Principle of Neutrality
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This article has been written by Parinaz Fanibanda pursuing B.B.A. LL.B. Hons. in Business & Commercial Laws at Unitedworld School of Law, Karnavati University

An Outline

The study of this present article revolves around the understanding of nuclear accident insurance framework followed nationally in India and comparatively in the global arena along with exploring how nuclear accident insurance framework works, also to describe what different methodologies do both US and India use to function and how the national legislations have played a role of attracting investments. With that, it divulges into describing how the governance of nuclear accident insurance is a crucial issue debatable on its efficacy post the Chernobyl and Fukushima Daiichi nuclear disaster. 

The article also signifies the insurance practice followed in India by way of the ‘Pooling Insurance System’, which is contrary to the practice of ‘Mutual Insurance Association’ followed in the United States of America. Thus, ending on the note that although the CLNDA Act is progressive to realise the nuclear assistance India needs as a developing country, however, certain provision of the legislation calls for amendments to attract foreign suppliers that can help the nation to be at par with international conventions and to develop a nuclear regime which practices transparency regime. 

Understanding the Necessity and Efficiency of Nuclear Energy 

With an ever-increasing growth of population and the consumption of power, the economies face a striking challenge in generating and catering to the ever-amplifying electricity and power generation. From renewable to non-renewable energies the economies frequently face difficulties to maintain the equilibrium between providing clean energy which has less impact on its environmental surroundings but at the same time it also constantly evolves in utilising known and unknown resources. 

Of this, nuclear energy generation is one such instance wherein uranium fuel is utilised, along with the nuclear reactors to resourcefully steam the water and convert it, with the help of reactors into generating around the clock electricity without technological or human interruption at large intervals of time. In today’s era when nuclear energy has remarkably emerged as an alternative of producing clean energy, alongside, it also offers cleaner environmental footprints for the coming generations, as such energy does not burn any materials in the atmosphere hence, not producing any combustion and gases in its surroundings, to keep the environment safe for habitation. With that, it also safeguards on not producing any greenhouse gases to mitigate climate change (see here).     

However, the advantages of setting up nuclear power plants accompany the possible nuclear destruction it can have which may result in loss of property, loss of life, permanent human disability for generations, damage to the environment and likewise. To compensate for the possible loss and reinstate the environment and the human’s position back to normalcy, financial aid of thousands of crores in funds needs to be present with the nuclear operator’s, the state, the defaulters and all the stakeholders in the matter. 

To curb such possible destruction of nuclear power plants or their reactors; fuels; or resources in the factory premises or in transit, the international community since the past two decades has taken several actions to foster the use of nuclear power safely and securely (see here). However, because of the possible destructive impact it can have on society and the environment, the states are encouraged to take nuclear insurance, which would not only be helpful to the foreseeable victims and survivors of such an incident but would also help the state fulfil its duty and responsibility of care and caution towards its citizens. 

What is Nuclear Accident Insurance and Nuclear Damage?

Nuclear Accident Insurance is an insurance cover opted by the operators or by the state, depending upon the convention and treaties signed and ratified by them, which is of importance to decide the course of liability and responsibility it holds towards its citizens. 

Under Indian jurisprudence, The Civil Liability for Nuclear Damage Act, 2010 is followed which recognizes nuclear damage as any damage so done to the loss of life or loss of personal injury to a person, inclusive of grave injuries having a long-term health impact, it also includes loss of property or any such damage so suffered to the property caused by the nuclear accident impact. With that, the legislation also recognizes the damage or loss to the vegetation suffered because of such an incident and the cost of reinstating such damage or any such economic loss suffered by the person.  

How does it work for its stakeholders?

Herein, the stakeholders of such a disastrous accident include the operators, suppliers, insurance company, reinsurers and the victimised states where such an accident occurs. The operators thereunder are those who manage the nuclear power plant and are working on the ground level where the accident would prima facie occur. Thereafter the second liability shifts to the suppliers of resources and raw materials used within such power plants, this is so done in light of a global understanding by the states that nuclear disasters can happen because of sub-standard use of materials, faulty or worn-out equipment, negligent handling of gaseous substances, and the like. 

It is then followed by the third stakeholder of such incidents which are the insurers and the insuring companies, who although are minimalistic in numbers, but play a crucial role in mitigating the loss financially by providing a cover, beforehand to reinstate the situation of the victims to their pre-accident state up-to as much length as possible, with that the insurance companies also have a desire to restore public trust, and the public reputation of the industry in the country where the accident occurs not only national but also crucially at an international level (see here). Usually, these covers are opted by not only the operators of such plants but also the suppliers and the state governments which run into thousands of crores of financial funding. 

