Page images

Mr. NELSON. Tell me about your looking at smaller launch companies which might have smaller vehicles and a smaller payload, and so forth. You look at variations on this whole question of insurance. How does that-is it practical to do that, and can the Government define a flexible standard?

Mr. ENGLISH. Well, we asked the insurance industry specifically about that, and we also asked the Government representatives that we talked to, whether there could be variable premiums associated, for example, with lesser risks; whether there could be variation in terms of the amounts of insurance that would be required and prescribed among launch participants depending on the risk analysis, and it was certainly our clear impression that the Government would establish variable levels of risk insurance requirements. They weren't going to set a standard of X, apply it to a TITAN as well as to a much smaller vehicle. That remains to be seen, of course, because we haven't yet gotten those pronouncements from the Government officially.

Dan, was there anything in the insurance side? I think they felt there could be variations in terms of premiums with respect to different levels of risk.

Mr. CASSIDY. That's why I think it's important that the administrative regulator be involved in this thing so that he can make judgment to meet the needs and not get locked into either-unreasonable circumstances for extended periods, or have to get more legislation in order to recover, or whatever.

I think it has to look more like air traffic control here. The regulator is trying to enhance a flow rate and productivity. And minimizing those things that inhibit the process.

I think to a great extent the foreign governments recognize that the indemnification is such a remote-although potentially catastrophic event, it's so remote that it's very cheap for them just to provide it.

Mr. NELSON. Is the pooling feature of Price-Anderson impractical since we're dealing with so few launches here?

Mr. ENGLISH. In my opinion, it is. I was involved in putting Price-Anderson together, and at the time, Mr. Chairman, the socalled retrospective premium pooling arrangement was not even— well, I won't say it wasn't contemplated because the Insurance Committee at that time did look at that, but at that time there were only a couple of licensees and there didn't appear to be a base that would result in a pool of money that would cover the risks. That was a later development. The '57 Price-Anderson Act, which was the initial Price-Anderson, was a combination of insurance available on the world market and an indemnity scheme. It's not the same as it is today where you now have over a hundred licensees and a retrospective premium insurance scheme pooling.

Mr. CASSIDY. And one point on that, Mr. Chairman. Certain industries have established various pooling arrangements. But even within this industry, you have just a few. We're still talking about what happens when the pool runs out, and that's when we would then have to look at the policy of Government indemnification.

Mr. NELSON. Let me ask you about-if launchers are directed to obtain the maximum insurance, maximum probable to-at reasonable rates to cover the maximum probable risk, who should decide

what is reasonable, the Government or the insurance industry or the launch providers?

Mr. CASSIDY. For the third-party liability? There're two separate issues

Mr. NELSON. For the third-party.

Mr. CASSIDY [continuing]. The third-party or Government property.

Mr. NELSON. Third-party liability.

Mr. CASSIDY. Third-party, I think the Government should make that determination considering we're asking the Government to also provide indemnification. Now, if that was not the case, as it is in other industries, the industry makes its own determination of what its exposure is and will buy insurance accordingly.

Mr. ENGLISH. But I think the Government-I think the Government has the obligation, Mr. Chairman, to make that determination under the Commercial Space Act and they are proceeding to implement it. Obviously, they have to make that determination in consultation with the insurance industry, and they have to make it in relation to the risk assessment.

Mr. NELSON. Congressman Slaughter? I'm sorry. I didn't see you over there.

Mr. SLAUGHTER. That's all right.

Mr. NELSON. You were blocked by Mr. Clement and-from my line of vision. I'm sorry. I would have turned to you a lot earlier. Mr. SLAUGHTER. Reference has been made to indemnification being provided by the Government for possible loss. I guess loss that's in excess you might say of a maximum probable loss. But couldn't you accomplish the same thing by having a cap on certain kinds of recoveries, non-economic recoveries? That's getting to be something that's seriously considered in other fields, and why wouldn't that be a sound option for the Government?

Mr. CASSIDY. Mr. Slaughter, the paper does allow such implementation and solutions. What we are recommending here is that the Government does play a role in providing some sort of limitation on the liability of the operators.

