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


APPENDIX 3

Memorandum submitted by International Space Brokers Limited

RISK AND LEGAL LIABILITY IN COMMERCIAL SPACE LAUNCHES

  A brief overview of the role of insurance, the international legal framework, risk allocation provisions and problems presently facing the insurance community in relation to the launch and operation of commercial spacecraft.

SPACE RISKS AND INSURANCE

  For the purposes of insurance, the space industry may be compared with aviation, indeed precisely where the boundary lies between airspace and space has been the subject of many debates. [10]To a certain extent the problems that have faced the space industry in relation to obtaining insurance have not been dissimilar to those that initially faced aviation in the early years. In both cases the need for protection from catastrophic consequences was something that the insurance companies were initially reluctant to provide competitively. The space insurance market has always had a "high risk/high return" profile, with a limited number of insurers participating on a regular basis. To this extent insurance capacity, ie the maximum amount of insurance cover available during an underwriting year, has always been fairly limited. More recently market capacity has increased. [11]Techonology is regarded as more reliable and there has been a perception that the associated risks have decreased. Presently, the market is suffering from over capacity. This has resulted in greater competition between insurers for the available business, and premium rates have been driven to their lowest levels for many years.

  In 1992 the premium charged to launch a satellite on an Ariane 4 launch vehicle and provide 12 months in-orbit coverage for the period immediately following the launch (launch plus 12 months) would have attracted a rate of approximately 17 per cent (calculated as a percentage of the total value of the satellite). In 1998 the premium for the same risk had been halved. Premium rates reached their lowest levels at the start of 1999 and began to increase towards the middle of the same year. The up-turn was attributable to the losses suffered by the market in 1998, which exceeded premium income by 100 per cent (USD 1.5 billion losses—USD 0.75 billion premium income). The 1998 losses have caused many insurers to re-evaluate their positions with regard to providing insurance capacity.

INSURANCE COVERAGE

  There are four types of insurance policy regularly underwritten in conjunction with commercial launch projects. The risks covered fall under the headings of pre-launch, launch, in-orbit and third party liability insurance.

I.   Pre Launch Insurance

  The party that bears the risk of loss prior to launch purchases this cover. This will be in accordance with the transfer of title and delivery provisions contained in the satellite procurement contract. [12]This cover is provided to indemnify the satellite purchaser against all risks of physical loss and/or damage to the satellite or its components, from any cause. It may also cover termination fees, launch delay penalty fees, lost revenues and other consequential or incidental damages attributable to a physical occurrence. Cover may commence at any point prior to the intended launch date[13], and typically terminates at "intentional ignition", "launch" or "lift-off" of the launch vehicle. [14]A reattachment provision may be incorporated into the policy that provides cover in the event of an on-the-pad abort, cover being for the period after the on-the-pad abort and up to a subsequent intentional ignition.

II.   Launch Insurance

  This cover should commence at the moment that pre-launch insurance cover terminates. The same words will be used to attach cover under the launch policy as are used to terminate cover under the pre-launch policy, eg "intentional ignition", "launch" or "lift-off". It is extremely important to avoid gaps in coverage because most failures occur during the launch phase. Launch insurance indemnifies the insured against loss of and/or damage to the satellite during the launch phase. This phase usually extends for a fixed period beyond the actual launch (normally 12 months, but may be up to five years). As with pre-launch insurance, the policy may contain a clause that provides for the reattachment of coverage in the event of an on-the-pad abort or "terminated ignition". The clause is designed to suspend cover from the time the launch pad is officially declared safe until the subsequent intentional ignition. In both pre-launch and launch policies the insured may be required to pay a reattachment premium. This additional premium will reflect the extended coverage and the additional risk to the insurer.

  Launch insurance is the most expensive type of coverage[15] and it is not uncommon for launch service providers to offer a "launch risk guarantee" as an alternative to launch insurance. This may also be provided as a supplement to the traditional launch insurance policy. These guarantees are designed to cover the expense of a replacement launch service and usually take the form of a cash payment or option of a repeat launch free of charge. They do not cover the cost of consequential losses arising from the first launch and it is common to impose financial limits in respect of a repeat launch. Launch cover does not always extend to the replacement of the payload, therefore, if the launch vehicle destroys the satellite being carried this will not be covered.