However, in all this activity as per the industrial perspective, the willingness of insurance companies remains dicey is because the financial loss to be covered remains unprecedented which may surpass the insurance companies’ capacity while the second major issue is the profit-making capacity which such services offer. 

Although various research analysts and legislators have realised the loopholes, in today’s time, the international conventions and the national laws constructed in conformity with the conventions cap the insurer companies’ capacity progressively. Moreover, another issue that obstructs the willingness of such insurance companies is national legislations that govern the incident on it’s happening whereby in India’s instance the state, at present, prohibits the national and international insurance companies to indulge in introspecting the on-site nuclear power plants either before issuing such insurance policies or at the time of the accident to claim the insurance amount. Contrary to this, most of the developed nations including the United States believes in transparency because of which the insurance companies there are willing to invest, cover, grant and issue their policies to their operators.  

To save the insurance companies from going bankrupt and to lend them additional financial support, the reinsurers or mutual insurance associations are usually utilised. These reinsuring stakeholders in nuclear liability insurance are generally the state government-owned companies or National Security Forums as per the global practice followed since its inception. Additionally, there can even be independent insuring companies which in form of an association back the insurance companies providing such policies.

Followed by them are the last stakeholders of such an incident, the victims, who are at the receiving end of experiencing and living through the disastrous damages. Whilst understanding the purpose of providing nuclear insurance, the objective of having its benefits being reaped by the victims was the purpose realised by many. To actualize such an objective, the practice of exclusive and no-fault liability regime is operationalised at a global level. 

All liability arising from the damage caused by a nuclear accident is channelled to the operator, thereby protecting the rights of the public, that, the operator is exclusively liable for damage resulting from a nuclear incident and under his liability he is held accountable to the exclusion of any other person, regardless of who caused the damage (see here).    

International Conventions and their prominent role   

Any nuclear accident has potential consequences beyond the boundaries of the country where it occurs, and national laws on liability in the case of a nuclear accident are supplemented by several international conventions, in such case the liability is made limited by both international conventions and by national legislation so that beyond the limit’s which are normally covered by insurance, the state can accept responsibility as an insurer of last resort, as it does in all other aspects of industrial society (see here).

To this, over years four prominent conventions, with timely amendments as and when the need was felt have been incorporated. These four conventions are- the Paris Convention On Civil Liability Against Third Parties In The Field of Nuclear Energy, dated 1960, Vienna Convention On Civil Liability For Nuclear Damages, dated 1963, Brussels Convention On Maritime Transport For Damages Incurred During The Transport Of Nuclear Materials, dated 1971 and the Convention for Supplementary Compensation for Nuclear Damage. 

International Atomic Energy Agency (IAEA) is a depository to the Convention on Supplementary Compensation for Nuclear Damage and the Vienna Convention whereas, the Paris Convention on Civil Liability Against Third Parties in the field of Nuclear Energy is a depository of the International Organization for Economic Development (OECD).  The depository hereunder is entrusted with the responsibility of safeguarding the objective and purpose of the Convention to be realised by its signatories and ratified states. 

Invocation of Jurisdictional Immunity under International Conventions 

In cases where victims reside and suffer damage in a country other than the one in which the operator of the nuclear installation has its place of business, it is open to question as to where the victim can or must sue the operator of the damaging installation (see here). It is then in such a scenario when the nuclear conventions generally come into play only if the nuclear installation is located on the territory of a convention state and the victim suffers damage in that or another convention state.

When can jurisdictional immunity not be invoked? 

Contrary to this, when the state or any of its agencies, suffering the disastrous accident is either party to the Paris or the Vienna Convention then in such case neither the state nor its agency can invoke the stated jurisdictional immunity. 

It is so for the reason that, both of these conventions have been drafted with a purpose of exclusively dealing in such scenarios, with the only exception of non-applicability, when the contracting state has explicitly denied to be governed by such convention and have subsequently given up their state immunity, in certain scenarios, as is the position in the United States. 

Therefore, even if the nuclear installation is operated by the state to undertake typical state activities, the defence of sovereign immunity is not available and hence, in the case of a nuclear incident at such an installation, victims could sue the state before the competent courts, regardless of whether the installation served public purposes, (see here) which is a position not standardly followed in the global community. 

