by statutory amendment you always have the question of why should we make an exception in this case for this group of people. You always find coattail riders who are anxious at the same time to amend the law so it will fit other situations in which they are interested. It was my feeling and the reason why we proposed it at this time, that in your original report to the Congress last year you had indicated an intention to take care of these people who had other property and who, therefore, because they could not sue themselves, would otherwise be left without protection.

My suggestions here were all intended to see that the bill as enacted was clear on that point. As proposed last year, I did not think it was clear. I thought the amendments suggested by the AEC in their proposed redraft clarified it to some extent in that change in the definition of indemnity and if a further change could be made in section 170c it would be clear as to what your intent was.

Representative COLE. Why is it not the simplest and fairest way to resolve these two problems by providing in the policy that the insured is indemnified for damage to property remote from the reactor? Mr. KELLY. That is in the liability policy?

Representative COLE. The other problem is that the insured is also indemnified for damage caused by a trespasser when the reactor operator is not held jointly liable.

Mr. KELLY. That would accomplish Senator Anderson's point. That is something Mr. Haugh could comment on much more than I could.

Representative COLE. I am discussing this with you as an objective

expert.

Mr. KELLY. Thank you, Mr. Cole. You are moving away from a liability policy.

Representative COLE. Is there any reason why those two situations could not be properly covered in the indemnity policy?

Mr. KELLY. You would have to write a different contract than the one that is now contemplated. I do not know any legal reason why you could not so write the contract. But whether it would be practical to do so I would have to defer to the liability companies.

Representative COLE. What would be the problems making it impractical?

Mr. KELLY. You are writing a combination, then, a contract which is a combination really of direct damage insurance and liability insurance. The rates that were quoted for the Dresden project, which Senator Anderson mentioned, were based on a straight liability contract. You might come to the point where the actuaries of the liability companies might feel that additional premium was needed. In the type of situation that we are talking about at Dresden where the other plants are some distance away, I would not have the faintest idea whether you would need a rate modification. I can't help keep coming back to this, Mr. Cole. These things we are talking about here are awfully remote possibilities. I hate to see us get off on side issues when discussing a bill whose basic purposes are so important. I am responsible for introducing one of those.

Let me say, in all honesty, if there is a question in your mind of passing a bill without making any provision for the property of the reactor owner or not passing the bill, I think this bill is so important

that you should not let this other problem get in its way. But if you are going to pass the bill and you feel that situation needs attention-and as I understood your original report and as I feel it should be written-it could be taken care of. I can see no reason why it should not be covered.

If you let this problem of the private plane operator who might drive his plane into a reactor divert you from your basic bill, it seems to me you are losing perspective. That is the 1 in 10 million chance. In most reactors a man could fly planes into it for a week at a time and never cause a runaway reaction.

Representative COLE. It is because these two situations are so very very unlikely and so very very remote that I would hope that it might be resolved in some fashion through the adjustment of the policy and thereby remove these two arguments which can be magnified and built up into a great story and result in not passing the bill.

Mr. KELLY. I think if you get off on those two points, in all honesty I would defer to Mr. Haugh and his associates who are much more familiar with that than I am.

Senator ANDERSON. You certainly would concede that you have given us another 2 or 3 months work by these new proposals. Mr. KELLY. I do not think so.

Senator ANDERSON. I have to go back and study the whole question of war damage insurance and how it is handled, because if the Government is going to be the insurer it has to brush up on the business.

Mr. KELLY. If I felt anything I have said today involving this problem-this problem which will not come up more than 30 times in the whole United States, of the property owned by the reactor operator other than the reactor itself it is a flea speck on the whole overall problem. I brought it to your attention because it was in your original report. I thought you had a definite intention to take care of it.

I was trying to be of some assistance to you in the drafting of language which would clearly take care of it or clearly throw it out. Let us not have a situation--and frankly that is the situation I was in after reading last year's bill-of not knowing whether you did or did For heaven's sake, let's not go to saying we have to restudy this for 3 months.

not.

Senator ANDERSON. I would not say you were not in the situation of not knowing whether you did or not. We were all improvising a little bit. We were all playing a little by ear.

Mr. KELLY. That is right.

Senator ANDERSON. There has not been too much experience in writing policies on nuclear reactors. The committee might be excused a little if we didn't contemplate all these things.

