What the SAFETY Act of 2002 Means for Your Company

Picture this: Your company rents space in a newly constructed, state-of-the-art, downtown office building. The security measures installed are heralded as iron clad but un-intrusive ' face recognition, voice recognition, retina scan, etc. Shortly after you move in, on a rainy Friday afternoon, a disgruntled former employee gets off the elevator and starts shooting. Although no one, fortunately, is killed before your receptionist, a former Navy Seal, tackles the former employee to the ground and disarms him, several employees are injured, some seriously, and everyone is shook up emotionally.

What happens next is that management calls you, asking what they should do. Besides getting an answer to the overarching question of “How could this happen?”, in the real world, you start worrying about who may sue your company and who your company should be suing. The law suits soon will be flying and mounting. What if there was an alternative ' an easier, cheaper and simpler alternative? Try looking into the SAFETY Act of 2002 and what it offers.

We all know that since 9/11, the American public has a heightened sense of anxiety about their personal safety. Our legislative body, sensing America's anxiety, created a new agency, the Department of Homeland Security (DHS) ostensibly to protect us from terrorist threats. But, while doing so, Congress snuck in a compelling tort reform program. Hidden beneath the folds of the legislative verbiage creating the DHS, situated immediately before the miscellaneous provisions, lies a new program to incentivize and protect individuals and companies engaged in developing anti-terrorist technologies: the SAFETY Act of 2002. Pub. L. No. 107-296, ”861-865. Surprisingly, the private sector, so far, has not voiced much enthusiasm for it. To help you develop your own opinion, consider the following.

The SAFETY Act (Support Anti-Terrorism by Fostering Effective Technologies Act of 2002) limits the liabilities of individuals or companies which produce or sell technologies and services designed to prevent, detect, identify or deter any “act of terrorism.” Both the SAFETY Act and the overriding Homeland Security Act (HSA) intentionally define terrorism in a broad sense to encompass all manner of threats and to offer shelter to a vast range of technologies and resources needed to address these threats.

The HSA defines “terror” as an act that “is dangerous to human life or potentially destructive of critical infrastructure or key resources,” violates any Federal, state or local criminal laws and appears to be intended to “intimidate or coerce a civilian population,” or influences government policy or “affect government conduct by mass destruction, assassination, or kidnapping.” 6 U.S.C. '101 There is no requirement that the perpetrators have only a political agenda. The SAFETY Act defines “an act of terrorism” as “any act that 1) is unlawful; 2) causes harm to a person, property or entity in the United States … and 3) uses or attempts to use instrumentalities, weapons or other methods designed or intended to cause mass destruction, injury or other loss to citizens or institutions of the United States.” 6 U.S.C. '444. As a general proposition, however, it reaches many technologies or measures designed to protect the public ' an audience at a sports arena, security provisions installed at a shopping mall, virus-protection software installed on business and personal computers, a home security system installed in home residences, etc. The actual breadth of the SAFETY Act has yet to be determined.

What is known is that the SAFETY Act promises enticing benefits as well as some frustrating hurdles. Both result from the complex application procedures, created by the DHS, for the two levels of protection afforded under the Act.

Level One: Designation

The first level, that of “Designation”, qualifies a product or service (products) as a Qualified Anti-Terrorism Technology (QATT) and thereby limits the Sellers' liability should injuries occur to third parties. The initial application procedures created by the DHS seek to “balance the need for rapid deployment of anti-terrorism technologies with the need for careful evaluation of each technology.”

A company selling QATT Designated products is shielded from liability from tort claims regardless of the nature of its customer ' federal government, state or local governments, private sector companies or individuals ' and the benefits of becoming a QATT are many.

• QATT Designation provides jurisdiction exclusively in Federal Courts for suits against the Seller who actually obtains the QATT Designation.
• QATT Designation caps Seller total liability for any claim at the limit of the Seller's insurance on the product. (Seller companies are required to maintain “reasonable” insurance coverage, which is limited to no more than the maximum amount reasonably available from private sources on the world market at prices and terms that will not unreasonably distort the sales price of Seller's technologies.)
• QATT Designation prohibits the award of punitive damages or pre-judgment interest.
• QATT Designation prohibits the award of non-economic damages (such as pain, suffering and emotional distress damages) where the claimant has not suffered physical harm and are proximately caused by the Seller.
• Damages are further limited in proportion to the seller's responsibility for the harm. For example, if the injured claimant precipitated the attack or failed to adopt appropriate precautions and is determined to be ninety percent liable, the QATT designated technology, such as facial recognition software, is only 10% liable. The seller, then, is ONLY LIABLE for ten percent of the claimed damages.
• QATT Designation reduces the claimant's recovery in any suit by any amount received from collateral sources, such as the claimant's insurance benefits or governmental payouts.

