I wondered whether Maine Community Health Options v US, an opinion the Supreme Court released this April, might offer some hope to licensed launch or reentry operators who rely on the Commercial Space Launch Act’s so-called “government indemnification” to cover damages arising out of their space activities. After all, in Maine Community the Court said that the government did have to pay insurance carriers even though Congress had not appropriated funds. Commenters described the case’s possible impact:
Companies that do business with the federal government can now rest assured that once Congress supplies financial incentives in return for their performance, they will get paid unless Congress explicitly repeals that promise,
Were my earlier questions about the enforceability of space “indemnification” misplaced? Is the incentive of “indemnification” sufficient to force payment for launch or reentry damages? I don’t think so, and in the spirit of taking notes in public I will explain why.
(One caveat: this is not legal advice to you. It is a review of one case and what its implications might be. There are other cases that may apply and other arguments to make.)
Background: The Commercial Space Launch Act, which is located at 51 USC ch. 509 (Ch. 509), contains requirements for launch and reentry operators licensed by the FAA to cover damage their activities may cause. Typically, the FAA tells a licensee to buy insurance. If damages exceed that insurance, Chapter 509 contains a mechanism for Congress to vote on whether to come up with the money to pay for damages that exceed the operator’s insurance coverage. Section 50915 says:
To the extent provided in advance in an appropriation law or to the extent additional legislative authority is enacted providing for paying claims in a compensation plan submitted under subsection (d) of this section, the Secretary of Transportation shall provide for the payment by the United States Government of a successful claim (including reasonable litigation or settlement expenses) of a third party against a person described in paragraph (3)(A) resulting from an activity carried out under the license issued or transferred under this chapter for death, bodily injury, or property damage or loss resulting from an activity carried out under the license.
In other words, if Congress appropriates the funds or changes the law, then the FAA “shall provide for the payment….”
I have long figured that Congress allowing itself the option of voting against appropriating the money means there is no requirement for the government to pay for damages above insurance. Maine Community does nothing to upend this opinion.
Maine Community: Aware of the risks to insurance carriers of participating in the new insurance exchanges of the Affordable Care Act (ACA), Congress created risk mitigation programs, including the Risk Corridors, to encourage insurance companies to provide coverage to individuals. The Court described the program:
[T]he “Risk Corridors” program [was] a temporary framework meant to compensate insurers for unexpectedly unprofitable plans during the marketplaces’ first three years. The since-expired Risk Corridors statute, §1342, set a formula for calculating payments under the program: If an insurance plan loses a certain amount of money, the Federal Government “shall pay” the plan; if the plan makes a certain amount of money, the plan “shall pay” the Government. See §1342, 124 Stat. 211-212 (codified at 42 U.S.C. §18062). Some plans made money and paid the Government. Many suffered losses and sought reimbursement. The Government, however, did not pay.
The first year of the program produced a deficit of $2.5 billion, with profitable insurance plans owing the Government $362 million, and the Government owing unprofitable plans $2.87 billion. Congress, however, specifically refused to appropriate funds for the program through a rider to its appropriations bill. The program saw similar shortfalls in its next two years, and the same response from Congress, with the legislative body prohibiting the use of appropriated funds for the program by appropriations riders. At the end of three years, four insurance companies sued the federal government for hundreds of millions of dollars. They claimed that §1342 of the ACA obligated the Government to pay the full amount of their losses and that their claim could be satisfied using monies from the Judgment Fund.
The insurance companies got mixed results at trial, and a divided panel of the United States Court of Appeals for the Federal Circuit ruled for the government in each appeal on the grounds that although §1342 had initially created a Government obligation to pay the full amounts, “Congress’ appropriations riders impliedly ‘repealed or suspended’ the Government’s obligation.”
The Supreme Court addressed three issues on appeal, only the first two of which offer a basis for comparison to Chapter 509:
First, did §1342 of the Affordable Care Act obligate the Government to pay participating insurers the full amount calculated by that statute? Second, did the obligation survive Congress’ appropriations riders?
First, the Court reviewed the way it’s normally done:
Creating and satisfying a Government obligation, therefore, typically involves four steps: (1) Congress passes an organic statute (like the Affordable Care Act) that creates a program, agency, or function; (2) Congress passes an Act authorizing appropriations; (3) Congress enacts the appropriation, granting “budget authority” to incur obligations and make payments, and designating the funds to be drawn; and (4) the relevant Government entity begins incurring the obligation.
