Report of the Commission on Government ... - Bayhdolecentral

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will be compensated, and <strong>the</strong> greater <strong>the</strong> damage,
<strong>the</strong> less <strong>the</strong> chances for compensation
through insurance or o<strong>the</strong>rwise. In a catastrophe,
one or more contractors might face
liability far in excess <strong>of</strong> <strong>the</strong>ir total financial
capability.
Before evaluating statutes, policies, and procedures
governing indemnification for catastrophic
accidents, which are manmade ra<strong>the</strong>r
than natural disasters, two terms must be defined:
A catastrophe is a disaster <strong>of</strong> such magnitude
that <strong>the</strong> resulting claims for personal injury
and property damage would exceed <strong>the</strong> monetary
level for which <strong>the</strong>re is reasonably
available insurance coverage. Since "reasonably
available insurance coverage" is subject to varying
definitions, depending on circumstances, any
legislative efforts in this area should provide
for reducing <strong>the</strong> term to a numerical value or
designate an <strong>of</strong>ficial to determine <strong>the</strong> value
after a catastrophe has occurred.
Indemmification is an assurance wherein one
party frees ano<strong>the</strong>r from an anticipated loss,
or risk <strong>of</strong> loss, or prevents him from suffering
loss or damage due to <strong>the</strong> legal consequences <strong>of</strong>
an act or forebearance on <strong>the</strong> part <strong>of</strong> one <strong>of</strong> <strong>the</strong>
parties to a contract or some third person. A
legislative act is called "indemnification" when
it provides a procedure for <strong>the</strong> Government
ei<strong>the</strong>r to reimburse contractors for payments
made in satisfaction <strong>of</strong> judgments rendered
against <strong>the</strong>m or to anticipate adverse judgments
and assume <strong>the</strong> obligation to pay such
judgments when rendered.
PRIVATE MEANS TO DEAL WITH
CATASTROPHIC ACCIDENTS
There are now two primary means <strong>of</strong> providing
relief through <strong>the</strong> private sector in
connection with catastrophic accidents arising
from Government programs: private insurance
and, for <strong>the</strong> victims <strong>of</strong> an accident, civil suit
against a negligent Government contractor.
When contractors are exposed to risks so
large that <strong>the</strong>y cannot safely assume <strong>the</strong>m
<strong>the</strong>mselves, <strong>the</strong>y usually spread such risks by
purchasing insurance. Contractors engaged in
hazardous Government programs ordinarily
carry policies insuring <strong>the</strong>m against liability to
Part H
third parties, including product liability,
arising out <strong>of</strong> <strong>the</strong>ir activities. The Government
permits liability insurance costs to be included
directly or indirectly in contract costs passed
on to <strong>the</strong> Government.'
Private insurance performs important functions
in covering contractors against thirdparty
liability up to a given dollar level.
Insurance companies have demonstrated <strong>the</strong>ir
ability to send large numbers <strong>of</strong> claims investigators
and adjusters quickly to <strong>the</strong> scene
<strong>of</strong> a major accident. With such expertise, <strong>the</strong>y
can process claims quite rapidly and are frequently
able to settle many <strong>of</strong> <strong>the</strong> resulting
claims quickly and out <strong>of</strong> court. Finally, to an
increasing degree, casualty and liability insurance
companies have been helping <strong>the</strong>ir
assured to improve <strong>the</strong>ir safety procedures.
If liability insurance is adequate to satisfy
judgments against contractors, industry is not
only protected, but injured members <strong>of</strong> <strong>the</strong>
public are assured that <strong>the</strong>ir judgments will
be paid, provided <strong>the</strong>y establish <strong>the</strong> liability
<strong>of</strong> <strong>the</strong> contractor who carries such insurance.
Similarly, individuals may carry insurance to
protect <strong>the</strong>m individually against loss. To <strong>the</strong>
extent <strong>of</strong> such coverage, individual victims can
obtain relief for injuries and damage caused
by catastrophic accidents.
GOVERNMENT PROGRAMS TO DEAL
WITH CATASTROPHIC ACCIDENTS
Apart from civil suits and private insurance,
a number <strong>of</strong> statutes authorize Government
indemnification <strong>of</strong> contractors engaged in ultrahazardous
or nuclear activities.
Public Law 85-804' and Defense Procurement
Circular No. 103 <strong>of</strong> August 24, 1972,
apply to contracts <strong>of</strong> <strong>the</strong> Department <strong>of</strong> Defense
and several o<strong>the</strong>r agencies. Under this
law, any agency whose activities are connected
with national defense can enter into indemnification
contracts without regard to existing
law. This law is effective during a national
emergency declared by Congress or <strong>the</strong> President
and for six months after <strong>the</strong> termination
<strong>the</strong>re<strong>of</strong> or until such earlier time as Congress
by concurrent resolution may designate.
7 ASPR 15-205.16.
e 50 U.S.C. §§ 1431-85 (1970). For fur<strong>the</strong>r discussion and recommendations
concerning this law, see Part G, Chapter 4.