WHATS HAPPENING IN SPACE LAW AND WHY.docx
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WHATSHAPPENINGINSPACELAWANDWHY
10-WTRAir&SpaceLaw.1
AirandSpaceLawyer
Winter,1996
*1WHAT'SHAPPENINGINSPACELAWANDWHY?
StephenTucker[FNa]
Copyright(c)1996bytheAmericanBarAssociation;StephenTucker
Approximately$25billioningovernmentfundingandcommercialfinancingiscurrentlyspenteachyearonspace-relatedmattersintheUnitedStates.Asisthecasewithanyendeavorinvolvingthiskindofmoney,disputesthatcannotberesolvedbythepartieswillarise.Withrespecttospace,thesedisputesgenerallyfallintothefollowingcategories:
•Thoserelatedtofirst-partyinsurance
•Casesinvolvingliabilityofspaceproductmanufacturers
•Patent-relatedmatters
•Regulatoryissues
Thisarticleprovidesanoverviewoftypesofspace-relatedlitigation/arbitrationcurrentlyunderconsiderationandsuggestswhythesedisputesarearisinginthefirstplace.Thearticlefocusesoncertaininsurancemattershandledbymyfirm,namely,theWestarIV/VlitigationandtheASC-2arbitration,comparingandcontrastingtheeffectivenessofproceduresusedtoattempttomovetheseindividualmatterstowardresolution.
*13First-PartyInsurance
Tobetterunderstandthedisputesunderlyingthespecificlitigationandarbitrationtobediscussed,somebriefbackgroundonthesefourproblemareasfollowsbelow.
WordingofInsuringAgreements
Atarecentconference,StephenLeGoueff,anotedlegaladvisertoawell-knownsatelliteoperatorinEurope,madethefollowingpassionateobservation:
...[w]ordsaretheweapons,the“Trojanhorse”,sneakinginourpolicies.Theysometimesappearasagiftofclarityinthekingdomofdarkness,thatsomepolicieshavebecome.Nevertheless,heretheyare,withtheirobscuremeanings,loadedwithweapons,oneaftertheother,slowlycreepingin,hidinginthetextamongstsomanyotherwordsofsimilarshapeorformthattheycangounnoticed....Unlesstheguardsofthepolicy,suchasmyself,arevigilantandbartheirentranceintothepolicyorfindandexpelthosewordsthathavegoneunnoticed.Unlessthosewordsadmittedintothepolicyhavevalidpapersandarekeptunderstrictsurveillanceamongstagroupofalliedwords,thenourcoverage,ourcherishedcoverage,willinexorablyshrink.
Contractlawprovidesthatinorderforavalidandbindingcontractofinsurance,orforthatmatteranycontract,tobeformed,mutualassentofthepartiesisnecessary.ThewordingoftheInsuringAgreementclause,inthecaseofaninsurancepolicy,iskeytodeterminingwhethermutualassentora“meetingoftheminds,”hasbeenachieved.
Inmanypastdisputesinvolvinginsuringagreements,inwhichtherehavebeensomequestionsaboutwhethertherehadindeedbeenamutualassentoftheparties,thecontroversiesinvolvedeither
(1)agreementswithtermsthatwerenotsufficientlyspecificorwereconditionalinnature,or
(2)agreementscontainingambiguousterms.
ThefollowingisanexampleofanInsuringAgreementthatwouldfallintocategory
(1):
Underwriterswillindemnifytheassuredifthepoweroutputonthesatellitetransponders[relaychannels]failstomeetaleveltobelateragreed.
Suchawordingcanbecharacterizedasan“agreementtoagree”andwouldbegenerallyunenforceableuntilsuchtimeasa“level”isagreedbytheparties.
ThefollowingisanexampleofanInsuringAgreement(see
(2)above)thatcontainsatermthatissoambiguousthatacourtmightbeforcedto“reform”thelanguagetoconformtotheintentofthepartiesinordertofindavalidcontract:
Underwriterswillindemnifytheassuredifthepoweroutputonthetranspondersfallsbelowausablelevel.
Theword“usable”isthemainprobleminthisexample.Ifthiswordingweretobecomethesubjectoflitigation,onecouldrestassuredthat,depositionsoftheproducingandplacingbrokersandrepresentativesofinsurersandinsuredwouldbenecessarytoattempttofindthetrueintentofthepartiesinthechoiceoftheword“usable.”
RequirementsAssociatedwithProvingaLoss
Spaceinsurancepoliciesgenerallycontainaprovisionthatrequiresthatintheeventofaloss,assoonthereafterasispracticable,aProofofLossmustbefiledinsuchformandincludingsuchinformationasunderwritersmayreasonablyrequireandrequest.Inthesepolicies,thereisalsousuallyarequirementthataftertheinsuredfilesaProofofLoss,acertainamountoftimewillbeavailableforinsurerstoinvestigatetheclaimedloss.UnderUnitedStateslaw,thereisalsoanimpliedconditioninall,includingso-calledall-risk,insurancepoliciesthatafortuitouseventmustoccurinorderforalosstobecovered.Afterall,insuranceisagameofchance,notaguarantee.
