B-97457, SEP. 18, 1961

B-97457: Sep 18, 1961

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UNITED STATES ATOMIC ENERGY COMMISSION: OUR VIEWS HAVE BEEN REQUESTED BY LETTER OF AUGUST 10. THE CONTRACTS WERE ORIGINALLY ENTERED INTO IN 1943 BY THE PREDECESSOR AGENCY TO THE COMMISSION. HAVE BEEN MODIFIED AND EXTENDED OVER THE YEARS. IT IS AGREED THAT ALL WORK UNDER THIS CONTRACT IS TO BE PERFORMED AT THE EXPENSE OF THE GOVERNMENT AND THAT THE UNIVERSITY SHALL NOT BE LIABLE FOR AND THE GOVERNMENT SHALL INDEMNIFY AND HOLD THE UNIVERSITY HARMLESS AGAINST ANY DELAY. EXPENSE OR DAMAGE ARISING OUT OF OR CONNECTED WITH THE DOING OF BUSINESS BY THE UNIVERSITY WITHIN THE JURISDICTION OR JURISDICTIONS WHERE THIS CONTRACT IS BEING PERFORMED. IT IS UNDERSTOOD THAT THE GOVERNMENT IS OBLIGATED UNDER THIS SECTION.

B-97457, SEP. 18, 1961

TO THE CHAIRMAN, UNITED STATES ATOMIC ENERGY COMMISSION:

OUR VIEWS HAVE BEEN REQUESTED BY LETTER OF AUGUST 10, 1961, FROM MR. DWIGHT A. INK, ASSISTANT GENERAL MANAGER, WITH RESPECT TO THE PROPER INTERPRETATION OF CERTAIN PROVISIONS OF CONTRACTS NOS. W-7405-ENG-36 AND W -7405-ENG-48 BETWEEN THE COMMISSION AND THE REGENTS OF THE UNIVERSITY OF CALIFORNIA.

THE CONTRACTS WERE ORIGINALLY ENTERED INTO IN 1943 BY THE PREDECESSOR AGENCY TO THE COMMISSION, AND HAVE BEEN MODIFIED AND EXTENDED OVER THE YEARS. IN THE FORM IN WHICH THEY EXISTED IN MID APRIL 1957 BOTH CONTRACTS CONTAINED AN ARTICLE XIV--- CONTINGENCIES--- LITIGATION AND CLAIMS--- WHICH READS IN PERTINENT PART AS FOLLOWS:

"1. THE COMMISSION DEEMS THE PERFORMANCE OF THE WORK HEREUNDER BY THE UNIVERSITY TO BE ESSENTIAL IN THE INTEREST OF THE COMMON DEFENSE AND SECURITY OF THE UNITED STATES. THE COMMISSION AND THE UNIVERSITY RECOGNIZE THAT, IN PART, THIS WORK INVOLVES UNUSUAL, UNPREDICTABLE AND ABNORMAL RISKS.

"2. IN VIEW OF THESE CIRCUMSTANCES, IT IS AGREED THAT ALL WORK UNDER THIS CONTRACT IS TO BE PERFORMED AT THE EXPENSE OF THE GOVERNMENT AND THAT THE UNIVERSITY SHALL NOT BE LIABLE FOR AND THE GOVERNMENT SHALL INDEMNIFY AND HOLD THE UNIVERSITY HARMLESS AGAINST ANY DELAY, FAILURE, LOSS OR DAMAGE (INCLUDING PERSONAL INJURIES AND DEATHS OF PERSONS AND DAMAGE TO PROPERTY) AND ANY EXPENSES IN CONNECTION THEREWITH (INCLUDING EXPENSE OF LITIGATION) ARISING OUT OF OR CONNECTED WITH THE WORK, INCLUDING ANY LOSS OR DAMAGE AND INCIDENTAL EXPENSE FOR ANY ALLEGED LIABILITY FOR PATENT INFRINGEMENT OR ANY ALLEGED LIABILITY OF ANY KIND AND FOR ANY CAUSE WHATSOEVER ARISING OUT OF OR CONNECTED WITH THE WORK, INCLUDING ANY LOSS, EXPENSE OR DAMAGE ARISING OUT OF OR CONNECTED WITH THE DOING OF BUSINESS BY THE UNIVERSITY WITHIN THE JURISDICTION OR JURISDICTIONS WHERE THIS CONTRACT IS BEING PERFORMED. IT IS UNDERSTOOD THAT THE GOVERNMENT IS OBLIGATED UNDER THIS SECTION, WHETHER OR NOT ANY EMPLOYEE OF THE UNIVERSITY IS RESPONSIBLE THEREFOR, UNLESS ANY SUCH DELAY, FAILURE, LOSS, EXPENSE OR DAMAGE SHOULD BE DETERMINED TO HAVE BEEN CAUSED DIRECTLY BY BAD FAITH OR WILFUL MISCONDUCT ON THE PART OF SOME CORPORATE OFFICER OR OFFICERS OF THE UNIVERSITY OR OF ANY PERSON ACTING AS LABORATORY DIRECTOR, DIRECTOR--- UCRL LIVERMORE, OR BUSINESS MANAGER. * * *"