Sellers aren't the only ones who benefit from QATT Designated products. Buyers, suppliers and subcontractors can be completely shielded from liability when a QATT Designated product is involved. Claimants are only entitled to bring suit against the seller, eliminating all other parties and significantly simplifying the tort litigation proceedings. Sellers are not allowed to seek contribution or indemnity later from its buyers, suppliers or subcontractors. All parties are required, under the Act, to sign waivers to proscribe future claims against one another. The rationale behind the waivers is to create a preference for QATT Designated products and services, similar to that of an Underwriters' Laboratory or a Good Housekeeping seal of approval.

Level Two: Certification

Level Two protection, or “Certification”, conveys the same benefits as those enjoyed by QATT Designated technologies in addition to offering further benefits to the sellers, including a greater burden of proof for claimants. By attaining Certification (through a separate application process which can be completed simultaneously or consecutively with the QATT application), the seller is entitled to rely upon the “Government Contractor Defense.” This defense, developed in the procurement field to protect contractors who followed government instructions/specifications from liability to injured third parties, provides a rebuttable presumption that the seller is totally immunized from liability for claims “arising out of, relating to, or resulting from” an act of terrorism. This presumption can only be overcome by a showing by the claimant that the seller acted “fraudulently or with willful misconduct” in submitting information to the DHS in its application for either the QATT Designation or Certification. As with the Designation, the government contractor defense applies regardless of whether the claim arises from a sale of the product to a government or non-governmental customers.

Hurdles

There, however, are some drawbacks to QATT Designation and Certification. The first hurdle is completing and submitting the application(s). The QATT Designation and Certification procedures are lengthy and require detailed information that most companies regard as confidential or privileged. Although the Act does not provide specific protections, DHS maintains that product information submitted in the application procedure is not subject to disclosure, being protected by the Freedom of Information Act's (FOIA) provisions exempting information relating to national security (Exemption 1), and relating to privileged or confidential information (Exemption 4). Such protections, however, have not yet been tested in this context.

The DHS has attempted to alleviate the daunting application procedures by creating a pre-application assessment. This process is significantly less onerous and much quicker (21 days) than the full Designation procedure. It's goal is to advise potential QATT applicants quickly, before they invest significant amounts of time, resources and money, whether their products/services are likely, doubtful or uncertain to obtain the QATT Designation if a full application is submitted.

Another fly in the ointment is that neither protection is retroactive. Any cause of action begun prior to application approval is not automatically entitled to the protections afforded by QATT Designation or Certification. DHS, however, has the authority to determine when sales prior to Designation may be covered. A QATT Designation is issued for a period of five to eight years and may be renewed. However, any modifications to a QATT Designated product require sellers to submit them to DHS for approval to continue QATT coverage.

Finally, as with any other Federal program, QATT Designated sellers must abide by a variety of post-Designation reporting requirements, eg, notifying the DHS of any transfer of rights, ownership or licensing. Key among the reporting requirements is the necessity to maintain “reasonable” insurance. As described above, the amount of insurances needed will be reviewed by DHS. Even these measures are expected to have a positive effect on the cost terror insurance. That is, since 9/11, the availability of insurance for acts of terror has become scarce or prohibitively expensive with less coverage than previously available. The liability limitations provided by the SAFETY Act should make insurance more affordable since many of the previous risks have been eliminated by statute.

Conclusion

So why haven't thousands of companies rushed to apply for a QATT Designation and Certification? (By late January 2004, DHS had received only 10 full applications and 32 pre-applications.) Perhaps the Act is too new or too obscure? Perhaps the application procedures are so overwhelming that the benefits do not seem to outweigh the cost of pursuing the Designation or Certification? Perhaps sellers fear early challenges will render the Act (and its protections) unconstitutional? Or, could it be that everyone is waiting for someone else to test the waters?

Whatever the reason, companies looking to market products aimed at preventing, fighting or minimizing the impacts of terrorism, would be wise to look into the possibilities of obtaining QATT Designation and/or Certification. Not only do their provisions substantially mitigate risks, but the status may provide a competitive marketing edge to prospective buyers. For venture capital companies looking to invest in these technologies, the risk protections afforded by the QATT should not be overlooked. Potential buyers of products or services geared towards protection or security also would be well advised to focus on the advantages afforded by QATT. In other words, if it appears that QATT (and DHS) are here to stay, there should be a rush to the DHS.

