Conning the IADC newsletters.

• Author: Clark, Ronald J.
• Position: CONNING

International Association of Defense Counsel Committee members prepare newsletters on a monthly basis that contain a wide range of practical and helpful material This section of the Defense Counsel Journal is dedicated to highlighting interesting topics covered in recent newsletter so that other readers can benefit from committee specific articles.

JUST BECAUSE IT'S NUCLEAR, DOESN'T MEAN IT'S EXCLUDED: LIABILITY INSURERS' POTENTIAL EXPOSURE FOR COMMERCIAL USES OF RADIOACTIVE MATERIAL

This article originally appeared in the May 2011 Insurance and Reinsurance Committee Newsletter.

On March 11, 2011, a devastating earthquake and the resulting tsunami crippled nuclear reactors at the Fukushima power plant in northern Japan. Subsequent explosions and fires further damaged the reactors and led to release of nuclear contamination causing tens of thousands of people to flee. Under the Japanese Nuclear Act of 1961, Fukushima's operator, Tokyo Electric Power Company, is not liable for any nuclear damage arising from a "grave natural disaster of an exceptional nature." The circumstances of March 11 likely qualify as a "grave natural disaster." Fukushima's insurers also would not likely provide coverage for off-site liability claims if the damages result from an earthquake, tsunami or resulting fires.

If an event similar to Fukushima were to occur at one of the 104 power plant reactors within the United States, resulting liability claims would be subject to the Price-Anderson Nuclear Industries Indemnity Act of 1957. The Act caps an operator's liability, but requires it to maintain $375 million in offsite liability coverage for each reactor unit. The only insurance pool now writing nuclear liability policies for this first level of coverage is American Nuclear Insurers. If offsite liability claims exceed $375 million, each entity holding a nuclear power plant license is assessed a prorated share of any excess amount up to $111.9 million per reactor. Congress has authority to determine the amount of any additional relief to be assessed against each operator.

Fukushima is an extraordinary event, as would be any similar release in the United States. It would result in significant exposure to the American Nuclear Insurers risk pool, the nuclear power industry and, potentially, the public. Fortunately, as history has demonstrated with Chernobyl and Three Mile Island, these types of catastrophic reactor failures are the exception. As a result, the coverage implications remain largely hypothetical and would be specific to those insurers participating in the American Nuclear Insurers risk pool.

What is more likely, however, and something many in the insurance industry may not have considered in detail, is the potential for coverage, or at least a protracted dispute, regarding third-party liability claims arising from commercial uses of radioactive material. It is not uncommon for medical device manufacturers, chemical companies, oil producers and even the makers of smoke detectors to handle radioactive material as part of their production process. Liability insurers may, therefore, be surprised to learn of their potential exposure for third-party nuclear material claims when this material causes damage.

Contrary to the scope of the exclusion implied by the title, the Broad Form Nuclear Energy Liability Exclusion Endorsement...