Industrial Accidents, Natural Disasters and "act of God"

• Publication year: 2015

Industrial Accidents, Natural Disasters and "Act of God"

Michael Faure^* Liu Jing,^** and Andri G. Wibisana^***

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TABLE OF CONTENTS

I. INTRODUCTION...............................................................................385

II. THEORETICAL BACKGROUND.........................................................386

A. Act of God and Efficient Liability Rules...................................387
B. Act of God and the Scope of Liability.......................................388
C. Foreseeability and Uncertainty Over Causation.....................390
D. Summary...................................................................................392

III. ACT OF GOD IN U.S. LAW...............................................................393

A. Elements of an Act of God ........................................................ 395

1. An Act of God Should Be Grave ........................................ 395
2. The Act of God and Its Impacts Should be Unforeseeable .................................................................... 397
3. The Act of God Should be the "Sole Cause" of Loss.........402
4. The Act of God Defense Under Strict Liability?................405
5. Causation, the Burden of Proof, and Apportionment........410

IV. NATURAL DISASTERS AND NUCLEAR ACCIDENTS.........................412

A. The First Generation Conventions...........................................413

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B. New Developments...................................................................417
C. Nuclear Liability and Act of God Defense in the U.S...............419
D. Summary...................................................................................425

V. CASES..............................................................................................427

A. Lapindo Mudflow Case: A Critical Perspective.......................427

1. Court Ruling on the Mudflow Disaster..............................430

a. Introduction to Walhi v. Lapindo................................431
b. Court's Ruling: Earthquake Triggered the Mudflow.......................................................................433

2. Critical Notes on the Court's Ruling in Walhi v. Lapindo..............................................................................435

B. Fukushima: Act of God?...........................................................442

1. The Factual Background...................................................442
2. Legal Framework of Nuclear Liability in Japan...............443
3. Compensation for the Fukushima Accident in Practice.....447

VI. CONCLUDING REMARKS.................................................................449

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I. INTRODUCTION

Disasters befall developing and developed countries alike.¹ Scholars have long grappled with questions of how disasters can be prevented and governed, and how victims of disasters can be compensated.²

Traditionally, a distinction is made between technological disasters and natural disasters. This distinction is founded in logic; as tort law can easily be applied to man-made technological disasters because a tortfeasor can be identified and held liable. It is much more difficult to identify a tortfeasor responsible for natural disasters because they are said to be caused by force majeure, an "Act of God." Consequently, natural disasters are seemingly excluded from the realm of tort law.

However, this distinction between technological disasters and natural ones is not so simple. Nature may cause a disaster, but the scope of the damage can be exacerbated by human mistakes. For example, constructing residences in a flood plain or failing to take preventive measures to minimize the harm caused by natural disasters largely increases the magnitude of the resulting damage. Preventive measures like structurally changing river shapes to provide additional buffer basin to mitigate flooding damage and employing building techniques to reduce the impact of an earthquake on dwellings³ highlight that governments, not individuals, have the capacity to take these overarching preventive measures.⁴ Consequently, liability for the consequences of a natural disaster may be imposed on the government.

The increased occurrence and magnitude of natural disasters caused by climate change exemplify the point that man's actions play a role in causing

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the resulting damage.⁵ Even though liability rules in climate change cases cannot be neatly applied, scholars increasingly debate and consider the possibility of imposing such liability.⁶

This Article will focus on distributing liability for industrial accidents triggered by natural disasters like the incident at Japan's Fukushima nuclear reactor, which resulted from a March 11, 2011 tsunami. While natural disasters are generally excluded from tort liability, excluding industrial operators from liability altogether when an industrial accident was triggered by a natural disaster may be too easy of a solution if the damage could have been mitigated by preventive measures that were not taken. The Fukushima case is illustrative in this respect. There, the nuclear reactor meltdown occurred primarily because both the original and the reserve generators for the cooling system were placed at a low level in the nuclear power plant which was located in an area vulnerable to earthquakes and tsunamis. Consequently, the nuclear reactors were vulnerable to flooding.⁷ Should the entity responsible for the power plant's faulty design and operation be excluded from liability simply because a force majeure triggered the natural disaster?

We will address this question by first providing a few theoretical observations based on economic analysis of the deterrent function of liability rules. Next, we will discuss United States case law concerning natural disasters, force majeure, and the way natural disasters and force majeure are treated in cases involving nuclear accidents. We will then examine two exemplary Asian cases: the Indonesian mudflow highlighting the difficulties in distinguishing between technological and natural disasters, and Fukushima highlighting how technological flaws and natural disasters together caused the damage.

II. THEORETICAL BACKGROUND

The economic analysis of accident law is helpful in assessing whether liability should stem from an industrial accident caused by a natural disaster

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because it posits that liability exposure will provide operators incentives to take preventive measures.⁸ Potential liability would cause operators to weigh cost and benefits and ultimately adopt optimal care and activity levels.⁹

A. Act of God and Efficient Liability Rules

The Latin maxim actus dei nemini facit injuriam stands for the common principle that the law should hold no man responsible for the Act of God.¹⁰ The law and economics scholarship generally supports this principle. For example, Landes and Posner argue that holding one liable for the damage resulting from an Act of God will not result in allocative gains, since liability cannot deter a similar damage in the future.¹¹ Standard tort law economic analysis considers the goal of tort law to be minimizing the expected social costs of accident E(SC), where E(SC) is the sum of cost of care, wx, plus the expected harm which depends on the level of care, p(x)A. Following Cooter and Ulen, the expected social costs of an accident is denoted as:¹²

E(SC) = wx + p(x)A ... ((1))

The optimal level of care, x*, is a level of care that minimizes the expected costs of accident, E(SC). Where the level of care is optimal, the marginal cost of care will equal the reduction of expected harm, that is:

w= -p¹ (x*)A ... ((2))

It follows from (1) and (2) that both the negligence rule and strict liability will induce the injurer to take the optimal level of care. Under the negligence rule, the injurer will choose x* since, by taking this level of care, she will avoid being held liable for the harm, A. Under strict liability, the injurer will take x* since this level of care will result in the least expected costs of accident E(SC).¹³

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Although both the negligence rule and strict liability can induce the injurer to take the optimal level of care, they are different in their impacts on the optimal level of activity. Since under the negligence rule the injurer will not be liable so long as he takes the optimal level of care, he will not have incentives to reduce his activity level up to the optimal level (or to take the optimal level of activity). In contrast, since strict liability will hold the injurer liable anytime the damage occurs, the injurer will also take the optimal level of activity in order to reduce the chance of accident and being held liable.¹⁴

The presence of a possible Act of God changes (1). When the court accepts the defense of an Act of God, the probability of an accident depends solely on the Act of God, and does not depend on the injurer's negligence. Hence, this situation basically shows that the change in the probability of accident with respect to the change in the injurer's level of care is zero.¹⁵

Since the marginal cost of care equals the reduction of expected harm resulting from the change in the injurer's level of care, one could conclude that holding the injurer liable for an accident arising from his negligence is enough to induce him to take the optimal level of care.¹⁶ In this situation, as long as the cost of taking the optimal level of care is less than the expected liability, the injurer will be induced to take the optimal level of care in order to avoid liability.

In addition, it could also be concluded that similar incentives to take the optimal level of care will also apply under strict liability. When the defense of an Act of God is accepted, the injurer will be liable for the damage resulting only from his activity. Thus, he will take the optimal level of care, since this is the level that minimizes total expected costs.

B. Act of God and the Scope of...