Subpart 5-Insurance Under Cost-Type Contracts 10.500 Scope of Subpart. This Subpart sets forth the policy of NASA with respect to insurance under NASA cost-reimbursement type con

tracts.

10.501 Policy. The kinds of insurance listed in this paragraph 10.501 shall ordinarily be required under cost-reimbursemant type contracts and under those subcontracts where the provisions of the prime contract are extended to the subcontract. A program of self-insurance approved by the Assistant Administrator for Procurement or his designee, as provided in 10.502, may be substituted for any of the kinds of insurance ordinarily required.

10.501-1 Workmen's Compensation and Employers' Liability In

surance.

(a) Compliance with appliase statutes shall be required. Related to workmen's compensation, and included in the same insurance policy, are (i) Employers' Liability; (ii) Workmen's Compensation for Occupational Disease; and (iii) Employers' Liability for Occupational Disease.

(b) Workmen's compensation is an obligation imposed upon an employer by the workmen's compensation law of a State or by the United States Longshoremen's and Harbor Workers' Compensation Act (33 U.S.C. 901). An employer subject to a workmen's compensation law can provide for his obligation by insuring either with a commercial insurance company or a State fund, or by self-insuring. In a few States, commercial insurance is not permitted and the State fund is the exclusive carrier. If the employer desires to self-insure, he must qualify himself as a self-insurer with the appropriate State authority. However, such approval is only one of the elements considered by NASA in its approval of a self-insurance plan. Information may be required as to the procedures followed in operating the self-insurance plan and the method of accruing the operating costs thereof prior to granting NASA approval of the self-insurance plan.

(c) Occupational disease insurance is related to workmen's compensation insurance, and is usually required under applicable law. In jurisdictions where all occupational diseases are not compensable under applicable law, insurance for occupational diseases shall be required under the employers' liability section of the insurance policy. However, such additional insurance will not be required where contract operations are commingled with the contractor's commercial operations so that it would be impracticable to require such coverage.

(d) Employers' liability is the liability imposed upon the employer by law for damages on account of personal injuries, including death resulting therefrom, sustained by his employees by reason of accidents.

(e) The insurance coverage with respect to employers' liability and occupational disease shall be required with a minimum limit of $100,000 per

incident.

(f) With respect to workmen's compensation insurance overseas, pursuant to the Defense Base Act, as amended (42 U.S.C. 1651), the clause set forth in 10.403(b) shall be included in all construction contracts, as defined in 10.101-6, to be performed outside the United States. 10.501-2 General Liability Insurance

(a) Liability insurance, commonly referred to as third-party liability insurance, protects the insured against his liability to members of the

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public for bodily injury or death or for damage to or destruction of the property of others. An insurance policy may be obtained to insure the several general liability hazards separately or in various combinations. The advantage of a comprehensive general liability policy is that the insurance afforded protects the insured from loss arising from any cause other than those causes specifically excluded. This contrasts with the ordinary policy, which names the hazards insured against. In this manner the danger of "uninsured gaps" in the insured's insurance program is minimized. Comprehensive general (bodily injury) liability insurance shall be required with minimum limits of $50,000 per person and $100,000 per accident.

(b) Property damage liability insurance will be required only in special circumstances. Examples of such special circumstances are:

(i) where a commingling of operations permits property damage coverage at a nominal cost to NASA under insurance carried by a contractor in the course of his commercial operations; and

(ii) where the contractors are engaged in the handling of high explosives or in extrahazardous research and development activities undertaken in populated areas. Otherwise, prior approval for purchase of property damage liability insurance must be obtained from the Assistant Administrator for Procurement.

(c) The Government normally will assume the risk of a contractor's uninsured third-party liability to the extent provided for by the clause entitled "Insurance-Liability to Third Persons," contained in 7.203-22. 10.501-3 Automobile Liability Insurance.

(a) Automobile liability insurance shall be required on the comprehensive form of policy and shall provide for bodily injury liability and property damage liability covering the operation of all automobiles used in connection with the performance of a contract. Such insurance will protect the contractor against (i) his liability to members of the public because of bodily injury or property damage arising out of the operations, maintenance, or use of the insured vehicles; and (ii) financial loss resulting from damage to and loss or destruction of insured vehicles.

