At the annual Diplomatic Conference held at IAEA Headquarters in Vienna last September, two new legal instruments were adopted: a Protocol which amends the Vienna Convention on Civil Liability for Nuclear Damage;

and the Convention on Supplementary Compensation for Nuclear Damage.

Besides increasing the possible limit of a nuclear operator’s liability, the mechanisms are intended to make it possible for countries that had not found the existing liability Conventions acceptable, including the USA and many non-nuclear states, to join an international regime.

Many of these countries felt that the existing Conventions did not offer them enough legal or financial protection in the case of an accident in another country affecting its people and property – a potential situation made starkly clear by Chernobyl.

The Convention on Supplementary Compensation was devised, in particular, to meet their needs. It is an instrument to which all States may adhere regardless of whether they are party to any existing nuclear liability convention or have nuclear installations on their territories.

The new Protocol contains a better definition of nuclear damage (now also addressing the concept of environmental damage and preventive measures), extends the geographical scope of the Vienna Convention, and extends the period during which claims may be brought for loss of life and personal injury. Crucially, it also provides for jurisdiction of coastal States over actions incurring nuclear damage during transport.

Taken together, the two instruments should substantially enhance the global framework for compensation well beyond that foreseen by existing Conventions.

NUCLEAR LEGISLATION

The existing international nuclear liability regime consists of the OECD Nuclear Energy Agency’s Paris Convention*, open to Western European countries, the Vienna Convention, open to all countries, and a Joint Protocol that links the two conventions. Canada, China, Japan Russia and the US are among those not party to these conventions.

These Conventions provide the basis for nuclear liability legislation in most countries. In the USA the Price–Anderson Act produces much the same legal framework. The essence is that all nuclear liability is channelled to the operator of the nuclear installation, who must bear the burden of successful claims up to a limit which has generally been $200 million. The purpose of the Conventions is to establish a third party liability regime which adequately provides for the protection of the general public.

THE NEW PROTOCOL

Under the new Protocol to amend the Vienna Convention, the liability of the operator may be limited by the installation state for any one nuclear accident either:

• To not less than 300 million SDRs (Special Drawing Rights, ie about $400 million). Or

• To not less than 150 million SDRs provided that in excess of that amount and up to at least 300 million SDRs public funds shall be made available by that State to compensate nuclear damage. Or

• For a maximum of 15 years from the date of entry into force of this Protocol to a transitional amount of not less than 100 million SDRs in respect of a nuclear incident occurring within that period. An amount lower than 100 million SDRs shall be established, provided that public funds shall be made available by that State to compensate nuclear damage between that lesser amount and 100 million SDRs.

Beyond these provisions the Protocol requires provision from public funds of an amount equal to the product of the installed nuclear capacity multiplied by 300 SDRs per unit of capacity in MWt.

Fifty percent of the funds shall be available to compensate claims for nuclear damage suffered in or outside the installation state.

The Conventions provide that rights to compensation are “extinguished” after a period of 10 years from the nuclear accident. Some countries have extended this period to 30 years. In America the Price–Anderson Act requires that, beyond the $200 million limit (which is purchased from the American insurance Pools) the power stations themselves should participate in a pooling system, each paying a share of any indemnity above $200 million up to a maximum of $66.15 million per accident from each reactor. 115 reactors participate in this “second layer” and so provide 115 x 66.15 = $7.6 billion of additional financial protection. Beyond this level Congress is committed to providing additional funds if they are needed.

The Joint Protocol was motivated by the fact that the Chernobyl accident caused harm in other countries. It provides that victims in those countries which have ratified either Convention can receive compensation should a nuclear accident occur in any adherent State.

Russia’s position

Although Russia signed the original Vienna Convention, it did not sign the new Protocol. Russian reactors have generally not been insured. Recently, however, it has been reported that in 1996 the Russian regulator, Gosatomnadzor (GAN), gave the Russian operators 12 months in which to obtain insurance, failing which it would not renew the operating licence. No insurance contracts have been delivered. Apparently this is because, although Russia signed the original version of the Vienna Convention, the Duma has not ratified it. Nor has the Duma passed a national nuclear liability law.

The formal position would therefore appear to be that some, at least, of the Russian power reactors are not formally licensed by the regulator.

THE NEED FOR SUPPLEMENTARY CONVENTION

As indicated above, most non-nuclear countries have found that, were they to join one of the conventions, they would be giving up some legal jurisdiction for dealing with an accident in another country (or at sea) while not necessarily gaining access to an adequate level of compensation.

Although its position is different, the US has found that accession would require unacceptable changes in domestic nuclear liability law, the Price–Anderson Act. That is, the Paris and/or Vienna conventions would require pre-empting existing tort law.