III.   In Orbit Insurance

  In-orbit cover is provided in respect of losses incurred during the commercial life of the satellite. Losses are categorised as being either total or partial. A total or complete loss occurs where the satellite or a specified number of transponders are destroyed. It is quite common for insurers to agree that the loss of 50 per cent or more capability of the satellite should be treated as a total loss. [16]Where the loss is less than 50 per cent the loss is regarded as a partial loss. In the case of the former the insured will be paid the full sum insured. Partial losses are calculated with regard to agreed formulae, with payment being on an indemnity basis. Insurers will benefit from any salvage value that the satellite may have or revenues derived from the damaged satellite.

  In-orbit insurance should be broad enough to cover a host of different types of loss. [17]Again, gaps in cover are avoided by using the same language to commence cover at the moment cover under the launch policy expires. Policies are renewed periodically since the life of the satellite often exceeds 10 years. For this reason in-orbit premiums may vary when the policy is renewed. [18]Renewal terms will be influenced by periodic health reports[19], the type transponders on the satellite, available fuel life and problems that have affected other similar satellites. Typically the cost of cover will range between 1 and 5 per cent of the insured value. It is not uncommon to dispense with in-orbit cover completely. Operators and lessees may choose to self insure or underinsure because equipment is generally more reliable once it has been placed and tested.

  Some commentators have suggested insurance premiums will increase as risk of damage from space debris increases. [20]According to NASA research, operative satellites account for only 6 per cent of the objects present in the terrestrial orbit with a measurable diameter exceeding 10cm. The remaining 94 per cent is space debris. Whilst in actuarial terms risk of damage is minor, the cumulative effect of debris can only increase the risk of damage. The United Nations has addressed the problem of pollution in the form of space debris, but there is no international convention that expressly defines the objective liability for environmental pollution in this area. However, there is a general principle determinable from customary international law whereby states are obliged to avoid carrying out activities that may cause damage to the environment. [21]Article 1 of The Outer Space Treaty also identifies that "States shall facilitate and encourage international co-operation" which may imply an obligation.

IV.   Third Party Liability Insurance

  Third party liability cover is almost always a requirement for any launch campaign. It covers property damage and personal injury claims brought against the entity responsible for the launch and/or the launching state. [22]For states that have ratified "The Treaty on Principles Governing the Activities of States in the Exploration and use of Outer Space, Including the Moon and Other Celestial Bodies, 1967" (The 1967 Treaty) and/or "The convention on the International Liability for Damage Caused by Space Objects, 1972"(The 1972 Convention) third party liability cover is usually a requirement pursuant to the grant of a licence for a launch campaign.

  The 1967 Treaty provides: [23]

    "A state bears international responsibility for national activities in space and must authorise and supervise any non-governmental entities in space."

  The 1972 Convention establishes absolute liability for a State:

    " . . . . Which launches, or procures the launching of a space object, or from whose territory a space object is launched."

  The Outer Space Act, 1986, is the means by which the United Kingdom seeks to comply with its international obligations. [24]Under the 1986 Act, third party insurance cover is a condition precedent[25] prior to the grant of any licence to undertake launch activities. [26]Although neither the 1967 Treaty nor the 1972 Convention specifically states that insurance cover is required, cover for the launch phase is provided for two different liability considerations. First, there is the liability in relation to personnel or property belonging to the Government or launching agency. Secondly, there may be liability to persons who are in no way connected to the launch operation, ie third parties.

  The Commercial Space Launch Act 1984 is the legislative basis for licensing in the United States. Under the Act parties to a launch project are required to obtain third party liability cover for both of these risks. The legislation also provides that launch providers adhere to a risk-sharing scheme[27] for which the United Kingdom has no equivalent. The launch contract will often specify which party (usually the launch company) has the obligation to purchase the requisite third party liability cover. Premium rates will vary according to the type of launch vehicle used. A typical premium for third party liability cover will be in the region of 0.04 per cent, calculated as a percentage of the amount of the limit of liability required.