THE REGENTS OF THE UNIVERSITY HAVE RAISED A QUESTION AS TO THE AUTHORITY OF THE COMMISSION TO ENTER INTO SUCH AN INDEMNITY PROVISION. WE HAVE HELD THAT THE COMMISSION HAS THE AUTHORITY TO INCLUDE PROVISIONS SUBSTANTIALLY SIMILAR IN FORM AND EFFECT IN CONTRACTS OF THIS TYPE. B-33801, APRIL 19, 1943; B-89664, OCTOBER 6, 1949. SEE ALSO B-80012, SEPTEMBER 24, 1948. FURTHER, THE LEGISLATIVE HISTORY OF ATOMIC ENERGY LEGISLATION CLEARLY INDICATES THAT THE JOINT COMMITTEE ON ATOMIC ENERGY AND THE CONGRESS HAVE BEEN APPRISED OF, AND HAVE RAISED NO OBJECTION TO, THE USE OF SUCH PROVISION IN THE COMMISSION'S CONTRACTS. UNDER THE CIRCUMSTANCES WE ARE AWARE OF NO REASON WHY THE AUTHORITY TO INCLUDE SUCH PROVISION SHOULD NOW BE QUESTIONED.

SUPPLEMENTAL AGREEMENTS TO THE CONTRACTS WERE ENTERED INTO ON JUNE 29, 1959, WHICH ADDED ARTICLE XXXIV--- NUCLEAR HAZARDS INDEMNITY--- TO THE CONTRACTS. THE ARTICLE PROVIDES IN PERTINENT PART:

"1. THIS ARTICLE IS INCORPORATED INTO THIS CONTRACT PURSUANT TO THE AUTHORITY CONTAINED IN SECTION 170 OF THE ATOMIC ENERGY ACT OF 1954, AS AMENDED (HEREINAFTER CALLED THE ACT).

A. THE DEFINITIONS SET OUT IN THE ACT SHALL APPLY TO THIS ARTICLE.

"3. TO THE EXTENT THAT THE UNIVERSITY AND OTHER PERSONS INDEMNIFIED ARE NOT COMPENSATED BY ANY INSURANCE PROTECTION PERMITTED OR REQUIRED BY THE COMMISSION, THE COMMISSION WILL INDEMNIFY THE UNIVERSITY, AND OTHER PERSONS INDEMNIFIED, AGAINST (A) CLAIMS FOR PUBLIC LIABILITY ARISING OUT OF OR IN CONNECTION WITH THE CONTRACTUAL ACTIVITY, AND (B) THE REASONABLE COSTS OF INVESTIGATING AND SETTLING CLAIMS, AND DEFENDING SUITS FOR DAMAGE FOR SUCH PUBLIC LIABILITY; PROVIDED THAT THE COMMISSION'S LIABILITY UNDER ALL INDEMNITY AGREEMENTS ENTERED INTO BY THE COMMISSION UNDER SECTION 170 OF THE ACT, INCLUDING THIS ARTICLE, SHALL NOT EXCEED $500,000,000 INCLUDING SUCH REASONABLE COSTS, IN THE AGGREGATE FOR EACH NUCLEAR INCIDENT, WITHOUT REGARD TO THE NUMBER OF PERSONS INDEMNIFIED IN CONNECTION WITH THIS ARTICLE. WITHOUT LIMITATION WITH RESPECT TO INDEMNIFICATION OF THE UNIVERSITY OR PERSONS FOR THE CONSEQUENCES OF WHOSE ACTS OR OMISSIONS THE UNIVERSITY IS LIABLE, PUBLIC LIABILITY SHALL NOT BE DEEMED TO ARISE OUT OF OR IN CONNECTION WITH THE CONTRACTUAL ACTIVITY UNLESS IT ARISES OUT OF OR RESULTS FROM:

