United States: Limitation Of Liability Under The Safety Act For Suppliers Of Anti-Terrorism Technologies

Article by Franceska O. Schroeder and William H. Espinosa

As part of the Homeland Security Act of 2002, Congress passed the Support Anti-Terrorism by Fostering Effective Technologies Act (the "SAFETY Act"), 6 U.S.C. §§ 441-444, to encourage the development of anti-terrorism technologies by creating a system of risk and litigation management. The SAFETY Act limits the financial liability of anti-terrorism technology suppliers in the event their products fail during a terrorist incident or attack by providing the following benefits to suppliers:

1. all claims relating to an act of terrorism where a "qualified anti-terrorism technology" was deployed in defense, response or recovery from the terrorist act must be tried in federal court;
2. the liability of "Sellers" must be limited to the amount of their liability insurance coverage specified for each individual technology;
3. a complete bar is imposed on punitive damages and prejudgment interest in such cases;
4. the plaintiff’s recovery must be offset by proceeds the plaintiff collects from collateral sources such as government or insurance benefits; and
5. there is a rebuttable presumption that certain, specially approved sellers of qualified technologies are entitled to a "government contractor defense," which is similar but not the same as the judicially created doctrine which protects contractors.

Sections 862 and 863 of the SAFETY Act (6 U.S.C. §§ 441, 442) authorize the Secretary of the Department of Homeland Security ("DHS") to designate "qualified anti-terrorism technologies" that are eligible for the protections of the legislation, to review and approve anti-terrorism technologies for purposes of establishing a government contractor defense in any product liability lawsuit, and to promulgate rules to carry out these duties. Accordingly, on July 11, 2003, DHS issued a proposed rule that sets forth a two-pronged test that a potential technology supplier must pass to qualify for protections under the SAFETY Act.

First, to receive the liability protections of the SAFETY Act described above a supplier must have its technology reviewed and "designated" as a "qualified anti-terrorism technology" by DHS. To obtain such a "designation," the supplier must submit an application that demonstrates that its technology meets certain criteria that DHS must consider when determining whether a technology is qualified. These criteria include:

1. prior U.S. Government use of the technology or demonstrated substantial utility and effectiveness;
2. availability of the technology for immediate deployment in public and private settings;
3. existence of an extraordinarily large or extraordinarily unquantifiable potential third party liability risk to the supplier;
4. existence of a substantial likelihood that the technology will not be deployed unless SAFETY Act protections are granted;
5. an assessment of the magnitude of risk to the public if the technology is not employed;
6. an evaluation of all scientific studies that can be feasibly conducted to assess the capability of the technology to substantially reduce risks of harm;
7. effectiveness of the technology in facilitating the defense against acts of terrorism, including technologies that prevent, defeat, or respond to such acts; and
8. any other factor considered to be relevant to the determination or to the homeland security of the United States.

The supplier’s application for "designation" must also include a statement regarding the amount of liability insurance coverage the supplier proposes to maintain for the technology at issue, and requires submission of extensive supporting data to justify the same.

Second, once the supplier’s technology has been "designated" as a "qualified terrorism technology," the supplier must seek an additional "approval" of its product as an "Approved Product for Homeland Security" to be eligible for the rebuttable presumption of the applicability of the government contractor defense. (DHS encourages suppliers to submit applications which request "designation" as a "qualified terrorism technology" and "approval" for the government contractor defense simultaneously.) This added level of protection can be sought not only by federal government contractors, but also by those who sell certified products and services to state and local governments and the private sector.

Under the proposed rules, to obtain approval for the government contractor defense, the applicant will have to demonstrate that its technology will perform as intended, conforms to the supplier’s specifications, and is safe for use as intended. The application must also include safety and hazard analyses and other relevant data and information regarding such technology.

DHS initially indicated that application forms would be available on its website and it would begin accepting applications for SAFETY Act designations and approvals on September 1, 2003. However, the forms will not be released and applications will not be accepted until after publication of the final rule. We will issue another bulletin on this topic once DHS issues its final rule.