Item 2. Policy Period: Beginning at 12:01 a. m. on the of

day

19, and continuing through the effective date of the cancellation or termination of this policy, standard time at the address of the named insured as stated herein.

Item 5. Premium $__ Basic premium, percent Item 6. These declarations and the schedules forming a part hereof give a complete description of the facility, insofar as it relates to nuclear energy hazard, except as noted

Representative COLE. I don't want to detain the other witnesses so I will not interrogate Mr. Haugh, but I would like to have him submit a memorandum of his observation with respect to the recommendations of the Commission on the changes in the pending bill.

Mr. HAUGH. To submit that as a memorandum? I would be very happy to, sir.

The CHAIRMAN. I think it would be well for you to comment on the changes as they appear in the new bill.

Mr. HAUGH. Yes, sir. If I get that in within a few days, will that be ample time?

The CHAIRMAN. Yes, sir.

Mr. HAUGH. I will be happy to do that. At that time I will send a copy of the policy and this inspection material that is asked for. (The information referred to follows:)

S. 715 AND AMENDMENT THERETO RECOMMENDED BY THE ATOMIC ENERGY

COMMISSION

The insurance industry recognizes the complexity of the problem which confronts Congress, and I believe that, if necessary, we can accept for the present S. 715 and H. R. 1981 as drafted.

This does not alter the fact that, in our judgment, the bills might be improved and clarified. The modifications suggested by the Atomic Energy Commission answer all of the important questions of which I am aware, and I believe the insurance industry could wholeheartedly accept those modifications. If I may, I would also like to comment here on a proposal brought out in testimony before your committee, and which is not contained in S. 715, H. R. 1981, or the modifications suggested by the Atomic Energy Commission. refer to the proposal that the indemnity program should apply on a mandatory basis to all contractors, subcontractors, et cetera of the Atomic Energy Com91250-57-8

I

mission itself. I am not questioning the application of the indemnity program. My observations relate rather to the concomitant "financial protection" requirement.

For some parts of the present and future operations of commission contractors, I foresee no problem arising out of the lack of a true insurance market. For other parts I believe such a problem may be very real, and I cite the necessary operations by contractors at Hanford, Wash., and Savannah River, Ga., as two prominent examples.

I urge that if the decision is taken to bring Commission contractors mandatorily under the indemnity program, provision be made to permit the Commission to waive the financial protection requirement where the Commission is satisfied that a domestic insurance market does not exist.

Since the hearing, further consideration has been given the insurance policy for the purpose of meeting the problem of an incident caused solely by some uninsured person. This was exemplified by the hypothetical case of an airplane flying into a reactor. As a result of this further consideration, I am pleased to advise the committee that the policy contract is being revised to include, not only the liability of the reactor operator, designer, supplier of components et cetera, but, also, the liability of any other person, or persons, without regard to whether they may or may not have any responsibility for the operation, construction, or design of the reactor or of any of its parts. As a result of this change, the proposed amendment to subsection 170c for the so-called airplane case and similar cases, will not be required as the revised nuclear energy liability contract would take care of such cases.

While the Atomic Energy Commission proposes to disregard "type" in determining the amount of financial protection as provided under section 170b, we do believe that, for rating purposes, type of reactor must be taken into consideration. It is quite possible that the Atomic Energy Commission, in determining the amount of financial responsibility to be established by the licensee, has in mind, not the relative hazards of individual reactors, but rather the potential damage which might be caused by a reactor of a given power. Admittedly, two reactors of the same power, but of different types, might have different problems of causing a loss of catastrophic proportions, but in the event such a catastrophe did occur with either, it might well be that the potential damage would be substantially the same for one as for the other.

It is our considered opinion that type of reactor has a definite bearing upon the hazard, and for that reason, we believe it important that it be taken into consideration in determining premium charges.

It was suggested that I indicate, too, the extent and reasons for "any inconsistency with the reasons in your position of last year with respect to these amendments, if there is any." While some of the amendments currently under consideration were not proposed last year, it is a fact that since that time much careful thought and study has been given the entire subject, and it is to be expected that as a result of that there would be proposed at this time amendments designed to cover situations which might not have been as thoroughly thought through a year ago.