  In Europe the requirements are slightly less stringent. Arianespace usually purchases USD65 million (FRF 400 million) of cover, with the European governments financing any requests for damages exceeding this figure. [28]The risk of loss or damage to people or property following a successful launch is relatively small despite high profile incidents such as those involving NASA's Skylab[29] and the Soviet-built Cosmos 954. [30]In geographic terms 70 per cent of the Earth's surface is covered by water which means that the chances of a space object striking a human being are approximately 1 in 152. [31]

INTERNATIONAL LIABILITY

  The Outer Space Treaty, 1967, [32]is regarded as the original basis of legal liability for the purposes of space activity. [33]The Treaty recognises the obligation of each launching state[34] to adhere to international law and provide reparation for any damage caused by its activities. However, the term "launching state" is one that has given rise to a degree of uncertainty. Its interpretation is not only of academic interest, but also of high practical relevance since the "launching state" together with the "appropriate state" are indicators of state responsibility and state liability. Responsibility and liability are often used inconsistently in instruments of public international law. Indeed the International Law Commission of the United Nations has been elaborating on two separate drafts concerning rules pertaining to state responsibility and international liability. [35]the distinction as far as the Outer Space Treaty is concerned may be found in Article VI (responsibility) and VII (liability).

  Article VI provides:

    " . . . State Parties to the Treaty shall bear international responsibility for national activities in outer space . . . whether such activities are carried on by governmental agencies or by non governmental entities." Furthermore, State Parties are charged with the responsibility for " . . . assuring that national activities are carried out in conformity with the provisions (of the Treaty)."

  Article VII of the Outer Space Treaty does not provide any express definition of the term "launching state." However, it does specify that there are four criteria for determining the same: "launches", "procures", "territory" and "facility". To this extent, Article VII is relevant in determining international liability.

  An express definition of "launching state" is provided in Article 1(a) of the Registration Convention. [36]The wording is identical to Article 1(c) of the Liability Convention: [37]

    "The term launching state means:

      (i)  A State which launches or procures the launching of a space object;

      (ii)  A State from whose territory or facility a space object is launched."

  In international law, state responsibility is spoken of as being either direct or indirect. The former concerns the responsibility of a state for its own acts whereas the latter, strictly speaking, is not a case of state responsibility at all. Under customary international law there is an obligation "to protect foreign states and their nationals as well as their property from injurious acts committed by persons who are not servants or agents of the State acting in their official capacity." The legal duty is not an absolute one and the standard that applies is one of due diligence, in accordance with the prevailing international standard.

  Where there is a degree of failure on the part of the state, eg failing to legislate adequately, such failure will almost certainly amount to a case of direct state responsibility. Article VI of the Outer Space Treaty recognises this duty. Thus, any State that intends to allow launch activities to take place will undoubtedly seek to avoid the situation where it may become indirectly responsible for an international claim. This explains why most states make the grant of a licence conditional upon adequate third party liability cover. [38]The United States Government imposes obligations and conditions on private space launch participants, of which a number relate directly to insurance. The obligations vary depending upon whether a launch is performed by NASA or conducted under the licensing authority of the Department of Transportation (the body responsible for issuing Orders to commercial launch providers).

  Presently, there is a requirement that the launch company, customer and United States (represented by the Department of Transport) enter into a tripartite agreement whereby each party:

    "(i)  Waives the right to claim against each other party;

    (ii)  Assumes responsibility for the damage it sustains;

    (iii)  Agrees to extend ("flow down") the waivers to its contractors and subcontractors involved in launch activities;

    (iv)  Agrees to indemnify each other party against loss of liability arising out of claims made by its contractors or subcontractors."