(b) An insurance policy for automobiles can be written to apply to specific vehicles, classes of vehicles, or to all vehicles in which the insured may have an insurable interest. The comprehensive automobile liability policy is generally chosen by a contractor, since it can minimize the possibility of an uninsured loss. A comprehensive automobile liability insurance policy may or may not include coverage (comprehensive physical damage and collision) for damage to and loss or destruction of insured

vehicles.

(c) Automobile bodily injury liability and property damage liability insurance shall be required with minimum limits of $50,000 per person and $100,000 per accident for bodily injury liability and $5,000 for property damage liability on the comprehensive policy form covering all owned, non-owned, hired, and Government-furnished motor vehicles which will be used in the contract operations where use will not be limited exclusively to the premises on which the work under such contract is performed. Where such insurance relates to contracts to be performed outside the United States, its possessions, and Puerto Rico, the contracting office may revise downward the monetary limits prescribed herein. The Government shall normally assume the risk of a contractor's uninsured

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third-party liability to the extent provided for by the clause entitled "Insurance-Liability to Third Persons" contained in 7.203-22.

10.501-4 Aircraft Public and Passenger Liability Insurance.

(a) This type of insurance covers the liability imposed by law upon the aircraft owner and operator. The basic coverages are bodily injury liability, property damage liability, and passenger liability. Where aircraft are used in connection with the performance of a contract aircraft liability insurance shall be carried by the contractor to cover bodily injury, including passenger liability (if the exposure exists), and property damage coverage. The minimum limits of liability shall be $50,000 per person and $100,000 per accident for bodily injury and $50,000 per accident for property damage. The Government will normally assume the risk of contractor's uninsured third-party liability to the extent provided for by the clause entitled "Insurance-Liability to Third Persons," contained in 7.20322.

(b) Aircraft hull insurance covers the insured for damage to or loss of the insured aircraft when loss or damage results from an insured peril. This type of insurance will not be purchased at Government expense to cover aircraft, manufactured, modified, or serviced, under a cost-reimbursement type contract, against risks which are assumed by the Government under the Government-Furnished Property clause or other clauses in a contract. Such insurance is appropriate and will be required for aircraft not owned by the Government and used in connection with operations under a cost-reimbursement type contract.

10.501-5 Vessel Collision Liability and Protection and Indemnity Liability Insurance. Where vessels are used in connection with the performance of the contract, such insurance shall be required whenever deemed necessary by the installation concerned.

10.501-50 Group Insurance.

(a) General.

(1) Group insurance plans provide various types of benefits for employees and their dependents. Usually, these benefits are provided through one or more group insurance policies with life or casualty insurance companies. Also, these benefits may be provided through individual insurance policies or through hospital association plans.

(2) Group insurance plans are either contributory, where the employees and the contractor jointly pay the costs of the benefits, or noncontributory, where the total costs of the benefits are paid by the contractor. Some group insurance plans provide for hospital and surgical benefits for the dependents of employees, and under these plans the employee usually pays all or a portion of the cost. Employees are usually eligible to participate in group insurance plans after 1 to 3 months of service.

(3) It is recognized that group insurance plans providing life insurance, surgical, hospitalization, major medical, and nonoccupational accident insurance coverages are important to industrial relations programs. Considerations which influence the benefits and the costs for benefits under a particular group insurance plan are (i) the geographical locality of the operations of the contractor, (ii) wage levels, (iii) amount of other fringe benefits, (iv) benefits available under applicable workmen's compensation laws, (v) union negotiations, (vi) the costs of the group insurance benefits, and (vii) the effects of such costs in competitive prices.

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(b) Approval of Group Insurance Plans. The contracting officer will determine whether the group insurance benefits are reasonable in amount and necessary in connection with the performance of NASA contracts. Such plans will generally be approved where they are comparable to those of competing employers or industries in the contractor's operational areas. Where a contractor is working primarily on Government contracts, the restraints imposed by competition may be lacking, and a careful review will be made, including a determination that the contractor does not furnish his employees greater benefits under cost-reimbursement type contracts than are granted his employees engaged in regular commercial operations of the contractor. In addition, the experience of the Military Departments or other Government agencies with the particular contractor shall be investigated. Changes in previously approved group insurance plans (including changes in premium rates) must be submitted for approval by the contracting officer.

(c) The contractor is required to credit to the NASA account a share of all premium refunds or other credits paid or otherwise allowed to the contractor by the insurance company. This share shall be proportionate to the premium costs reimbursed under NASA contracts which gave rise to such refunds or other credits.

(d) The contractor is required to furnish full information concerning his group insurance program, and NASA reserves the right to examine the program at any time.

