Federal bill increasing absolute liability to $1 billion for nuclear operators, offshore energy, passes Senate

Canada’s Energy Safety and Security Act – which increases to $1 billion the absolute liability for nuclear operators and offshore petroleum producers – recently passed third reading in the Senate, paving the way for the bill to be signed into law.

Upon royal assent of the Energy Safety and Security Act (Bill C-22), absolute liability for nuclear operators – including nuclear power plants – will increase from $75 million to $650 million. It will be increased in phases after that, so that three years after royal assent, the absolute liability will be $1 billion.

“This bill fills an important gap with respect to covering liability in the event of nuclear accidents with a nuclear facility and in the event of spills in oil and gas production,” Liberal Senator Grant Mitchell said Feb. 26, before the Senate voted in favour of Bill C-22, with no amendments. “It increases the liability limit in the nuclear case from $75 million to $1 billion. Over a period of three years that increase will occur. That is absolute liability and fault doesn’t have to be proven.”

The bill was originally tabled in the House of Commons by Greg Rickford, Canada’s Conservative Natural Resources Minister.

“Before any offshore drilling or production can take place, companies have to prove that they can cover the financial liabilities and damages that may result from a spill,” Rickford said last year. “Currently the financial capacity requirements range from $250 million to $500 million, with $30 million to be held in trust for working in the Atlantic offshore and $40 million for working in the Arctic offshore. This deposit is held in trust by the offshore regulator as a letter of credit, guarantee, or bond. These amounts will increase to $1 billion for financial capacity and $100 million to be held in trust per offshore project.”

Bill C-22 will also create the Nuclear Liability and Compensation Act and repeal the Nuclear Liability Act (NLA). Under federal law, nuclear operators are liable – without requiring claimants to prove fault or negligence – for injury or damage to third parties resulting from the “fissionable or radioactive properties of the material” that they hold.

The liability limit of $75 million has not changed since 1976.

The risks currently covered by insurers under NLA include bodily injury, sickness (including death resulting therefrom), destruction or radioactive contamination of property, and loss of use of property due to contamination or evacuation a Natural Resources Canada spokesperson told Canadian Underwriter earlier.

With Bill C-22, at least 50% of nuclear operators’ liability will have to be covered by an insurer approved by the federal government, while up to 50% can be covered by an “alternative financial scheme,” such as assets, provincial loan guarantees or letters of credit, said David McCauley, director of the uranium and radioactive waste division at Natural Resources Canada’s energy sector, during a senate committee hearing in December.

One of the insurers approved by the federal government is Nuclear Insurance Association of Canada (NIAC), an association of insurers that form liability and property damage pools for nuclear installations. A NIAC official recently told Canadian Underwriter it is “actively seeking new members.”

Related: Deeper Pool

Of the absolute liability for offshore energy producers, the industry “would like to see some flexibility in some of the financial instruments that are available in the financial market today, such as insurance and parental guarantees, which would be acceptable in order to demonstrate financial capability or capacity,” said Paul Barnes, CAPP’s manager for Atlantic Canada and the Arctic, during hearings last June on Bill C-22 before the House of Commons Standing Committee on Natural Resources.

Most CAPP members who are “active in the offshore tend to be large multinational companies that have the ability to carry large amounts of insurance or even to self-insure, such that in the event of a major or any incident, they have the financial capacity to respond and to clean up the incident,” Barnes said at the time, in reply to a question from Brad Trost, Conservative MP for Saskatoon-Humboldt. “I think the area in which some challenge may occur is there are sometimes, in some areas of the offshore, in Canada, for instance, in offshore western Newfoundland, some small junior companies that want to explore and develop in the area, but which may find that the financial insurance instruments, such as insurance or other letters of credit or other financial instruments are more of a challenge for them than they would be for the majority of companies that work in the offshore.”

During the Commons committee hearings, Trost asked Barnes how he thought Bill C-22 would affect the way major petroleum producers deal with contractors and subcontractors.

“I think there will be extra scrutiny applied to contractors at the time the contractor is hired to ensure that the contractor being hired has a reputation for good environmental practice and good safety performance,” Barnes told the Commons committee in June. “There will probably be an extra level of scrutiny to what we have seen in the past.”