Picture this: Your company rents space in a newly constructed, state-of-the-art, downtown office building. The security measures installed are heralded as iron clad but un-intrusive ' face recognition, voice recognition, retina scan, etc. Shortly after you move in, on a rainy Friday afternoon, a disgruntled former employee gets off the elevator and starts shooting. Although no one, fortunately, is killed before your receptionist, a former Navy Seal, tackles the former employee to the ground and disarms him, several employees are injured, some seriously, and everyone is shook up emotionally.

What happens next is that management calls you, asking what they should do. Besides getting an answer to the overarching question of “How could this happen?”, in the real world, you start worrying about who may sue your company and who your company should be suing. The law suits soon will be flying and mounting. What if there was an alternative ' an easier, cheaper and simpler alternative? Try looking into the SAFETY Act of 2002 and what it offers.

We all know that since 9/11, the American public has a heightened sense of anxiety about their personal safety. Our legislative body, sensing America's anxiety, created a new agency, the Department of Homeland Security (DHS) ostensibly to protect us from terrorist threats. But, while doing so, Congress snuck in a compelling tort reform program. Hidden beneath the folds of the legislative verbiage creating the DHS, situated immediately before the miscellaneous provisions, lies a new program to incentivize and protect individuals and companies engaged in developing anti-terrorist technologies: the SAFETY Act of 2002. Pub. L. No. 107-296, ”861-865. Surprisingly, the private sector, so far, has not voiced much enthusiasm for it. To help you develop your own opinion, consider the following.

The SAFETY Act (Support Anti-Terrorism by Fostering Effective Technologies Act of 2002) limits the liabilities of individuals or companies which produce or sell technologies and services designed to prevent, detect, identify or deter any “act of terrorism.” Both the SAFETY Act and the overriding Homeland Security Act (HSA) intentionally define terrorism in a broad sense to encompass all manner of threats and to offer shelter to a vast range of technologies and resources needed to address these threats.

The HSA defines “terror” as an act that “is dangerous to human life or potentially destructive of critical infrastructure or key resources,” violates any Federal, state or local criminal laws and appears to be intended to “intimidate or coerce a civilian population,” or influences government policy or “affect government conduct by mass destruction, assassination, or kidnapping.” 6 U.S.C. '101 There is no requirement that the perpetrators have only a political agenda. The SAFETY Act defines “an act of terrorism” as “any act that 1) is unlawful; 2) causes harm to a person, property or entity in the United States … and 3) uses or attempts to use instrumentalities, weapons or other methods designed or intended to cause mass destruction, injury or other loss to citizens or institutions of the United States.” 6 U.S.C. '444. As a general proposition, however, it reaches many technologies or measures designed to protect the public ' an audience at a sports arena, security provisions installed at a shopping mall, virus-protection software installed on business and personal computers, a home security system installed in home residences, etc. The actual breadth of the SAFETY Act has yet to be determined.

What is known is that the SAFETY Act promises enticing benefits as well as some frustrating hurdles. Both result from the complex application procedures, created by the DHS, for the two levels of protection afforded under the Act.

Level One: Designation

The first level, that of “Designation”, qualifies a product or service (products) as a Qualified Anti-Terrorism Technology (QATT) and thereby limits the Sellers' liability should injuries occur to third parties. The initial application procedures created by the DHS seek to “balance the need for rapid deployment of anti-terrorism technologies with the need for careful evaluation of each technology.”

A company selling QATT Designated products is shielded from liability from tort claims regardless of the nature of its customer ' federal government, state or local governments, private sector companies or individuals ' and the benefits of becoming a QATT are many.

• QATT Designation provides jurisdiction exclusively in Federal Courts for suits against the Seller who actually obtains the QATT Designation.
• QATT Designation caps Seller total liability for any claim at the limit of the Seller's insurance on the product. (Seller companies are required to maintain “reasonable” insurance coverage, which is limited to no more than the maximum amount reasonably available from private sources on the world market at prices and terms that will not unreasonably distort the sales price of Seller's technologies.)
• QATT Designation prohibits the award of punitive damages or pre-judgment interest.
• QATT Designation prohibits the award of non-economic damages (such as pain, suffering and emotional distress damages) where the claimant has not suffered physical harm and are proximately caused by the Seller.
• Damages are further limited in proportion to the seller's responsibility for the harm. For example, if the injured claimant precipitated the attack or failed to adopt appropriate precautions and is determined to be ninety percent liable, the QATT designated technology, such as facial recognition software, is only 10% liable. The seller, then, is ONLY LIABLE for ten percent of the claimed damages.
• QATT Designation reduces the claimant's recovery in any suit by any amount received from collateral sources, such as the claimant's insurance benefits or governmental payouts.