Mr. SLAUGHTER. But that would be one limitation that could be used, isn't that correct?

Mr. CASSIDY. Yes, it could.

Mr. ENGLISH. Could be, Mr. Chairman. There is a slight issue under the Duke Power case, in which the Price-Anderson atomic energy liability limitation was challenged and we looked at that case in the subcommittee because, as Mr. Cassidy said, the paper doesn't make a specific recommendation as to a solution, other than the Government should contain the uninsurable risk.

Mr. SLAUGHTER. Which would mean either a limitation or indemnification?

Mr. ENGLISH. Could be. Duke Power, which was a case that went up to the Supreme Court, did indicate that where the Government sets a limit on liability without any indemnity that it may run afoul of the Constitution. It said that Price-Anderson, which was a combination of Government indemnity and a cap, was appropriate. But, if the Government simply set a limit X without any Government protection, the Court implied that it could run into difficulty. But a combination of indemnity and cap is certainly a potential.

Mr. SLAUGHTER. Thank you.

Mr. NELSON. I'd like to invite up Mr. Joel Greenberg, who is president of Princeton Synergetics.

We welcome you and we're looking forward to your statement. Your entire statement will be made a part of the official record and, if you could summarize your comments for us, we would be most pleased.


Mr. GREENBERG. Thank you.

Incidentally, I'm also a member of the AIAA.

Mr. NELSON. Good. See if you can flip that switch there. There you go.

Mr. GREENBERG. I'm also a member of the AIAA and, needless to say, not all of the members are tuned in with the paper, the position paper of the AIAA, in particular since the issues go much beyond the straight insurance or legal implications, I believe.

But at any rate, Mr. Chairman, and members of the House Committee on Science, Space and Technology, I appreciate the opportunity to meet with you today. I'm going to summarize my written statement and will limit my comments to the third-party liability issues.

Since 1961, I've been involved in numerous studies of space, space transportation systems and the commercial development of space. In recent years, I have been responsible for studies pertaining to launch insurance and third-party liability insurance for space launches. These studies have been performed for both NASA and the Department of Transportation. However, the views expressed and the conclusions reached in the following discussion are the sole responsibility of the speaker.

A number of firms have announced their intended entry into the commercial expendable launch vehicle market. They have expressed concern with the potential unlimited third-party liability that could result from an accident and the competitive advantage gained by Ariane, Proton, and other launch vehicles. As a result, the U.S. ELV firms have appealed to the U.S. Government to provide indemnification against claims above commercially available insurance and/or place a legislative cap or limit on maximum liability. H.R. 3765 responds, amongst other things, to this appeal. The AIAA, perhaps not unnaturally, has sided with the ELV industry in calling for indemnification and/or a legislative cap on liability.

The following discussion is presented to (a) bring out facts possibly not previously considered and (b) to broaden the current debate on third-party liability insurance so as to include consideration of the basic underlying cause of the liability insurance problem and likely future problems that might arise if the cause is not directly addressed. The underlying cause of the problem is the difference that currently exists in the ELV/Government/industry infrastructure employed by nations competing for ELV business.

The launching of any payload into space involves certain risks. These risks include the loss of the launch vehicle and/or payload,

and the loss and damage to property and injury to people. A major problem facing the commercial launch industry that is associated with each launch is a very small probability of an accident that may result in catastrophic third-party damage and resulting claims and awards. What is the maximum third-party damage and resulting claims that may result from a launch accident is like asking how high is the sky. Because every time a launch takes place it is possible, although with very little likelihood, that third-party claims may result and that these claims and resulting awards could exceed the resources of the commercial launch firms. Therefore, the commercial launch industry has turned to insurance for protection. However, no assurance has been forthcoming from the space insurance industry that insurance will be available when needed at reasonable rates.

In the case of the Space Shuttle payloads the problem of how high the sky is was solved by NASA indemnifying for claims in excess of the $500 million required insurance. Foreign launch competitors have in their launch service arrangements with their customers followed the NASA indemnification precedent. The risk of third-party liability beyond available levels of insurance is assured by these competitors through a combination of customer-provided or paid for insurance, in some cases with guaranteed availability and cost, coupled with indemnification in excess of the available insurance coverage. In addition, the governments of the European Community have agreed to indemnify Arianespace against claims in excess of this amount. Thus, U.S. commercial launch firms do not know how high the sky is, whereas Ariane does.