Congress can create an obligation on the government by statute–that is, by passing a law. And Congress did just that when it created the Risk Corridor program:
Section 1342 imposed a legal duty of the United States that could mature into a legal liability through the insurers’ actions—namely, their participating in the healthcare exchanges.
This conclusion flows from §1342’s express terms and context. See, e.g., Merit Management Group, LP v. FTI Consulting, Inc., 583 U. S. ___, ___ (2018) (slip op., at 11) (statutory interpretation “begins with the text”). The first sign that the statute imposed an obligation is its mandatory language: “shall.” “Unlike the word `may,’ which implies discretion, the word `shall’ usually connotes a requirement.” Kingdomware Technologies, Inc. v. United States, 579 U. S. ___, ___ (2016) (slip op., at 9); see also Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U. S. 26, 35 (1998) (observing that “`shall'” typically “creates an obligation impervious to . . . discretion”). Section 1342 uses the command three times: The HHS Secretary “shall establish and administer” the Risk Corridors program from 2014 to 2016, “shall provide” for payments according to a precise statutory formula, and “shall pay” insurers for losses exceeding the statutory threshold. §§1342(a), (b)(1), 114 Stat. 211, 42 U. S. C. §§18062(a), (b)(1).
Concluding that that the statute meant what it said, the Court found the Government obligated to pay.The government admitted to the obligation but argued that:
the Appropriations Clause, Art. I, §9, cl. 7, and the Anti-Deficiency Act, 31 U. S. C. §1341, “qualified” that obligation by making “HHS’s payments contingent on appropriations by Congress.” Brief for United States 20. “Because Congress did not appropriate funds beyond the amounts collected” from profitable plans, this argument goes, “HHS’s statutory duty [to pay unprofitable plans] extended only to disbursing those collected amounts.”
The Court, however, was not persuaded:
the Government contends that the existence and extent of its obligation here is “subject to the availability of appropriations.” Brief for United States 41. But that language appears nowhere in §1342, even though Congress could have expressly limited an obligation to available appropriations or specific dollar amounts. Indeed, Congress did so explicitly in other provisions of the Affordable Care Act.
In other words, Congress’ limiting appropriations in later years did not destroy the statutory obligation it had created originally.
Next, the Court addressed the question of whether Congress’ appropriation riders prohibiting the use of funds in the program meant that Congress had repealed or changed the law. The Court found that appropriations riders don’t work that way. If Congress had wanted to change the law, it would have had to actually change the law itself by changing the words. Instead, all the rider said was “None of the funds made available by this Act . . . or transferred from other accounts funded by this Act to the `Centers for Medicare and Medicaid Services— Program Management’ account, may be used for payments under section 1342(b)(1)….” The Court found this mere reference to payments nowhere strong enough to accomplish a repeal, implied or otherwise, and contrasted it with earlier cases where repeals had been found:
[T]he appropriations riders did not use the kind of “shall not take effect” language decisive in Will. See 449 U. S., at 222-223. Nor did the riders purport to “suspen[d]” §1342 prospectively or to foreclose funds from “any other Act” “notwithstanding” §1342’s money mandating text.
Implications for the space transportation “indemnification” provision. Despite the fact that both the ACA and Chapter 509 try to incentivize their respective industries with the potential offer of money, the similarities end there.
The most important difference is pointed out by the Supreme Court in its discussion of the actual language of the ACA. When the government tried to argue that the government’s obligation to the insurance companies was “subject to the availability of appropriations,” the Court turned to the statute, pointing out that the applicable section of the ACA did not say the government’s obligation was subject to appropriations. It was silent. Therefore, Congress’ yearly refusals to appropriate funds did not eradicate the original obligation.
In contrast, section 50915 of Chapter does make payment explicitly subject to appropriations. That section says “[t]o the extent provided in advance in an appropriation law,” the Secretary shall pay. Thus, Chapter 509 contains the language the government would have needed to make its point in the ACA case. And the so-called indemnification provision continues to make the government’s duty to pay for damages arising out of a launch accident depend on Congress deciding to appropriate the necessary funds. The so-called space “indemnification” remains a contingent incentive.
Cogent and helpful analysis.
Thanks, Bill!