(I) A NUCLEAR INCIDENT WHICH TAKES PLACE AT A CONTRACT LOCATION; OR

(II) A NUCLEAR INCIDENT WHICH ARISES OUT OF OR IN THE COURSE OF TRANSPORTATION OF SOURCE, SPECIAL NUCLEAR, OR BY-PRODUCT MATERIALS TO OR FROM A CONTRACT LOCATION; PROVIDED SUCH INCIDENT IS NOT COVERED BY ANY INDEMNITY AGREEMENT ENTERED INTO BY THE COMMISSION WITH THE TRANSPORTING CARRIER, OR WITH A CARRIER'S ORGANIZATION ACTING FOR THE BENEFIT OF THE TRANSPORTING CARRIER, OR WITH A LICENSEE OF THE COMMISSION, PURSUANT TO SECTION 170 OF THE ACT; OR

(III) A NUCLEAR INCIDENT WHICH INVOLVES ITEMS (SUCH AS EQUIPMENT, MATERIAL, FACILITIES, OR DESIGN OR OTHER DATA) PRODUCED OR DELIVERED UNDER THIS CONTRACT, PROVIDED SUCH INCIDENT IS NOT COVERED BY ANY OTHER INDEMNITY AGREEMENT ENTERED INTO BY THE COMMISSION PURSUANT TO SECTION 170 OF THE ACT,

PROVIDED, HOWEVER, EXCEPT WITH RESPECT TO A NUCLEAR INCIDENT WHICH TAKES PLACE AT A CONTRACT LOCATION, PUBLIC LIABILITY SHALL NOT BE DEEMED TO ARISE OUT OF OR IN CONNECTION WITH CONTRACTUAL ACTIVITY OF PERSONS FOR THE CONSEQUENCE OF WHOSE ACTS OR OMISSIONS THE UNIVERSITY IS LIABLE WHERE SUCH INCIDENT IS COVERED BY ANY OTHER INDEMNITY AGREEMENT ENTERED INTO BY THE COMMISSION PURSUANT TO SECTION 170 OF THE ACT.

"6. THE OBLIGATIONS OF THE COMMISSION UNDER THIS ARTICLE SHALL NOT BE AFFECTED BY ANY FAILURE ON THE PART OF THE UNIVERSITY TO FULFILL ITS OBLIGATION UNDER THIS CONTRACT, AND SHALL BE UNAFFECTED BY THE TERMINATION OF EXISTENCE OF THE UNIVERSITY OR BY THE COMPLETION, TERMINATION OR EXPIRATION OF THIS CONTRACT.

"8. THE PROVISIONS OF THIS ARTICLE SHALL NOT BE LIMITED IN ANY WAY BY, AND SHALL BE INTERPRETED WITHOUT REFERENCE TO, ANY OTHER ARTICLE OF THIS CONTRACT; PROVIDED, HOWEVER, THAT THE FOLLOWING PROVISIONS OF THIS CONTRACT: ARTICLE XXIII, COVENANT AGAINST CONTINGENT FEES; ARTICLE XX, OFFICIALS NOT TO BENEFIT; ARTICLE XXIV, ASSIGNMENT; AND ARTICLE VII, PARAGRAPH 6, EXAMINATION OF RECORDS; AND ANY PROVISIONS LATER ADDED TO THIS CONTRACT WHICH, UNDER APPLICABLE FEDERAL LAW, INCLUDING STATUTES, EXECUTIVE ORDERS AND REGULATIONS, IS REQUIRED TO BE INCLUDED IN AGREEMENTS OF THE TYPE CONTAINED IN THIS ARTICLE, SHALL APPLY TO THIS ARTICLE.

"9. TO THE EXTENT THAT THE UNIVERSITY IS COMPENSATED BY ANY INSURANCE PROTECTION, OR IS INDEMNIFIED PURSUANT TO THIS ARTICLE, OR IS EFFECTIVELY RELIEVED OF PUBLIC LIABILITY BY AN ORDER OR ORDERS LIMITING SAME PURSUANT TO SECTION 170 E. OF THE ATOMIC ENERGY ACT OF 1954, AS AMENDED, THE PROVISIONS OF ARTICLE XIV, CONTINGENCIES, LITIGATION AND CLAIMS, PARAGRAPH 2 SHALL NOT APPLY.

