DEVELOPING HOMELAND SECURITY TECHNOLOGIES:

Transcription

1 DEVELOPING HOMELAND SECURITY TECHNOLOGIES: Understanding and Reducing Associated Product Liability Risk (SAFETY Act and Beyond) February 26, :00 10:30 a.m. Hilton Washington, DC/North Gaithersburg 620 Perry Parkway, Gaithersburg, MD 20877

2 Presenters Jim Turner Jim Turner, a former four-term Congressman, is a Partner in Arnold & Porter LLP s national security, public policy, and legislative practices. Mr. Turner served as the ranking Democratic member of the House Homeland Security Committee and as the subcommittee ranking member on both the House Armed Services and Government Reform and Oversight Committees. Mr. Turner was actively involved with the development and passage of the SAFETY Act. Craig Holman Craig Holman is a Partner at Arnold & Porter LLP and a member of the government contracts practice group. He litigates claims, default determinations, and protests (pre-award, post-award, and size) involving federal, state, and local government contracts. Mr. Holman also routinely counsels clients on a wide variety of federal procurement law issues. Mr. Holman has published several articles on the SAFETY Act and appeared by invitation to speak on the SAFETY Act. The Washington Business Journal has recognized Mr. Holman as a Top Washington Lawyer and one of Washington s Young Guns. 2

3 Presenters (cont.) Fern O'Brian Fern O'Brian is a Partner at Arnold & Porter. She specializes in product liability matters including health effects litigation and regulatory matters involving product liability and toxic tort. She also regularly counsels clients on liability prevention, regulatory matters, and liability-related transactional issues. Robert Cruz Robert Cruz is the Practice Leader for AIG s Homeland Security Solutions. This specialty unit provides access to insurance, risk management, and security products and services to help companies work to prevent, mitigate and recover from terrorist incidents and other potentially catastrophic events. Tim White Timothy S. White, CPCU, ARM represents Lexington Insurance Company, through Risks Specialists Companies Insurance Agency, Inc., an AIG company. He concentrates on tough-to-place insurance liability and excess placements. 3

4 Presentation Roadmap The Homeland Security and Anti-Terrorism Technology Marketplace Product Liability Generally Case Studies The SAFETY Act and Its Limitations Seven Product Liability Risk Reduction Recommendations 4

5 Anti-Terrorism/Homeland Security Marketplace The gravest danger our Nation faces lies at the crossroads of radicalism and technology (President Bush September 17, 2002) Anti-terrorism/homeland security market has changed dramatically since 9/11/01 Federal homeland security budget for 2008: $61.1 billion 1 $30 billion will be added to homeland security markets over the next 5 years 2 Size of market: $34.8 billion forecasted by Private market expected to grow from $4.8 billion in 2007 to $6.7 billion in $28.5 billion in private expenditure on homeland security projected for forecast: market size $140 billion over next five years Analysis of the FY 2008 Defense Budget Request, Kosiak, Steven M. Center for Strategic and Budgetary Assessments. Homeland Security Research Corporation, 110th U.S. Congress - Impact on Homeland Security Markets (2007). U.S. Homeland Security (Government and Private) Market) Outlook , Homeland Security Research, January U.S. Homeland Security Market $140 Billion, United Press International, 2 January

6 Anti-Terrorism/Homeland Security Marketplace (cont.) Top industries include: Airport security Port and maritime security Information technology Perimeter and border security Cyber security Anti-terrorism technologies include: Services (e.g., security, analysis, consulting, first responders, etc.) Products (e.g., CBRN detectors, blast-proofing, etc.) Systems integrators Software (e.g., data mining, surveillance, etc.) Many companies are government contractors or new companies not accustomed to traditional product liability issues much less issues associated with high exposure products such as anti-terrorism devices 6

7 Some Key Liability Differences Between Anti-terrorism and Traditional Government Contracts Marketplaces Products frequently sold to private parties Typically designed to protect civilians Deployed in the United States Likely used outside of military training or action Designed to protect against individual not state sponsored actors Likely not to government specification Tort versus contract liability Typically designed to avoid or respond to mass damage 7

8 Product Liability Generally Although causes of action may vary (negligence, breach of implied warranty, strict liability, etc.), generally three separate categories of product defect claims exist: manufacturing defects design defects warning/instruction defects Misrepresentation claims also are commonplace Legal standards often vary by cause of action and by state: Negligence/Negligence Per Se Strict Liability Breach of implied warranty Compensatory damages (including pain and suffering) and punitive damages generally available 8

9 Product Liability Generally (cont.) Liability Outcomes for Product Manufacturers* Plaintiffs win approximately 35 percent of federal cases that go to trial (many strong plaintiff cases settle prior to trial) Median trial damages for 2003 in individual federal product liability cases estimated at $450,000 (asbestos excluded) Homeland security providers face heightened risk of mass tort claim (Tokyo subway sarin gas attack 12 killed/1000 injured, Madrid train bombing 191 killed/2000 injured) Mass tort damages typically measured in the multi-millions, sometimes billions In mass asbestos litigation, jury awards averaged from $322,000 to $3.8 million depending on the injury type total defense transactions costs until 2000 estimated at $20-$24 billion** Other Repercussions Extended litigation - Medical monitoring Reputation harm - Government scrutiny *source US DOJ, **Rand, "Asbestos Litigation" at 94 9