  Where NASA conducts the launch, the commercial customer or user is required to purchase third party liability insurance ". . .in an amount not to exceed USD 500 million to cover claims arising out of the launch. [39]A similar limit applies in relation to a launch not performed by NASA. The Department of Transport has the discretion to specify the amount of cover required, which will be based upon the maximum probable loss as determined by the Federal Aviation Administration. In the United Kingdom, The Outer Space Act 1986 confers licensing powers, amongst others, on the Secretary of State (who acts through the British National Space Centre) for the regulation of persons connected with the UK wishing to engage in the launch and operation of space objects.

LIMITATION OF LIABILITY

  It is common practice for the parties to commercial launch projects to adapt interparty waivers in their contracts. These preclude claims for damage to property and personnel of the launch company, the satellite company customer and the respective contractors and subcontractors involved in the launch project. In the United States there is specific legislation[40] whereby it is a pre-condition to the grant of a licence for a launch company:

    ". . . to enter into reciprocal waivers of claims with its contractors, subcontractors and customers, involved in the launch services. . . [41]

  Each party to the waiver must agree to be responsible for:

    " . . . any property damage or loss it sustains or for any personal injury to, death of, or property damage sustained by its own employees resulting from activities carried out under (the launch licence)". [42]

  The courts first examined the efficacy of interparty waiver provisions in 1986 in the case of Appalachian Ins co v McDonnell Douglas Corp. [43]

I  Appalachian Ins co v McDonnell Douglas Corporation

  The case concerned the malfunctioning of the defendant's product and the effectiveness of the interparty waivers, which had been agreed by the primary parties to the Launch Service Agreement with NASA. [44]The Space Shuttle Challenger was to have carried two commercial telecommunications satellites, one owned by Western Union Corporation (WESTAR VI) [45]and the other owned by the Government of Indonesia (PALAPA B-2). [46]Each satellite was attached to a Payload Assist Module ("PAM-D") manufactured by the McDonnell Douglas Corporation. In each case, the carbon/carbon exit cone of the PAM-D disintegrated approximately five seconds "into burn" after it had been deployed from the Shuttle. Nominal burn time was supposed to be 85 seconds from deployment. The components had been manufactured by a main contractor and subcontractor (Morton Thiokol Inc and HITCO respectively). Each failure resulted in the satellites being placed in low elliptical orbit, rendering them effectively useless. The insurers were forced to pay claims exceeding USD 200 million in respect of the launch failures.

  The Launch Service Agreements between NASA and PERUMTEL (the Indonesian Agency), and NASA and Western Union contained interparty waivers. In both cases NASA had insisted that there be agreement to ". . .a no fault, no subrogation, interparty waiver of liability" clause. [47]In the case of the latter, NASA had also insisted on a "flow down" provision (as detailed above) that extended to NASA's contractors and subcontractors ". . .at every tier." Prior to the commencement of discovery, McDonnell Douglas had sought an order for summary judgement on the ground that the interparty waivers barred either insurance company from bringing any action against them. However, the clauses were found to be ambiguous and thus summary judgement was inappropriate in the circumstances.

  Robert Wojtal, a senior lawyer with NASA's Office of the General Counsel and the author of both versions of the interparty waiver provisions testified at his deposition that NASA's reasons for adopting interparty waivers[48] were commercially orientated. This followed the change from the use of expendable launch vehicles to the use of Space Shuttles. NASA had not insisted on any such waivers for launch services prior to using the Shuttle, but was more concerned that the satellite owner had adequate third party cover to indemnify the United States in the event of a claim arising from the launch.

  They changed their position when the United States began to use the Shuttle, which is able to carry four satellites per mission. This was a factor which could adversely raise the cost of satellite launch insurance because of the increased risk of damage caused by one satellite to the other three whilst in the payload bay. [49]Wojtal cited the increased costs to each mission as a reason why potential customers may choose to contract with NASA's competitors, eg Arianespace, whose costs were lower. [50]Thus the waiver concept was imported into NASA's contracts.

