One of the little provisions tucked away inside the Commercial Space Launch Amendments Act of 2004 called on the Department of Transportation to commission a report on “the liability risk sharing regime in the United States for commercial space transportation”. Under the current system (which the same legislation extended through the end of 2009), commercial launch providers have to obtain insurance for what the government determines to be the “maximum probable loss” to third-parties in the event of an accident, after which the government would indemnify any additional damages up to $1.5 billion (in 1988 dollars), after which any losses beyond that would revert back to the launching party.
This indemnification provision has never been invoked, and many in the domestic commercial space transportation industry see it is vital to remain competitive in the global market. However, there are at least a few people in Congress opposed to the idea of government subsidizing or otherwise supporting the industry in any manner, hence the request for an analysis of alternatives to the current indemnification regime. That report has been completed and will soon be released; the results of the study were summarized in a COMSTAC meeting presentation last week by James Vedda of The Aerospace Corporation.
The short answer is that, yes, there is an alternative to government indemnification: it could be phased out by having launch providers contribute to a pool of coverage over the course of 15 years, with the government coverage dropping in response until the pool is fully funded at $1.5 billion (the government would, though, cover any damages beyond $1.5 billion.) While theoretically possible, such an alternative poses a number of challenges, including determining which companies would contribute how much to the pool, and the possibility that such required contributions would drive companies out of the market entirely.
The report did not make recommendations, as requested by Congress, which only wanted an analysis of alternatives, but it was clear that the industry, and even Vedda personally, have no desire to switch from the current system (which, again, hasn’t cost the government any money, since there have been no catastrophic accidents.) Where Congress goes from here is uncertain, but since the current regime remains in force through the end of 2009, it’s unlikely there will be much, if any, action on this in the near-term.
If all this sounds vaguely familiar, you’re right: back in 2000 Congress requested a similar report on the indemnification regime, which was completed in 2002. (The report is available online, although be cautioned that this is a PDF file over 14 MB in size.) That report found that the current indemnification regime has been effective and than no single alternative appeared more favorable. The saying about what it means to ask the same question over and over, expecting a different answer, comes to mind.
The saying about what it means to ask the same question over and over, expecting a different answer, comes to mind.
If market conditions were static, you’d have a point. But they are – and they are about to change more rapidly – so you don’t.
Nemo: Could you be more specific on how the changing market conditions (assuming that they are, in fact, changing) affect the assessment of the current indemnification regime and potential alternatives?
Hi Jeff, here is a copy of Dr. Vedda’s report (which he forwarded to me yesterday and I had planned to post on Space Law Probe this morning but got caught up reading comments to the FTC on the ULA deal
http://www.spacelawstation.com/veddariskliabilityreport.pdf
(And I’m not sure why FAA/AST has not posted this yet. It will no doubt appear on their site eventually…)
Regards,
Jesse
Nemo: Could you be more specific on how the changing market conditions (assuming that they are, in fact, changing) affect the assessment of the current indemnification regime and potential alternatives?
I can, but before I do, I want to address the general applicability of “the saying about what it means to ask the same question over and over, expecting a different answer” to this case.
Clearly, one would have to be freaking insane to ask a question like, “What is two plus two?” over and over and expect a different answer.
However, a question like, “Should I change my auto insurance policy?” does not fall in that category. The answer to that question could change depending on events like driving record, rate changes, buying a new car, or having triplets turn 16 and get driver’s licenses. In my opinion, not only is asking the question periodically not insane, it would be insane not to ask the question at least when the policy renewal notice arrives in the mail.
In my opinion, the question of US government liability risk sharing for commercial launches is more like the latter question than the former, and I’m somewhat surprised that a close observer such as yourself would think otherwise (in fact, if I didn’t know better, I’d accuse you of being coy in questioning it). In particular, the launch market is in the early stages of a transition from mature operations of a duopoly with decades of experience to operations of a large number of companies with little operations experience. That could result in changes to the government’s risk exposure under the current regime.
Jeff,
Retaining risk may not have cost the government money, but that’s just (one of the many times the government has used) accounting fiction. The implicit premium is pretty high. On the other hand, almost all the launches are government launches so the governement is the main beneficiary of the insurance. The excess liability “reverting back to the launcher” is also a fiction. They are surely insulated and leveraged in such a way that all the injured party would get is the launch company itself. The excess risk would be uninsurable except through Buffett. The good news is it might not cost very much. If the risk is retained by the launcher, it would just revert to the government because of the outer space treaty if the company or its insurer did not make good on it. Of course that is only if Congress funds it. It does have sovereign immunity after all.
It’s more interesting when there are more non-government cargos, especially humans with relatives who will sue.
Jeff,
I wish I had time to fill your readers in on all of the insider history of this issue.
Suffice it to say that if the government provides indemnification for semi-risky launch vehicles, it removes a market incentive for developing more reliable launch vehicles. (Above and beyond the normal incentive to have a reliable product that works).
To carry the point further, if the government mandates the purchase of insurance from a oligopsony (very few providers) at a price that is a small share of an Atlas V’s launch price but a huge share of a SpaceShip 2’s launch price, then this policy discriminates against small-unit-price launch providers and in favor of large-unit-price providers.
Did Aerospace really look at these issues? No, because yours truly never answered Aerospace’s request for background info, because I was busy with client crises. Mea Culpa.
– the too-busy consultant