Nuclear Risks

The categories of nuclear installation and risks insured by Coversure (Reigate) are as follows:

Coversure Insurance Services (Reigate) provides cover for the aforementioned installations and risks in respect of public liability (which may include liability for products, professional indemnity and certain other contingent liability insurances) and material damage (which may include consequential loss and, in certain circumstances, mechanical and electrical breakdown of nuclear plant) and liability insurance in respect of transports of nuclear matter. The British Nuclear Pool does not cover new nuclear plant under construction until it becomes ‘nuclear’, upon the delivery of nuclear fuel to the site or loading of fuel into a reactor, but insurance cover is available for construction risks on operational nuclear sites.

New nuclear installations under construction with the UK can be insured by Coversure at London and Lloyds, as well as the combined liability risks associated with civil engineering construction risks.

Furthermore, Coversure (Reigate) can provide professional indemnity insurance, employers, public and products liability cover in respect of independent contractors engaged in the supply of goods or services to nuclear installations. Examples of contractors to the nuclear industry include:

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INTERNATIONAL NUCLEAR LAWS AND PROPOSED CHANGES

The Commercial Manager of Coversure's Reigate Branch, Mark Barton has recently responded to the Department of Trade & Industry (DTi) consultation on Nuclear Power which began on the 23rd of May 2007.

The DTi consultation is seeking views on whether the Government has considered the relevant arguments or overlooked any important issues in order to assess whether the private sector should be allowed the option of building new nuclear power stations. The DTi want to hear from members of the public, industry, non-Governmental organizations or any other organization or public body.

For further details visit www.direct.gov.uk/nuclearpower2007

Mark Barton is an insurance broker that has been placing specialist nuclear risks for the last seven years and has an interest in the insurance industry capacity, underwriting and exposures as well as the legal and/or contractual liabilities of nuclear installations and the sub-contractors working on-site of which has remained an unclear area for Nuclear Installation Operators, Insurers and Contractors alike.

In particular, Coversure would like greater insurance industry involvement with the DTi in order to establish current known and unknown exposures to the government as well as Insurance requirements for the future in accordance with recent amendments to the Paris/Vienna Conventions which require urgent government clarification for Insurers and Nuclear Investors/licensed operators in order that the true financial costs are known to establish insurance capacity availability as well as economic viability for the Private sector Investors. Furthermore, it is clear that the government will need to accept full responsibility for ‘The cost of measures of reinstatement of impaired environment’ and ‘Loss of income deriving from a direct economic interest in any use or enjoyment of the environment’. In addition, recent amendments to the international conventions change nuclear third party liabilities a long-tail class of insurance that is not currently acceptable to Insurers and at worst leaves the Government, Site Operators and Contractors exposed to claims arising up to thirty years after the actual incident.

Coversure’s Commercial manager also seeks a review and amended ‘Plain English’ drafting of the Energy Act and Nuclear Installations Act and would state that sub-contractors employed by the Licensed Operator owned by the Crown are exempt from third party liabilities and the Employers Liability Act not only for radiation risks as currently stated but also for personal injury and death arising from accidents at UK Nuclear Installations as they are working under the direct control and supervision of government run licensed sites and thereby technically paying for expensive contingent liability insurance in order to satisfy private sector contractual obligations which are on occasions more onerous than current international conventions and as such are uninsurable risks for which contractors may find themselves exposed. For example, a prominent nuclear stakeholder members Insurance Contract Conditions require unlimited indemnity cover in respect of personal injury to or sickness or death of any person and by stark contrast state that the standard limits stated in the Employers Liability Act remains adequate for temporary workers on site. The private sector has given little attention to this matter that has not been highlighted to the wider audience more by luck than good management control of liabilities.

It is unlikely that the Government will address these insurance issues for another two years and both industry and government compliance by the deadline set to implement the amendments of the international conventions is questionable.

On the face of it, the law relating to nuclear power looks like a highly specialist subject. However, the various international nuclear laws are not only relevant to those companies that own or manage nuclear installations. They also apply to anybody affected by nuclear activities, including those who suffer damage as a result of events that take place at nuclear facilities. Also, the likely prospect of new nuclear facilities being built and the opening of the decommissioning market following the establishment of the Nuclear Decommissioning Authority (NDA) are now attracting many companies that have previously not been involved in the nuclear market to it.
Taking decommissioning by way of example, principal (Tier 1) contractors managing site licensed companies that operate nuclear sites will be acutely aware of nuclear law issues. However, at the subcontractor levels (where some companies may be involved in work that has no implications for nuclear issues, such as some types of facilities management) awareness may not be as high. Nevertheless, those companies will be operating within a nuclear licensed site and will need an understanding of nuclear safety and liability laws before entering into contracts and undertaking work.

NUCLEAR LIABILITY

The foundation for our nuclear liability regime (and almost every nuclear liability regime in the world today) has been provided by two international Conventions: the OECD's Paris Convention of 1960, and the UN's Vienna Convention of 1963 (the Conventions). (The 1960 Paris Convention was changed in 1963 by the Brussels Supplementary Conventions, which made important additions, not least in the area of mutual international assurance.)

The Conventions introduced a single channel of liability upon nuclear site operators, which was to be absolute and strict. However, they also prescribed a financial and limitation limit to such operators' liability. This enabled the operators to approach the private insurance market and transfer the relevant risks. It also enabled private investors to be involved in the development of the civil nuclear industry. Since the Conventions were introduced, we have witnessed a move in society towards a much more onerous ‘polluter pays' principle. The nuclear industry, with its potential to cause substantial off-site damage, has not escaped this shift in principle.

