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Federal Government Contractors—When Immunity Is Not Enough

NAP - Federal Contractors Immunity

There are many scenarios that can impact your immunity when it comes to Federal Government Contractors. In this recent piece by Chubb, the company warns that if you think you are protected by Federal Government Contractor Immunities, you may want to think again. Whether you are new to the federal government contractor (FGC) space or have been in it for years, you need to consider these scenarios and determine if they apply to your business.

Federal Government Contractors—When Immunity Is Not Enough

By Chubb Group of Insurance Companies

Whether you are new to the federal government contractor (FGC) space or have been in it for years, you need to strike the right kind of balance between competitive market dynamics and exposure to risk. While the unique liability immunities available to federal government contractors may be a key component of your overall risk management plan, consider these scenarios:

Third-Party Bodily Injury—Product Liability

The Government Contractors Defense (GCD) is a form of immunity, typically for third-party liability claims, available to federal government contractors. While it is certainly protection, it is not an automatic shield from liability. Further, because the GCD is a legal defense, it does not provide relief from legal expenses incurred in defending a claim for damages.

Consider this: Under the GCD, your company may be relieved of liability by a court; however, the GCD will not relieve you of your defense costs obligations incurred in such litigation.

Financial Injury—Service Failure

Again the Government Contractors Defense is not an automatic shield from liability; in the case of one business partner suing another, there is little applicability of the GCD.

Consider this: Litigation ensues between a prime contractor and subcontractor for financial injury related to the failure of the subcontractor’s service.

Foreign Sales and Non-Federal Government Sales

Few federal government contractors are considered “pure-play” in the sense that all their revenue is derived from the Federal Government. Some FGCs will have a division dedicated to the government space, while other divisions within the same company serve the commercial world.

Consider this: Except in certain specific instances related to Safety Act-Certified products/services, the Government Contractors Defense and/or other immunities may not apply to foreign sales and nonfederal government sales.

Ensure that you have the proper insurance in place to help protect your company in the event of these scenarios.

Protecting Your Business

General Liability, Product Liability, and Errors & Omissions insurance are several insurance products which should be included in a federal government contractor’s risk management plan. A well-structured insurance program offers protection when immunities may fail and acts as a source of legal defense dollars, thereby offering an additional layer of balance sheet protection.

Work with an insurance carrier that can construct insurance policies that reflect the unique exposures that come with your federal government contracts. Chubb has the experience, products and expertise to help your company better protect itself in the complicated world of federal government contracts and immunities.

All insurance policies are different. Be sure to review your insurance policy for specific information about coverages available to you. Nothing in this post is meant to suggest a guarantee of coverage.