"10. WITH RESPECT TO LIABILITY AGAINST WHICH THIS ARTICLE INDEMNIFIES THE UNIVERSITY, THE UNIVERSITY AGREES THAT IT WILL NOT RAISE AS A DEFENSE ANY IMMUNITY IT MAY POSSESS FROM PUBLIC LIABILITY AND, THAT AT ANY TIME AND TO THE EXTENT SPECIFIED BY THE COMMISSION, IT WILL EXERCISE WHATEVER AUTHORITY IT HAS TO WAIVE SUCH IMMUNITY. * * *"

THE INCLUSION OF ARTICLE XXXIV IS SPECIFICALLY AUTHORIZED BY SECTION 170D OF THE ATOMIC ENERGY ACT OF 1954, AS AMENDED, 42 U.S.C. 2210. A QUESTION HAS BEEN RAISED AS TO THE EFFECT OF ADDING ARTICLE XXXIV ON THE SCOPE OF COVERAGE PROVIDED BY ARTICLE XIV. IT WILL BE NOTED THAT THERE ARE A NUMBER OF SIGNIFICANT DIFFERENCES BETWEEN THE TWO ARTICLES. AMONG THEM ARE:

1. ARTICLE XIV PROVIDES INDEMNITY FOR LIABILITY OF ANY KIND ARISING OUT OF OR CONNECTED WITH THE WORK, WHILE ARTICLE XXXIV IS LIMITED TO INDEMNIFICATION FOR LIABILITY ARISING OUT OF A ,NUCLEAR INCIDENT" AS THAT TERM IS DEFINED BY SECTION 110 OF THE ATOMIC ENERGY ACT OF 1954, AS AMENDED, 42 U.S.C. 2014.

2. ARTICLE XIV EXCEPTS FROM LIABILITY UNDER THE INDEMNIFICATION AGREEMENT THOSE LOSSES CAUSED DIRECTLY BY THE BAD FAITH OR WILFUL MISCONDUCT ON THE PART OF THE CORPORATE OFFICERS OF THE UNIVERSITY OR OTHER DESIGNATED OFFICIALS. ARTICLE XXXIV CONTAINS NO SUCH LIMITATION.

3. ARTICLE XXXIV LIMITS THE GOVERNMENT'S LIABILITY TO $500 MILLION FOR EACH NUCLEAR INCIDENT. UNDER ARTICLE XIV THE GOVERNMENT'S LIABILITY IS LIMITED ONLY BY THE AVAILABILITY OF APPROPRIATED FUNDS.

IT IS POINTED OUT IN THE LETTER OF AUGUST 10, 1961, THAT THE AUTHORITY IN THE PRICE-ANDERSON ACT TO ENTER INTO INDEMNITY AGREEMENTS WAS INTENDED TO BE SUPPLEMENTARY TO INDEMNIFICATION AUTHORITY ALREADY IN EXISTENCE. ARE SATISFIED THAT NOTHING IN THE ACT REQUIRES THAT A PROVISION SUCH AS ARTICLE XXXIV SUPERSEDE A PROVISION SUCH AS ARTICLE XIV ALREADY IN THE CONTRACT. IN OUR VIEW THE EXTENT, IF ANY, TO WHICH ARTICLE XXXIV SHOULD BE REGARDED AS A REPLACEMENT FOR, RATHER THAN A SUPPLEMENT TO, ARTICLE XIV MUST BE DETERMINED BY THE LANGUAGE OF THE CONTRACT.

IT WILL BE NOTED THAT UNDER PARAGRAPH 9 OF THE LATER ARTICLE, ARTICLE XIV DOES NOT APPLY TO THE EXTENT THAT THE UNIVERSITY IS INDEMNIFIED UNDER ARTICLE XXXIV. THIS PARAGRAPH MAY BE INTERPRETED TO MEAN THAT ARTICLE XIV DOES NOT APPLY WITH RESPECT TO THE CAUSE OF LOSS OR DAMAGE FOR WHICH INDEMNIFICATION IS PROVIDED UNDER ARTICLE XXXIV, OR THAT IT DOES NOT APPLY WITH RESPECT TO THE AMOUNT OF INDEMNIFICATION IN TERMS OF DOLLARS PROVIDED UNDER THE LATER ARTICLE, OR BOTH. THUS, IN OUR VIEW, THERE EXISTS AN AMBIGUITY IN THE LANGUAGE OF THE PROVISION WHICH MAY BE RESOLVED UNDER THE FAMILIAR RULE OF CONTRACT CONSTRUCTION BY DETERMINING THE INTENT OF THE PARTIES AS DISCLOSED BY THE RECORDS OF THE NEGOTIATIONS LEADING UP TO THE INCLUSION OF ARTICLE XXXIV. RECORDS OF THOSE NEGOTIATIONS FURNISHED BY A MEMBER OF YOUR STAFF DISCLOSE THAT THE PARTIES INTENDED BY THE LANGUAGE OF PARAGRAPH 9 TO PROVIDE THAT ARTICLE XIV INDEMNIFICATION SHOULD BE IN ADDITION TO THAT IN ARTICLE XXXIV BOTH AS TO CAUSE OF LOSS AND AMOUNT OF INDEMNIFICATION. ON THE BASIS OF THE EVIDENCE AVAILABLE WE DO NOT QUESTION THE PROPRIETY OF SUCH INTERPRETATION OR THE LEGALITY OF THE PROVISION UNDER THAT INTERPRETATION.

