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Although the success of the United States in deterring terrorism after Sept. 11, 2001, has done much to quell the fear of domestic terrorist activity, the risk of future domestic terrorist incidents remains real. For many businesses, the risk of terrorism brings with it not only the possible tragedy of human and property loss but also potential crippling liability for failing to protect customers, employees and other third parties adequately from terrorism-related injuries. Indeed, the decision this year by the U.S. District Court for the Southern District of New York denying the defendants’ motions to dismiss in In re September 11 Litigation, 280 F. Supp. 2d 279 (S.D.N.Y. 2003), cautions that protecting against terrorism-related liabilities must become an integral part of risk management not only for makers of security and anti-terrorism technologies but also for much of corporate America. Fortunately for corporate America, Congress, through the Support Anti-terrorism by Fostering Effective Technologies Act (Safety Act), 6 U.S.C. 441-44 (2003), already has taken a first step toward reducing the potentially immeasurable liabilities associated with terrorist attacks for businesses that are manufacturers, sellers and users of Department of Homeland Security (DHS) designated and certified anti-terrorism technologies. The act and the benefits it confers also may translate into competitive marketing advantages for qualified sellers. In the wake of Sept. 11, numerous plaintiffs have filed tort-based lawsuits seeking compensation against not only individuals and governments allegedly associated with the terrorists but also numerous nonterrorist-related defendants, including airplane manufacturers, airlines, airport security companies, airport operators and the operators and owners of the World Trade Center. After consolidation of the cases, the nonterrorist defendants moved to dismiss themselves from the action, arguing that they did not owe a duty to protect plaintiffs against the terrorists, and, even if they did, the terrorists’ hijacking of the jumbo jets and the crashing of them into the Twin Towers were so “extraordinary and unforeseeable as to constitute an intervening and superseding cause,” breaking the causation link and severing defendants from any liability. In re September 11 Litigation, 280 F. Supp. 2d at 301. On Sept. 9, 2003, the court denied the defendants’ motions. Id. at 314. In rejecting the no-duty arguments by the aviation defendants, the court stated: “Ours is a complicated and specialized society . . . .We live in the vicinity of busy airports, and we work in tall office towers, depending on others to protect us from the willful desire of terrorists to do us harm. Some of those on whom we depend for protection . . . are private companies.” Id. at 292. Similarly, in denying the airline manufacturer’s causation argument, the court noted that applicable law did not require the manufacturer to have “foreseen precisely how the injuries suffered on Sept. 11 would be caused, as long as [the manufacturer] could have reasonably foreseen that ‘some injury’ from its [alleged] negligence ‘might probably result.’ ” Id. at 309. The court also distinguished other reported decisions involving terrorist acts that were held to be superseding and intervening events. The court noted that in Port Authority of N.Y. and N.J. v. Arcadian Corp., 189 F.3d 305 (3d Cir. 1999), and Gaines-Tabb v. ICI Explosives USA Inc., 160 F.3d 613 (10th Cir. 1998), the defendant manufacturers of fertilizer products were found not to have caused the victims’ injuries in the 1993 World Trade Center and the 1995 Oklahoma City bombings, respectively, because the manufacturers did not have to anticipate that criminals would misappropriate fertilizer products, and mix them with other products to make bombs. Even in its early stages, In re September 11 Litigation serves as notice to corporate America regarding the breadth of businesses that may be exposed to liability arising from future terrorist incidents and the need for companies to adopt measures to reduce such liability. Technology advances In November 2002, Congress passed the Safety Act as part of the Homeland Security Act of 2002 to encourage businesses to develop and commercialize anti-terrorism technologies by providing liability limitations and insurance guidelines. The Safety Act and DHS’ recent interim rule (68 Fed. Reg. 59684), which implements the act, provide different levels of protection for eligible sellers. The first level of protection, DHS’ designation of the technology as a “qualified antiterrorism technology,” confers on the seller several litigation reforms or benefits in suits relating to an act of terrorism involving the technology, including: Creating the possibility of suit for only one cause of action that can be brought only in federal court. Barring punitive damages and prejudgment interest against the seller. Limiting liability for any noneconomic damages to the seller’s percentage of responsibility. Crediting the seller for any collateral-source compensation received by the plaintiff(s). Capping the seller’s overall liability at the amount of required insurance stated in the designation. Each of these first-tier protections constitutes a meaningful tool to reduce potential liability. For example, a U.S. Department of Justice survey of civil tort trials and verdicts in large counties in the nation indicates that, in 1996, punitive damages accounted for approximately 22% of all damages in tort trials, and the median award of punitive damages in nonasbestos-related products liability cases was $462,000. Bureau of Justice Statistics Bulletin, Civil Justice Survey of State Courts, 1996: Civil Trial Cases and Verdicts in Large Counties, 1996 (August 2000). The Safety Act’s exclusion of punitive damages in cases involving suits relating to qualified anti-terrorism technologies, together with other first-tier liability management benefits, enable eligible sellers to focus on the costs of developing and marketing anti-terrorism technology rather than the costs of potential liability awards. The second level (or higher tier) of protection, which is available only if the technology initially qualifies for a DHS designation, is the DHS certification of the technology as an “Approved Product for Homeland Security.” The DHS certification can shield the seller from products liability in suits relating to an act of terrorism by creating a rebuttable presumption that the government-contractor defense applies. The government- contractor defense is a legal doctrine that allows certain government contractors to assert a government-immunity type defense against tort actions involving products with designs approved by the government. The Safety Act expands this defense to sellers that provide certified anti-terrorism technologies to government and commercial customers. Under the Safety Act, the plaintiff may overcome the presumption only by proving that the seller acted fraudulently or with willful misconduct in applying for the certification. Thus, the practical effect of the DHS certification may well be to immunize the seller (regardless