(The letter referred to follows:) Mr. ROBERT LOWENSTEIN, ATOMIC INDUSTRIAL FORUM, INC., Acting Director, Division of Licensing and Regulation, DEAR BOB: The definitive forms of indemnity agreement to be executed by the Commission with licensees furnishing insurance policies as proof of financial protection and with licensees furnishing proof of financial protection in the form of their own resources were reviewed by the Forum's ad hoc committee on nuclear liability and insurance on May 25. Those attending the meeting were Francis X. Boylan, H. E. Clark, Howard M. Cohen, Arthur C. Gehr, Kenneth C. Hall, Arthur Murphy, Claude Rice, Malcolm A. Tait, DeRoy C. Thomas, F. C. Voss, Arthur F. Williams, and myself. The definitive forms of indemnity agreement represent a considerable improvement over the earlier proposed forms of agreement and with the exception of the items specifically noted below, the committee believes that the new forms will adequately provide the protection to the public and the industry contemplated by the Price-Anderson legislation. The committee also expressed its appreciation for the many opportunities afforded by you to present its views and comments with regard to the developing forms of indemnity agreement. The comments set forth below are in two categories. In the first category there are a number of editorial suggestions. The second category includes a number of suggested substantive modifications. Although the committee recognizes that the forms of agreement published in the Federal Register on April 22, 1961, are definitive forms, their amendment to reflect the items below would contribute, we think, to their improvement. EDITORIAL SUGGESTIONS A. Paragraphs 1 and 8 of article 1 should be amended to read as follows: "1. ['Nuclear-reactor,'] 'Byproduct material,' 'person,' 'source material,' and 'special nuclear material' shall have the meanings given them in the Atomic Energy Act of 1954, as amended and the regulations issued by the Commission. "8. "The radioactive material' means source, special nuclear, and byproduct material which (1) is used or to be used, [in] or is irradiated or to be irradiated at the location [by, the nuclear reactor or reactors subject to the license or licenses designated in the Attachment hereto], or (2) which is produced as the result of operations at the location [of said reactor (s)]." Comment: The definition of the term "nuclear reactor" in the Commission's regulation is not precise. Limiting the term "the radioactive material" to materials used or to be used in, or irradiated by the nuclear reactor, etc., preclude the licensee and his suppliers from knowing precisely the scope of activities covered by the indemnification agreement. Accordingly, it is suggested that the term "nuclear reactor" be deleted from the first definition and that definition No. 8 be modified as shown. The term "nuclear reactor" is not used elsewhere in the agreement. The term "nuclear reactor," of course, is designed to limit the activities covered to those authorized in the facility license. The AEC could properly define "the location" in the attachment to the indemnity agreement to exclude therefrom such activities on the site which are not to be covered by the indemnity agreement. This change might in some instances affect the scope of the agreement if "the location" is not carefully defined in keeping with the intent of the agreement. If adopted, it would eliminate an important ambiguity. B. Subparagraph 4(a) should be amended to read as follows: "(a) [With respect to] The transportation of the radioactive material to the location shall be deemed to begin when the radioactive material is placed on the transporting conveyance for transportation to the location without any [such transportation is not by pre-determination to remove [to be interrupted by the removal of the material from the transporting conveyance for any purpose other than the continuation of such transportation to the location or temporary storage incidental thereto;' Comment: The suggested change will not alter the meaning of the definition, particularly in view of the statement of considerations which provides that"A principal purpose of provisions covering transportation 'to the location' is to cover shipments of nuclear fuel directly from a fuel element fabricator's plant to the site of the reactor in which the elements will be used as fuel." The suggested change would make subparagraph 4(a) conform to the style in subparagraph 4(b) and would eliminate any question as to the coverage intended. Although the suggested language would depart from that set forth in the NELIA-MAELU policies, it appears that the indemnity agreements and the policies would adequately mesh if the suggested language is adopted. C. Substitute "ended as defined in subparagraph 4(b), Article I" in place of "been completed as provided in paragraph 4, Article I" in paragraph 1 of article II. Comment: The above change would conform the language in paragraph 1, article II, more closely to the language of subparagraph 4(b) of article I. D. Add the following proviso at the end of subparagraph 2(b) of article II: "Provided, however, That this subparagraph shall not be construed or operate to release or relieve any person from liability to the licensee assumed under contract by such person for the replacement, repair, or refund of the purchase price of, items or services furnished by such person to the licensee." Comment: This suggested change would incorporate into the body of the agreement itself the concept set forth in the statement of considerations as follows: "The form indemnity agreements do not affect contractual obligations of suppliers to reactor licensees to repair or replace components furnished by such suppliers." The suggested language departs from the AEC statement only in that it would include within the proviso the obligation of suppliers to refund the purchase price of items or services furnished. This modification would conform closely to the common forms of express warranties employed in the reactor industry. The committee believes it is preferable to expressly provide this proviso in the agreement form than to include it only in the statement of consideration. E. The term "other" in the phrase "bears to the sum of the limits of liability of all other nuclear energy liability insurance policies" in paragraph 6(a) and 6(b) of article II should be deleted. Comment: The