{"id":981,"date":"2017-11-27T13:23:15","date_gmt":"2017-11-27T18:23:15","guid":{"rendered":"http:\/\/groundbasedspacematters.com\/?p=981"},"modified":"2017-11-30T10:31:12","modified_gmt":"2017-11-30T15:31:12","slug":"third-party-liability-coverage-contractor-faa-launch-reentry-licensee","status":"publish","type":"post","link":"https:\/\/groundbasedspacematters.com\/index.php\/2017\/11\/27\/third-party-liability-coverage-contractor-faa-launch-reentry-licensee\/","title":{"rendered":"Third Party Liability Coverage for a Contractor of an FAA Launch or Reentry Licensee"},"content":{"rendered":"<p>Let&#8217;s suppose that you want to sell components or services to an FAA launch or reentry licensee for use during its launch or reentry. You know that a launch that goes badly wrong could create what a risk analyst calls a &#8220;high consequence event.&#8221;\u00a0 You are therefore wondering whether to buy insurance for third party liability coverage or whether the licensee&#8217;s insurance could cover you if a court found you liable for contributing to any damages.\u00a0 You are not alone in wondering about this.\u00a0 Someone else did, too, and asked the FAA for a legal interpretation.<\/p>\n<p>Orbital ATK, Inc. asked the FAA whether Orbital, in its capacity as a supplier of composite structures, payload fairings, and other launch vehicle components would need more insurance than what the law required an FAA licensed launch operator to purchase.\u00a0 The Commercial Space Launch Act requires that licensed launch and reentry operators (aka &#8220;the licensee&#8221;) obtain insurance coverage for any damage a launch or reentry may cause to third parties or government property.\u00a0 Although <a href=\"https:\/\/www.faa.gov\/about\/office_org\/headquarters_offices\/agc\/practice_areas\/regulations\/interpretations\/data\/interps\/2016\/taylor-orbital%20atk%20-%20(2016)%20legal%20interpretation.pdf\"><strong>the FAA declined to advise<\/strong><\/a> on whether Orbital ATK should purchase additional insurance, it provided the following primer:<!--more--><\/p>\n<blockquote><p>Orbital ATK is covered against third-party claims arising out of licensed activities by the policy of liability insurance that the launch licensee is required to obtain by 14 C.F.R. \u00a7 440.9. The law requires that the holder of a launch or reentry license, before conducting a launch or reentry under 51 U.S.C. Subtitle V, chapter 509, obtain and maintain in effect a policy (or policies) of liability insurance that protects, among others, the licensee, its customers, and their respective contractors and subcontractors, and the employees of each, involved in licensed activities, as additional insureds to the extent of their respective potential liabilities against (1) covered claims by a third party for bodily injury or property damage resulting from a licensed activity and (2) claims by the United States, its agencies, and its contractors and subcontractors involved in a licensed activity for property damage or loss resulting from a licensed activity. 51 U.S.C. \u00a7 50914(a)(l); 14 C.F.R. \u00a7 440.9. A licensee is not required to obtain insurance of more than $500,000,000 for third party claims; $100,000,000 for government claims; or the maximum liability insurance available on the world market at reasonable cost for both third-party claims and government claims if the amount is less than those amounts. 51 U.S.C. \u00a7 50914(a)(3); 14 C.F.R. \u00a7 440.9(c), (e). This insurance policy (or policies) must comply with the standard conditions set forth in 14 C.F.R. \u00a7 440.13.<\/p><\/blockquote>\n<p><strong>Coverage for contractors<\/strong>.\u00a0 The FAA&#8217;s first statement answers the original question.\u00a0 If Orbital ATK only wanted to know that the licensee&#8217;s insurance policy had to provide coverage for its contractors, section 440.9 of the FAA&#8217;s regulations makes that coverage a requirement.\u00a0 Section 440.3 defines &#8220;contractors and subcontractors&#8221; as &#8220;those entities that are involved at any level, directly or indirectly, in licensed or permitted activities, and includes suppliers of property and services, and <em>the component manufacturers of a launch vehicle, reentry vehicle<\/em>, or payload.&#8221; (emphasis added). A component manufacturer of a vehicle looks to be a contractor, and a licensee must have a liability policy in effect that protects contractors.\u00a0 Therefore, yes, the licensee&#8217;s policy must provide coverage for its contractors, including vehicle component manufacturers.<\/p>\n<p><strong>Appetite for risk<\/strong>.\u00a0 It is clear why the FAA declined to advise on whether Orbital ATK should obtain more insurance coverage.\u00a0 That is a business decision that depends on a company&#8217;s appetite for risk acceptance.\u00a0 The FAA&#8217;s little primer raises some questions that you as a contractor should consider.\u00a0 The mandatory insurance coverage only extends, for example, to $500,000,000 for third party claims.\u00a0 That seems like a lot, but is it?\u00a0 Only you can assess your own exposure.\u00a0 You, after all, know the value of what you have at risk in the event of litigation.\u00a0 Additionally, when the FAA tells a licensee to buy a specified amount of insurance, the FAA bases that amount on the maximum <em>probable<\/em> loss that could arise out of the launch or reentry, not the maximum <em>possible<\/em> loss.\u00a0 Again, you must ask yourself what your appetite for risk is and whether you should obtain additional coverage.<\/p>\n<p><strong>Worst-case scenario<\/strong>.\u00a0 What if the licensee doesn&#8217;t obtain coverage for its contractors?\u00a0 Sure, the regulations require it, but regulations require lots of things, and the people who are supposed to follow them don&#8217;t always do so.\u00a0 Should you rest easy knowing that there&#8217;s a regulatory requirement that someone else has to get your company liability coverage?\u00a0 One worst-case scenario in a legal context would arise if the insurance carrier claimed that the premium was insufficient to cover all the contractors and subcontractors and, look, the policy is silent with respect to those people. Even if the FAA subjected the licensee to civil penalties (which means &#8220;fines&#8221; in plain language.) for failing to obtain coverage for its contractors as required by section 440.9, that wouldn&#8217;t necessarily help you.\u00a0 Prudence might dictate that you contractually require that the licensee obtain that coverage in accordance with section 440.9(b).\u00a0 You might even ask to see the policy if you are a super-cautious type.<\/p>\n<p>Just some things to think about.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Let&#8217;s suppose that you want to sell components or services to an FAA launch or reentry licensee for use during&hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":["post-981","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - 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