Government Contracts Indemnification of Legal Costs Denied on Summary Judgment
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Tuesday, March 2, 2021

Indemnification of Legal Costs Denied on Summary Judgment

By Government Contracts Editorial Staff

The Civilian Board of Contract Appeals denied a contractor’s motion for partial summary judgment in an appeal seeking litigation indemnification costs because there were material facts in dispute regarding the underlying lawsuits and the record required development through discovery. The lawsuits, which were resolved without any finding or admission of public liability by the contractor, alleged the plaintiffs suffered illnesses caused by the release of radioactive materials from a nuclear energy research facility where the contractor performed various government contracts. The contractor sought indemnification under the Price-Anderson Act (42 USC 2210) and a remediation contract’s nuclear hazards indemnification clause, DEAR 952.250-70.

No Nuclear Incident. However, the occurrence of a nuclear incident was a disputed fact, and DEAR 952.250-70 does not provide for indemnification for only an allegation of public liability. The contractor’s argument for indemnification under FAR 52.228-7, Insurance—Liability to Third Persons, also lacked merit because the clause relates to liability that was not at issue in the appeal. The lawsuits against the contractor concerned public liability for a nuclear incident, and DEAR 952.250-70 was the only contract provision that applied to public liability. Finally, the contractor contended it was entitled to indemnification under DEAR 952.216-7, Allowable Cost and Payment, which provides “[t]he Government shall make payments to the Contractor … in amounts determined to be allowable by the Contracting Officer in accordance with Subpart 31.2.” The Court of Appeals for the Federal Circuit has recognized that a contractor’s legal costs related to the defense and settlement of a third party lawsuit are not allowable where the plaintiffs’ allegations had very little likelihood of success on the merits (see 46 CCF ¶77,930). Here, whether the plaintiffs were likely to prevail was an unresolved factual issue. (Boeing Co. v. Dept. of Energy, CBCA, ¶96,205)

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