Clarke & Sampson Blog

Federal Government Contractors: The truth about “immunity”

Dan Yokoyama | Sunday, March 1, 2020

Circulation of misleading information regarding immunity for Federal Government Contractors (FGCs) granted through the Government Contractors Defense (GCD) is occurring. Do not fall victim to the notion that the protections provided by the GCD will create a shield of absolute immunity from all business losses. For example, costs derived from defense/legal expenses and claims from business outside of the scope of government contracts cannot be overlooked. Bottom Line – though the GCD does provide statutory protections, it certainly does not protect FGCs from all potential loss exposures.

Although the GCD can potentially shield an FGC from third party bodily injury – product liability claims, it does not constitute automatic protection from lawsuits and other costs incurred. This means that the contractor will still have to seek legal counsel to defend against a claim. Without the proper insurance, this could constitute a large expense that the GCD will be solely responsible to pay for and might not be able to afford. Furthermore, for products liability claims resulting in bodily injury to other federal employees, the US Supreme Court in Boyle vs United Technology Corp. (1988) established the following three-pronged test that must be met for GCD immunity to apply:

  • the United States approved reasonably precise specifications for the equipment
  • the equipment conformed to those specifications
  • the supplier warned the United States about dangers in the use of the equipment known to the supplier but not to the United States

With these variables floating around, erring on the side of caution when it comes to protecting one’s business is highly recommended.

Claims scenarios can arise between business partners as well. Insureds must be prepared for the potential that there will be a contract or performance dispute between themselves and other contractors/subcontractors. The GCD will most likely not apply to damages resulting from any disputes and or claims between separate FGCs much less cover the resulting legal costs. FGCs must also understand that the immunity granted through the GCD will most likely not apply to their commercial operations outside of the scope of their government contracts. In today’s litigious environment, it is imperative that you have adequate insurance coverage to assist with mounting the strongest legal defense against claims.

Proper insurance can help to mitigate the potential costs and losses that FGCs can face. The importance of having a licensed insurance professional guide you through your insurance coverages cannot be overstated. The future of your business depends on it.

To learn more, please contact us today.

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