Insurance and Indemnification in Government Contracts for Space and Defense

The US federal government is becoming increasingly dependent on commercial partnerships for its space capabilities in the 21st century. With federal awards for space services exceeding $29.9 billion in 2023 alone, the financial stakes for both agencies and contractors are immense. This paper identifies the different species of risk that commercial space companies face, specifically, losses from misadventure, from foreign interference, and from third-party liability. While commercial insurance and statutory indemnification mechanisms, such as those under the Commercial Space Launch Act and Public Law 85-804, provide a partial solution, they fall short in covering losses caused by foreign adversaries. Due to the prevalence in the private insurance market of exclusion clauses for hostile acts and restrictive definitions in certain procurement contracts, like “unusually hazardous” activities, many space contractors remain critically underprotected. This gap poses not only a prohibitive economic hazard to some companies but also undermines a broader national interest in fostering a resilient, diverse, and competitive base of space contractors. The paper recommends a legislative solution: a framework that would require contractors to acquire the maximum amount of insurance available from the marketplace while also providing government-backed indemnification for any additional loss caused by foreign interference. Such a system would both mitigate risk for contractors and reinforce critical U.S. strategic space interests by enabling greater participation from diverse commercial actors. Ultimately, ensuring that space contractors are adequately protected from foreign threats is essential to maintaining America’s leadership and operational capacity in space.