The essential legal difficulties for the US are revealing. First, although the international regime and the Price–Anderson Act have the same principal result, that the operator is responsible for paying for all nuclear damage, they achieve this result by way of two different and incompatible legal approaches. The international regime imposes strict liability on the operator and makes the operator the only person legally liable for nuclear damage (legal channelling); the Price–Anderson Act requires the operator to indemnify all other persons who are found to be legally liable for nuclear damage (economic channelling). Joining the international regime would require substantial changes in domestic legislation.

The international regime grants exclusive jurisdiction over claims for nuclear damage to the courts of the country where a nuclear accident occurs and permits that country to limit aggregate liability for nuclear damage to as little as $5 million. The authorities believe that it would be extremely difficult to explain how the US could give up the potential jurisdiction of its courts and accept the possibility of such low limits, especially in the case where a US citizen might suffer nuclear damage because of a nuclear accident in a foreign country.

Coastal states also have a considerable problem. The international regime does not grant jurisdiction over a nuclear accident in a country’s exclusive economic zone (EEZ) (that is, the maritime area between 12 and 200 miles offshore) to that country, but rather to the country whose operator is responsible for the maritime shipment. Thus, if there were to be an accident in a foreign country, the international regime could result in exclusive jurisdiction being given to the courts of a country many thousands of miles away with a limitation on liability as low as $5 million.

The Convention on Supplementary Compensation has been developed to overcome these obstacles. First, it contains a “grandfather” clause that allows countries to join without changing their domestic

legislation. Second, this Convention will require each member country to ensure the availability of compensation in an amount of at least 300 million SDRs. The combination of that amount and the international fund will ensure the availability of more than $500 million to compensate nuclear damage if an accident occurs in a foreign country. Third, this Convention grants a coastal State jurisdiction over all nuclear accidents in its EEZ.

The new liability regime: an insurer’s view

The protocol
During the 8 year gestation period for the Protocol to amend the Vienna Convention, the Standing Committee on Liability discussed many options and possibilities including unlimited liability for the nuclear operator, the inclusion of military installations and even protection of the “global commons”. However when the Protocol eventually saw the light of day its proposed amendments were much more conservative. The original concept of limiting operators’ liability in both time and amount was retained and the definition of nuclear damage was codified to express the intentions in rather more detail without actually increasing the obligations themselves.
With one important exception, the Protocol did not incorporate any provision which in itself would be uninsurable.
The compensation limit of 300 million SDRs is well within the worldwide insurance capacity for nuclear damage; although the proposals to include economic loss, environmental damage and consequent loss of income might not be universally acceptable, insurance protection is frequently made available for this type of compensation in the non-nuclear field and could be expected to be made available for nuclear damage in most instances. As the decision to incorporate these specific Heads of Damage are left to determination by the law of the competent court it would seem unlikely that liabilities might be imposed under the Convention regime which were incapable of attracting insurance support.
Cover for preventive measures is already available and its inclusion within the Protocol does no more than mirror existing practice.
The one exception to the foregoing is the decision to increase the prescription period for the operator’s liability from 10 years to 30 years for which at present insurance support would not be forthcoming. The reason for this is that 20 or 30 years after a nuclear incident had occurred it would be extremely difficult, if not impossible, to determine fairly whether or not cancer sufferers could attribute their disease to an exposure of radioactive substances at the time of the incident or to natural causes. However this provision in the Protocol follows that of the Paris Convention and the contracting parties to Paris have agreed that insurance coverage may continue to be limited to a 10 year period and any compensation required to be paid beyond that period will be met from public funds; there is no reason to suppose that a similar course of action will not be followed by the contracting parties to the Protocol.
Some fourteen years elapsed between the signing of the original Vienna Convention in 1963 and its entry into force; one might not expect a shorter time scale for the Protocol. It is impossible to determine what might be considered the legal “norm” or the availability of insurance support for liability obligations over such a time scale.
Supplementary compensation
The Convention on Supplementary Compen-sation is designed to sit above not only the Vienna Convention and its Protocol but also the Paris Convention and domestic nuclear legislation in States which have ratified none of the Conventions. It was designed to provide for an amount of compensation in excess of the 300 million SDRs limit decreed in the Protocol, such compensation to be provided collectively by the contracting parties in much the same way as the contracting parties to the Brussels Supplementary Convention collectively provide for a compensatory amount of 125 million SDRs to sit above the 175 million SDRs of the Paris Convention.
Whilst the Brussels Supplementary Convention provides for monies to be made available from public funds, the new Convention on Supplementary Compensation leaves to the contracting party the method whereby funds will be made available. It is by no means inconceivable that a form of contingency liability insurance could be made available to protect the nuclear operators situated in the territories of contracting countries if their governments sought to impose upon the nuclear operator himself the financial obligations that had been assumed by that government. The insurance industry is essentially reactive in nature but here is an opportunity for insurers to develop a protective mechanism for the nuclear industry in anticipation of future obligations.
G C Warren
General Manager, British Insurance (Atomic Energy) Committee, Aldermary House, Queen Street, London EC4N 1TX, UK.