10.501-51 Use and Occupancy Insurance.

(a) Use and Occupancy or Business Interruption Insurance is a form of insurance which idemnifies the contractor for certain losses incurred during a period of interruption or suspension of business operations resulting from physical damage to property essential to the conduct of business. Under such insurance, the contractor is protected against loss on account of fixed charges and other expenses which accrue during such period and for loss of net profit which the contractor is prevented from earning. The amount of coverage purchased under this form of insurance is based on the probable loss the contractor would sustain during the period of interruption or suspension of business operations. The premium charge is based on the aggregate indemnity under the policy.

(b)(1) When costs in connection with use and occupancy insurance are presented for allowance, the aggregate coverage available will be analyzed. Only that percentage of total insurance cost which is identifiable with insurance benefits determined to be acceptable within the intent of subparagraph (2) below will be allowed.

(2) Costs of insuring those items of fixed charges and other expenses which are allowable items of costs in NASA contracts will be considered allowable. Such fixed charges and other expenses include but are not limited to salaries of employees under contract and other key employees, rents, most insurance premiums, and charges for noncancellable contracts for light, heat, or power.

(3) The cost of insuring the net profit a contractor is prevented from earning during a period of business interruption or suspension is unallowable. Similarly, the costs of insuring certain items of fixed charges such as interest, Federal income taxes, donations, and certain advertising expenses are unallowable.

10.502 Self-Insurance.

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(a) Self-insurance may be approved by the contracting officer in lieu of the insurance requirement for one or more of the mandatory_coverages required by 10.501-1, 10.501-2, 10.501-3, 10.501-4, and 10.501-5 provided that:

(i) the contractor has maintained the practice of self-insurance in respect to such coverage or risk for a period of not less than 3 years; (ii) adequate safety inspection and engineering programs are carried on by the contractor;

(iii) the contractor has an effective and established policy for claims investigation;

(iv) the contractor has established a plan of funding so that the annual cost of "loss payments" remains reasonably constant;

(v) the charges to be made against the contract for the cost of the selfinsurance program may reasonably be expected to be less than the charge for an equivalent program of insurance; and

(vi) the Government contracts will share equitably in any release of reserve funds.

Self-insurance programs which do not meet the foregoing conditions shall be submitted for approval to the Assistant Administrator for Procure

ment.

(b) When the clause at 10.403(e) is required, the following clause shall also be inserted in the contract, but only if the Assistant Administrator for Procurement or his designee has decided that the contractor shall not purchase insurance against the liability described in 10.403(d)(2).

REIMBURSEMENT FOR WAR HAZARD LOSSES (JUNE 1972)

(a) The Contractor's costs for assuming liability for employee protection against war hazard risks pursuant to paragraph (b) of the clause of this contract entitled "Workmen's Compensation and War Hazard Insurance" shall be an allowable cost under this contract, subject to the following:

(i) The Contractor shall submit proof of loss files to support payment or denial of each claim.

(ii) As soon as practicable, but no later than one year after the expiration or termination of this contract, unless the time shall be extended by the Contracting Officer, the Contractor shall, convert each claim which has not been finally settled into a suitable arrangement under which the claim can be extinguished by the Contractor with a lump sum payment. Subject to approval by the Contracting Officer, the Contractor shall thereupon obtain necessary release documents and settle the claim by lump sum arrangement, taking into account any payments previously made.

(iii) As to any potential claim which is known to, or reasonably should be within the knowledge of, the Contractor at the time of final settlement under this contract, the Contractor shall, at that time, present to the Government a full report and evaluation, indicating as to each potential claim that a reasonable investigation of the circumstances has been made, the results thereof, an evaluation of the merits, and an estimate of the amount involved should the potential claim mature into a valid obligation.

(iv) The cost of insurance against a liability reimbursable under this clause shall not be an allowable cost or otherwise recoverable under this contract.

(b) The Government may require the Contractors to assign to the Government in the manner, at the times, and to the extent directed by the Contracting Officer all right, title and interest of the Contractor to any refund, rebate or recapture arising out of any claim settlement. The Government may handle such assigned entitlements in such manner as it deems appropriate and may recover any benefits related to claim settlements.

(c) The Contractor shall, as soon as practicable after an occurrence which appears to give rise to a claim under this portion of the contract, perform such investigations as may be appropriate and promptly notify the Contracting Officer in writing of any additional amount

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