1. THE INSURANCE POINT OF VIEW Sophie Moysan Aviation & Space Department MARSH SA PROJECT 2001 PLUS WORSHOP - “Towards a harmonized approach for National Space Legislation in Europe” - Berlin, January 2004

2. “Towards a harmonized approach for National Space Legislation in Europe” THE INSURANCE POINT OF VIEW
Preamble
I- Space Insurance Overview
II- Matters of specific relevance from the insurance point of view
Marsh

3. Liabilities between “participants” to a given space project:
“Towards a harmonized approach for National Space Legislation in Europe” Preamble -
Liability considerations underlying the structure of space insurance (1/2) :
Liabilities between “participants” to a given space project:
Extensive inter party waivers of liability and hold harmless agreements are incorporated in the launch procurement contracts protecting sub-contractors all along the satellite and launcher contractual chains
Liabilities within the satellite procurement chain itself and liabilities within the launcher procurement chain depend principally upon the national law applicable to the relevant contract but are assumed by insurers to be dealt with contractually by way of waivers, indemnities and hold harmless agreements.
Marsh

4. Liabilities to third parties to a given space project are governed:
“Towards a harmonized approach for National Space Legislation in Europe” Preamble -
Liability considerations underlying the structure of space insurance (2/2) :
Liabilities to third parties to a given space project are governed:
principally but not exclusively by the 1967 Space Treaty (possible international liability of the “appropriate State” related to its duty to authorise and continuously supervise the activities of private entities in outer space) and by the 1972 Liability Convention for damage caused by space objects (international liability of the launching State)
and by national laws (specific Space Law or not)
and also by specific contractual provisions (hold harmless agreements), if any, between “participants” to the space project.
Marsh

5. Two main types of space insurance (covers and markets) :
“Towards a harmonized approach for National Space Legislation in Europe” I - Space Insurance overview
Two main types of space insurance (covers and markets) :
1- “Space” insurance
- covering loss of or damage to the insured satellite itself
- placed on a highly specialised and small albeit international insurance market = the “Space Insurance market”
2- Space Liability Insurance
- covering the insured’ s liability to third parties
- placed on a sub-market of the aviation insurance market
Common characteristic = to cover “space” risks = launch and in-orbit risks
(excluded by the general Property Damage and Casualty Insurance markets)
Marsh

6. Space Insurance Overview 1- “ Space ” insurance
- Two main types:
launch insurance
satellite in orbit insurance
- Covering total loss, constructive total loss or partial loss of the insured satellite (including loss of operational capability) and sometimes some resulting loss of revenues
- On an “all risks” basis (including failure due to inherent defect)
- Sum insured = agreed value
- Significant premium
- Period of coverage : limited
- Extensive waiver of subrogation rights by Insurers against liable parties and their insurers
Marsh

7. Space Insurance Overview 2- Space Liability insurance (1/3)
- Two main types:
Spacecraft Third Party Liability Insurance
for space operators : launch agencies, satellite operators/owners, and also “in orbit positioning/in orbit keeping” operators
additional assureds : usually, all participants to the space project including the “appropriate State(s)” and “launching State(s)”
Space Products Liability Insurance (for space product manufacturers and sub-contractors)
either as an extension to an aviation product insurance policy (Space Endorsement),
or by way of a specific space product liability insurance program (E.S.P.L.S.)
Marsh

8. Space Insurance Overview 2- Space Liability insurance (2/3)
Common characteristics (1/2):
- Reluctance or even refusal of space liability insurers to cover :
liabilities between the participants to the space project
liabilities for failure, lack of performance or malfunction of the space service
- Insurers’ assumption/requirement : waivers of recourse and hold harmless agreements to the benefit of the insured and its insurers so far as possible in accordance with applicable law.
- Maximum Insured limit = maximum limit available at a given time on the insurance market
Marsh

9. Space Insurance Overview 2- Space Liability insurance (3/3)
Common characteristics (2/2):
- Insufficient premium generated overall - extremely volatile market
- Period of coverage : limited (12 months max. generally)
- Coverage on an “occurrence” basis: are covered only the liabilities relating to occurrences having taken place during the period of coverage
“Occurrence” = accident or incident or repeated exposure to conditions caused by an insured space object/space product and causing bodily injury and/or property damage to third parties
Marsh