I believe the only inconsistency, if it can be termed that, between our position now and that of a year ago has to do with the amount of financial protection to be established by licensees. A year ago we urged that all licensees with the exception of educational and eleemosynary institutions operating research reactors be required to furnish financial protection in an amount equal to the amount of liability insurance available. While I believe a good case can continue to be made for this decision, it does not appear to be practicable and, for that reason, we have receded from that stand.

Senator ANDERSON. Is he covering the questions as to why some of these changes are proposed? Have you covered that already? Do you believe that there should be a provision as the AEC has suggested providing that in case of an accident caused by an airplane, for example, that the Government would be the only party liable and the insurance companies would be removed from liability?

Mr. HAUGH. We did not cover that. That was in line with the views to be submitted.

The CHAIRMAN. I asked him to submit a statement on each change in the new bill. It was quite lengthy and I did not know whether we could cover it all this morning.

Senator ANDERSON. Don't you think we will have to have a chance to reexamine some people and ask them some questions on what they suggest, because if we are to exclude from liability of the private companies anything that could be clearly proved to be the negligence of the operating company, we will successfully have transferred to the Government the entire liability or nearly the entire liability. Mr. HAUGH. May I answer that, Senator Anderson?

Senator ANDERSON. Yes. You heard the questions I directed yesterday.

Mr. HAUGH. I was here yesterday and I heard that. May I say this. It is not that we are proposing that the Government do this, that, or the other thing. Rather it is this sort of thing. I think it should be pointed out what we are talking to is the liability insurance

contract.

The utilities and other power reactors potential reactor operators-indicated, I think quite properly, that if they were to embark upon the construction and operation of reactors with their potential catastrophe hazard of unknown size, that they wanted some assurance of greater protection to cover their liability than was normally available. As a result of that, as I understand it, we have set about and established special insurance facilities to take care of that, and there has been this discussion of the Government indemnity over and above that to provide even greater capacity.

The illustration that was used, sir, was the case of a plane dropping into a reactor and causing it to burst its containment, and cause widespread damage.

Senator ANDERSON. That is right. That is the one we discussed. Mr. HAUGH. Yes. As to whether the reactor operator and/or anybody else connected with the reactor was or was not liable in that instance is contingent in part upon the extent to which the theory of absolute liability may apply. Actually what has happened is that the contract covers the liability of the owner and operator of the reactor and anyone else that has supplied any parts, has anything to do with the operation, the construction of the reactor, its design, anything of that sort. If it were determined by the courts in this hypothetical case that was cited that there was no liability on the part of the reactor operator or of anybody connected with the design, construction, the maintenance, the operation of the reactor, then under those conditions there would be no liability on the operator, the owner, or a single soul, and that is what the liability policy was designed to cover. The liability of anybody that is connected with the

reactor.

Senator ANDERSON. Then you agree with me that the way the insurances companies had asked the AEC to change it and the AEC had changed it would have relieved the insurance companies of any liability in the case of an airplane dropping on a reactor?

reason.

Mr. HAUGH. No, sir, I did not, and they did not ask for it for that I want to point this out. It was very properly pointed out, and we feel that things should be pointed out in advance to avoid any potential understanding as to what liability insurance is and what

it does. Liability insurance, whether it be on these reactors, on an automobile, a compensation policy or anything else, covers the full legal liability of the people that are insured. In this reactor, the people that are insured are large in number in addition to the named insured. I am sure you realize it is all these other people that have anything to do with the construction of it. If there was an incident where the courts said none of those people is liable-none of themSenator ANDERSON. Then the Government is liable.

Mr. HAUGH. May I go further? I feel we should call to your attention the fact, it may be improbable, it may appear to be impossible, but there could be such a situation, and you should have been acqainted with it in advance. I say this: If the theory of the indemnity legislation is that people should be paid even if there is no liability on any of those people, then under those conditions, if that is the objective sought to be accomplished, the bill as now drafted does not do it and should be amended properly. We are not asking that you do that, sir. But we do feel in all fairness to you, it should be brought to your attention and you should know of it before the legislation is enacted. It is for that reason that we brought it out.

