US compensation liability system for nuclear damage

By Wang Jihong and Wu Peng, Zhong Lun Law Firm

The US is the world’s largest producer of nuclear power, accounting for more than 30% of global nuclear power production. According to the World Nuclear Association, as of October 2020, there were 94 nuclear power plants operating in the US across 30 states, and nuclear power accounted for about 20% of the country’s total electricity generation.

王霁虹, Wang Jihong, Partner, Zhonglun Law Firm
Wang Jihong
Zhong Lun Law Firm

The vigorous development of the civil nuclear industry in the US cannot be separated from the active participation of enterprises and increasing involvement of the government. The typical mode of co-operation between government and enterprises is that the government provides institutional guarantees for enterprises to invest in nuclear power projects through legislation, of which the establishment of the compensation liability system for nuclear damage is particularly well known by the public. This article introduces the main features of the US nuclear liability system, with a view to providing reference for enterprises’ nuclear-related investment, and the improvement of China’s legal system for nuclear liability.

Overview of the US compensation liability system

The nuclear liability system is a special civil legal system to deal with the loss of life, property and environment resulting from radiation hazards caused by nuclear installations and materials. The framework is established to ensure adequate compensation for nuclear damage to persons, while the development of the civil nuclear industry would not be hindered by liability for damages that could not be afforded by the operators of nuclear facilities.

In 1957, the US enacted the Price-Anderson Act, which established the nuclear liability system for the first time by supplementing the Atomic Energy Act of 1954. Two cores of the system are the principle of liability of nuclear damage, and the limit of compensation, which are precisely the features of the US nuclear liability system.

吴鹏, Wu Peng, Associate, Zhonglun Law Firm
Wu Peng
Zhong Lun Law Firm

Principle of liability

The US does not adopt the internationally accepted principle of exclusive liability (or “central liability”) for nuclear damages to be borne by the operators of nuclear facilities. In the US, depending on the severity of the damage caused by the nuclear accident, and the size of the compensation funds, one or multiple parties – including the operators of the nuclear facility involved in the nuclear accident, all licensed nuclear facilities in the country, the US Congress, and other third parties – are liable to victims, as appropriate.

Meanwhile, the US established strict liability rules for operators in nuclear accidents, i.e., after a nuclear accident, the operator of the nuclear facility is liable for damages whether the operator is at fault or not, and the claimant is not required to prove negligence or any other fault on the part of the operator. Under the framework of strict liability, normally the operator of a nuclear facility may be exempt from liability only if the accident is caused by armed conflict, hostilities, political civil war, riots, etc.

Compensation limits

Another feature of the US nuclear liability system is the establishment of a layered compensation mechanism based on the mandatory purchase of commercial insurance. It determines the limits of nuclear damages through the establishment of three layers of segments for the nuclear liability insurance system.

According to the requirement of Nuclear Regulatory Commission, the first layer is where each nuclear operator is required to purchase US$450 million liability cover for each reactor, from January 2017, which is provided by American Nuclear Insurers. This is called primary nuclear liability insurance.

If the amount of compensation for nuclear damage exceeds the first layer, all licensed nuclear facility operators in the country are required to pay retrospective premiums up to US$121,255,000 per reactor per accident. Based on the 94 existing nuclear reactors in the US, the total amount insured for a nuclear accident from the primary and secondary layers is close to US$12 billion.

In addition to these two layers of insurance, if the size of the nuclear damage is greater than the total amount insured for a nuclear accident, state and local governments can request additional funds for disaster reduction from Congress, which will review the nuclear accident and decide whether to take all necessary measures to provide adequate and timely compensation to the public.

Thus, when exceeding the primary insurance limit of a nuclear accident, the owners of each nuclear facility pay for the nuclear damage caused by other owners, and Congress, as insurer of last resort, will be liable for the damage, depending on the circumstances of damage. This multi-liability insurance mechanism not only spreads the risk of nuclear power project owners, but also plays a role in supervising the industry’s nuclear safety to a certain extent. It is a balanced institutional choice made by the US between supporting the development of nuclear energy and protecting the public’s rights and interests.

Since its enactment, the Price-Anderson Act has been amended and renewed several times, approximately every 10 years, and it is currently valid until the end of 2025. The nuclear liability system, which was originally established by the act, has gradually become the basic system to promote the development of civil nuclear industry in the US, and even the world, after it has been tested by the Three Mile Island accident and other accidents.

Linking up Convention on Supplementary Compensation for Nuclear Damage

The convention was passed in September 1997, and came into effect in April 2015. As the US ratified the convention on 21 May 2008, it became a member of the international nuclear liability legal system, and was required to share public funds for foreign nuclear damages with other contracting states as required by the convention.

It is worth noting that, unlike other contracting states, the US introduced the Energy Independence and Security Act in 2007, which made it clear that the funds payable by contracting state would be burdened by the US nuclear energy suppliers, rather than government finances. The amount could reach US$150 million. As a result, the US nuclear-related companies are expected to take on more potential liabilities in the future.

In general, although the US nuclear liability system has appeared to integrate with the international nuclear liability legal system, it still retains unique and pioneering features. For China, which is improving the nuclear liability system, the development of the US nuclear liability system and the path of reform are of great significance.

Wang Jihong is a partner and Wu Peng is an associate at Zhong Lun Law Firm

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