Space Insurance Law--With a Special Focus on Satellite Launch and In

Space Insurance Law-with a Special Focus on Satellite Launch and In-Orbit Policies -, By Pamela L. Meredith uring the first months of 2007, Space News reported satellite customers in the event Das follows: ofa launch failure. Satellite cus tomers have the option under Imaging satellite operator GeoEye expects to me a $40 mil such launch services agreements ofpaying a "premium" lion insurance claimfor whatis nowexpected to be the total loss ofits OrbView-3 satellite, whose main camera mal to the launch provider for a reflight or a refund guarantee. functioned without warning March 4, [2007] company The launch provider, in turn, may insure that risk. officials told fmancial analysts March 19. 1 Insurance is also available to cover third-party liability in the event ofinjury, loss, or damage to innocent bystanders The fIrst lalmch of2007 bySea Launch Company liC ended resulting from the launch.4 This insurance is generally taken in failure when the Zenit 3SL lalUlch vehicle carrying the SES out by the launch proVider and typically covers, as additional NewSkies NSS-8 telecommunications satellite was destroyed insureds, the satellite operator and manufacturer and other as it was lifting offfrom the company's mobile launch plat parties that are involved in lawlch operations. For U.S. 2 foml in the Pacific Ocean launch companies, such insurance coverage is mandated by s The two quotes illustrate the significance ofspace insur the Commercial Space Launch Act of 1984, as amended. ance. GeoEye, ofDulles, Virginia, and SES New Skies, ofThe U.S. launch companies must obtain this insurance as a condi Hague, the Netherlands, are both satellite operators. Geo tion ofthe launch license granted by the Federal Aviation Eye's satellite failed in orbit after less than four years ofoper Administration (FAA).6 ation;3 SES New Skies' satellite was destroyed during launch. In a recent development, insurers are also being asked to The benefit ofinsurance is obvious in the face ofsuch respond to the needs for insurance ofprospective commer losses, and any loss suffered by the launch vehicle operator, cial hwnan spaceflight operators? Suborbital human space Sea Launch, ofLong Beach, California. flights have been licensed bythe FAA,8 and suchflights may Leaving aside these particular actors and their respec become commercially available in the nearfuture. These tive insurance an'angements, the purpose of this article is spaceflight operators, or "spacelines," will need insurance first, to explain what space insurance is and, second, solutions to protect against liability to passengers, refelTed focus on satellite launch and in-orbit insurance, explain to as "space flight participants," or their survivors or[man how such insurance is obtained and on what terms. cial sponsors, among other tisks and liabilities. Spaceflight operators should not rely solely on contractual waivers oflia Categories of space insurance bility9 or otherexculpatory clauses, 10 statutorily based Insurance is available to cover satellite loss or damage "informed consent,"ll or state-based legislative initiativesl2 during the following phases ofthe satellite project: manu to protectthemselves against liability. facturing and prelaunch activities, launch into space, and in-orbit life. Insurance duting the manufactuting and Obtaining satellite launch and in-orbit insurance prelaunch phase is generally taken out by the spacecraft Satellite launch and in-orbit insurance is provided by manufacturer. Launch and in-orbit insurance typically is the world insurance market. Because ofthe large insur obtained by the satellite operator, and the policy is ance amounts involved, no single insurer will provide the referred to as a "satellite launch and in-orbit policy." It is a insurance. Satellite insurance may cover the value ofthe first-party property insurance policy. The spacecraft man satellite, the launch, and the insurance premium, in all ufacturer, in addition, may have product liability coverage often in excess of $150-200 million for a geostationary on the satellite. communications satellite. Or it may cover only the value Insurance is also available to cover the expendable ofthe satellite or a portion ofit. launch vehicle and/or reflight or refund guarantees, Major space insurers include Mw1ich Re ofGermany; which the major launch providers routinely offer to their Swiss Re ofSwitzerland; Lloyds ofLondon; Belmuda-based XL Aerospace andACE Group (both with offices in the Pamela 1. Meredith is co-chair of the Zuckert Scoutt & Rasenberger, United States); Global Aerospace ofthe United Kingdom L.L.P., Space Law Practice Group and an adjunct professor of space (also with offices in the United States); La Reunion Spatiale, law at American University's Washington College of Law. Marshall M. Lammers, an associate of Ms. Meredith's firm, has greatly SCOR, and SpaceCo Group AGF ofFrance; andTokio Marine assisted in the preparation of this article. of]apan. These insurers may participate inforeign place- ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~IVo!ulne 21, No.4, 2008 The Air & Space Lawyer 13 ments through local orotherwise licensed subsidiaries and to assume the risk. It is, therefore, critical that the infor they may reinsure all orpalt ofthe lisk. Insurers, for exam mation be accurate, complete, and up-to-date. This is ple, in India and China, palticipate in especially important in satellite insurance because the their respective national markets. They statistical database is relatively small, compared, for exam in tum reinsure the lisk. ple, to life or home insurance. Moreover, key information Insurance is obtained through the on the palticular satellite is not otherwise available to use ofspecialized space insurance bro insurers, due to the proprietary nature ofthe information kers. The broker, in conjunction with and due to national export controls that restrict access to the satellite company and its counsel, technical data. 14 helps design the insurance coverage Ifthe insured fails to provide materially accurate or and draft the policy. The satellite insur complete information, IS it cannot recovet for the loss, ance policy thus is "broker manu pursuant to the misrepresentation clause in the policy. sclipted," although several ofthe pol The clause prohibits misrepresentationl6 01' concealment, icy clauses have become fairly in writing or otherwise, of material facts 01' citcumstances standardized. The precise language still telating to the policy or the insured satellite. 17 The mistep often varies from one policy to the tesentation must be material, which in some jurisdictions next, even for the standard clauses. means that the insurer would not have issued the exact The policy is usually preceded by a same policy had it known the truth. IS In some jurisdic "slip," a briefoutline ofthe risk and cer tions, fot example, NewYork, the misrepresentation may tain key terms, prepared by the broker. be innocent. 19 The broker requests premium quotes from prospective To ensure that the infOlTIlation provided by the insured insurers and negotiates policy terms on behalfofthe insured. remains up-to-date, satellite insurance policies contain a Once the terms are agreed, interested insurers subsclibe to so-called "material changes" clause. Keeping the inf01"ma the insurance placement bysigning on to separate, but usu tion current is impOltant because the policy is often ally virtually identical, policies. issued several months before the launch ofthe satellite, when risk attaches. The clause requires the insured to The satellite launch and in-orbit insurance policy inform insuters when it becomes aware ofa material change to the information pteviously provided to insur Scope ofthepolicy ers. The material change test is objective. The insurers A satellite lalillch and in-orbit insurance policy gener have the option to tenegotiate the policy ifthe change ally covers the risk ofloss of, or damage to, the satellite tesults in a material increase in risk. 20 If the insured fails during launch and the first year ofin-orbit life. 13 The telTIl to notify of a material change, it cannot latet recover may be longer than one year, depending on the particular for a related loss. The insuret does not need to show satellite, the insurance market at the time, and the insured's that it, in fact, would have renegotiated the policy had it needs and willingness to pay the premium. Otherwise, been informed. the policy is subject to renewal on an annual basis. While many otherinsurance policies issued today cover the insured even for its own negligence, this is not the case Keypolicy clauses with satellite launch and in-orbit insurance. The policy Following is a discussion ofsome ofthe key clauses in imposes a "due diligence" obligation on the insured satellite the satellite launch and in-orbit policy. The discussion is company requiring it to exercise due care with respect to the based on a typical policy; individual situations may vary. insured satellite. 21 There are several reasons f01" this require Risk attaches under the policy at launch or on inten ment: The satellite is a high-value asset; insurets do not have tional ignition ofthe launch vehicle engines. From that access to it and carmot inspect all the relevant technical doc moment on, the insurer assumes the risk under the policy umentation, which is proprietary and exportcontrolled; and, ofsatellite loss, damage, or defect and will indemnify the last but not least, once the satellite is launched, it cannot be satellite operator, subject to all ofthe policy terms, condi tetrieved for repair. Therefore, the insurer needs to be able tions, and exclusions. Risk terminates at the end ofthe to rely onits insured to take reasonable care ofthe insured policy period, as determined by the insurance policy, for property. Ifthe insured fails to complywith the due dili example, after two years, or when the satellite is declared gence requirement, it carmot recover for its loss. 22 a total loss or constructive total loss, or when paltialloss The policy requites that the loss occur between attach payments together equal the sum insured, whichever ment oflisk and telmination oflisk.

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