While Pool Re has extended cover to include a terrorist attack on a nuclear site, there is still unease over the issue of liability. R T Houseago reports

The changes to the operation of Pool Re terrorism reinsurance cover, which came into effect on 1 January 2003, will be welcomed by those trying to cope with the increased uncertainty and heightened risk of terrorism. Broadly speaking, the changes operate by making Pool Re cover available on an "all risks" basis rather than the previous restriction - property damage by fire and explosion. They even go so far as to extend cover to the results of the setting off of a nuclear device by terrorists. Commercially, an initiative has been taken to reintroduce competition into the terrorist cover market by a phased increase in retentions over the next four years. New commercial reinsurance should appear or the direct market will take on the retention. Well that is the plan anyway.But the welcome changes to the Pool Re scheme only go so far. What would be the outcome in the case of nuclear installations where the threat of immediate catastrophic damage is accompanied by possible long-term effects? The full potential of the damage may not be fully understood. The Pool Re scheme remains one addressed on a first party basis to physical damage to commercial property and consequent business interruption flowing from that damage. There are 15 nuclear power stations dotted around the UK and the nuclear fuel reprocessing plant at Sellafield. All naturally feature on the critical national infrastructure list.The threat may not be specific in the UK, but certainly in both Australia and Finland in recent times more specific perceived threats have been noted and it has been widely reported that the French now have anti-aircraft missiles protecting their own nuclear sites. So, in the event of the worst actually happening, what is the framework of resulting liabilities that might be faced by the operating authorities which hold UK nuclear site licences? What ultimate protection might there be, according to such liabilities, to those still unprotected by first party cover?The scope of potential financial loss is truly staggering. The Chernobyl incident was the most expensive industrial accident in modern history and the lowest realistic estimate of total losses was in excess of $6bn (£3.7bn) in 1991 and still rising. The much smaller Three Mile Island incident involved a far less catastrophic event, but is still estimated to have generated losses of $4bn (£2.5bn). The starting point for considering legal liabilities is the 1960 Paris Convention on third party liability in the field of nuclear energy, in accordance with the principles of which there is in England and Wales the Nuclear Installations Act [1965]. This provides a comprehensive code, limiting and regulating the liability of nuclear site operators for events on-site, and to an extent off-site, for example accidents in transit. The main principle enshrined in statute is that the operator of the nuclear site is absolutely liable for personal injury and damage to property caused by a nuclear incident. This is strict liability in English law, so that all that is required is proof of cause and then the operator is liable, irrespective of personal fault. The site operator's strict liability exists subject to certain financial limits that are currently set, that is, the operator is potentially liable for about the first £140m of damage. Above that, the state is required to assume liability for the consequences of any nuclear incident. Liability, if any, is focused on the site operator; anyone else is excluded by statute.Section 7 of the 1965 Act is the main statutory provision that gives rise to the strict liability of the site operator without fault, and extends that liability to encompass any nuclear incident involving nuclear material in transit on behalf of the site operator, or which has at any time been on the operator's site.If claims are brought following a nuclear incident, which in the aggregate exceed £140m then the government has to top-up funds to a minimum level of around £260m. But thereafter, any further top-up payments are a matter of discretion only for the government and there is no right to compensation above the ceiling of £260m. Claims against the operator must be made within ten years of the nuclear incident and all claims must be made within 30 years, so that claims between years ten and 30 must be made directly to the Energy Secretary.Against this background there are a number of issues on which attention has tended to focus as part of the renewed debate spurred by 11 September, but four are particularly important.

  • Would the consequences of terrorist attacks actually be within the strict liability established by section 7 of the 1965 Act?
  • Is the scope of damage for which compensation is payable adequately wide?
  • How are persistent causation problems to be tackled fairly?
  • Can the available compensation ever really be sufficient in any event
  • The balance of opinion is that it should make no difference to the strict liability of the site operator that the nuclear occurrence was triggered by a terrorist attack. This is because "occurrence" for the purposes of the Act is not specifically defined. In ordinary language it would seem wide enough to encompass the final release of nuclear material, even in a deliberate attack. This is supported by reference to the Paris Convention, the principles of which underlie UK legislation. The strict liability envisaged by the Paris Convention was to be excluded only in the event of damage caused by a nuclear incident directly due to an act of armed conflict, hostilities, civil war or insurrection. This has found its way into section 13 of the 1965 Act, which excludes only an occurrence attributable to hostile action in the course of any armed conflict, including any armed conflict within the UK. Perhaps the point for debate, post-11 September, is at what point the "war or terror" would admit legally to involving such "armed conflict" on the rather narrower wording of the UK legislation, or more simply "hostilities" under the wording of the Paris Convention.The persisting problem with the scope of damages is the link to the proof of physical damage in the case of property. Only direct losses are covered, so that precautionary or preventative costs are outside the statutory scheme. Critically, so too are economic losses consequent upon the occurrence, but not arising from any specific damage to property. Even those more directly affected might still face problems of proof of damage. In at least one case decided in favour of BNFL, a claimant householder has failed to recover damages for a degree of contamination of his property by radionuclides, as this was not felt to involve physical damage, despite resulting in a loss of value.In the context of personal injury and the long term effects of any exposure to nuclear toxins there is the inter-related difficulty of long tail disease risk. Here, there are set limitation periods. There is also the further problem of showing causation many years down the line, where emerging cancers are not easily distinguishable medically from one cause, for which there might be a strict liability, to another, for which there might not be.The overall sufficiency of compensation is a matter of speculation, but what is important is that there is no common law liability outside the statutory scheme. The overall ceiling at £260m would seem to be less than one tenth of the costs in regard to the Three Mile Island incident. If this is any guide, it looks to be so low as any real benefit would be be dissipated in the scramble of competing claimants seeking to be "first past the post".Plainly the recognition of the problems that has led to revisiting Pool Re might well now lead to tackling the wider problem of how we can seek to meet the needs of all of those who might potentially be affected should the worst come to pass. The basic framework, put in place almost 40 years ago, is serviceable, but it is likely that a far greater financial provision is needed to back up the strict liability of the operator. The scope of that liability should be widened and greater certainty given in respect of causation by reversing burdens of proof, or by introduing statutory assumptions as to damage and cause in the most problematic cases. R T Houseago is head of property insurance and the construction group at Greenwoods Solicitors

    Nightmare scenarioScientists for Global Responsibility have repeated a model based upon a plane strike on the Sellafield siteThis suggests that the potential release of Caesium-137 would generate a 200km immediate exclusion zone with a 700km downwind exclusion zone.This is far more than the zones involved around Chernobyl, but is based on the notional release of just half of the Caesium-137 stored at any time at Sellafield. The spectre is that much of central England and, possibly, areas of other European countries, being rendered uninhabitable for much of the following century.