Issue By: Thomas J. LoSavio

Gary Kase v Metalclad Insulation Corporation

Government Contractor Defense Available to Broker Which Arranged for Asbestos-Containing Insulation to Be Provided to Navy

California Court of Appeal, First Appellate District (November 22, 2016)

The Government Contractor defense is available in asbestos lawsuits brought against manufacturers and suppliers of military hardware and equipment. The defense protects the federal government’s exercise of discretion and judgment in its contract specifications and designs. This case considers whether the defense is available to a broker which arranged for asbestos-containing insulation to be shipped to a Naval Shipyard, where workers packed it around submarine piping. The broker provided the insulation under detailed performance and testing specifications of the Navy, but which specifications did not explicitly call for asbestos in the insulation. An earlier Ninth Circuit decision had concluded the defense was not available where the same product was also commercially available. Rejecting the Ninth Circuit’s analysis, the Court of Appeal determined the defense was available under the circumstances, which included Navy knowledge of the dangers of asbestos, reasonably precise specifications and extensive Navy study and testing of the product, although the product was also commercially available.

With Boyle v. United Technologies Corp. (1988) 487 U.S. 500, the Supreme Court set out the government contractor defense. It held that the government, itself, need not design the allegedly defective product for the defense to apply. The government may select a design, and so long as the government thoroughly reviews and makes a considered judgment call about the design, the defense can apply. By way of contrast, the court explained the defense will not apply if the government procures a stock helicopter designated solely by the manufacturer’s model number and which has the complained of defect. In such a case, the court said, the manufacturer could meet both its contractual obligation to the government and its alleged design duty under state law. There would be no significant conflict between federal interests and state law, rendering the defense unavailable under those circumstances.

Unibestos is asbestos-containing insulation that has been available for decades. In January, 1936, the United States Navy commissioned a 30-day study to determine Unibestos’s suitability for military use. The study determined Unibestos had satisfactory heat insulating properties and was light weight (which was desirable), but questions remained whether it had sufficient stability to meet naval needs. The Navy conducted a six-month, follow-on study regarding stability. It also conducted a further study establishing Unibestos’s performance at high temperatures. Thereafter, the Navy used Unibestos on its vessels, and the product was subsequently ordered under Navy specifications, which specifically called for asbestos in insulation.

In August 1968, Metalclad brokered a delivery of Unibestos from Pittsburgh Corning to the Navy. The purchase order called for insulation material, pipe, thermal, tubular, molded under military specifications MIL-I-24244(SHIPS) DTD 66 AUG 22, type I, and amendment 1 DTD 68 FEB 15, and MIL-I-2781. Specification MIL-I-2781 defined grades of insulation, each grade capable of shielding different temperatures. It specified the size and shape of compliant insulation and defined various physical requirements to be confirmed by testing: maximum density, thermal conductivity, weight loss after tumbling, modulus of rupture, and changes after soaking heat. Compliant insulation had to be composed of heat-resisting compounds suitable for the temperature conditions and the purpose intended.

The Navy first issued specification MIL-I-2781 in 1955, and stopped expressly calling out for asbestos in insulation used to protect its equipment. However, during the 1955–1973 timeframe, the Navy viewed asbestos as an expected material in insulation products provided under the specification, and asbestos-containing products were sometimes the only products preapproved for certain grades of insulation. The list of prequalified products for certain grades of insulation attached to the version of MIL-I-2781 in effect in 1968 listed Unibestos as the only prequalified product in several grades. Metalclad‘ s expert in Navy ship design and construction, Dan Heflin, Jr., declared that based on his personal knowledge of military specifications and review of documents, to meet the needs expressed in MIL-l-24244, a product that contained asbestos was required. There was no evidence in the record to the contrary.

The Navy’s contract with Metalclad additionally called for various inspections and
tests of the insulation, including inspections and tests at the Pittsburgh Corning manufacturing plant in Tyler, Texas by the Defense Contract Administration Services (DCAS). DCAS, according to Metalclad’s expert, was the military’s “eyes and the ears”. Each lot of the supplied Unibestos had to measure up to the specifications.

During the 1970‘s, Kase worked shoulder to shoulder on various Navy ships with those who were cutting, installing, removing and disturbing Unibestos. He also assisted in loading boxes of Unibestos onto those vessels. Kase and his wife sued Metalclad and numerous other entities, asserting claims based on his asbestos exposure. After answering the complaint, Metalclad moved for summary judgment or summary adjudication on two grounds: the government contractor defense precluded the design defect claims and there was no triable issue as to causation as to the failure to warn claims (i.e., an asbestos warning by Metalclad would have been impossible and futile).