Senator ANDERSON. Can we get agreement from you that the purpose of the amendment was to make adequately sure the Government would be liable under those circumstances?

Mr. HAUGH. As I understand the amendment as proposed, it would do just that. Yes, sir, the Government would be liable under those circumstances as I understand that amendment.

Senator ANDERSON. Didn't you suggest the amendment?

Mr. HAUGH. We suggested that if that is the objective of the legislation to take care of the public even though there is no liability on the part of anyone connected with the reactor-then that is the way to do it.

Senator ANDERSON. The other day there was a little story about a mouse crawling into a switch, and disrupting the whole system. Would that mean that each time there is an accident, the insurance companies would be looking for the mouse or pigeon that cause the reactor to explode and thereby made the Government solely liable? Mr. HAUGH. No, sir, that is not the case in the general liability contracts written today, covering all sorts of liabilities, whether it be other utilities or not.

Senator ANDERSON. You don't know of one other policy, do you, where the Government is the whole indemnitor?

Mr. HAUGH. No.

Senator ANDERSON. Why would you bring this out? Of course, this is not the accepted practice. This is wholly new.

Mr. HAUGH. That is right. We are setting out to cover 100 percent the liability of all these people. We have stretched to make certain that all of the product manufacturers, supplies, all of the people that had anything to do with that reactor, their liability is covered.

Senator ANDERSON. I picked up a paper by Edward I. Farley of Marsh-McClennan, whom you and I would recognize as large and reputable insurance brokers, dealing with insurance of nuclear reactors. I read from it:

The $50 million per installation offered by the insurance industry to cover third party liability risks does not satisfy the amount of public liability protection desired by industry to meet possible damages and to justify risking stockholders' assets in the nuclear field. Therefore, to encourage the development of the atomic energy industry and to provide additional protection for the public, Congress is expected to make available up to $500 million indemnity above a stipulated amount of this private insurance. When this Federal indemnity becomes available, the total amount of financial protection should be adequate to remove concern.

(For full text of Mr. Farley's remarks, see p. 237.)

If you read that, you would conclude that the only thing that was desired was some additional coverage above the $50 million, but under the provision that you have suggested, and that the AEC recommends, the $500 million would become available without the private insurance companies picking up a nickel of the check.

Mr. HAUGH. Under those unique circumstances they would.

Senator ANDERSON. Don't you look toward unique circumstances? How many times have two airplanes flown together in broad daylight over the Grand Canyon?

Mr. HAUGH. And collided-once. I agree with you.

Representative COLE. What is the reason that your policy can't cover that situation without raising the rates?

Mr. HAUGH. It is a liability contract. The sole purpose of the contract is to say to the purchaser, plus all of his contractors and so forth, your liability is covered for so much money. If he has no liability, he says he doesn't need the coverage.

Representative COLE. It could be made to cover that situation, could it not; that is, your policy?

Mr. HAUGH. If the law said that he was liable for anything that happened, it would be automatic. I am not proposing that, you understand. Offhand, I would envision a great deal of difficulty how to phrase a policy that says, in addition to covering liability, it covers any other claim that may be brought.

Senator ANDERSON. You demonstrated it by the language you suggested be inserted in the act. You automatically transfer to the

Government all this indemnity.

Mr. HAUGH. From a catastrophe.

Senator ANDERSON. Do you think that is desirable?

Mr. HAUGH. I answer you, sir, in this way. In my own opinion only-not being a lawyer I suppose I should not express a view on it, but I shall.

Senator ANDERSON. I am not a lawyer either. I am in the insurance business, and I am trying to find out.

Mr. HAUGH. I would rather expect that it is quite probable that the mere existence of an unusual hazardous operation, such as the operation of a reactor, in all probability might be construed by the courts as in itself establishing liability on the part of the person that set it there, on the theory of absolute liability. Mr. Murphy discussed that in his report. It is not a settled fact, however, in all instances. The courts have held some varying views on this question of absolute liability. From our point of view, that particular proposal with respect to this amendment illustrated by the airplane crashing is for the purpose of calling attention now to the fact that if the purpose of the governmental indemnity, excess of insurance, is to