UNDERSTANDING THE SAFETY ACT February 23, 2005

1. UNDERSTANDINGTHE SAFETY ACTFebruary 23, 2005 Presented by Matt Schlesinger Kurt Ferstl

2. Safety Act – Key Features • Establishes a Risk Mitigation and Litigation Management System for Qualified Anti-Terror Technologies (QATT) • No punitive damages • Exclusive federal cause of action • Presumption of government contractor defense • Liability capped at insurance limits

3. Definition of QATT “[A]ny product, equipment, service (including support services), device, or technology (including information technology) designed, developed, modified, or procured for the specific purpose of preventing, detecting, identifying, or deterring acts of terrorism or limiting the harm such acts might otherwise cause, that is designated as such by the Secretary.”

4. Safety Act – Key Features • Designation as a QATT • Certification of the QATT • Certification is a “separate act” from Designation, but both can occur “simultaneously” • Data to be reviewed in designation and certification process substantially similar • Certification of Seller’s Insurance

5. Criteria for Designation as a QATT • The Secretary will apply the following criteria: • Prior and extensive United States government use or demonstrated substantial utility and effectiveness • Availability for immediate deployment in public and private settings • Existence of extraordinarily large or unquantifiable potential third party liability risk exposure to the provider of such anti-terrorism technology • Likelihood that such anti-terrorism technology will not be deployed unless extended the protections of the Act

6. Criteria for Designation as a QATT • Magnitude of risk exposure to the public if such anti-terrorism technology is not deployed • Results of all scientific studies that can be feasibly conducted in order to assess the capability of the technology to substantially reduce risks of harm • Effectiveness of the Anti-terrorism technology • Any other factor the DHS wants to consider

7. Benefits of Designation • Claims arising out of the deployment of designated QATT would be governed by litigation management provisions of the SAFETY Act that provide for: • Only one defendant – the SELLER • No punitive damages • Consolidation of claims in federal court • Non-economic damages awarded only in proportion to a party’s percentage of fault • Liability may not exceed the amount of insurance coverage carried by the seller

8. Benefits of Certification • SAFETY Act statutorily supplants the need to prove common law Government Contractor Defense • Presumption of early lawsuit dismissal/defense costs implications • Presumption applies not only to federal sales of QATTs but state, local and private sector sales • Presumption can only be rebutted by showing the seller acted fraudulently or with willful disregard in submission process • If presumption rebutted, DHS says designation protections remain; • If fraud shown, DHS notes possibility of criminal/civil referrals

9. Insurance Requirements • Sellers Must Obtain Terror Insurance • For Self and Seller’s Contractors, Suppliers, and Customers and Customer’s Contractors and Suppliers • How Much? • Not more than is available at “prices and terms that will not unreasonably distort sales price” of product

10. Insurance Requirements • Overall, DHS will examine price of terror coverage and its effect on pricing of technology. • Through this analysis, DHS will determine the effect on seller’s profitability of the technology and thus, demand in marketplace.

11. Insurance Requirements • Secretary Determines The Types And Amounts Of Insurance Seller Must Purchase • On a Technology-by-Technology Basis – but might “group” technologies • Seller Must Certify Annually That It Maintains Required Insurance • Self-Insurance Is Permissible

12. Insurance Requirements • Seller’s liability is capped at limits of insurance designated by DHS • What if seller fails to maintain insurance? • Liability remains capped at certified limits • But, designation subject to termination and may adversely affect Seller’s ability to re-designate or designate new products

13. Insurance Information Required In the Application • Identify All Coverage For Liability Resulting From Terror Act Where Technology Is Deployed, Including: • Insurers • Description of types and nature of coverage • Limits • Relevant exclusions • Price

14. Factors Considered By DHS • Particular Technology at Issue • Amount of Insurance Seller Maintained Prior to Application For Business as Whole and Other Technologies • Amount Typically Maintained by Sellers of Comparable Technologies • Amount of Insurance Offered on World Market

15. Factors Considered By DHS • Data and History Regarding Mass Casualty Losses • Intended Use of The Technology • Effects of Cost on Price of Product and Consequences for Deployment

16. Secretary May Take Active Role • May Consult with the Seller, the Seller’s Insurer and Others In Course of Determining the Appropriate Amount of Insurance • May Provide Advance Guidance Regarding Types and Amounts of Insurance Likely Required for Particular Technologies

17. Practical Considerations • 165 Pre-Applications and 67 Full Applications Filed • 4 technologies have been designated and certified • Industry Frustrations • Timing • Apparent inconsistency within criteria • Amount of Information being requested • Pre-Application Process not currently useful • NDA does not include the applicant as a signatory • Need process to review technology modifications

18. Reed Smith Capabilities • Devise best application strategy • Draft/revise key sections of application • Develop position on insurance • Liaison with DHS

19. Matt Schlesinger202-414-9423mschlesinger@reedsmith.comKurt Ferstl202-414-9250kferstl@reedsmith.com