The desire of the commercial ELV firms to have a limit placed on their third-party liability is understandable. However, the determination of the need for indemnification and/or a legislative cap for the third-party liability claims should consider many factors including the following.

NASA has indemnified Space Shuttle commercial payloads against claims in excess of commercially available third-party insurance on the order of $500 million. It may, however, be argued that since the Government owns the Space Shuttle, and all Space Shuttle flights involve Government payloads and/or experiments in addition to commercial payloads, the Government should participate in the liability risk. Commercial ELV launches involve commercial launch vehicles and may involve only commercial payloads. Thus there is a significant difference and the indemnification precedent argument is not totally applicable.

The Price-Anderson Act has also been discussed as a precedent for indemnification and a legislative cap for third-party claims that might result from U.S. ELV launches. At the start of the nuclear power industry, in 1957, little experience existed with the provision of nuclear power and there certainly was little or no experience with respect to the accidents and claim statistics. Something was indeed necessary to allay the fears of the power industry if a nuclear power industry was to develop. Commercial ELV's are somewhat different-there have been in excess of 10,000 space launches prior to U.S. ELV commercialization. Also, the U.S. ELV firms have stated publicly that in the absence of Government indemnification and/or a legislative cap on third-party claims they would still

[blocks in formation]

intend to offer commercial launch services. In addition, damage from nuclear accidents was excluded from the coverage of home insurance policies, whereas no exclusion currently exists for damage caused by space launches.

Every individual as well as business entity faces risk of causing damage to third-parties. Auto drivers, homeowners, small businesses and large businesses face liability risk and purchase liability insurance to the maximum amount that is deemed affordable. Perhaps they aim to cover the probable maximum event. All parties face the same question concerning the finite amount of insurance and claims that might occur against them: How high is the sky? Nearly all human endeavors, private and corporate, are undertaken without having an answer to this question. For example, the airlines may have a higher likelihood of accidents comparable in magnitude to ELV's with 747's operating continuously in areas of high population density, and they don't have any launch controllers to blow up an errant vehicle. The airlines have finite liability insurance and do not have an answer to how high is the sky. Life and business go on without knowing how high the sky is. An argument may be cited that the ELV firms are different because they are needed for national security reasons. If this is indeed the case, then why focus on any other argument? This is in itself sufficient justification for indemnification or a legislative cap.

U.S. commercial ELV firms have stated that they are at a significant competitive disadvantage because of foreign governments' involvement in third-party liability insurance. ELV firms market a service comprised of multiple attributes that include insurance cover, reliability, price, availability and schedule. When considering competitiveness all attributes should be considered, not just insurance. U.S. commercial ELV firms can remain competitive on the insurance issue if they offer the same insurance package as Arianespace. But in the absence of Government indemnification they will have to bear somewhat more risk than Arianespace.

With respect to the price attribute, how has the recent softening of the dollar affected relative pricing? In order to remain competitive in the short-term, is it really necessary for the U.S. Government to provide for indemnification? If the answer to this last question is no, then the insurance issue is a non-issue. If the answer is yes, then the issue centers on where Government indemnification of third-party liability may be leading.

Assume that Government indemnification and/or a legislative cap is the chosen course of action undertaken in order to ensure the competitiveness of the U.S. ELV's. What happens when the ELV firms become noncompetitive in the other attributes; for example, price? Play out a scenario. In the short term all ELV firms will prosper because demand far exceeds supply. In the long term, perhaps 5 years, supply exceeds demand. Under this condition it is likely that foreign competition, because of the deep pockets provided by foreign government involvement, will follow price reduction policies to maintain or increase their market share. U.S. firms will then be at a disadvantage: they will be noncompetitive with respect to the price attribute. Will they then at this point again approach the U.S. Government citing prior Government involvement and in

« PreviousContinue »