Recent agreed revisions to the Conventions significantly change the already onerous responsibilities of nuclear operators, and will call into question the insurance pools' ability or desire to provide cover for the increased risks. The danger is that the nuclear industry may find itself shouldered with uninsurable liabilities at a time when private sector involvement and investment in the industry is being sought. The government is at present grappling with how to implement these amendments into domestic legislation and a consultation on this process may be started shortly.

So what are the proposed changes, and what might be the outcome of the consultation?

STATUTORY TORT – THE CURRENT UK REGIME

The Conventions are similar – they require an operator of a nuclear installation to be strictly liable for nuclear damage caused by a nuclear incident, that liability being limited in time and amount. The operator is required to provide financial security for this. Broadly, this is achieved by s7 of the Nuclear Installations Act 1965 (the Act), which imposes a duty on a site licence-holder not to cause injury to any persons or damage to property off the nuclear site.

The Act provides a remedy to those who suffer damage to property or injury, and that liability falls solely on the operator of the site – the holder of the site licence. Although not set out in the Act, consequential loss is also likely to be covered subject to normal rules regarding remoteness of damage.

AMENDMENTS TO THE NUCLEAR LIABILITY CONVENTION

Changes made to the Paris Convention in 2004 and to the Vienna Convention in 1997 have greatly widened their scope. Those changes are likely to result in imminent amendments to the 1965 Act.

In summary, the aim is to offer more financial compensation, to more people, for a wider range of nuclear damage. The amendments can be described as follows:

INCREASED AMOUNTS OF FINANCIAL OBLIGATION REQUIRED

Up until recently, the Conventions used a basket of currencies (known as Special Drawing Rights (SDR)) as the unit by which to set financial obligations. The established currency is becoming the euro. The 1997 amendment to the Vienna Convention raised the operators' financial obligation from $5m to SDR300m, while the 2004 Paris Convention revision raised their obligation from SDR15m to E700m. The Brussels Supplementary Regime adds a further E800m on top of the Paris/Vienna regimes, thereby taking the maximum financial compensation available up to E1,500m. The insurance market will be interested in the first layer of cover (the E700m for Paris and SDR300m for Vienna), as this is what is normally subject to insurance.

TIME LIMITS FOR CLAIMS

The situation prior to revision was that no claims could be brought against the operator for nuclear damage once ten years had elapsed from the date of any nuclear incident. This applied equally to bodily injury or death and property damage.

The situation now is that both Conventions allow claims to be brought against the operator for up 30 years after the incident for bodily injury or death, although the ten-year period remains for other types of nuclear damage. If damage lies undiscovered, the amount of time available to make a claim once nuclear damage becomes known or is discovered is now three years.

The current insurance market is unlikely to offer cover for more than ten years for any claim arising from ionizing radiation or contamination by radioactivity that is notified to the insured.

CHANGES TO SCOPE OF LIABILITY

The revisions to the Conventions now widen the scope of nuclear damage from basic loss of life or injury and damage to property, to add the following:

• Economic loss arising from loss or damage.
• The costs of measures of reinstatement of impaired environment (unless such impairment is insignificant).
• Loss of income deriving from an economic interest in any use or enjoyment of the environment, incurred as a result of a significant impairment of the environment. The basis for this in the Conventions is that because remedying environmental damage has a cost, this aspect of nuclear damage can be imposed upon the operator. This is not sufficient for insurers, however, given that the time taken to remedy environmental damage could be years or decades, and the standard and quality of any remedy of damage would be the subject of lengthy debate, providing a large range to the potential cost. The use of the words ‘unless insignificant' is open to confusion and debate as it is not defined in the Convention text. The UK does, however, have a significance test in its own environmental legislation relating to contaminated land, and it is possible that some elements of this could be imported to provide more certainty.
• The costs of preventative measures, and further loss or damage caused by such measures. This might, for instance, include the costs of an evacuation. How this provision will work in relation to preventative measures and the environment remains to be seen.
• Any other economic loss, other than that caused by the impairment of the environment.

Once the amendments to the 1965 Act are implemented, any nuclear plant operator in the UK will have a much wider range of nuclear damage obligations than before, although it is worth noting that partly as a result of these measures the nuclear industry was excluded from the remit of the Environmental Liability Directive. (This discussion highlighted one of a number of potential jurisdictional conflicts between the Treaty of Rome and the Euratom Treaty over nuclear issues.)

The geographical scope of the Conventions has been widened. Prior to the revisions, the Conventions restricted compensation to signatory states. Under the new arrangements jurisdiction can now extend to include non-member states, which could have important implications for nuclear countries with neighbouring non-nuclear states.

CAPACITY

Taking into account the proposed changes, there may not be a sufficient number of insurers to satisfy overall demand. Also, operators may find it considerably more expensive to purchase the insurance that they have traditionally used.

The UK government's approach to this issue will have significant consequences for those operating in the industry. In particular, a significant issue for the NDA will be the extent to which it attempts to pass on liabilities to its contractors and subcontractors.

The most acceptable solution would be for the government to accept liability for the new uninsurable heads of nuclear damage. There is evidence that this will happen, but that the government will charge for this protection. Details should emerge shortly.

SUMMARY OF LIKELY INSURANCE POSITION

In summary, the insurer's position with regard to the newly defined and broadened concept of ‘nuclear damage' is likely to be as follows:

By Mark Barton, Commercial Manager, Coversure Insurance Services (Reigate) and Ian Salter, partner, Burges Salmon LLP (With thanks to Martin Gregory, General Manager of Nuclear Risk Insurers Ltd and Mark Tetley of Nuclear Risk Insurers for his papers on the insurer's position, and in particular his permission for the use of the table above.)

Ian Salter, partner, Burges-Salmon LLP is recognised by the Chambers UK Guide as having “a national reputation in the field of nuclear law…”. He is also a member of the International Nuclear Lawyers Association and a speaker on the subject at their conferences and at others.

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