  The action brought by Appalachian Insurance was eventually decided upon different grounds to the Lexington Insurance Case, which eventually went before a jury. One argument submitted suggested that there was no right of action in tort, but there was a right of action for breach of warranty. However, the court held that the interparty waiver did not bar the plaintiffs, negligence claims against any of the defendants.

  In Martin Marietta Corporation v INTELSAT[51] the application of these provisions was tested with a different outcome. It has been suggested that the two cases can be distinguished on the basis of NASA's involvement. However, the issue is far from being fully resolved bearing in mind that NASA no longer launches private satellites.

II  Martin Marietta Corporation v INTELSAT

  In this case Martin Marietta, the launch provider, had entered into a commercial launch services contract with INTELSAT. Under the contract, Martin Marietta agreed to launch two INTELSAT VI satellites into geostationary orbit using their Titan III launch vehicle. The contract provided under Article 17 for the "allocation of certain risks".[52] The first launch took place on 14 March 1990, but failed when the satellite and booster did not separate from the Titan III launch vehicle. This resulted in the payload stalling on a low earth orbit, which rendered the satellite ineffective. A wiring error, which was the cause of the failure, was traced to Martin Marietta who duly accepted blame. Unfortunately, INTELSAT suffered economic losses that it had no means of recovering because it had chosen not to take out launch insurance. On 23 June 1990, the second satellite was launched and successfully achieved the correct orbit. Ten days after the second launch, INTELAT demanded that Martin Marietta pay damages for the failure of the first launch and threatened to sue in the event that they would not pay.

  Martin Marietta sought a declaratory judgement stating that INTELSAT was barred from suing them because of the reciprocal waiver agreement, as required by section 2615(a)(1)(C) of the Commercial Space Launch Act Amendments, 1988. [53]INTELSAT entered a counterclaim for US$400 million to recover their financial losses. [54]Their claim was based on negligence, gross negligence, negligent misrepresentation and breach of contract. [55]In response to the counterclaim, Martin Marietta filed a motion to dismiss INTELSAT's counterclaims "for failure to state a claim". They argued that section 26158(a)(1)(C) of the Act, pre-empted all state law tort claims brought in connection with a launch service contract and automatically created mandatory reciprocal waivers in all contracts between launch participants, even if those contracts contained no such waivers.

  The district court rejected this argument and noted that the statute required only that the licensee include cross-waivers in its launch contracts. The tort-based counterclaims were dismissed on 30 April 1991[56] and the contract based claims on 19 November 1991. The court concluded that Congress had in making the Act, created an exception to the general rule in relation to gross negligence, ie that the parties to a contract may not exclude liability for gross negligence. This had been a point that INTELSAT had been unsuccessful in pleading. [57]

INTERNATIONAL TRAFFIC IN ARMS REGULATIONS AND INSURANCE

  Insurance plays an important role in the scheme of any commercial space launch. It is therefore, extremely important that insurers are able to fulfil their functions adequately and effectively. In order to achieve this goal, the insurer must be presented with the opportunity to assess risks as accurately as possible, resulting in appropriate cover at a competitive price. One area of particular concern to the insurance community arises from the recent tightening of United States export policy and the restrictions imposed in relation to access to technical information.

  In January 1999 the Cox Committee delivered its final report to Congress entitled "US National Security and the People's Republic of China." The Report concerned, inter alia, the transfer of technological information to the People's Republic of China (PRC). It also provided a number of recommendations designed to prevent any further breaches of national security. One recommendation that concerned manufacturers of satellites and launch vehicles, was that the Department of State should regulate and control the grant of export licenses, a responsibility that had previously been split between the Department of Commerce and Defense Department. The Department of State is now charged with the responsibility for preventing any further breaches that may arise through the export of technical information and/or hardware.

  The restrictions focus around the International Traffic in Arms Regulations (ITAR) which provide for the export of items on the United States Munitions List (USML). The USML identifies categories of articles, services and associated technical data designated as "Defense Articles" or "Defense Services" that are subject to the Regulations. This now includes: communications satellites, remote sensing satellites, scientific satellites, research satellites, navigation satellites, experimental satellites and multi-mission satellites, all of which are specifically identified under Category XV (Spacecraft Systems And Associated Equipment).

