A recent decision by the US Court of Appeals for the Federal Circuit reinstated claims seeking indemnification under the Price-Anderson Act. In reversing a decision by the US Court of Federal Claims, the Federal Circuit affirmed the broad scope of the Price-Anderson Act’s contractual indemnity provision. In particular, the Federal Circuit found that the Price-Anderson Act requires the government to indemnify more entities than just those that directly contracted with the government. Instead, the statutory language contemplates indemnity to “any other person who may be liable for public liability.”
Based on the broad statutory definitions of “persons indemnified” and “public liability,” the Federal Circuit reinstated indemnification claims by a company that incurred liability by defending and settling personal injury claims that were based on the company’s ownership, possession, transportation, and disposal of radioactive substances purchased from an Atomic Energy Commission (AEC) contractor. The Federal Circuit allowed the indemnification claims by the company to proceed even though the company itself had never signed a contract with the government for those activities.
The Federal Circuit’s decision therefore reaffirmed the broad scope of the government’s indemnification obligation under Price-Anderson for companies engaged in the nuclear sector regardless of whether that company contracted with the government.
Background on the Price-Anderson Act
The US Congress passed the Price-Anderson Act in 1957. The Price-Anderson Act added Section 170 to the Atomic Energy Act (42 USC § 2210) and established a comprehensive statutory scheme designed to meet two main policy objectives. The first objective was to protect the public against losses from personal injury or property damage arising out of nuclear incidents by ensuring that adequate funds would be available to satisfy claims if a nuclear accident were to occur. The second objective was to encourage the private sector to engage in nuclear activities by imposing a statutory limitation on the total commercial liability arising out of a nuclear incident and indemnifying any person or entity who might otherwise be liable.
One aspect of the Price-Anderson Act is that it protects government contractors who contract with the government to provide nuclear-related services. As originally enacted, the Price Anderson Act authorized the AEC to enter into indemnification agreements with its contractors. In such agreements, the AEC could “require the contractor to provide and maintain financial protection . . . to cover public liability arising out of or in connection with the contractual activity, and shall indemnify the persons indemnified against such claims above the amount of financial protection” up to the public liability limit. The indemnification for government contractors is now the responsibility of the US Department of Energy (42 USC § 2210(d)).
The Federal Circuit’s Decision on the Broad Scope of Price-Anderson Indemnity
As background, in 2012 several plaintiffs sued certain companies for injuries that they alleged resulted from exposure to radioactive substances the companies handled at locations in and around St. Louis, Missouri between 1942 and 1973. Company 1 contracted with the AEC to produce and handle these substances. Company 2 did not, and instead purchased the substances from a third party and held an AEC license to possess and transport the substances. After it bought the substances, Company 2 stored them at a facility near the St. Louis airport and sent some to an area landfill for disposal. The plaintiffs alleged that they were harmed by these substances because they were improperly stored, transported, and disposed of.
After settling the personal injury claims, Company 2 sought indemnification from the US government for the cost of defending and settling these claims. Company 2’s indemnity claim relied on two theories: (1) statutory indemnification under the Price-Anderson Act and (2) indemnification as a third-party beneficiary of the contract between the AEC and Company 1, the original owner of the radioactive substances.
The Court of Claims granted the government’s motion to dismiss these claims based on its interpretation of the Price-Anderson Act’s indemnification provision. The Court of Claims decided that the government’s indemnity obligation under Price-Anderson extended only to the time when work under the contract was performed and not to later ownership and possession of radioactive materials that resulted from the contract (the release of which was alleged to have caused injury). The Federal Circuit reversed that decision.
As to the scope of Price-Anderson’s indemnity provision, the Federal Circuit observed that the appeal turned on who is a “person indemnified” for “public liability arising out of or in connection with contractual liability” under the Price-Anderson Act. The Federal Circuit noted that the Price-Anderson Act’s definitions of “persons indemnified” and “public liability” “contemplate a broader range of indemnity than the narrow view taken by the Court of Claims.”
The Federal Circuit pointed out that the statute defined “person indemnified” broadly to cover not just Company 1 (who contracted with the AEC) but also “any other person who may be liable for public liability,” and the statute’s broad definition of “public liability” covered “any legal liability arising out of or resulting from a nuclear incident.” Further, the Federal Circuit cited the statutory definition of “nuclear incident,” which covers “any occurrence . . . arising out of or resulting from the radioactive, toxic, explosive, or other hazardous properties of [nuclear] materials.”
Based on these broad statutory definitions, the Federal Circuit found that the Price-Anderson Act’s indemnity scheme focused on the hazards presented by the nuclear materials. The Federal Circuit thus rejected the Court of Claims’ determinations that Price-Anderson indemnity is limited only to entities in privity of contract with the government and is time-limited to the period of performance under such a contract. The Federal Circuit found the Court of Claims’ interpretation to be atextual and noted that adopting the Court of Claims’ narrow interpretation of the statute would undermine its declared statutory purpose of protecting the public from nuclear incidents.
The Federal Circuit reversed the Court of Claims’ decision and held that because Company 2 incurred liability based on allegations that members of the public were harmed by radioactive substances, Company 2 had therefore plausibly alleged that it was a “person indemnified” for a “public liability” under the Price-Anderson Act. The Federal Circuit reinstated Company 2’s indemnification claims and remanded the case to the Court of Claims for further proceedings.
Morgan Lewis regularly counsels companies on financial protection requirements and indemnification under the Price-Anderson Act. We will continue to closely monitor developments in this area.