Sellers aren't the only ones who benefit from QATT Designated products. Buyers, suppliers and subcontractors can be completely shielded from liability when a QATT Designated product is involved. Claimants are only entitled to bring suit against the seller, eliminating all other parties and significantly simplifying the tort litigation proceedings. Sellers are not allowed to seek contribution or indemnity later from its buyers, suppliers or subcontractors. All parties are required, under the Act, to sign waivers to proscribe future claims against one another. The rationale behind the waivers is to create a preference for QATT Designated products and services, similar to that of an Underwriters' Laboratory or a Good Housekeeping seal of approval.

Level Two: Certification

Level Two protection, or “Certification”, conveys the same benefits as those enjoyed by QATT Designated technologies in addition to offering further benefits to the sellers, including a greater burden of proof for claimants. By attaining Certification (through a separate application process which can be completed simultaneously or consecutively with the QATT application), the seller is entitled to rely upon the “Government Contractor Defense.” This defense, developed in the procurement field to protect contractors who followed government instructions/specifications from liability to injured third parties, provides a rebuttable presumption that the seller is totally immunized from liability for claims “arising out of, relating to, or resulting from” an act of terrorism. This presumption can only be overcome by a showing by the claimant that the seller acted “fraudulently or with willful misconduct” in submitting information to the DHS in its application for either the QATT Designation or Certification. As with the Designation, the government contractor defense applies regardless of whether the claim arises from a sale of the product to a government or non-governmental customers.

Hurdles

There, however, are some drawbacks to QATT Designation and Certification. The first hurdle is completing and submitting the application(s). The QATT Designation and Certification procedures are lengthy and require detailed information that most companies regard as confidential or privileged. Although the Act does not provide specific protections, DHS maintains that product information submitted in the application procedure is not subject to disclosure, being protected by the Freedom of Information Act's (FOIA) provisions exempting information relating to national security (Exemption 1), and relating to privileged or confidential information (Exemption 4). Such protections, however, have not yet been tested in this context.

The DHS has attempted to alleviate the daunting application procedures by creating a pre-application assessment. This process is significantly less onerous and much quicker (21 days) than the full Designation procedure. It's goal is to advise potential QATT applicants quickly, before they invest significant amounts of time, resources and money, whether their products/services are likely, doubtful or uncertain to obtain the QATT Designation if a full application is submitted.

Another fly in the ointment is that neither protection is retroactive. Any cause of action begun prior to application approval is not automatically entitled to the protections afforded by QATT Designation or Certification. DHS, however, has the authority to determine when sales prior to Designation may be covered. A QATT Designation is issued for a period of five to eight years and may be renewed. However, any modifications to a QATT Designated product require sellers to submit them to DHS for approval to continue QATT coverage.

Finally, as with any other Federal program, QATT Designated sellers must abide by a variety of post-Designation reporting requirements, eg, notifying the DHS of any transfer of rights, ownership or licensing. Key among the reporting requirements is the necessity to maintain “reasonable” insurance. As described above, the amount of insurances needed will be reviewed by DHS. Even these measures are expected to have a positive effect on the cost terror insurance. That is, since 9/11, the availability of insurance for acts of terror has become scarce or prohibitively expensive with less coverage than previously available. The liability limitations provided by the SAFETY Act should make insurance more affordable since many of the previous risks have been eliminated by statute.

Conclusion

So why haven't thousands of companies rushed to apply for a QATT Designation and Certification? (By late January 2004, DHS had received only 10 full applications and 32 pre-applications.) Perhaps the Act is too new or too obscure? Perhaps the application procedures are so overwhelming that the benefits do not seem to outweigh the cost of pursuing the Designation or Certification? Perhaps sellers fear early challenges will render the Act (and its protections) unconstitutional? Or, could it be that everyone is waiting for someone else to test the waters?

Whatever the reason, companies looking to market products aimed at preventing, fighting or minimizing the impacts of terrorism, would be wise to look into the possibilities of obtaining QATT Designation and/or Certification. Not only do their provisions substantially mitigate risks, but the status may provide a competitive marketing edge to prospective buyers. For venture capital companies looking to invest in these technologies, the risk protections afforded by the QATT should not be overlooked. Potential buyers of products or services geared towards protection or security also would be well advised to focus on the advantages afforded by QATT. In other words, if it appears that QATT (and DHS) are here to stay, there should be a rush to the DHS.