Concerning state immunity, the atomic responsibility safeguards that a state can’t summon its defence in the case when it is sued by victims for compensation, while under public law it could be dubious whether the activity of a state-run nuclear energy station that produces energy for general society or an examination reactor utilized for logical exploration as well as clinical radioisotope creation qualifies the elaborate state for conjuring the guard of state resistance. 

Convention on Supplementary Compensation for Nuclear Damage – CSC 

The objective of the 1997 Convention on Supplementary Compensation for Nuclear Damage (CSC) is to establish a worldwide liability regime and to increase the amount of compensation available to the victims of nuclear accidents (see here). Under, CSC the membership of states to be part of the Convention is not only limited to the member signatories of the Vienna or the Paris Convention but to also those states which are neither party to any of these two conventions, however, has national legislation recognizing nuclear liability and which is so in compliance with the CSC. In an alternative understanding, it can also be referred to as a free-standing instrument since it offers a country to recognize its convention and the nuclear liability regime without also having to become a part of other global conventions.

With that, the impact of the Convention on Supplementary Compensation for Nuclear Damage in light of the dual purposes of international agreements on civil liability for nuclear damages ensures victim compensation for transnational damages and safeguarding the long-term viability of the nuclear power industry from liability for nuclear accidents by establishing rules. (see here)

The crux on how CSC is impacting Global Jurisprudence on Nuclear Liability Regime 

Globally, the CSC provides for a minimum national compensation amount of at least 300 million SDR’s and a supplementary compensation fund of about 300 million SDR contributed by the parties to the CSC which is to be drawn on by the installation state in which an accident occurred to compensate victims of a nuclear incident if the first-tier funds are exhausted.

Herein, the SDR stands for the Special Drawing Rights which refer to an international monetary reserve currency curated by the International Monetary Fund which operationalizes as a supplementary alternative to the monetary reserves which the Nations already have. They are globally followed as a practice to have uniform recognition of monetary transactions and are created in exchange for gold or any dollar reserves which the nation augments. 

The crux on how CSC is impacting Indian Jurisprudence on Nuclear Liability Regime 

Of this, India, not being party to either of the conventions, had signed the CSC agreement in 2010 with the enactment of its National Legislation, Civil Liability for Nuclear Damage Act, 2010 (hereinafter referred to as CLND Act) and with it, India has ratified the CSC recently in 2016 thus agreeing to the liability and compensation for damage caused by a nuclear incident. 

With it, the Convention on Supplementary Compensation aims at establishing a minimum national compensation amount and at further increasing the amount of compensation through public funds to be made available by the contracting parties, should the national amount be insufficient to compensate for the damage caused by a nuclear incident. (see here

Analysing CSC in Indian Jurisprudence of Nuclear Liability Framework 

Since Nuclear Power is the fifth-largest source of generating electricity in India after coal, gas, wind power and hydroelectricity (see here), considering its insurance liability is of utmost importance to the nation as it presently has 22 operating nuclear reactors. 

Russia has been a major supplier of nuclear fuel to India since the 20th century and so is it followed by the United States; however, the trade business of nuclear resource supply has been largely affected in India since the augmentation of India not ratifying the CSC Convention which although stands resolved in today’s time, is followed by the CLND Act of 2010.

Role of NPCIL 

India’s nuclear plants are controlled by the Nuclear Power Corporation of India (hereinafter referred to as NPCIL), which is a state-owned corporation founded in 1987 wherein, India boasts a fleet of seven nuclear power plants.

NPCIL is a public sector enterprise under the administrative control of the Department of Atomic Energy (DAE), Government of India. The Company stands registered as a Public Limited Company under the Companies Act, 1956 in September 1987 with the objectives of operating atomic power plants and implementing atomic power projects for generation of electricity in pursuance of the schemes and programmes of the Government of India under the Atomic Energy Act, 1962. (see here

With that, NPCIL is responsible for the design, construction, commissioning and operation of nuclear power reactors. It also helps India sign potential MoU’s in the global arena to source resources, raw materials and monetary funding. 

Why is India’s nuclear liability regime a stumbling block in the global arena?

India’s nuclear liability regime has provided a stumbling block for would-be suppliers, as in most countries nuclear plant operators are liable for any damage caused in the event of an accident, against which they take out liability insurance, but up until 2010 when the Indian government passed its Civil Liability for Nuclear Damage Act, India had been a notable exception, with reactor suppliers potentially liable for damages in the event of an accident. The 2010 legislation makes Indian operators primarily liable for any nuclear accident, but still keeps open the possibility of recourse to suppliers. 