  Prior to the Cox Commission Report, the regulations applied only to "satellites, specifically designed or modified for military use." The new distinction means that all satellite related exports are treated as if they may impact upon national security and, as a consequence, applications for export licenses come under greater scrutiny. The Department of State will not grant an export licence if the export may mean that an "unfriendly state" would gain access to the exported goods or materials. This causes a problem for the insurance community. The Department of State requires an undertaking from any "foreign end use" wishing to receive technical information. This is executed in the form of a Non-Transfer and Use Certificate (Form DSP 83). [58]The Form is used to specifically identify certain information (identified under item 5—Articles/Data) and is submitted to the Department of State who may then grant approval for the materials identified to be exported to the foreign end-user. The undertaking of the foreign end-user specifies:

    ". . . we certify that we are the end-user of the articles/data in item 5. Except as specifically authorised by prior written approval of the US Department of State, we will not re-export, resell or otherwise dispose of any of these articles/data (1) outside the country in item 4 above, or (2) to any other person. If the end-user is a foreign government, we certify that we will observe the assurances contained in item 6. We further certify that all of the facts contained in this certificate are true and correct to the best of our knowledge and belief and we do not know of any additional facts that were inconsistent with the certificate."

  The penalties for a breach of the undertaking include a penalty of up to USD500,000 for an unintentional breach and penalty of up to USD1,000,000 and/or 10 years in gaol if the breach is intentional. The problem for insurers is that they need access to certain technical information in order to assess a risk. Their requirements are of an ongoing nature as insurance policies are periodically renewed (eg in-orbit insurance). The insured also has an obligation to notify insurers of any material changes to the risk and provide access to technical information. Insurers will be interested in matters such as engineering heritage, potential for single point failures, the launch vehicle to be used and the health status of the spacecraft. Technical consultants may also be employed to provide expert advice in relation to these matters. The imposition of more rigorous restrictions has made it difficult for insurers to gain access to the technical information that they require. They may also be prejudiced by delays in receiving the same. [59]It is also clear that the Department of State is reluctant to approve exports to reinsurers.

  The provision of reinsurance is fundamental to insurers. It allows them to spread the risk of potentially catastrophic losses. Although reinsurers require a minimal amount of information to provide reinsurance cover, a certain amount of information is required in order to accurately assess their liability in the event of a claim. Given the Department of State's present position, insurers are likely to face problems when claims are presented. For insurers in the US this is not a problem. They are not subject to the same restrictions virtue of their citizenship and there is no export per se. This gives US insurers an unfair commercial advantage over "foreign insurers." The fact that US insurers have easier access to technical information means that they are better placed to assess commercial risks going forward.

  It is possible for manufacturers in the space industry to apply for a Technical Assistance Agreement (TAA) that allows information to be transferred more easily. This type of agreement is usually used by manufacturers having a need to supply technical information to their sub-contractors. More recently the Department of State has recognised that such agreements may be appropriate for relationships with insurers. There are two associated problems here. Not only is the initial process extremely time consuming, but it needs to be repeated for each insurance programme.

  The Department of State openly declares that most agreements (Technical Assistance Agreements and Manufacturing License Agreements) require interagency co-ordination, the processing time for which is approximately 60 days. [60]The following categories that require additional processing generally require additional time (as stated):

    (a)  Government-to-government end-use assurances are required (add 30-40 + calendar days)—likely for missile technology (NB—probably applies to launch vehicles)

    (b)  Proscribed countries or areas which must be approved (add seven-10 + calendar days)

    (c)  Congressional notification if required (add 30-45 + calendar days)

  Agreements are also classified in relation to their complexity. Less complex agreements will be for activities like consulting services, extended support, operations and low level maintenance. More complex agreements include agreements pertaining to research and development teaming and manufacturing assistance. For the purposes of insurance, the agreement will identify each respective insurer participating in the insurance programme. This means that a new agreement will need to be signed for each insurance programme because the parties are unlikely to be the same.

