defendants with deep pockets blaming one
another for the plaintiff’s harm rather than addressing the claim itself.
Cost of asserting the defense
Another misconception of the government contractor defense is that it prevents the lawsuit altogether. As noted
above, defenses to claims are inherently reactionary, so the contractor is put in the place of having to defend itself by
asserting the government contractor defense. Therefore, contractors must pay a premium—vis-à-vis legal bills—to
gain the protection against liability under federal law. This typically comes in the form filing a motion for summary judg-
ment on a plaintiff’s claim on the grounds that the contractor is immune from liability. If the contractor is fortunate, it
will win its motion without further appeals. Even if this occurs, the contractor has likely amassed a considerable legal
bill. However, there are a number of examples of the less fortunate contractors.
1
This is the common language used to describe the protection afforded to government contractors by way of their contractual
relationship with the sovereign.

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Consider the following example, which also represents a seminal case on the defense. In Boyle v. United Technolo-
gies Corp.2
, a jury awarded the plaintiff, the personal representative of a deceased helicopter pilot, $725,000 in dam-
ages by finding the contractor negligently designed an escape hatch on the Sikorsky CH-53.3
Perhaps it goes without
saying that the government contractor defense was found inapplicable. Three years later, the Fourth Circuit Court of
Appeals handed down an opinion that reversed the trial court’s verdict.4
Two years later, the Supreme Court of the
United States issued its opinion outlining the governing criteria for the defense while remanding the case for clarifica-
tion.5
What is to be gleaned from this example is the financial and time investment in simply asserting the defense. Even
when successful, it is a costly endeavor for the contractor.
Even when you’re right, you may be wrong
Non-lawyers are often frustrated by the “it is not what is true, it is what can proven” mantra. Government contractors
can find themselves in a scenario where they have very strong arguments and perhaps even a slam-dunk case, but
the nature of their activities are such that public sentiment or perception of the same may impact the outcome of a
claim.
This notion was powerful in the case of a contracting firm providing transport services for the government in Afghani-
stan that was sued for wrongful death when one of its aircraft crashed in the rugged terrain.6
Here, the contractor had
a strong argument that it was immune from liability. Nonetheless, the plaintiff, a widow that presents well and was an
accomplished helicopter pilot, had a compelling story to tell that could make it difficult for a jury to ignore. As such, the
contracting firm and the plaintiff reached a settlement agreement before the case was litigated.
Contractor defense mitigates exposure to legal costs which does not eliminate them
The government contractor defense tends to work in the contractor’s favor. The problem is that this information is
known because there is no shortage of cases on this point. This means the contractors had to endure the cost of
litigating their rights to use the defense. In some cases, contractors had to defend themselves from collateral attacks
from their client—the U.S. government. In the end, each contractor was saddled with, at least, a hearty legal bill if not
found liable because the government contractor defense was found not to apply under the circumstances.
The government contractor defense is not perfect. If you are a government contractor, relying on these common mis-
conceptions can put you out of business. Awareness of how it really works (and when it doesn’t work) will give you a
powerful tool to protect yourself.
2
Boyle v. United Technologies Corp., 792 F.2d 413 (4th Cir. 1988).
3
Id.
4
Id.
5
Boyle v. United Technologies Corp., 487 U.S. 500 (1987).
6
CBS NEWS, The Flight and Crash of “Blackwater 61” available at http://www.cbsnews.com/news/the-flight-and-crash-of-
blackwater-61-19-02-2010/.