On Kase‘s design defect claims, the trial court ruled: The United States government approved precise specifications for the Metalclad-supplied Unibestos used; the Metalclad- supplied Unibestos conformed to the government‘s specification; and Metalclad had no duty to warn the government because the government was well aware of the potential hazards of asbestos. Further, Pittsburgh Corning, the manufacturer of the Unibestos supplied by Metalclad, provided warnings on the packaging of the Unibestos. On his failure to warn claims, the trial court ruled: Metalclad presented uncontroverted evidence that a warning was provided on the boxes of Unibestos by the manufacturer Pittsburgh Corning, but that warning did not prevent Plaintiff Gary Kase from exposure. A warning given by Metalclad would not have affected how the Unibestos was used by the Navy, or prevented Mr. Kase‘s alleged exposure. As a matter of law, any failure to warn by Metalclad was not a substantial factor in causing Mr. Kase‘s alleged exposure to asbestos from Unibestos insulation.

The Court of Appeal began its review with an examination of Boyle. Boyle arose from a helicopter crash in which a Marine copilot drowned because he could not escape from the aircraft, allegedly because of a poorly designed escape hatch mechanism by which the hatch opened outwards, instead of inwards, and against the weight of the water. The aircraft manufacturer invoked the government contractor defense, arguing it had followed military specifications in constructing the hatch.

The Supreme Court both endorsed and outlined the defense. It first described federal procurement from third parties as involving a uniquely federal interest, observing that imposing liability on Government contractors would directly affect the terms of Government contracts: either the contractor would decline to manufacture the design specified by the Government, or it would raise its price. Either way, the interests of the United States would be directly affected. The fact government procurement is an area of uniquely federal interest will not, alone, however, support a defense for the contractor. State law, ruled the high court, will be displaced only when a significant conflict exists between an identifiable federal policy or interest and the operation of state law. The court illustrated when there would be no significant conflict between federal interests and applying state tort law: If the United States contracts for the purchase and installation of an air conditioning unit, specifying the cooling capacity but not the precise manner of construction, a state law imposing upon the manufacturer of such units a duty of care to include a certain safety feature would not be a duty identical to anything promised the Government, but neither would it be contrary. The contractor could comply with both its contractual obligations and the state-prescribed duty of care. The case before it in Boyle, said the Supreme Court, was entirely different. The asserted basis of the contractor‘s liability (specifically, the duty to equip helicopters with the sort of escape-hatch mechanism petitioner claims was necessary) was precisely contrary to the duty imposed by the Government contract (the duty to manufacture and deliver helicopters with the sort of escape-hatch mechanism shown by the specifications). There was a significant conflict between the federal government’s design requirements and the asserted state law design requirement.

The Supreme Court posited a variation of the helicopter scenario that would not support the defense. If a federal procurement officer orders, by model number, a quantity of stock helicopters that happen to be equipped with escape hatches opening outward, it is impossible to say that the Government has a significant interest in that feature. That would be scarcely more reasonable than saying that a private individual who orders such a craft by model number cannot sue for the manufacturer‘s negligence because he got precisely what he ordered.

It was this latter example, the Court of Appeal said, that led the Ninth Circuit Court of Appeals to pronounce the defense inapplicable to goods readily available, in substantially similar form, to commercial users and to conclude the defense was not available to the insulation manufacturers in that case. In re Hawaii Federal Asbestos Cases (9th Cir. 1992) 960 F.2d 806. Since then, however, several courts have taken a more expansive view and concluded the fact a product has some commercial market does not preclude the defense. One federal court has stated there is no off-the-shelf limitation to its application. Miller v. Diamond Shamrock Co. (5th Cir. 2001) 275 F.3d 414.

The Supreme Court then adopted the three-prong test several circuit courts had used to determine when the defense applied, the requirements being: (1) the United States approved reasonably precise specifications; (2) the equipment conformed to those specifications; and (3) the supplier warned the United States about the dangers in using the equipment known to the supplier but not to the United States. The first two requirements insure the suit is
within the area where the policy of the “discretionary function” would be frustrated, that is, they insure that that design feature was considered by a Government officer and not merely by the contractor itself.

In urging reversal of the summary judgment on his design defect claims, Kase focused primarily on the first requirement of the government contractor defense—that the United States approved reasonably precise specifications pertaining to the alleged design defect (i.e., asbestos in the insulation Metalclad supplied to the naval shipyard). Kase repeatedly pointed out that while the Navy studied and rigorously tested Unibestos, it did not design or manufacturer the insulation. According to Kase, Unibestos is a common commercial product, no different from the air conditioner or stock helicopter referenced by the United States Supreme Court in Boyle. He contended there was a triable issue whether the insulation was military equipment, the procurement of which was a discretionary function within the meaning of Boyle. Kase relied on the Ninth Circuit opinion in Hawaii, supra.

The Court of Appeal reasoned that the Supreme Court, in Boyle, did not limit the defense to exclude the procurement of products also sold commercially. Rather, the point the high court was making was that, where a purchase does not involve reasonably precise specifications bearing on the challenged design feature, the government has not made a considered evaluation of and affirmative judgment call about the design. That could not be said, however, about the Navy’s procurement of the asbestos insulation at issue here— made after years of evaluating and weighing the utility of and the health hazards associated with asbestos products and under specifications that, according to the evidence in the record, required an asbestos product.

