Eyeing Nuclear Liability

A proposal announced by Joe Oliver, federal minister of natural resources, to increase the liability insurance coverage mandated for nuclear reactor operators from $75 million to $1 billion should not affect the availability of coverage for the nuclear industry, insurance experts suggest.

Oliver promised June 10 to table legislation to increase – from 10 years to 30 – the limitation period for submitting compensation claims for bodily injury under the Nuclear Liability Act (NLA). But that longer limitation period has not been carved in stone, with some predicting the existing 10-year timeframe may remain in place.

If passed into law, the requirements being contemplated would make several changes to the NLA, which currently stipulates that nuclear operators are “without proof of fault or negligence, absolutely liable” for breaches of duties imposed by the NLA. As it stands, one of those duties is to ensure “that no injury to any other person or damage to any property of any other person is occasioned as a result of the fissionable or radioactive properties, or a combination of any of those properties with toxic, explosive or other hazardous properties, of nuclear material,” which is in their installations.

Operators subject to the NLA include nuclear power plants, nuclear research reactors, fuel processing plants and facilities for managing used nuclear fuel. They are currently required to have basic liability insurance of at least $75 million for each nuclear installation, an amount that has not changed since 1976.

Although the federal government has not committed to tabling a bill by a specific date, Oliver has provided a fair amount of detail on what the new legislation is expected to contain.

“The legislation would maintain the key principle of ‘absolute liability,'” a backgrounder from Natural Resources Canada states. “Another important principle of the legislation is ‘exclusive liability of the operator,’ which means that the operator alone is liable, to the exclusion of others such as suppliers and contractors.”

The strict liability provision does not apply to “a direct result of an act of armed conflict” during a war, invasion or insurrection.

A full coverage limit of $1 billion would be available throughout the world pooling system for nuclear liability insurance in Canada, says Colleen DeMerchant, general manager of the Nuclear Insurance Association of Canada (NIAC), a non-profit association of insurers. Through NIAC, nuclear reactor operators purchase both liability and first-party property insurance.

Asked whether or not some operators subject to NLA would have to seek coverage outside of Canada, DeMerchant replied, “No, they would not. They would be able to access their capacity through Canada through the Nuclear Insurance Association of Canada, as is done now.”

Coverage would still be available for Canadian operators, but an increase to $1 billion could affect premiums, suggests Gary Hirst, national director at Burns & Wilcox Canada, a Farmington Hills, Michigan-based brokerage that uses the Lloyd’s market to provide coverage for nuclear risk. “I think there would be availability of market,” Hirst comments. “I do believe that is mainly driven by price, so the larger the liability limit, the higher the premium.”

Worldwide, much of the nuclear insurance coverage is provided by pools such as NIAC, which were created in the 1950s to cover nuclear property and liability risks. Insurers usually protect their solvency by excluding nuclear peril, suggests a handbook on nuclear accident compensation published by the London-based Nuclear Pools’ Secretariat.

In countries that use commercial nuclear power production, generally the insurers of that country voluntarily provide capacity to the pools of which they are members, and those pools generally underwrite the nuclear operators’ coverage.

In Canada, says DeMerchant, NIAC’s insurers put forth their net line. “They cannot cede it away, but if it’s in a family of insurers, if they can have a primary company and a reinsurance company and the primary company has the reinsurer back them up – that is permitted, because that is still on the net line basis.” That way, “We know exactly how much money is in this pool.”

NIAC, comprised of 16 companies, currently provides 92% of the Canadian market for the $75-million liability coverage required by the NLA, she says.

Other countries mandate much higher limits. For example, as of 2012, operator insurance requirements in Japan were $1.5 billion, notes the Fall 2012 report of Canada’s Commissioner of the Environment and Sustainable Development, an assistant Auditor General of Canada who issues reports to Parliament.

In the United States, there is almost $12 billion available from two tiers of liability coverage, adds information from the U.S. Nuclear Regulatory Commission. 

Longer timeframe

Beyond increasing the required liability coverage, the Canadian government also indicated in June that the proposed legislation would increase from 10 to 30 years the limitation period for submitting compensation claims for bodily injury. The intent, information from Natural Resources Canada states, is “to address latent illnesses – such as certain forms of cancer detected more than 10 years after an incident.”

It is not clear what effect this longer timeframe would have on the insurance industry.

“The insurers are currently limited to a 10-year prescription period and we feel that this is unlikely to change,” DeMerchant says.

When asked if nuclear operators – and not the government – would be liable for bodily injury claims submitted more than 10 years following an incident, if the new legislation is passed into law, a spokesperson for Natural Resources Canada replied in an e-mail: “The operator would be liable for bodily injury claims after 10 years (up to 30 years). The minister’s June 10, 2013 announcement indicated that the government would still provide cover for certain risks for which there is no liability insurance. The details and extent of this coverage will be considered once the bill is introduced into Parliament.”

Hirst suggests that the bill should include provisions on collecting and preserving evidence, such as video footage and maintenance records. “How does the government think that they are going to go about collecting the evidence, preserving that evidence, so that it’s still meaningful in 30 years time, if and when there is a court case?” he asks.

One example of a nuclear incident south of the border indicates how claims cost could arise. On March 28, 1979, a failure at the Three Mile Island nuclear power plant led to a partial meltdown, notes information from the U.S. Nuclear Regulatory Commission.

Pennsylvania’s governor at that time advised that pregnant women and pre-school-age children within a five-mile radius of the plant should leave the area. Compensation claims included living expenses, lost wages, economic losses and court fees. As of 2012, the pools had paid about US$71 million in claims and litigation costs, the commission reports.

A more recent example was the nuclear incident following the March 11, 2011 earthquake off the coast of Japan, which caused an 11-metre-high tsunami to hit the Fukushima Daiichi nuclear power plant, leading to a contamination leak.

“There are all sorts of different ways that contamination can manifest itself and, unfortunately, that contamination does appear to last a number of years,” says Hirst. “There’s still debris being washed up on beaches from Japan.”

That said, he emphasizes that nuclear facilities tend to be built to withstand natural hazards and the risks are very low. “The severity of the claim, when it happens, is huge because you do have quite a large amount of value there,” Hirst says.

“The power station costs billions to build and, of course, the size of claim that occurs, if it involves the nuclear reactor… can be huge even if the original loss was fairly innocuous.”