  Space insurers were not singled out in the Cox Report as having been involved in any wrongdoing. However, it is clear that insurers were instrumental in persuading manufacturers to help improve the reliability of Chinese rockets following the failure of the Long March 3B rocket carrying the Intelsat 708 satellite. It has been said[61] that it is unlikely that a spy would work for a foreign broker or insurer if he wanted to gain access to sensitive technical information, but rather that he would work for a manufacturer where information would be more readily available. Further, it is said that the information that insurers require is at a system level, rather than component level, the former being of no use to a spy wanting to steal US technology.

  It is clear that the revisions to US export policy have had an impact on the insurance community and that insurers outside the United States may suffer as a result. A recent presentation that took place in July 1999 had to be cancelled eight times before the appropriate US government licence was obtained. The underwriters who attended the presentation said that the whole process was blunted by the ITAR restrictions. A compliance officer was in the room to ensure procedures were conducted properly and satellite engineers had to refer to questions to their lawyers before answering them. Where the compliance officer regarded a question as "too technical" he asked that it be put in writing.

  Insurers in the United States account for approximately 30 per cent of the total insurance capacity available (approximately USD 300 million of the theoretical USD 1.2 billion) for space related risks. The capacity provided by the London Market is approximately the same. However it is clear that insurers outside of the United States are at a commercial disadvantage as a result of the revised export policy. The Department of State has discussed the restrictions with insurers and it is clear that they appreciate the important role paid by insurers. However, it is clear that they do not fully understand how the market operates. The restrictions are impracticable and probably unnecessary. What is required is a common sense approach to strike a balance between the interests of the Department of State and the foreign insurance community. Sadly, there seems to be no impetus or indeed understanding of the problems at the appropriate levels able to effect a change. The majority of foreign insurers are based in NATO member states and/or Europe, and are surely regarded as friendly states by the United States. As one commentator has pointed out: [62]

    "It is undisputed that the foreign space insurance market is vital to the continued success of the American space industry. On the other hand, the Chinese Great Wall Launch Company is not. Maybe it is time for the United States to distinguish between the two."

16 February 2000


10   Suggestions range between approximately 50 and 100 miles above sea level. Back

11   Market capacity is estimated to be in the region of USD 1.2 billion, although, actually available is probably nearer USD 0.6 billion, in respect of asset protection. Back

12   Satellite manufacturers may contract for delivery to take place in-orbit, in which event they may purchase the pre-launch and launch insurance. The contract price will obviously reflect these additional costs, to the manufacturer. Back

13   Transfer of title issues will be a determining factor, eg if delivery and transfer of title takes place at the manufacturers factory, it is common for the purchasers policy to state "risk of loss commences at the first moment that loading operations commence, pursuant to a transit of the satellite to the launch site." Back

14   These terms will be defined in the policy. Back

15   Typical pre-launch premium is approximately 0.25 to 1 per cent of the sum insured per annum. Launch insurance premiums may range between 5 and 31 per cent of the insured value. Back

16   Given that a constructive total loss may occur at 50 per cent, this is an important consideration. Back

17   Common malfunctions other than with the satellite's transponders include: unserviceable equipment resulting from insufficient on-orbit station keeping fuel; overall electrical or mechanical malfunction; antennae malfunctions preventing the transponder from transmitting or receiving signals or commands. Back

18   Which also explains why the insured will seek to obtain the longest possible period of insurance. Back

19   The insured has an ongoing obligation to provide health status reports to insurers. Back

20   The debris is estimated to be increasing at a rate of 5 per cent per year-Hon E R Finch, Jr "Future Space Commercialisation and Space Debris", Air & Space Lawyer [1991] Vol 5 No 3 p 11. Back

21   For example, International convention for the Prevention of Pollution of the Sea by Oil 1954 (amended 1962) amongst others. Back