This is the situation that bothers me at least. If there is a damage, a bad fire, let us say, in Chicago, and it causes a tremendous amount of smoke and it is near the Merchandise Mart-I use that only because I used to be in an office right across the street from it and looked at it day by day-if it damages that enormous building and spreads smoke through it, the people who are carrying the fire insurance contract on the Merchandise Mart will probably arrange to have it repaired. Then they may go back to the person who had the fire with the smoke damage claim and take subrogation against him and recover.

But the owner does not have to stand around for the rest of his natural life trying to find out whether the smoke that drifted into his place was caused by somebody who was solvent or not.

Mr. KELLY. That is correct.

Senator ANDERSON. In this particular case, however, we get to where that is not true. You are going to exclude from your policies radioactive damage and all the other companies are going to exclude radioactive damage and fallout from their policies.

Mr. KELLY. They may.

Senator ANDERSON. And then when the Merchandise Mart is loaded down with radioactive fallout, they are going to have to close down— somebody estimated a minimum of 18 months-while the building is cleaned up and gets rid of its contamination. That is a substantial loss in itself.

When it is all through and the cleaning work has been done and all the rest has been done, they won't know then to whom they should turn, because if the operator of the nuclear plant at Dresden could claim that a pigeon had flown in and got wedged in between some wires, it was not the fault of theirs and they did nothing wrong— it was this pigeon-I do not believe we want to wait there forever to try to find out whether the pigeon is liable and can make a financial contribution. Somebody is going to have to take care of the Merchandise Mart.

Mr. KELLY. The Merchandise Mart will probably take care of doing its decontamination job itself. Whether it is a pigeon or whether it is clearly the fault of the reactor operator you would have the same situation. You would have the same situation if you had an incident at an AEC plant today.

Senator ANDERSON. You would have no subrogation.

Mr. KELLY. In this I can speak only for my own group and not for the whole property insurance industry. We do not feel that we can pick up all of those claims for contamination over the whole area of the fallout, pay them and then attempt to recover on subrogation, because we are frankly afraid that we do not have enough dollars to do it. We have $300 million. That is all.

In the Chicago area we insure close to a billion dollars in property spread all over the place.

Senator ANDERSON. I do not recall now but it seems to me we have had situations like that where it was impossible to just pick up all the claims at once and they had to go around and find out what others were going to do. The Texas City disaster had to wait a long time and Congress finally took some part in it.

Mr. KELLY. Of the Texas disaster, I can speak with some feeling, we paid a million dollars in claims. We were participants in the subrogation suit which was brought in which an effort was made to collect from the Federal Government on the grounds of its negligence. That case went to the Supreme Court and was turned down. It was in litigation for 5 or 6 years. No recovery was secured by us on our subrogation claims. That was all right. We were dealing with a million dollars in loss. We didn't get any money back.

Senator ANDERSON. No money that Congress paid out?

Mr. KELLY. Not a bit. The bill that was passed by Congress was carefully amended so that there would be no recoveries made by the

insurance companies who were bringing claims for subrogation. That was a million dollars, Senator, and it is all right.

We collected a premium for fire insurance. We had a fire insurance loss. We have no complaint. If it were $200 million and it was not the result of a fire in our premises but it was the result of a fire in an AEC installation at Paducah, which caused an incident, we just can't do it. It would be alleged that we should pay this loss because it is under the proximate clause rule-the first cause of the damage was fire, and we are supposed to pay out $200 million in loss spread over most of Kentucky where we have some very large risks. It is impossible for us to finance any such subrogation claims.

Senator ANDERSON. I do not want to pursue this further. There was some testimony the other day about the situation when we are making reactors for export abroad. Is there some feeling that we ought to do something about the business abroad and that the United States Treasury should be responsible also?

Mr. KELLY. There again I have to admit a complete ignorance of it because our companies operate only in the United States. I have no familiarity with the problems you are going to have on liability abroad.

Senator ANDERSON. No. This is a reactor that was going to be ordered from Westinghouse, GE, or B&W for sale to the Government of Siam. It had to be tested in this country before it is delivered. Because there would be no way to take care of that, the Government of the United States was going to have to assume the responsibility for the testing of that reactor. I say there is going to be a growing sympathy for trying to get the Government in this insurance busi

ness.