The Indian government via NPCIL’s intervention is currently following the nuclear pool insurance policy apart from the monetary liability that the operator needs to cover. With this Insurance pooling framework, India extracts chunks of capital investment from GIC-Re, ICICI Lombard, Tata AIG, New India Assurance, National Insurance, United India and Oriental Insurance, each of which contributes Rs 3 billion to the corpus. (see here

The present system however not being new in the global arena is still a method not practised by the Nations. In global practice, foreign project developers are allowed to buy their insurance covers from abroad. Such practice is, however, not followed by India since it would mean the unfamiliar insurance agencies would reserve the option to investigate the force plants being created in India before they offer any cover. India’s contribution that way is precluded since the foundation of its atomic arrangement is that few of its atomic offices are outside the pale of examination by any unfamiliar element.

So, the only option available for the project developers is to buy insurance cover through India’s Civil Liability for Nuclear Damage Act of 2010. 

How does Nuclear Insurance function in India?

The pooling insurance system within the nuclear power framework in India works on the contribution of government-owned companies whereby every company has agreed to contribute a certain monetary share which shall be utilised by the NPCIL as a nuclear insurance policy cover in case of nuclear accidents. 

The international pooling mechanism has also resulted in an economy of costs. This regime has however developed since the happening or the unhappening of nuclear accidents would result in unprecedented costs attached to it and to have a cover against such catastrophes would involve high risks, of which no insurance company in Indian jurisdiction promises to cover the cost associated with such an accident (see here). It will accordingly be certain that the pooling instrument is truly reasonable to serve the protection of this especially touchy class of business. 

The Indian Government has subsequently created an Indian Nuclear Insurance Pool (INIP) on 12th June 2015. M/s. General Insurance Corporation of India (GIC-Re), along with several other Indian Insurance Companies, has launched the Indian Nuclear Insurance Pool (INIP) with a capacity of Rupees 1500 crore to provide insurance to cover the liability as prescribed under Civil Liability for Nuclear Damage Act (see here). This has tended to issues identified with CLND Act and had worked with the initiation of work in setting up new atomic force projects. 

How is the US’s Mutual Insurance Association different from the Indian Insurance Pool? 

The USA (the Nuclear Electric Insurance Limited) and Europe (the European Mutual Insurance for Nuclear Installations) have insurance associations that deal with the physical damage and liability in the event of a nuclear accident which is set up by the nuclear industry itself which contrary to the Indian Nuclear Insurance Pool, also invites private entities to have an independent and renewable association for pooling funds and does not make any certain entity liable for a certain share of the fund. 

How is CSC Ratification helping India? 

Considering India being benefited by the CSC Convention has welcomed potential investors, with that India is also made eligible to draw obligatory financial support from other member signatories of the convention. However, since the United States is the largest contributing party to the convention, it has declined to not be bound by the dispute resolution system of the CSC which would oblige the US to be bound by CSC’s decision in case of transboundary nuclear accidents.   

With that, the United States has a large proportion of the world’s nuclear reactors has many accident-prone constructions which would make them more prone to claiming such insurance of which India having deficient finances is yet to discuss on the implication of contributing into such pooling system effectuated by the CSC (see here). 

How is CLNDA Impacting Indian Nuclear Accident Insurance in the Global Community? 

The supplier community perceives the Indian law as deviant from international legal instruments such as the CSC, the Vienna and the Paris conventions. It is prima facie because of the non-compliance of Section 17 of CLNDA with Article 10 of the CSC Annex that deals with the operator’s right to recourse. 

Within the CSC Convention, Article 10 of the annexe describes two conditions paramount to claiming such recourse which can- (1) be by way of expressly providing the operator with the right to recourse against the supplier, in writing with the agreed contractual terms or (2) when the nuclear accident has occurred or results from the act or any omission exercises on part of the supplier which is so done with malicious intent against the operator then such act or omission entitles the operator to opt for a rightful recourse against the latter.  

Whereas, contrary to these conditions the national legislation of CLNDA, provides for one additional condition thus intervening and overstepping its authority beyond the international convention’s scope of the right to recourse. The addition is recognised under Section 17(b) of such act wherein the nuclear incident which has resulted as a consequence of an act of supplier or of his employee, which includes the supply of equipment or material with patent or latent defects or sub-standard services also makes the operator eligible for a right of recourse against the supplier. 

The crass clause has made many suppliers, in particular the international suppliers, reluctant to deal with the Indian operator’s, which is the NPCIL, as the broad scope is not only linear with the international framework but also imposes an additional liability on the supplier thus making them accountable of paying compensation under varied circumstances. 

