When a rocket lifts off from Cape Canaveral or Vandenberg Air Force Base, millions of dollars and countless lives are on the line-not just from the physical risks of launch, but from the legal ones too. Behind every commercial spaceflight is a web of contracts designed to prevent lawsuits before they happen. At the heart of that system are two powerful legal tools: indemnification and cross-waivers. These aren’t just legal jargon-they’re the reason private companies like SpaceX, Rocket Lab, and United Launch Alliance can operate without being crushed by the risk of catastrophic liability.

Why This System Exists

Before 1984, private companies trying to launch rockets faced a terrifying reality: if something went wrong, they could be sued for billions. Imagine a rocket exploding over a populated area. The damage? Millions in property loss, injuries, even deaths. Under traditional liability rules, the launch company would be on the hook for every cent. No insurer would cover that kind of risk. No bank would lend money. No investor would put in a dime.

That’s why Congress passed the Commercial Space Launch Act of 1984. It didn’t just encourage space business-it created a safety net. The law recognized that spaceflight is inherently risky, and that the government, through NASA and the FAA, had a role in enabling private industry without exposing taxpayers to unlimited risk. The solution? A structured, reciprocal system of liability management.

How Cross-Waivers Work

A cross-waiver is a contract clause where all parties agree not to sue each other for damages arising from a launch or reentry. It’s simple in concept: if you’re launching a satellite on a SpaceX rocket, and that rocket fails and damages a NASA satellite, neither SpaceX nor NASA can sue each other for the loss. It sounds counterintuitive-why give up your right to sue?-but it’s the only way to make spaceflight commercially viable.

This isn’t optional. Under 51 U.S.C. § 20148(d), NASA can’t provide indemnification to a launch provider unless there’s a cross-waiver in place. The waiver covers not just the main parties, but everyone involved: contractors, subcontractors, payload owners, even their suppliers. The regulation 14 CFR § 1266.104(b)(2) makes this explicit: it includes anyone in the supply chain, from the bolt maker to the satellite integrator.

Think of it like a mutual insurance pool. Everyone agrees: we’ll absorb our own losses. No finger-pointing. No legal battles. That’s why, since 2015, there have been zero government indemnification claims paid out despite over 150 commercial launches.

What Indemnification Actually Means

Cross-waivers handle claims between the parties involved. But what if a rocket crashes into a house in Florida? Or a piece of debris hits an airplane? That’s where indemnification kicks in.

The U.S. government agrees to cover third-party claims-damages to people or property outside the launch team-up to a legal cap. As of 2021, that cap is $2.7 billion, adjusted for inflation from the original $1.5 billion set in 1984. This isn’t a blank check. The launch company must first carry its own insurance to cover the first $500 million to $1 billion in claims, depending on the mission. Only after that does the government step in.

This structure creates three layers:

1. Private insurance - required for damage to government property and third parties, up to a calculated limit.
2. Government indemnification - covers claims between that limit and the $2.7 billion cap.
3. Unlimited liability - anything above $2.7 billion? The company is on its own.

This system gives companies predictability. They know their maximum financial exposure. Investors know the risk profile. And taxpayers aren’t on the hook for every mistake.

Who’s Covered? The ‘Related Entities’ Trap

One of the most confusing-and costly-parts of the system is the definition of “related entities.” The regulation says it includes:

• Any contractor or subcontractor at any tier
• Any user or customer
• Any contractor or subcontractor of a user or customer

In practice, that means if you’re a small company in Germany that makes a sensor for a satellite, and that satellite launches on a U.S. rocket, you’re covered under the cross-waiver-even if you never signed a contract with NASA or SpaceX.

But here’s the catch: many international suppliers don’t understand this. Some refuse to sign the waiver because their home country’s laws don’t allow it. Others don’t even know they’re included. According to a 2022 survey by the SmallSat Alliance, 42% of small launch providers struggled to get waivers from lower-tier subcontractors. One SpaceX contract dispute in 2019 involved a foreign payload provider whose waiver conflicted with U.S. export controls (ITAR). That kind of misstep can delay launches by months.

How It Compares to the Rest of the World

The U.S. system is unique. Most other countries don’t have cross-waivers. Europe relies on national laws and the 1972 Liability Convention, which says the launching state is absolutely liable for damage on Earth or to aircraft. But it doesn’t say how to split that liability among private companies. France and Germany handle it internally, but without the reciprocal waiver structure.

The result? The U.S. dominates. In 2010, U.S. commercial launches made up 14% of the global market. By 2020, that jumped to 62%. Meanwhile, Europe’s Ariane 5, once the workhorse of global launches, fell from 50% to 22% market share. Why? Because investors and customers wanted predictability. The U.S. system delivered it.

Where the System Breaks Down

The $2.7 billion cap worked fine when launches were rare and payloads were small. But now? A single mega-constellation like Starlink has over 5,000 satellites in orbit. If one crashes into another, the potential third-party damage could hit $4.3 billion-above the cap.

That’s not theoretical. A 2022 analysis by the Secure World Foundation found that the current framework has no clear legal basis for lunar missions, on-orbit servicing, or debris removal. Who’s liable if a U.S. company’s satellite collides with a Chinese satellite over the Moon? The U.S. government doesn’t have jurisdiction there. The cross-waiver doesn’t apply.

Legal scholars like Michelle Hanlon argue the system creates moral hazard. If companies know the government will cover most losses, they might cut corners on safety. The Government Accountability Office echoed this concern in 2020, noting the system wasn’t designed for the new space economy.

What’s Changing Now

The system isn’t frozen. In December 2022, the FAA updated regulations to clarify that cross-waivers apply to in-space servicing missions. The National Space Council directed NASA and the Department of Transportation to draft new rules for lunar and deep space activities by Q3 2024.

Industry analysts expect the liability cap to rise to $4.5 billion by 2027. But that requires Congress to act-and political gridlock has stalled every attempt so far. Meanwhile, companies are adapting. Some are buying supplemental insurance. Others are restructuring supply chains to minimize exposure. A few are even lobbying for state-level liability laws to fill the gaps.

What You Need to Know If You’re in the Industry

If you’re launching a satellite, building a rocket, or supplying a component:

• Understand that your subcontractors are automatically covered-even if you didn’t tell them.
• Get your waiver signed early. The FAA requires a 90-day window for maximum probable loss determination.
• Track every tier of your supply chain. One unsigned waiver can hold up a launch.
• Know your insurance limits. Don’t assume the government will cover everything.
• For international partners: explain the U.S. system. Many don’t believe it’s real until they see the regulation.

Companies with formal compliance programs see 43% fewer contract disputes, according to a 2022 Aerospace Corporation study. This isn’t just legal paperwork-it’s operational hygiene.

Is This System Sustainable?

The Congressional Budget Office says yes-until 2035, assuming launch rates stay under 25% annual growth. But if we hit 500 launches a year by 2030, as predicted, the system will be stretched thin. The real test won’t be another rocket explosion over Florida. It’ll be a collision in geostationary orbit, or a lunar lander damaging a foreign probe.

The U.S. cross-waiver and indemnification system was built for the 20th century. It’s working brilliantly for the 21st-but only if we update it before the next decade crashes into it.