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UK.gov hikes liability limit over next five years

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Nuclear operators are to be liable for damages amounting up to seven times the current limit in the event of a nuclear incident, the Government has confirmed.

A phased increase to a limit of €1.2bn (£999m) will be introduced over five years following the coming into force of an international treaty on nuclear third party liability. Liability will initially be capped at €700m and will rise by a further €100m each year until the €1.2bn level is reached. Currently, operator liability is limited to £140m per incident.

The Government said that its maximum liability was €500 million more than the minimum necessary under the revised Paris and Brussels Conventions. The UK and most other EU countries are all signatories to the treaties. The changes will apply to any potential new-build operators, as well as to existing nuclear operators in the UK.

Energy Minister Charles Hendry said that the change would mean that more compensation would be available to a larger number of claimants in respect of a broader range of damage.

"This is an important step in transferring the cost of nuclear third party liability from taxpayers to operators, particularly as we move forward with new nuclear," he said.

A lower liability level of €70 million, up from the current £10 million, will apply to incidents occurring at certain 'low risk' sites, with a level of €80 million for incidents occurring during low risk transport of nuclear substances. These are the minimum limits that can be set under the revised Conventions, the Government said.

However nuclear law expert Chris White of Pinsent Masons, the law firm behind Out-Law.com, said that the Government's unilateral desire to increase the compensation available to people affected by nuclear accidents could place capacity constraints on insurers.

"Insurance companies are only able to participate in the nuclear insurance market on a net lines basis, meaning that from year to year there is a limited amount of capacity available to cover nuclear risks," he explained.

"Insurers are now being asked to not only provide increased cover as well as provide insurance to cover long-tail claims made up to 30 years after any nuclear incident and underwriting several new heads of damage."

White commented that there had been recent "welcome signs of increased competition" in the nuclear insurance sector, with the arrival of two new entrants to the market.

"There is also a growing realisation on the part of the Government that any reforms need to be implemented in a way which will be acceptable to both nuclear operators and the wider insurance market in order to ensure that the Government's plans for 16GW of new nuclear generation by 2025 can continue to be financed and underwritten by the private sector," he added.

The Paris Convention is an international agreement adopted in 1960 intended to provide adequate compensation to the public arising from a nuclear incident, regardless of whether or not the operator of the installation is at fault.

The Brussels Convention is a supplementary agreement adopted in 1963, the aim of which is to provide additional compensation where that provided under the Paris Convention is insufficient. It states that all parties to the Convention, not only the country where the relevant nuclear installation is located, must provide public funds for this purpose.

Greece, Portugal and Turkey have not signed the supplementary Convention.

The revised Conventions introduce new categories of claims in damages that third parties may rely on to claim compensation. In addition to claims for personal injury, loss of life and property damage parties may now be able to claim for economic loss as a result of damage to property or the environment, the cost of rectifying any environmental damage and the cost of any preventative measures.

In its response [58-page 272KB PDF] to a consultation on the changes, the Government said that it would not prioritise third party claims and added that it would take action to prevent "double compensation", such as where environmental reinstatement measures have already been covered by a property damage claim.

The Government will introduce legislation to give effect to the new limits later this year, however the revised Conventions will not come into force until all signatory countries have implemented the changes.

Copyright © 2012, Out-Law.com

Out-Law.com is part of international law firm Pinsent Masons.

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