of the customer) against liability for acts of terrorism involving the technology unless the plaintiff proves that the seller intentionally obtained the DHS certification by improper means. A shield against claims Perhaps as substantial as the protections accorded the sellers of the qualified or approved technologies are the complete shields that the Safety Act (as interpreted by DHS) provides to buyers/users (and other third parties) from any claims arising from an act of terrorism involving the deployment of the technology. See 68 Fed. Reg. 59684, 59693 (“The best reading of Section 863(a) [of the Safety Act], and the reading [DHS] hereby adopts is that (1) only one Federal cause of action exists for loss of property, personal injury, or death when a claim relates to the deployment . . . of the Seller’s qualified antiterrorism technology . . . and (2) such cause of action may be brought only against the Seller”). Additionally, the interim rule requires the seller to obtain liability insurance to “protect the following, to the extent of their potential liability for involvement in the manufacture, qualification, sale, use or operation of qualified antiterrorism technologies deployed in defense against, response to, or recovery from an act of terrorism: (1) contractors, subcontractors, suppliers, vendors and customers of the seller, [and] (2) contractors, subcontractors, suppliers, and vendors of the customer.” Id. at 59700. Another business reason exists for companies to invest time and expense into applying for DHS designations and certifications-a marked competitive advantage in the marketplace over similar technologies lacking a designation or certification. This benefit is meaningful considering that analysts forecast the homeland security market to grow to more than $170 billion by 2006. See New Homeland Security 2003 to 2010 Industry and Market Analysis and Forecast Reports at www.prweb.com/releases/2003. Marketplace influences The marketplace benefits of the Safety Act have two facets. First, given that customers of qualified anti-terrorism technologies may not be sued for claims relating to an act of terrorism involving the technology, a reasonable potential buyer, faced with the possibility of unknown liability in the event of a terrorist act, will purchase the qualified technology over a competing technology that cannot provide the same protection. Second, despite statements by DHS’ officials to the contrary, DHS designations and certifications likely will be perceived by the market as DHS “seals of approval.” This perception results, in part, from the fact that applicants must provide extensive information to DHS in order to obtain a designation and certification, including “scientific studies and other types of corroborative evidence that demonstrate the technology has substantial utility and effectiveness” as an anti-terrorism technology and studies demonstrating that the technology performs as intended. DHS Safety Act Application Kit at 20 (October 2003) (available at www.safetyact.gov/DHS/SActHome.nsf). DHS approval of the application for designation or certification likely will be perceived by potential customers as evidence that DHS has conducted a comprehensive review of the technology and that the technology is effective for its intended use. Indeed, even the names given to a designated and a certified technology, i.e., a “qualified antiterrorism technology” and an “Approved Product for Homeland Security,” respectively, likely serve (even if unintentionally) to validate a new anti-terrorism product or a new anti-terrorism application for a known product and lend credibility to the seller. Seals of approval In other words, DHS designations and certifications likely will be perceived by potential customers as DHS “seals of approval.” Marketing studies performed on other types of “seals of approval” (e.g., the Good Housekeeping Seal of Approval, the U.S.D.A. Choice Stamp and Internet Seals of Approval) indicate that third-party seals and certifications play a positive role in consumer decision-making and give the buyer or user of the product some independent third-party assurance (even if undeserved) as to the quality of the product. See e.g., Anthony D. Miyazaki and Sandeep Kirshnamurthy, “Internet Seal of Approval: Effects on Online Privacy Policies and Consumer Perceptions,” J. Consumer Aff., Summer 2002, at 28-49; Thomas L. Parkinson, “The Role of Seals and Certifications of Approval in Consumer-Decision Making,” J. Consumer Aff., Summer 1975, at 1-16. A DHS designation or certification likely will have a similar positive effect on the buying behaviors of public and private consumers of anti-terrorism technologies. DHS issued the formal application package for DHS designations and certifications on Oct. 16. (Interested businesses can obtain the application kit and instructions from the DHS Safety Act Web site at www.safetyact.gov.) Businesses seeking to maximize liability and risk management benefits of the DHS designations and certifications must make a “persuasive and defensible case” that the Safety Act protections are necessary. 68 Fed. Reg. 59684, 59689 (Oct. 16, 2003). Applicants seeking to maximize the available protections should: Organize Safety Act application team(s) (e.g., product engineers, business managers, accountants, legal counsel, etc.). Review and become familiar with the Safety Act interim rule, application kit and application forms. Identify anti-terrorism technologies for possible Safety Act designation and certification. Compile all necessary technical, financial and insurance information related to the identified technologies and application. Ascertain whether any of the identified technologies may be relevant to any federal, state or local procurements and whether expedited review by DHS may be available. Review the application to ensure the information provided imparts a persuasive case for designation/certification. A new line of defense As noted by the court in In re September 11 Litigation, the complex, technological society in which we live and the increasing sophistication of the threats facing our nation dictate that the private sector play a significant role in defending the homeland against such threats. Indeed, DHS Secretary Tom Ridge has stated that defending the homeland is a national effort that “will require a sustained and coordinated effort by governmental and private partners. “It will require investment by all parties, the development of new approaches, and the application of new technologies.” Testimony by Secretary Ridge before the Senate Committee on Commerce, Science and Transportation (April 9, 2003). However, liability and insurance costs together with other obstacles have hindered the level of private-sector participation. The Safety Act and the benefits it confers on eligible sellers and their customers help businesses to direct their focus from threats of tort liability against the company to threats by terrorists against the nation. Craig Holman is a partner, and Kara Daniels is an associate, in the Washington office of Holland & Knight. Both practice in the firm’s government contracts group.

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