10. compulsory liability insurance is not the only subject of relevance,
“Towards a harmonized approach for National Space Legislation in Europe” II- Matters of Specific relevance from the insurance point of view
Towards a harmonized approach for National Space Legislation in Europe,
compulsory liability insurance is not the only subject of relevance,
from the insurance point of view.
1- Compulsory spacecraft third party liability insurance
2- Legal limitation of liability
3- Waiver of recourse & hold harmless agreements
4- The “Time” issue
5- Space debris
6- G.N.S.S.
Marsh

11. 1- Compulsory Spacecraft Third Party Liability Insurance (1/2)
“Towards a harmonized approach for National Space Legislation in Europe” II- Matters of Specific relevance from the insurance point of view
1- Compulsory Spacecraft Third Party Liability Insurance (1/2)
- Current situation :
liability insurance is “de facto” mandatory for all launch agencies but
very few States impose liability insurance upon satellite operators
mandatory liability insurance limits vary from country to country
not a level playing field
international harmonization is certainly desirable
Marsh

12. 1- Compulsory Spacecraft Third Party Liability Insurance (2/2)
“Towards a harmonized approach for National Space Legislation in Europe” II- Matters of Specific relevance from the insurance point of view
1- Compulsory Spacecraft Third Party Liability Insurance (2/2)
- ultimately, the compulsory insurance limits can not exceed the limits available on the insurance market
the insurance market capacity might drastically shrink or even totally disappear should a major insured loss occur (as the overall space liability premium collected by the market since the very start of space activities up to now could well be insufficient to cover one single such loss)
for liability coverage in excess of available insurance limits, alternative solutions would have to be set up : State(s) guarantees, international compensation fund, compulsory reinsurance schemes backed by the States, etc…
Marsh

13. 2- Legal limitation of liability (1/2) - Current situation :
“Towards a harmonized approach for National Space Legislation in Europe” II- Matters of Specific relevance from the insurance point of view
2- Legal limitation of liability (1/2)
- Current situation :
No “appropriate” State currently limits the liability of satellite operators towards the State at the level of available/compulsory insurance limits
No “appropriate” State undertakes to hold the satellite operators harmless from third party claims beyond the level of available /compulsory insurance limits
As for Launch operators, there is no harmonization in the protection granted to them by the relevant Launching States beyond available /compulsory insurance limits
No “appropriate” State limit the liability of space product manufacturers
Conclusion : space operators (specially satellite ones) and space product manufacturers are currently legally exposed to unlimited liability
Marsh

14. 2- Legal limitation of liability (2/2)
“Towards a harmonized approach for National Space Legislation in Europe” II- Matters of Specific relevance from the insurance point of view
2- Legal limitation of liability (2/2)
As already indicated, space liability insurance can not be the paramount solution :
Space liability Insurers can not provide unlimited coverage in either amount or duration
The space liability insurance market is extremely volatile: available limits could disappear overnight
Therefore, some consideration should be given to the possibility of setting up harmonized international limitations of space liabilities.
Marsh

15. 3- Waiver of recourse & hold harmless agreements (1/2)
“Towards a harmonized approach for National Space Legislation in Europe” II- Matters of Specific relevance from the insurance point of view
3- Waiver of recourse & hold harmless agreements (1/2)
- Current situation :
The structure of insurance applicable to space activities takes into consideration the use of extensive inter-party waivers of liability and hold harmless agreements (in particular in the launch procurement contracts)
The validity and enforceability of these contractual waivers of recourse and hold harmless agreements vary depending upon the applicable national law. There is a lot of uncertainty in that respect (quid in case of gross negligence, quid in case of bodily injury, etc… ?
As a result, it is extremely difficult for liability insurers to assess the exposure of their space insureds.
Marsh

