When Terrorists Attack: How Utilities and Manufacturers Can Minimize Liability

These could be the headlines on the day after a terrorist attack on the water distribution network of a major U.S. city...

by Dawn C. Kristof, WWEMA President

Editors Note: The following article is based upon a white paper authored by Dickstein, Shapiro, Morin & Oshinsky, and available through WWEMA.

These could be the headlines on the day after a terrorist attack on the water distribution network of a major U.S. city: “Thousands dead, thousands hospitalized after poisoning of city water system by terrorists using chemical pesticide; unknown numbers may remain in need of help.” But, so far, the headlines are only these: “Terrorists could target U.S. food and water supplies, FBI cautions; Al-Qaida is resolved to attack Americans at home, agency warns.”

While such threats are so far only hypothetical scenarios, they represent real - some believe, inevitable - dangers that industry and utilities must cooperatively prepare for, and help preempt and mitigate against. Developing and deploying effective anti-terrorism technologies is a part of this preparation. But deploying anti-terrorism technologies is fraught with challenges and uncertainties … particularly in terms of legal liabilities.

Manufacturers will be reluctant to invent and sell anti-terrorism products in view of today’s litigious society. While utilities may be faced with legal liabilities if they do not deploy adequate protections, in the case that they do, utilities may face liability for product deficiencies, improper use, and a host of other claims. As we shall see, a new law created the SAFETY Act, and this represents one of the only available methods for both utilities and anti-terrorism manufacturers to contain and manage their liability.

After the events of September 11, we are witnessing an unprecedented array of claims from the victims’ survivors. Despite the $38 billion in compensation paid to victims by Congress and the insurance industry, the so-called World Trade Center suit (see www. sept11tortlitigation.com) has over 100 plaintiffs making claims against a slew of defendants, including: City of Portland, Maine, Massachusetts Port Authority, Port Authority of New York and New Jersey, General Electric (engine manufacturer) and many others. This case has had a chilling effect on all those involved in developing and using anti-terrorism devices.

Contrary to some thinking within the water industry, in the case of a backflow attack, neither public nor private utilities will enjoy “sovereign immunity”, and “bailouts” from Congress will prove as ineffective as they have with the Twin Towers. In the legal aftermath of a backflow attack, the litigation will be severe. Utilities will be sued under negligence theories and/or face lawsuits over any technologies used for protection.

This is why Congress passed the Support Anti-Terrorism By Fostering Effective Technologies Act of 2002 (SAFETY), as a part of the Homeland Security Act of 2002. This law establishes a “risk management” framework that requires sellers (sic, manufacturers) to obtain liability insurance as dictated by the U.S. Department of Homeland Security, and it limits claims by parties who believe they were injured by failure of an anti-terrorism technology. The insurance dictated by DHS must cover manufacturers and their customers. When a given anti-terrorism device receives SAFETY Act designation and protections from the Department of Homeland Security, users (utilities) are immune from claims related to the devices’ performance. The seller (manufacturer) is required to enter into reciprocal waivers of claims with its contractors, subcontractors, suppliers, vendors and customers, and contractors and subcontractors of the customers. The SAFETY Act thus further protects the seller’s customers in the event any actions (claims) are allowed related to the use and operation of the anti-terrorism technology, which are covered by the seller’s insurance and liability limit.

Unless utilities purchase anti-terrorism technologies designated by DHS as approved technologies under the SAFETY Act, utilities are not afforded any of these protections, and there is no guarantee that manufacturers are carrying insurance that mutually protects utilities.

The Department of Defense recognized the importance of the SAFETY ACT as Executive Order 13286 was issued in 2003, essentially requiring defense contractors to apply for SAFETY Act protections in the course of providing (DOD) with anti-terrorism technologies - rather than continue to rely upon indemnification protections from the so-called Government Contractor Defense provisions historically provided under P.L.85-804.

Already, manufacturers of first-responder products have reported that they are seeing the trend in local governments requiring SAFETY Act designations for products they purchase. For example, the City of New York required SAFETY Act designation for all air monitoring devices deployed in subway systems during the recent Republican National Convention. With precious few liability-limiting options available to the water industry, we will see increasing interest - if not outright demand - for products reviewed and approved under the SAFETY Act.

Implementation of the SAFETY Act has not been speedy. So far, the Department of Homeland Security has only designated four products under the SAFETY Act. We must all encourage the Administration to implement the SAFETY Act quickly and with vigor.

About the Author:
Dawn Kristof is President of the Water and Wastewater Equipment Manufacturers Association.

More in Technologies