Select Committee on Trade and Industry Appendices to the Minutes of Evidence


Memorandum by British Nuclear Industry Forum



  Nuclear energy raises particular issues in relation to third party liability. Although the high standards of the nuclear industry mean that the risk of a nuclear incident is very low, the potential extent of damage and resulting claims for compensation are high. In addition, the consequences of a serious nuclear incident can extend across national borders, as was demonstrated by the Chernobyl disaster. These factors make it more challenging to obtain the necessary insurance cover for nuclear incidents under general third party liability law. They have therefore been addressed by the development of a special international nuclear third party liability regime under the Paris and Vienna Conventions. The United Kingdom is a signatory to the Paris Convention.

  The Paris Convention of 1960 established the main principles upon which all international conventions and most national legislation on nuclear liability are based. The aims of the Paris Convention are to ensure adequate and equitable compensation for persons who suffer damage caused by nuclear incidents whilst taking the necessary steps to ensure that the development of the production and uses of nuclear energy for peaceful purposes is not thereby hindered. In pursuit ot these aims, the nuclear third party liability regime has the following key features:

    —  To protect victims of nuclear incidents the operator of a nuclear installation is absolutely and exclusively liable, regardless of fault, for all damage caused by an incident at his installation or involving nuclear material being transported to or from his installation.

    —  To balance the strict no-fault liability, the operator's liability is limited, both in regard to the amount of financial compensation and the period of time in which claims may be brought against him. In the UK the limit on liability on the operator is currently set at £140 million per incident, and the time limitation is ten years from the date of the incident. There is a proposal to increase the financial limit from £140 million to £430 million per incident.

    —  To ensure that the operator's obligation under the Convention to compensate victims will be met, each operator is required to have and maintain insurance or other financial security covering the amount of his liability.

  There are also provisions in the Paris Convention to ensure that compensation is equitably distributed and without discrimination based upon nationality, domicile or residence.

  In the UK liability is imposed on operators of nuclear installations under the terms of the Nuclear Installations Act 1965. If the limit of liability of the operator is exceeded, there is provision based upon International Convention for claims to be made to the appropriate Government authority instead of against the operator. There is an exoneration from liability under the Act where a nuclear incident, or the damage caused thereby, is attributable to hostile action in the course of armed conflict, whether within or outside the UK. In other words, an Act of War. In general, insurance cover for Acts of War is not available for any industry.


  Following the terrorist attacks in the USA on 11 September last year, insurers worldwide face previously unimaginable financial losses from such a cause. Although the ensuring claims are being paid for the attack on the World Trade Centre, insurers risk possible exposure to their solvency by continuing to provide cover for any future acts of such magnitude.

  The British Nuclear Insurers, an Insurance Pool comprising 13 commercial insurance companies and 40 Lloyds Syndicates, contend that an attack of the scale of the World Trade Centre is an attack upon the State as assuredly as an Act of War. In November 2001 they therefore proposed to the OECD Nuclear Energy Agency and the IAEA that the present War Risks exoneration granted to the nuclear operator should be extended to cover the consequences of terrorism2. That proposal was not accepted. However, at the same time, and in line with insurers of other industrial and commercial activities and enterprises, British Nuclear Insurers issued a Notice of Cancellation on all liability contracts to take effect from the next renewal dates unless the nuclear operators had by that time been exonerated from all liability for the consequences ot terrorist attack similar to those experienced on 11 September. Otherwise, under the no-fault liability regime imposed on nuclear operators the insurers would be liable for the consequences of a terrorist attack if this should result in a release of radioactive materials causing injury or damage to third parties, and they claim that providing cover for such an incident, or in particular a series of incidents, would likely risk insolvency in the insurance industry.

  Faced with the possibility of a gap in insurance capacity and the prospect of potential victims suffering nuclear damage without compensation, the Government has indemnified nuclear insurers against claims for nuclear damage attributable to acts of terrorism. This indemnity has been granted on a striclty temporary basis, and will be under constant review and withdrawn once the commercial insurance market returns. The indemnity has been given in return for a premium, the cost of which was set following receipt by the Government of independent expert advice and is borne by the UK nuclear industry.

  We understand that British Nuclear Insurers are currently in discussion with Government on the extent of State involvement for this risk in the future. In their view, although the parameters have changed irrevocably since 11 September, terrorism is an insurable risk provided that limits and coverage are clear, premiums are commensurate with the new dimension of risk, and solutions involving an equitable private public partnership are available.

  The nuclear third party conventions worldwide all operate in a similar fashion, channelling liability to the operator of the site; this regime is very strict. For example, if it were applied to those that burn fossil fuel in power plants and vehicles, they would be liable for any provable and damaging climate change that ensued. Therefore the liability regime in the UK offers a balance between the onerous provision of making the operator strictly liable for all third party damage regardless of whether that operator is at fault, and the capping of the financial compensation for third party damage the operator has to keep in place before the state assumes responsibility.


    —  Nuclear operators in the UK have adequate third party insurance cover in line with the requirements of the Nuclear Installations Act.

    —  Limits on the financial liability of nuclear operators for nuclear incidents resulting in claims for compensation are set by International Convention, and do not raise State Aid issues.


  1  Nuclear legislation: Third Party Liability. OECD, Nuclear Energy Agency, Paris, 1990.

  2  Nuclear Liability Insurance for Nuclear Operators—Terrorism Cover. Note distributed by British Nuclear Insurers to Nuclear Law Committee of OECD NEA, November 2001.


July 2002



Report on the performance of AWE plc as a licensee 12 months after the relicensing of Aldermaston and Burghfield on 1 April 2000

Health and Safety Executive: HM Nuclear Installations Inspectorate: June 2001

Paragraph 70

  "During the first 12 months of AWE plc's management of the Aldermaston and Burghfield sites we have monitored their nuclear safety performance through their compliance with the nuclear site licence, and their delivery of approved programmes and other commitments. With our HSE colleagues, we have maintained an oversight of their performance in the conventional safety area. We consider that AWE plc's performance has been satisfactory and demonstrates that AWE plc has successfully managed health and safety. The new contractor has not only built on the strengths of the previous contractor but has taken some initiatives which are improving safety performance and progress in the wastes and decommissioning areas. There remain some problems but we are confident that the licensee will be able to address these to our satisfaction. We will ensure the required improvements are made through our routine regulatory process."


July 2002

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