Memorandum by British Nuclear Industry
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
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
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
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
OperatorsTerrorism Cover. Note distributed by British
Nuclear Insurers to Nuclear Law Committee of OECD NEA, November
QUOTATION FROM: RELICENCING THE ATOMIC WEAPONS
ESTABLISHMENT SITES TO AWE plc
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
"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."