inclusion of the term "other" in the above-quoted phrase appears to be inadvertent. F. The term "licensee" is used in the agreement to refer to the entity with whom the Commission executes the indemnification agreement. In paragraph 6(c) the term "licensee" appears in three places. In the first two cases the term "licensee" is intended to refer to a different person, i.e., one who provides financial protection in the form of his own resources. Accordingly, the first three lines of paragraph 6(c) should be amended to read as follows: "If any of the other applicable agreements is with a person who has furnished financial protection in a form ***." G. Paragraph 3 of article III should be amended to insert the term "public" before the term "liability." Comment: The omission of the term "public" appears to be inadvertent. It is noted that in the form of agreement to be executed with licensees who self insure the term "public" appears in paragraph 3 of article III. H. Substitute "ended as defined in subparagraph 4(b), Article I" in place of "been completed as provided in paragraph 4(b), Article I" in article VII. Comment: See comment on item C above. OTHER SUGGESTIONS A. Although the proposed forms of indemnity agreement previously published by the AEC made no mention of it, the definitive forms exclude from "public liability" claims under State or Federal workmen's compensation acts of employees of persons indemnified who are employed on the "transporting vehicle" if the nuclear incident occurs in the course of transportation of the radioactive material. The definitive forms of agreement would also exclude coverage for property damage to transporting vehicles and containers of persons indemnified if the nuclear incidents occur in the course of transportation. These two exclusions are probably based upon section 11u of the Atomic Energy Act of 1954 which provides: "at the site of and in connection with the activity where the nuclear incident occurs." The interpretation of this provision in the indemnifi. cation agreements fails to recognize the legislative history. As to the exclusion of workmen's compensation claims of employees employed on the transporting vehicle, we note that Committee Report H.R. No. 435 provides, on pages 17 and 18, that the exception for claims under workmen's compensation acts for employees employed in connection with the activity where the incident occurred is based upon "the thought that the insurance carriers who pay workmen's compensation for this group of personnel know and understand the risks they are taking and charge accordingly. *** For those employees who are not employed in connection with the activity, the workmen's compensation premium does not include any charge for this protection. The premium for the workers not employed at the activity is not calculated on the possibility of any nuclear explosion. Therefore, there is a real and fair basis for permitting the carriers for these employees to have their claims included in the claims to be indemnified." An incident in the course of transportation may result in claims by the employees of the carrier of or any person other than the licensee who may be liable for the incident. The insurance carriers who pay workmen's compensation for such personnel, however, would not have adjusted their rates to accommodate the risk of a nuclear incident. The exclusion of their claims from "public liability" would be contrary to the quoted expressions in the committee report. The exclusion of property damage to the transporting vehicles and containers also does not conform with the intent of the Price-Anderson Act which was to exclude protection only for damage to property located at the reactor site and used in connection with the reactor activity. The NELIA and MAELU policies provide protection for workmen's compensation claims and damage to the transporting vehicles and the containers so long as the incident occurs away from the location. Such coverage in the NELIA and MAELU policies might create a gap between the indemnity protection and the underlying insurance in that payments by the insurers for damage to the transporting vehicles and containers would reduce the available insurance. However, item 2(b) in the attachment could be construed to bring the indemnity protection down to meet the available insurance, even in the event of payments by the insurers for such claims. B. Article IV may tend to impede prompt and expeditious settlement of claims with the inevitable result that final payments to claimants will be increased. This could result in higher insurance costs to the reactor licensees. The reactor licensee is also placed in a most difficult position by the provision in article IV. On the one hand, the insurance agreement approved by the Commission as an acceptable form of financial protection authorizes the insurer to settle claims. On the other hand, article IV places upon the licensee the obligation to provide to the Commission the right to require Commission approval of claims settlements. Thus, it is possible that the Commission could find that a particular settlement is excessive and to the extent of the excess settlement deny indemnity to the licensee. The committee noted with favor that the staement of considerations recognizes that "it may be desirable to reconsider the provisions of article IV in the light of arrangements which may be worked out between the AEC and the insurance syndicates." It would be desirable for such arrangements to be worked out expeditously. C. The common occurrence provision, admittedly a farfetched problem, goes far toward eliminating the gap in protection "which might otherwise exist." However, a gap may remain in the instance of a common occurrence involving two facilities, one of which is indemnified and one of which is not indemnified under Price-Anderson. Under such circumstances the common occurrence provision in the indemnity agreement would not apply, although the common occurrence provision in the insurance agreement would apply. Without delaying issuance of the indemnity agreements, attention should be directed toward conforming the insurance policies and indemnity agreements on this point. The changes in the definitive form of agreement with respect to the section 53 (e) 8 problem and the elimination of the $1 million floor in the event of payments by the insurers are significant contributions to the improved form of agreement. Sincerely