Furthermore, Section 46 of the CLNDA states that this Act is in addition to other domestic laws in force, thereby allowing criminal liability and other tort claims. 

The CLND Act of 2010 in the author’s opinion has altogether been enacted with an underlying objective of giving codified governance to the concept of no-fault liability which under tortious law means that the victims of the nuclear accident who are eligible to be paid compensation can prima facie move a suit against the operators of such plant without any burden of proving how the accident occurred, this practice in specific ensures that the victims are compensated to the extent of restoring them to the state of normalcy. With this practice, the strict and vicarious liability livid on the operators, in the case when the operators prove it otherwise the same can be shifted on the suppliers on account of fulfilling certain requisites mentioned under the Act.

These conditions have caused considerable unease among domestic and international suppliers. Not only has the supplier community rejected the claims of any apparent safety benefits that might accrue by holding them liable, but have also expressed their inability to participate in India’s planned nuclear energy expansion under this liability framework (see here).

American suppliers have for long been believed that India’s early ratification of the CSC, would protect them from any liability since the US does not recognise the right to recourse as a CSC signatory country against its suppliers however even after ratification the belied stands to be nullified. (see here)

How is the US’s Perspective of Nuclear Accident Insurance different from India?

The reluctance of private enterprises to bear the risk of potentially extensive liability for damage to the public retarded commercial development of nuclear power for the generation of electricity. The 1957 Price-Anderson Act reduced this hesitancy by limiting the liability of nuclear licensees for damage to the public and by providing government indemnification for additional amounts of liability. The stated dual purpose of the Act is “to protect the public and to encourage the development of the atomic energy industry.” (see here)

Unlike India, the United States isn’t a party or signatory with any global atomic responsibility shown aside from the Convention on Supplementary Convention. Moreover, the USA is the principal country that concocts the particular enactment, the Price-Anderson Act 1957 which was sanctioned to cover obligation cases of individuals from general society for individual injury, the death toll and property harm brought about by an atomic occurrence. Even though the USA is not a part of the Paris and Brussels conventions, it has pointedly adopted its principles. The legislation introduced a cap on the total amount of liability each nuclear power plant licensee faced in the event of an accident which has increased the insurance pool. 

Moreover, the law presents the capacity to the district courts to decide the compensation to be paid by the administrators or operators in a circumstance surpassing the most extreme cap. The law offers a two-level protection pool. Post-appraisal of the compensatory sum, if both the level evened out pools are depleted, Congress is submitted in giving the extra fiasco alleviation.

Conclusion 

The foundation of a worldwide atomic obligation system dependent on the CSC is fundamental to completely understand the likely advantages from atomic force regarding the financial turn of events, expectations for everyday comforts, energy costs and supplies, and the climate. Since the reception of the CSC in 1997, significant exertion has been exhausted to give a superior comprehension of the CSC and to explain how its arrangements work to set up a legitimate system that accomplishes the corresponding targets of working with business advancement of atomic force and guaranteeing, in the improbable occasion of an atomic episode, the brief accessibility of significant remuneration with at least suit and different weights. This exertion has given a sound premise on which both producing states and non-creating states would now be able to give genuine thought to clinging to the CSC and along these lines build up a worldwide atomic risk system.

In conclusion, it could be summarized that developing economy such as India and other countries require nuclear energy to sustain the ever-growing demand for power for personal and industrial consumption and hence having national legislation for regulation and recognition of nuclear regimes is of utmost importance to such economies. Having said so, it is pertinent that each country should either be a signatory to either of the Conventions or enact their legislation to address the claims arising from a nuclear incident. Even though India and other countries have engineered a definitive structure to provide compensation to the victims in case of a nuclear accident, there is still some scope for improvement, considering the high potential of risk associated with nuclear activities and the intensity of damage it causes. 

That, it can thus be decisively understood how the Indian regime calls for an amendment to increase its investor bandwidth and how more such global standard practices can be adopted by India which promote more efficiency and transparent regime. 

References 

  1. Ben McRae, Convention on Supplementary Compensation for Nuclear Damage (CSC) and Harmonisation of Nuclear Liability Law within the European Union (2011) 2011 Nuclear Law Bulletin 73.
  2. The Civil Liability for Nuclear Damage Act 2010, Acts of Parliament, 2010 (India).
  3. The Paris Convention on Civil Liability Against Third Parties, Art. II, Art. V (1) CSC.”

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