IntherespectedlegaltreatiseCouchonInsurance,thefollowinglanguageappears:
Thepurposeofaprovisionforproofoflossistoaffordtheinsureranadequateopportunityforinvestigation,topreventfraudandimpositionuponit,andtoenableittoformanintelligentestimateofitsrightsandliabilitiesbeforeitisobligatedtopay.Itsobjectistofurnishtheinsurerwiththeparticularsofthelossandalldatanecessarytodetermineitsliabilityandtheamountthereof.
Thepurposeisalsotoadvisetheinsureroffactssurroundingthelossforwhichclaimisbeingmade.Theproofoflossalsoisusedbytheinsurertomakeanestimateastowhetherandunderwhatfactualcircumstancesrecoveryunderthepolicywouldbewarranted.[FN1]
Spaceinsurersgenerallyrequire,ataminimum,*14elevenitemstobecontainedinaProofofLoss[seebox].
Therequirementinitem2abovetendstomakeagenericProofofLossformpracticallyimpossibletocompose.Thereasonforthisdifficultyisthatagenericformwouldhavetotakeaccountofthealmostinfinitevarietyofunderlyingscenariosforeverypossibletypeofloss(e.g.,power-related,fuel-related,transponder-related,housekeeping-related,etc.).Space-policiesareoftendescribedasall-riskinnature.Theterm“all-risk”isactuallyamisnomer,becauseall-riskpolicesarenot“all-loss”policies.[FN2]All-riskpolicieshaveanimpliedexclusionthatalossmustoccurasaresultofafortuitousevent.Therequirementofafortuitouseventisa“fundamentalprincipleoflawininterpretinginsurancecontracts.”[FN3]Ifthecourtsweretoallowrecoveryunderinsurancepolicieswithoutthefortuityrequirement,publicpolicywouldbeviolatedandfraudwouldbeencouraged.Simplystated,aninsurancepolicyisnotawarrantyofsoundness.
DamageassociatedwithalosshasgenerallybeenfoundbytheU.S.courtstobefortuitousifneitherpartykneworcontemplatedthattherewasanydefectatthetimeoftheissuanceoftheinsurancecontract.Afortuitouseventisone,sofarasbothpartiestothecontractareaware,isdependentonchance.
DueDiligenceRequirements
Themostwell-knowncasedealingwiththesubjectofduediligence,asappliedtoasatelliteinsurancepolicy,isHughesAircraftCompanyv.LexingtonInsuranceCompany,[FN4]whichwasfiledbyHughesin1986inLosAngelesCaliforniaSuperiorCourt.Theultimateresultinthecasereflectswhatastrongdutycanbeimposedonaninsuredtoavoidordiminishaloss.
Bywayofbackground,afterrecitingcertainfactsrelatingtotheinsurancepolicyandothercontractsunderlyingthedispute,Hughes'SecondAmendedComplaintForBreachofInsuranceContract,BreachofCovenantofGoodFaithandFairDealing,BreachofStatutoryDutiesandBreachofFiduciaryDutyagainstLexingtonalleged,inpertinentpart:
11.The[underlying]ContractrequiredtheSatellitetobeatasynchronousaltitudeofapproximately22,000miles.TheSatelliteasofthedateoffilingofthisactionwasinauselessanddeterioratingorbitofapproximately160milesandwasnotacceptabletotheU.S.Navy.TheSatellitehasatallrelevanttimessinceApril13,1985beena“TotalLoss”asdefinedbytheLexingtonPolicy.No“reasonablypracticable”measure(asdefinedinSection5(a)oftheLexingtonPolicy)existedwhich,withinareasonabletimeoranytime,couldenabletheSatellitetoachieveSuccessfulOrbit.Indeed,theonlypossibilityforattemptingtosalvagetheSatellitewasanuntestedandunprecedentedsalvagemissionbyanotherspaceshuttle,thecostofwhichwasestimatedtoapproachone-quarterofthetotalcostoftheSatellite.Theimplementationofsuchaspeculativesalvagemissionwasnota“reasonablypracticable'measure“toavoidordiminishanyloss”asrequiredbyclause5(a)oftheLexingtonPolicy.
12.OnoraboutApril20,1985,plaintiffsgavedueandtimelynoticeoftheTotalLossoftheSatellitetoLexington.PlaintiffsalsosubmittedaswornstatementandproofoflossclaimingthefullLexingtonPolicyproceedsof$4million(the“Claim”).Plaintiffs'noticeandproofoflosscompliedinallrespectswiththeirnoticeandproofoflossobligationsundertheLexingtonPolicy.
13.OnoraboutMay14,1985,LexingtondeniedtheClaim.Lexingtonhasfailedandrefusedandcontinuestofailandrefusetopaythe$4millionduetoplaintiffsundertheLexingtonPolicy.
14.AsadirectandproximateresultofLexington'sfailuretopaybenefitsdueundertheLexingtonpolicy,plaintiffshavebeendamagedintheamountof$4million,togetherwithinterestthereon.
AttachedtotheSecondAmendedComplaintwasacopyoftheinsurancepolicy.Condition5(a)ofthepolicyreads:
Intheeventofanoccurrencelikelytoresultinclaim,theNamedInsuredshall:
(a)Useduediligenceanddoandconcurindoingallthingsreasonablypracticabletoavoidordiminishanylossunderthispolicy.
Afterthesatellitewasmaroonedinloworbit,HughesenterednegotiationswithNASAtorepairit.Thirteen