Select Committee on Trade and Industry Written Evidence


APPENDIX 8

Fourth memorandum by British Energy

INSURANCE

  With the exception of nuclear liability, the principal types of insurance carried by nuclear operators (or "licensees") are the same as those taken out by other types of generators, eg material damage and business interruption, conventional third party liability, employers' liability and property.

NUCLEAR LIABILITY UNDER THE NUCLEAR INSTALLATIONS ACT (NIA)

  The NIA provides that the licensee of a nuclear site has a duty to ensure that no occurrence involving either nuclear material or ionising radiation causes personal injury or damage to property other than property belonging to the licensee or any other property which is on the site and is used in connection with the operation of the nuclear installation. The licensee is exclusively liable for a breach of this duty irrespective of fault.

  Under the NIA, the licensee's liability to pay compensation for a breach of this duty is currently limited to £140 million per occurrence (excluding interest or costs). The NIA requires the licensee to make provision, by insurance or such other means as the Government may approve, for sufficient funds to be available at all times to ensure that duly established claims are satisfied up to £140 million in the aggregate per site in respect of each of the periods of the licensee's responsibility specified in the NIA. The NIA also requires that the Government will make available such sums (in addition to insurance or other funds which may be available from the licensee) as may be required to ensure that all duly established claims (excluding interest or costs) in respect of any occurrence are satisfied, up to 300 million special drawing rights (equivalent to approximately £240 million). Contributions to this amount are made by the Signatories to the Brussels Convention. A claim for compensation which is not satisfied out of this sum may, under the NIA, be satisfied by the Government to such extent as it may determine. These provisions mean that if the licensee's liability to pay compensation (£140 million per occurrence excluding interest or costs) exceeds the provision (eg by insurance) that it is required to make (£140 million in the aggregate per site excluding interest or costs), the shortfall must be paid by the Government. This could happen where there are two or more occurrences at a site which, in aggregate, give rise to established claims in excess of £140 million.

  It remains possible, however, that the Government may direct the licensee to begin a new period of responsibility in the light of previous occurrences or claims thereby requiring the licensee to reinstate any provision that may have been reduced as a result of claims following an occurrence.

  It is likely that these thresholds will increase in the future. On 12 February 2004, the Government signed two Protocols to amend the Paris Convention on Third Party Liability in the Field of Nuclear Energy, 1960 and the Supplementary Brussels Convention, 1963 which, together, increase the limit of liability of nuclear operators to litigation by persons in states which are parties to the Convention to a minimum of €700 million; the liability of the Government to €500 million; and the liability of the pool of funds contributed to by contracting parties to the Brussels Convention to €300 million. Total compensation available under the revised regime will be a minimum of €1.5 billion. In addition, the definition of nuclear damage will be expanded to allow a broader range of damage to be compensated, including economic loss and the costs of preventive measures. Following ratification of the Protocol, the NIA will be amended.

LIABILITY ARISING FROM TERRORIST ACTS

  Following the terrorists attacks in New York, 2001, nuclear liability insurance for terrorist attacks is provided to licensees through normal insurance channels but reinsured by Government. The insurers hold the benefit of an indemnity from Government in the event that the insurer has insufficient funds to meet claims. The availability and scope of the indemnity is subject to annual review by Government. The insurers retain a "first loss" in the event of a claim. This amount has increased each year since the arrangements were established. In the case of claims arising from acts of terrorism under material damage and business interruption insurance, the insurers reinsure the risks through a special purpose reinsurance vehicle whose obligations are also underwritten by Government in the event that it has insufficient funds to meet claims. (The special purpose vehicle is similar to Pool/Reinsurance Ltd, a reinsurance vehicle established in the conventional market following the 1993 IRA bombings which also holds the benefit of a Government indemnity.)





 
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Prepared 21 December 2006