22   The Convention of the International Liability for Damage Caused by Space Objects, 1872, Article I(c). Back

23   Article VI. Back

24   The United Kingdom has ratified both 1967 Treaty and the 1972 Convention. Back

25   The Outer Space Act 1986, s.5(f). Back

26   The licence directs licensees to the sections 1, 6, 7 and 10 of the Act, relating to licensing conditions. Back

27   Commercial Space Launch Act Amendments, 49 U S C ss 2615 (a)(1)(C). Back

28   Pl(chinger, "Insurance of Space Risks", ESA Bulletin, 1988, p 88. Back

29   Broke up over the Indian Ocean and Southwest Australia on 11 July 1979. Back

30   Crashed in the Northwest Territories of Canada on 24 January 1978, giving rise to fears of radioactive contamination from its power pack. Back

31   Rod Margo, "Some Aspects of Insuring Satellites", Insurance Law Journal (1979) p 561. Back

32   Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies, 1967. Back

33   Notwithstanding that international law recognises other prior sources, see for example Trial Smelter Arbitration (1938, 1941) 3 RIAA 1905. Back

34   The term is not defined in the Outer Space Treaty. Back

35   For a detailed examination of the distinction between responsibility and liability, see B Cheng, "International Responsibility and Liability for launch activities", Air & Space Law Vol XX No 6, 1995 p 300. Also Horbach, "The confusion about state responsibility and international liability", Journal of International Law, vol 4 (1991) p 47. Back

36   Convention on Registration of Objects launched into Outer Space, 1975. Back

37   The Convention on the International Liability for Damage Caused by Space Objects 1972. Back

38   The Outer Space Act 1986, s 5 (f). The Secretary of State may make the grant of a licence conditional upon certain insurance. Back

39   Daniel E Cassidy, "Insuring Space Launch and Related Risks", (1991) Proceedings of the 34th Colloquium on the Law of Outer Space, p 389. Back

40   Commercial Space Launch Act Amendments, 1988. Back

41   49 USC ss 2615 (a)(1)(C) (1988). Back

42   Ibid. Back

43   No 481712 (Orange Co Supr Ct). Back

44   National Aeronautics and Space Administration. Back

45   Insured by Appalachian Insurance Company. Back

46   Lexington Insurance Company filed a similar action in the same court, at the same against the same defendants (Lexington Insurance Co v McDonnell Douglas Corp No 481713 (Orange Co Super Ct). Back

47   See Philip D Bostwick, "Liability of Aerospace Manufacturers: MacPherson v Buick Sputters into the Space Age", (1994) Journal of Space Law, Vol 22, Nos 1 & 2. Back

48   Ibid at p 80. Back

49   It is believed that no shuttle mission has ever carried more than two satellites. Back

50   With the benefit of hindsight this was a tenuous argument. Back

51   Martin Marietta Corporation v International Telecommunications Satellite Organisation (INTELSAT) 763 F Supp, 1327-1334. See also, Tanja L Masson-Zwaan, "The Martin Marietta Case-Or how to Safeguard Private Commercial Space Activities", Air & Space Law, Vol XVIII Number 1 1993, p 16. Back

52   See article by Tanja L Masson-Zwaan at p 18. Back

53   As detailed above. Back

54   Losses consisting of the following: USD145 million for the satellite; USD115 million for the launch service and the balance in lost revenue and rescue costs. Back

55   Examined in greater detail below. Back

56   See article by Tanja L Masson-Zwaan at p 20. Back

57   Ibid. Back

58   Copy is attached under Attachment A. Back

59   There are two points for consideration here. It is a general principle that an insured party must prove his loss. If the insured were unable to supply sufficient information to the insurer in order to meet this standard, the insurer would be within his rights to refuse to pay the claim. Where there is a delay in providing detailed technical information, this may impact upon the insurers' ability to exercise his rights of subrogation. Back

60   For additional information the appropriate Department of State webside is http//www.pmdtc.org. Back

61   Ralph V Pagano "Going to Far With ITAR: US Government Expects Blind Faith From Foreign Space Underwriters" Aircraft Builders Council Inc. Law Report produced by Mendes & Mount LLP, Fall 1999. Back

62   Ibid. Back


 
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