A QUESTION IS ALSO RAISED IN THE LETTER AS TO THE EFFECT ON THE VALIDITY AND SCOPE OF THE INDEMNITY ARRANGEMENTS OF A PROPOSED AMENDMENT TO SECTION 170 OF THE ATOMIC ENERGY ACT NOW BEING CONSIDERED BY THE CONGRESS. THE PROVISION WHICH CURRENTLY APPEARS AS SECTION 15 OF H.R. 8599, 87TH CONGRESS, WOULD AMEND SECTION 170 TO ADD AT THE END THE FOLLOWING SENTENCE:

"A CONTRACTOR WITH WHOM AN AGREEMENT OF INDEMNIFICATION HAS BEEN EXECUTED AND WHO IS ENGAGED IN ACTIVITIES CONNECTED WITH THE UNDERGROUND DETONATION OF A NUCLEAR EXPLOSIVE DEVICE SHALL BE LIABLE, TO THE EXTENT SO INDEMNIFIED UNDER THIS SECTION, FOR INJURIES OR DAMAGE SUSTAINED AS A RESULT OF SUCH DETONATION IN THE SAME MANNER AND TO THE SAME EXTENT AS WOULD A PRIVATE PERSON ACTING AS PRINCIPAL, AND NO IMMUNITY OR DEFENSE FOUNDED IN THE FEDERAL, STATE, OR MUNICIPAL CHARACTER OF THE CONTRACTOR OR OF THE WORK TO BE PERFORMED UNDER THE CONTRACT SHALL BE EFFECTIVE TO BAR SUCH LIABILITY.'

WE DO NOT REGARD IT AS APPROPRIATE TO PROVIDE OUR VIEWS, TO OTHER THAN THOSE ENGAGED IN THE LEGISLATIVE PROCESS, ON THE POSSIBLE EFFECT OF BILLS SHOULD THEY BECOME LAW. HOWEVER, AS TO THE INTENT OF THE PROVISION IN QUESTION THE FOLLOWING EXPLANATION IS FOUND IN HOUSE REPORT NO. 963, 87TH CONGRESS (PAGE 13):

"SECTION 15 OF THE BILL AMENDS SUBSECTION D. OF SECTION 170 OF THE ATOMIC ENERGY ACT OF 1954, AS AMENDED, BY ADDING A NEW SENTENCE WHICH HAS THE EFFECT OF REMOVING CERTAIN DEFENSES BASED UPON THE RELATIONSHIP BETWEEN THE COMMISSION AND THE CONTRACTOR OR SOVEREIGN IMMUNITY, WHICH MAY OTHERWISE BE AVAILABLE TO A CONTRACTOR ENGAGED IN ACTIVITIES CONNECTED WITH THE UNDERGROUND DETONATION OF A NUCLEAR EXPLOSIVE DEVICE. TO THE EXTENT THAT SUCH A CONTRACTOR IS INDEMNIFIED UNDER THE PROVISIONS OF AN AGREEMENT OF INDEMNIFICATION ENTERED INTO PURSUANT TO THE PROVISIONS OF SECTION 170 D. HE WILL BE LIABLE IN THE SAME MANNER AS A PRIVATE PERSON ACTING AS PRINCIPAL. SUCH A CONTRACTOR, THEREFORE, TO THE EXTENT SO INDEMNIFIED WILL NOT BE ABLE TO BAR LIABILITY WITH DEFENSES GROUNDED UPON HIS AGENCY RELATIONSHIP WITH THE U.S. GOVERNMENT, HIS SOVEREIGN IMMUNITY, OR THE FEDERAL, STATE, OR MUNICIPAL CHARACTER OF THE WORK PERFORMED UNDER THE CONTRACT. THIS AMENDMENT WILL NOT REDUCE IN ANY WAY THE INDEMNITY PROTECTION PROVIDED A CONTRACTOR BY THE INDEMNITY PROVISIONS IN HIS CONTRACT WHETHER THOSE PROVISIONS ARE BASED ON SECTION 170 D. OR OTHER AUTHORITY.' IN CONNECTION WITH THE EFFECT OF THE PROPOSED LEGISLATIVE PROVISION, SEE PARAGRAPH 10 OF ARTICLE XXXIV QUOTED.