yours, GERALD CHARNOFF. Mr. OLSON. Most of the Forum's suggestions are editorial in nature; however, there are three suggestions of a substantive nature which are discussed beginning on page 5 of the letter. The Commission has these suggestions under consideration. Article IV of the form of indemnity agreement provides that the Commission shall have the right * * * to require the prior approval of the Commission for the settlement or payment of any claim or action asserted against the licensee or other person indemnified ***. This provision applies in cases only where the Commission determines that the United States will probably be required to make indemnity payments under the provisions of the agreement. NELIA and MAELU have objected to the provision on the ground that they believe it exceeds the Commission's statutory authority; and might interfere with prompt handling of claims. The provision in question does not require Commission approval, but only reserves to the Commission the right to require Commission approval. The Commission believes it has authority under sections 161 and 170 of the Atomic Energy Act of 1954, as amended, to adopt the provision. We expect that this authority would be exercised only in special circumstances and in such manner as to avoid undesirable delay in the settlement and defense of claims and actions. Discussions have been held with both pools looking toward the adoption of an agreement between them and the AEC concerning claims investigations and handling. Such arrangements for claims administration as finally agreed upon, may very likely provide a basis for composing our and the pools' views on the "right of approval" question. By notices of proposed rulemaking, which were also published in April of this year, public comment has been invited on proposed forms of agreement which the Commission will execute with those Federal agencies and nonprofit educational institutions who are subject to part 140. Except for changes made because Federal agencies and nonprofit educational institutions are not required to furnish financial protection, the forms of these proposed indemnity agreements are substantially similar to those adopted by the Commission for execution with licensees who do furnish financial protection. Only one comment has thus far been received on the proposed forms of agreement. INDEMNIFICATION OF LICENSEES USING UNIRRADIATED URANIUM I should like, now, to mention two matters which the Commission has under consideration. One study relates to the question whether the Commission should exercise its authority to extend the provisions of the Price-Anderson Indemnity Act to licensees (such as reactor fuel processors and fabricators) who possess and use substantial quantities of unirradiated, enriched uranium. It will be recalled that section 170 of the Atomic Energy Act gives the Commission discretionary authority to require financial protection with respect to licenses for source, special nuclear, and byproduct material. If the Commission should exercise this authority, the act requires that the Commission indemnify the licensee and other persons indemnified from public liability, arising from nuclear incidents, which is in excess of the required level of financial protection. As an aid in considering the question relating to fuel processors and fabricators, the Commission, by Federal Register notice, published on March 29, 1961, invited public comments from the atomic energy industry, the nuclear energy insurance company, and other interested persons and organizations. Approximately 26 responses are presently under review. The second matter is concerned with whether indemnity should be extended to licensed users of plutonium, U233, and magacurie quantities of byproduct material. PROPOSED LEGISLATION By letter dated April 8, 1959, and again in a letter dated April 15, 1960, the Commission recommended to the Congress the adoption of an amendment to the indemnity provisions of the 1954 act to eliminate coverage of liability for damage to property, which is at the site of, and used in connection with, the licensed activity. The proposed amendment was reintroduced as section 3 of the omnibus bills (H.R. 7798; S. 2147) at this session of the Congress. Commission representatives testified in support of this proposed amendment at hearings on the omnibus bill held on June 27 and 29, 1961. ADMINISTRATION OF LICENSEE INDEMNITY As of June 30, 1961, 51 reactor licensees were indemnified under the provisions of the Price-Anderson Act. These included 15 private organizations who carried insurance; 30 nonprofit educational institutions; and 6 Federal agencies. The Commission, thus far, has received no claims under indemnity agreements with licensees. Our most recent information indicates that the insurance pools, also, have received no claims under their nuclear energy liability insurance policies. It may also be of interest to note that the Commission, for the first time, has recently applied Price-Anderson indemnity to a licensed nuclear facility other than a reactor. This is the Martin Co. plant at Quehanna, Pa., in which the company will chemically process irradiated Americium containing plutonium. Senator ANDERSON. I am a little bit lost at the reference to 51 reactor licensees being indemnified under the provisions of the Price-Anderson Act. How did you indemnify them? Mr. OLSON. By giving them agreements under the Price-Anderson Act. Senator ANDERSON. Well, "indemnify" has a specific meaning in in surance. Mr. OLSON. It was an undertaking to indemnify. Because the plant-this is the Quehanna plant-will separate small quantities of plutonium, it is a "production facility" as defined in part 50 of the Commission's regulations, and the Price-Anderson Act is, therefore, automatically applicable. Pending determination by the Commission of specific criteria for establishing amounts of financial protection to be required for chemical processing facilities, the amount of financial protection ($3.5 million) for the Martin facility was established, on an interim basis, by relating the facility to a theoretical, fictitious "reactor equivalent." Based on amounts of radioactive material to be present, the radioactive material in a single cell of the Martin plant was considered to be approximately equivalent to the inventory of strontium 90 and iodine in an 11-megawatt (thermal) reactor operated at power for approximately 180 days. |