The eligibility of Defense Base Act coverage for U.S. Government contracts is not always intuitive, as there are some government contracts that are procured under unique circumstances. Foreign Military Financing (FMF) or Foreign Military Sales (FMS) fall into that category.

Understanding the purpose of FMF/FMS military contracts

FMF/FMS programs are designed to acquire military articles, services and training that support the United States interest of national security and regional stability in areas where military operations are conducted. They are operated through the Defense Security Cooperation Agency (DSCA)—a Department of Defense Agency that manages and implements security assistance and security cooperation programs. The DSCA receives its funding and operates in accordance with the Foreign Assistance Act, an Act which promotes the economic development of foreign nations. The contracts are brokered by the U.S. Government directly with a “host nation” to negotiate military services for that nation. In such cases, the U.S. Government contact is responsible for connecting the contractor chosen to do the work with the host nation.

Are FMF/FMS military contracts eligible for DBA coverage?

Because FMF/FMS contracts are unique, there has been some question about the eligibility of the contracts for Defense Base Act coverage, specifically in regards to whether they meet the provisions as defined by the U.S. Department of Labor DBA statutes.

In order for a contract to be eligible for DBA coverage, the contract must be approved and financed by the U.S., as stated in the following U.S. Department of Labor statute.

DBA Section 42 U.S.C. Section 1651(a)(5) states a contract will be eligible if it meets the provision:

…approved and financed by the United States… or an agency thereof… to be performed outside the continental United States under the [Foreign Assistance Act]

To determine whether FMF/FMS contracts should be covered by DBA, we look back to the provision and can resolve that they are eligible, as they are “approved and financed by the United States”, as funded by the Foreign Assistance Act. Accordingly, it is the understanding of LATITUDE Global DBA Insurance that DBA does apply to FMF and FMS contracts. However, these types of contracts should always be reviewed by a DBA Attorney who can make a final determination and provide a legal opinion confirming whether or not the specific contract is eligible for DBA coverage.

As the DBA Insurance broker for Allied World Assurance, the LATITUDE DBA Insurance team has a deep understanding of the complexities of Defense Base Act coverage. Contractors seeking DBA coverage should contact LATITUDE DBA Insurance today―we’d be happy to assist in creating an insurance plan that protects both the business and its employees against all overseas exposures.

With the surge of violence in the Ukraine by opposition leaders of the current government, a pointed question should be evoked in the minds of contractors who currently have employees working overseas in hostile regions: Are acts of war or terrorism covered by Defense Base Act Insurance?

Sample Scenario

An employee stationed in the Ukraine is injured on his way to work by actions resulting from political unrest in the area. Would the DBA Insurance policy cover the injury claim? In most cases, the answer is yes, the claim would be covered because the situation of unrest would be classified as an armed conflict. As defined in the Defense Base Act, DBA Insurance includes a benefit for claims stemming from acts of “war or terrorism”:

“A ‘war-risk hazard’ is a hazard arising during war in which the United States is engaged; during an armed conflict in which the United States is engaged, whether or not war has been declared; or during a war or armed conflict between military forces of any origin, occurring within any country in which a covered individual is serving.

Discharge of a missile, including liquids and gas, or the use of any weapon, explosive or other noxious thing by a hostile force or person or in combating an attack or a perceived attack by a hostile force or person.

Action of a hostile force or person, including rebellion or insurrection against the United States or any of its allies.”

This legal definition of a “war-risk hazard” as it relates to DBA does not specifically address attacks as carried out by terrorists. However, the Department of Labor procedures do give careful consideration for acts of terrorism as “war-risk hazards” when assessing claims.

Substantiation of the DOL’s consideration

An attack on a Bosnian Postal Office in the early 2000’s resulted in the death of one government contract employee and injured 11 others. The death and injury claims were regarded as “caused by a terrorist attack,” even though the attacker acted alone. The Department of Labor reimbursed the DBA carrier for the compensation they had paid to the beneficiaries to settle the claim.

While claims founded by terrorist activity are given careful consideration under the “war-risk hazard” rule, detailed facts of the incident and situation of hostility must be presented by the DBA carrier in order to establish valid reason for reimbursement of the benefits owed to the claimant. The bottom line is, terrorist activity will be considered for DBA claim payment in conjunction with the definition of “war-risk hazard.”

As the DBA Insurance broker for Allied World Assurance, the LATITUDE DBA Insurance team has a deep understanding of the complexities of Defense Base Act coverage. Contractors seeking DBA coverage should contact LATITUDE DBA Insurance today―we’d be happy to assist in creating an insurance plan that protects both the business and its employees against all overseas exposures.

AS DBA Insurance now exists on the open market, claims made by defense contractors are on the rise. What’s causing this influx? And how is it affecting DBA rates? This white paper, published by LATITUDE DBA Insurance parent company, Lockton Companies, addresses how underwriters are handling the mounting claims situation, coupled with a drawback of U.S. forces in hostile overseas locations and how it’s impacting the overall DBA marketplace.

Link to White Paper: Dude, Where’s My Competitive DBA Rate?