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Silverstein v. Northrop Grumman Corporation

A-5484-01T5 (N.J. Super. App. Div. 2004) (Unpublished)

CONTRACTORS; GOVERNMENT IMMUNITY—If a contractor can show that it produced a product for the U.S. government in conformity with required government specifications and warned the government about dangers in the product previously unknown to the government, the contractor will not be liable for injuries caused by a defect in the product, regardless of whether the product was military-related, whether the contractor produced similar items for the general public, or whether the contractor carried products liability insurance.

A United States Postal Service (USPS) employee was injured when his work vehicle rolled over after being struck by a car. The vehicle was manufactured to meet a USPS design. The employee asserted a strict liability claim against the vehicle manufacturer for defective design. The lower court granted summary judgment in favor of the manufacturer based on the “government contractor defense,” which preempts state law claims against federal government contractors. Case law had reasoned that the liability of outside contractors performing work for the federal government was an area uniquely of federal interest because to impose liability on federal contractors would directly affect the terms of government contracts. This is based on the theory that contractors would decline to manufacture designs specified by the Government or would raise prices. Under the law, government contractors are not liable in tort actions to third parties if the “Boyle Test” is satisfied: the contractor must prove that the United States approved reasonably precise specifications; the equipment conformed to those specifications; and, the supplier warned the United States about the dangers of the equipment known to the supplier.

On appeal, the Appellate Division had to decide two issues: whether the government contractor defense applied to nonmilitary contracts, and if so, did the contractor establish each element of the “Boyle Test” so as to qualify for the defense.

First, the Court found that the government contractor defense applies to nonmilitary contracts because case law had held that the same policy concerns were present regardless of whether or not the contract was military-related. Further, without a contractor having this defense available, the government would lose the flexibility it needed to trade-off certain safety factors for other economic or technical considerations. Also, nonmilitary contractors would pass their increased financial burdens to the public or might not bid at all. Finally, allowing state tort actions against nonmilitary contractors who have complied with government contracts would empower state authorities to “second-guess” federal policy decisions respecting the design of products for use in civilian projects.

Next, the Court held that the manufacturer satisfied each element of the Boyle Test. As to the first prong requiring that the contractor establish that the government approved reasonably precise specifications, the employee contended that because the specifications did not mention the term “rollover resistance,” they were not reasonably precise. The Court found this argument unpersuasive, and instead relied on the fact that the USPS created the specifications that went into the final design of the vehicle. The USPS had tested the vehicle for stability, and the USPS retained the right to approve the final design and reject any non-complying vehicles. Simply because the specifications did not contain the words “rollover resistance” did not mean the vehicle was either designed or tested without regard to that hazard. Stability was in fact a characteristic specifically cited as a concern by the USPS.

The second prong of the Boyle Test requires that the equipment conformed to established government specifications. While being driven by experienced USPS personnel, the vehicle was extensively tested for ease of handling, stability, and sway tendency. There were strenuous tests for each vehicle. Vehicles that did not pass the stringent requirements were rejected. During the tests of this particular vehicle type, no stability problems were discovered.

The final prong requires the contractor to warn the United States of any specific dangers known to the contractor. The purpose of this prong is to prevent manufacturers from having an incentive to withhold knowledge of risks. The employee claimed that this particular contractor failed to disclose to the USPS the details of a prior lawsuit where a postal vehicle was struck and rolled over. However, the court determined the USPS already knew about rollover accidents prior to this specific case and government contractors are not obligated to warn the government about risks of which the government is already aware.

The employee also contended that the contractor should have been estopped from asserting the government contractor defense because the contractor and the USPS contemplated that the manufacturer would be liable for product liability claims. This contention was based on a showing that the manufacturer had purchased product liability insurance and that the contractor marketed a similar vehicle to private parties. The Court disagreed, holding that the mere purchase of product liability insurance does not equate to an assumption of liability. Furthermore, sale of similar vehicles to non-USPS buyers after development did not bear upon whether the Boyle Test had been met because the vehicle designed pursuant to the USPS specifications was not available in similar form on the open market before the development process was completed.

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