10 Case Studies: Liability Risks Facing Anti-Terrorism Technology Producers September 11, 2001 Cases ATSSSA opt-out litigation 42 victims, each asking for > $250,000 ATSSSA read narrowly to limit its protections Reinsurers not covered Post-September 29, 2001 inhalation injuries not covered Victim Compensation Fund paid $6 billion to survivors of the 2080 killed ($250,000 to $7.1 million) World Trade Center Bombing Litigation Ongoing since 1993 Port Authority more responsible (68%) than the terrorists (32%) Up to $1.8 billion dollars in claims are at stake 10

11 Congress s Recognition of Product Liability Risk and the SAFETY Act Congress s Concerns Anti-terrorism technology marketplace Political climate Turner vs. Armey Industry version Final version Initial problems with implementation Update and predictions for the future 11

12 The SAFETY Act Generally SAFETY Act Support Anti-terrorism by Fostering Effective Technologies Act of 2002: Intended to facilitate the development and deployment of anti-terrorism technologies by creating systems of risk management and litigation management Affords liability protection in certain circumstances to DHS approved Qualified Anti-Terrorism Technologies (QATTs) What is a QATT? Any technology that is designed, developed, modified or procured for preventing, detecting, identifying, or deterring acts of terrorism or limiting the harm such acts might otherwise cause and is designated or certified by DHS Technologies that may qualify for SAFETY Act protections include: Products Equipment Services Devices Information technologies Series of QATT considerations set forth in 6 CFR 25.4(b) 12

13 SAFETY Act Process and Approval Levels Application process administered by DHS Under Secretary for Science and Technology Three different SAFETY Act approval levels: Developmental Testing and Evaluation (DT&E) Designation Designation Certification 13

14 Benefits of SAFETY Act Designation Federal cause of action and exclusive jurisdiction in federal court for claims arising from the deployment of QATT s in defense against, response to, or recovery from an act of terrorism Limitation on Seller s liability to amount of insurance; the term Seller is broadly defined by DHS and is not limited to manufacturers but also includes companies that sell or otherwise provide the qualified technology Prohibition on joint and several liability for non-economic damages Bar on punitive damages and pre-judgment interest Reduction of plaintiff recovery by the amounts that the plaintiff received from collateral sources, such as insurance benefits and other government benefits 14

15 Additional Benefits of Certification Seller is entitled to the benefits of Designation, PLUS Rebuttable presumption that the Seller is entitled to the government contractor defense Placement on DHS Approved Product List Issuance of a certificate of conformance 15

16 SAFETY Act Insurance Requirements Insurance-related requirements of the SAFETY Act: Obtain liability insurance on a specified amount and type certified by the Under Secretary Enter into reciprocal waivers of claims with specified parties Provide annual certification of insurance coverage to the Under Secretary Notify the Under Secretary of any change in type or amount of insurance coverage for a QATT 16

17 Limitations to the SAFETY Act Must be a QATT to qualify Act of terrorism definition: is unlawful; causes harm to a person, property, or entity, in the United States, or in the case of a domestic United States air carrier or a United States-flag vessel, in or outside the United States; and uses or attempts to use instrumentalities, weapons or other methods designed or intended to cause mass destruction, injury or other loss to citizens or institutions of the United States. Geographical ambiguity Political uncertainty Reach (regulations suggest Act protects buyers, suppliers, etc.) Untested 17

18 Risk Mitigation Strategies Because the SAFETY Act is not designed to protect against all potential product liability, producers of antiterrorism technologies should consider augmenting SAFETY Act protections with additional risk mitigation strategies 18

19 Anti-terrorism Technology Examples A few product examples to keep in mind in connection with the recommendations: CBRN detectors Blast-proof glass Unmanned Aerial Vehicles (UAVs) Security personnel Systems integrators Software for data integration or analysis 19

20 Recommendation No. 1 Make risk mitigation a priority Management buy in Appropriate resources and budget Consider forming a product safety committee for risk review and mitigation 20

21 Recommendation No. 2 Conduct adequate pre-market planning Research and analysis of product-related risks Product/system testing Consideration of alternative designs/methods to reduce risk Identify available statutory and common law protections Benchmark practices 21

22 Recommendation No. 3 Provide Appropriate Warnings, Instructions, Excluded Uses, and Descriptions of Product Limitations Be clear and explicit Dual-use technologies: beware of unanticipated uses Do not need an injury-proof technology BUT, be prudent about labeling and warning 22

23 Recommendation No. 4 Resist the Urge to Overstate the Capabilities of Your Product Poorly worded marketing materials can form the basis for products liability suits Particularly true for materials that overstate capabilities Manage sales force Avoid creation of problematic documents 23

24 Recommendation No. 5 Protect Yourself Contractually Valuable hedge against liability to customers (particularly commercial) Limited protection from third party lawsuits and consumers Important contract clauses to consider: Forum restrictions Choice of law clauses Jury trial waivers Damages waivers of all varieties Liability limitation provisions Indemnification 24

25 Recommendation No. 6 Adhere to internal and external best practices Ensure compliance with plans and methodologies Train employees Provide employees with appropriate resources and warnings 25

26 Recommendation No. 7 Obtain Appropriate Insurance Consider two towers of coverage: General Product Liability ( GPL ) tower SAFETY Act Liability tower Able to conform specifically to the SAFETY Act s provisions Terrorism Risk Insurance Act: Mandates that insurers provide a base level of insurance to all antiterrorism technology producers Operates under different Act of Terrorism definition 26