16. 3- Waiver of recourse & hold harmless agreements (2/2)
“Towards a harmonized approach for National Space Legislation in Europe” II- Matters of Specific relevance from the insurance point of view
3- Waiver of recourse & hold harmless agreements (2/2)
- Consideration should be given to expressly validating these contractual protections in National Space Legislation in Europe, taking into consideration that these contractual protections are not only validated but are even required under the US Commercial Space Launch Act.
Marsh

17. - Considerable time might elapse between (as an example):
“Towards a harmonized approach for National Space Legislation in Europe” II- Matters of Specific relevance from the insurance point of view
4- The “Time” issue (1/4)
- Considerable time might elapse between (as an example):
defective manufacturing of a space component (year 1)
delivery of the satellite to the operator (year 2)
loss of control of the satellite in orbit (year 10)
collision in orbit with another satellite (year 15)
the claim (year 16)
- Which liability insurance policy shall apply ? That of year 1, 2, 10, 15, 16 ?
Marsh

18. policy period = 12 months maxi
“Towards a harmonized approach for National Space Legislation in Europe” II- Matters of Specific relevance from the insurance point of view
4- The “Time” issue (2/4)
- Currently :
policy period = 12 months maxi
space liability insurance is on an “occurrence basis” (as opposed to a “claims made” basis), meaning that are covered in year 1 only the liabilities relating to an occurrence that occurred in year 1
“Occurrence” = accident or incident or repeated exposure to conditions caused by an insured space object/space product and causing bodily injury and/or property damage to third parties
- Uncertainty, in our example, as to whether policy of year 10 should apply (loss of control = incident ?), or that of year 15 (collision = accident and damage ?)
- Launch of the defecticeThe structure of insurance applicable to space activities takes into consideration the use of extensive inter-party waivers of liability and hold harmless agreements (in particular in the launch procurement contracts)
The validity and enforceability of these contractual waivers of recourse and hold harmless agreements vary depending upon the applicable national law. There is a lot of uncertainty in that respect (quid in case of gross negligence, quid in case of bodily injury, etc… ?
As a result, it is extremely difficult for liability insurers to assess the exposure of their space insureds.
Marsh

19. Now, in application of Article L 124-5 of the Insurance Code:
“Towards a harmonized approach for National Space Legislation in Europe” II- Matters of Specific relevance from the insurance point of view
4- The “Time” issue (3/4)
- In France, the Act of 1/8/03 on Financial Security (entered into force on 2/11/03) has modified the Insurance Code.
Now, in application of Article L of the Insurance Code:
Coverage is triggered, depending upon the choice of the parties (if the insured = an entity/professional) either by the “damageable fact” or by the claim.
Coverage if triggered by the “damageable fact” protects the insured against... (liabilities) providing the “damageable fact” occurs between the initial inception of cover and its expiry or termination date, whatever the date of the other elements.
“Damageable fact” is defined in an Annex to the Insurance Code as “Fact, act or event at the origin of the damage suffered by the victim and giving rise to claim”
Marsh

20. “Towards a harmonized approach for National Space Legislation in Europe” II- Matters of Specific relevance from the insurance point of view
4- The “Time” issue (4/4)
- Conclusion: uncertainty as to the time trigger for space liability insurance both under international standard policy wording (“occurrence”) and under applicable national insurance laws.
- Consideration should be given to a harmonized approach in National Space Legislation in Europe of the time trigger to be adopted for space liability insurance
Marsh

21. - Space debris = space objects under the 1972 Liability Convention ???
“Towards a harmonized approach for National Space Legislation in Europe” II- Matters of Specific relevance from the insurance point of view
5- Space debris
- Space debris = space objects under the 1972 Liability Convention ???
- Time trigger question at its worst since space debris might cause damage in centuries to come
- Identification of debris is a problem
- Very few liability insurers agree to cover space debris. This coverage might totally disappear at any time
- Clearly, liability insurance is not an appropriate solution if only because debris’ life often well exceed insurance companies’ life
Marsh

22. “Towards a harmonized approach for National Space Legislation in Europe” II- Matters of Specific relevance from the insurance point of view
5- G.N.S.S.
- Need to clarify, from an insurance point of view, the liability framework for G.N.S.S. and in particular for Galileo (nature of the space signal, liability regime for failure/malfunction of the space service)
Marsh