Metalclad submitted evidence of extensive studies and reports documenting the Navy‘s own ongoing investigations of asbestos hazards and its staying abreast of civilian research on the subject. Metalclad additionally presented evidence that before 1955, Navy specifications for insulation expressly called out for asbestos. In 1955, the Navy issued specification MIL-I-2781, defining grades of insulation (each grade reflecting different shield temperatures), specifying the size and shape of compliant insulation, and defining various physical requirements to be confirmed by testing (maximum density, thermal conductivity, weight loss after tumbling, modulus of rupture, and changes after soaking heat). Compliant insulation had to be composed of heat resisting compounds suitable for the temperature conditions and the purpose intended. A 1967 Naval ships technical manual described qualifying thermal insulation pipe covering, (i.e., Unibestos). Metalclad‘s expert in Navy ship design and construction, Dan Heflin, Jr., declared, based on his personal knowledge of military specifications and review of documents, that to meet the needs expressed in MIL-l-24244, a product that contained asbestos was required. The Court concluded this case deals with the procurement of a product known to and studied by the Navy for decades and which the Navy knew had serious health risks. Yet, it decided to use, and to continue using, this asbestos product in its naval vessels until the 1970‘s.

Kase pointed out that the Navy‘s purchase order issued to Metalclad did not expressly call out for asbestos in the requisitioned insulation, but rather, referenced specifications MIL-I-2781 and MIL-I-24244. The Court found, however, that the evidence in the record was uncontroverted that to comply with these specifications an asbestos-containing insulation was required.

Kase also maintained there was a triable issue on the third requirement of the government contractor defense: that the defendant warn the United States about the dangers in using the product known to the supplier but not to the United States. The Court found, however, that no warning must be made when the United States already knew of the danger. The Court summarized the evidence regarding the Navy‘s extensive knowledge of the health risks of asbestos products. In addition, Metalclad‘s expert, Robert Strode, testified that the Navy‘s resources and knowledge regarding asbestos hazards and controls during the late 1960‘s and early 1970‘s would have represented the state of the art, and there was no basis to conclude that an insulation contractor such as Metalclad would have had any information or knowledge concerning asbestos insulation hazards that was not already known to the U.S. Navy.

The Court therefore concluded that Kase had not raised a triable issue on the requirements of the government contractor defense on his design defect claims.

The Court then considered Kase’s failure to warn claims. California recognizes failure to warn claims under both strict liability and negligence theories. A product seller will be strictly liable for failure to warn if a warning was feasible and the absence of a warning caused the plaintiff‘s injury. Reasonableness of the seller’s failure to warn is immaterial in the strict liability context. Conversely, to prevail on a claim for negligent failure to warn, the plaintiff must prove that the seller’s conduct fell below the standard of care. If a prudent seller would have acted reasonably in not giving a warning, the seller will not have been negligent. While the government contractor defense can apply to failure to warn claims, Metalclad did not invoke it in the trial court on Kase’s failure to warn claims, nor did the trial court consider it. Rather, Metalclad made a causation argument and continued to defend the summary judgment on Kase’s failure to warn claims on that basis.

The Court found that the evidence on causation was uncontroverted. The purchase order required that every container for the insulation be marked under a Navy specification. The specification did not permit additional markings to be placed on shipping. Container markings could have been mistaken for any of the required markings and were not permitted. Metalclad acknowledged that Pittsburgh Corning printed a warning on boxes of Unibestos in November 1968. Kase never claimed to have seen any of the shipping containers for Unibestos. Rather, he recalled seeing stored cardboard boxes of Unibestos subsequently carried to the submarines on which he was working. He saw no warnings on the individual boxes of insulation.

Since the evidence was uncontroverted that Metalclad never had possession of the Unibestos and there was no evidence Kase ever saw a shipping container, the question as the Court saw it was whether there was any substantial evidence raising a triable issue that Metalclad could have required Pittsburgh Corning to place a warning label on each box of the product before Pittsburgh Corning did so itself. The Court concluded there was no evidence whether Metalclad could have directed Pittsburgh Corning to place an asbestos warning on the boxes of Unibestos, or whether Pittsburgh Corning could have, or would have, complied with such a request. On the record , the Court concluded those were matters of speculation, which do not, and cannot, raise a triable issue.

On this basis, the Court affirmed the grant of summary judgment.

COMMENT

The Government Contractor defense is limited in its applicability but, where it applies, it provides a complete defense. This opinion takes a broader approach regarding the applicability of the defense to commercially available products than did the Ninth Circuit when it considered the issue. It will remain for the California Supreme Court to bring final clarity whether this opinion or the Ninth Circuit’s will be the standard in state court cases.

For a copy of the complete decision, see: Gary Kase v Metalclad Insulation Corporation

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