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The impact of changes to the nuclear liability regime on the insurance sector

Major changes are due to the nuclear liability regime in the UK meaning that in the event of a nuclear incident an increased amount of compensation will need to be made available to a wider category of claimants.

Background

Major changes are due to the nuclear liability regime in the UK which is based on the Paris and Brussels conventions. The changes mean that in the event of a nuclear incident an increased amount of compensation will need to be made available to a wider category of claimants, for higher amounts and in relation to a broader range of damage than is currently the case. In addition the liability cap is due to be increased, geographical scope widened, limitation periods will be extended and determination of relevant jurisdiction will be altered.

Currently, the nuclear liability regime in the UK provides that the operator of a nuclear installation is strictly liable for nuclear damage to third parties caused by radioactive emissions from those installations. The operator`s liability for personal injury and property damage for any one incident is capped at £140million and limited in time (ten years). Operators need to have insurance or other financial security in place to cover their potential liability. 

The Paris and Brussels conventions were amended by protocol in 2004. Implementation of those changes occurs when simultaneous ratification of the amending protocol by all member state parties to the conventions takes place. That is expected in early 2017 although the UK has already provided the relevant statutory instrument intended to implement the 2004 amending protocol, which is known as the Nuclear Installations (Liability for Damage) Order 2016.

Main changes

  • The introduction of three new categories of compensable damage.  Currently the regime only applies to personal injury and property damage.  The new regime will apply to the costs of measures of the impaired environment; loss of income derived from an economic interest in any use or enjoyment of the environment; the costs of preventative measures and further loss or damage to the environment caused by such measures.
  • An increase in the cap on operator liability - an increase for power plants and other standard sites from £140m to €1.2b Euros.
  • Wider geographical scope - to include non-Paris convention countries.
  • Extension of limitation period - from 10 to 30 years.
  • Changes to the insurance market. With the increased limitation period where insurance is not available from the market the government can provide insurance itself on commercial terms
  • New rules for nuclear substances. The Energy Secretary has the power to set lower liability amounts for installations where in the event of an incident there is unlikley to be significant damage
  • Jurisdiction and representative actions by a foreign state: the courts of only one country where a nuclear incident has occurred will deal with claims arising from that incident. Countries can also bring claims on behalf of persons.

The impact

It is clear that over the years, third party financial limits have not kept up with the development of the nuclear indusrty and the potential exposure of operators to pay for accidents. By way of example, the Chernobyl accident is estimated to have cost c. $80-$100 billion and the Fukushima accident around $40 billion. The reality of this is that such costs ultimately fall to governments and tax payers.

Traditionally issues that have put off insurers providing higher amounts have focussed on the duration of liability (10 years, to go to 30 years) as well as the variation between different member states as to the financial amounts offered.

A number of commentators are of the view that this is now an opportune moment for the insurance market to step up and offer greater market insurance involvement. They point to the fact that the capacity is available in the insurance market. They focus on the technical expertise developed by the insurance industry over a number of years which could be translated into an efficient claims handling sytem. Other ideas being mooted include looking at self-insurance, opening up the insurance market to a wider range of insurers than at present, a gradation of cover being provided, with the most serious cover being provided to the most important sites (in this respect there is scope to take advantage of the new rules for lower liability limits for relevant sites).

It remains to be seen whether the insurance industry, with government support, will act accordingly. 

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Simon Stuttaford

Partner - Head of Nuclear & Joint Head of Environment

I am a Partner at DWF and Head of Nuclear and Joint Head of Environment. I have advised on commercial arrangements in the UK nuclear sector (primarily decommissioning) and have experience in licensing and nuclear regulatory issues. I also have broad environmental experience (both contentious and non-contentious) and have acted for a range of clients covering a variety of sectors.