Mr. KELLY. I do not want the Government in the insurance business.
Senator ANDERSON. Nor do I.

Mr. KELLY. I want to make that as clear as I possibly can.
The CHAIRMAN. Mr. Price.

Representative PRICE. I have no questions.

Representative COLE. I have no further questions.

The CHAIRMAN. Thank you very much.

Mr. Freer is the next witness.

Representative COLE. Before Mr. Freer starts, in view of the hour, late yesterday afternoon is the first chance I had to see the proposed policy by Mr. Haugh's group in which a number of exceptions are included. I would like to ask Mr. Haugh to submit a memorandum for the record at a later time, if you please, outlining the reasons for making the exceptions in the policy which you have.

Mr. HAUGH. The reasons for the exclusions in the policy?
Representative COLE. Yes.

Mr. HAUGH. I would be very happy to do that. That is to be submitted as a part of the record of this committee?

Representative COLE. Yes.

Mr. HAUGH. I will be glad to do so.

The CHAIRMAN. Without objection it will be placed in the record. (The information referred to follows:)

APRIL 8, 1957. EXCLUSIONS INCORPORATED IN NUCLEAR ENERGY LIABILITY INSURANCE POLICY

As requested by Representative Cole in the course of the hearing on March 27, I am setting forth below a brief nontechnical explanation of the exclusions incorporated in the nuclear energy liability policy, copy of which has been put into the record of this hearing.

An exclusion in an insurance policy serves one and sometimes two of the following purposes:

1. Exclusion of a hazard commonly covered by another kind of insurance. 2. Exclusion of a hazard not common to all risks in the class for which the policy is to be written.

3. Exclusion of a hazard which the insurer or the insured does not wish covered by the particular policy.

The exclusions in the nuclear energy liability policy form should be read with these purposes in mind.

EXCLUSION (A)

This exclusion, I believe, is self-explanatory. It merely excludes obligations under loss of the type referred to therein. Employers very generally either purchase workmen's compensation insurance or qualify as self-insurers for such coverage. A similar situation exists with respect to nonoccupational disability coverage in the few States which have so-called disability benefit laws. Similarly, there are definite statutes governing the provisions for meeting unemployment compensation benefits.

EXCLUSION (B)

This exclusion applies to the case of an employee who might be injured under circumstances which would enable him, if he so desired, to bring a claim against his employer under employer's liability in lieu of workmen's compensation. Coverage for this employer's liability is afforded under the standard workmen's compensation policy.

The situation with respect to the exclusions (a) and (b) has been recognized in all proposed indemnity legislation.

EXCLUSION (C)

The purpose of exclusion (c) is to make uniform the contractual liability coverage afforded each person who is an insured under the policy. The exclusion is not applicable to an agreement by a facility owner, the named insured, to hold harmless a contractor against loss by reason of claims against the contractor by employees of the facility owner or others caused by the contractor's negligence. That obligation assumed by the facility owner would be covered by the policy. However, if the facility owner agreed to pay any employee of the contractor $100 weekly if he suffered radiation injury while on the owner's premises, that obligation would not be covered by the policy because it was created by contract.

If any insured under a nuclear energy liability policy wishes coverage for a contractual obligation he has assumed and which is not covered by the policy, he can submit it to the underwriting pool which issued the policy and if, after analysis, the obligation assumed is insurable and is acceptable to the underwriters, the hazard will be rated and if the rate is acceptable to the insured, the coverage will be written.

EXCLUSION (D)

Exclusion (d) bars coverage for bodily injury or property damage due to the manufacturing, handling, distribution or use by the insured of any weapon or other instrument of war. From a study of the decided cases, as well as from reference to the dictionary and other authorities, it is clear that the word "weapon" and the word "instrument" include only the complete weapon or instrument, ready for use for offensive or defensive war. An atomic bomb, complete in every respect, is a weapon. Hence a nuclear energy liability policy issued to one who, with other nuclear operations, assembles and produces atomic bombs does not afford him coverage for nuclear incidents resulting from his bomb manufacturing operations. However, the nuclear material, which in the complete weapon renders it so destructive, is not a weapon when separate from the remainder of the bomb. Hence this exclusion is not applicable to the operator of a nuclear facility who produces material to be incorporated in an atomic