liability for commercial space ventures.docx

liability for commercial space ventures.docx

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liabilityforcommercialspaceventures

8-SPGAir&SpaceLaw.3

TheAirandSpaceLawyer

Spring,1994

*3LIABILITYFORCOMMERCIALSPACEVENTURES

FrankA.Silane[FNa1]

Copyright1994bytheAmericanBarAssociation;FrankA.Silane

TheUnitedStatescommercialspaceprogramhasbeendependentuponprivateindustrysinceitsinception.CongressformallyacknowledgedthatthecontributionoftheprivatesectorisessentialtothecompetitivepositionoftheUnitedStates'spaceprogramintheCommercialSpaceLaunchActof1984.[FN1]Congressalsorecognizedtheneedtoprotectprivateparticipantsinthespaceprogramfromtherisksofcostlylitigationandcatastrophicliabilitylosses.Unfortunately,itseffortstomanagetheserisksareincomplete,basedupontheinconsistencesofstatelaw,andareofteninadequate.

DuringtheerawhenthespaceshuttlewasessentiallytheonlyvehicleforthelaunchingofcommercialsatellitesintheUnitedStates,privateindustryprovidedtheupperstageboosterrockets,thehardwareassociatedwiththelaunchingofcommunicationsatellitesfromthespaceshuttle,thecommunicationsatellites,andanarrayofotherhightechproductsandservicesthatformedthebasisforthecommercialspaceprogram.Followingthe1986Challengerdisaster,PresidentReaganissuedanexecutiveorderlimitingtheuseofthespaceshuttletopayloadsaffectingnationalsecurity.Allcommercialpayloadswerecarriedintospaceaboardexpendablelaunchvehicles（ELVs）orrocketsthatweredesigned,manufactured,sold,andoperatedbyprivateindustry.Asaresult,thecommercialspaceprogramintheUnitedStatesbecametotallydependentonthecontinuedwillingnessoftheprivatesectortoinvesthugesumsofmoneyandthecontinuedwillingnessoftheprivatesectortoundertaketheenormousriskofliabilityassociatedwithspaceactivities.

Toensurethecontinuedparticipationoftheprivatesectorinthecommercialspaceindustryandencouragenewparticipants,itisessentialtounderstandandtomanageeachparticipant'spotentialliabilityexposure.Eachprivateparticipantmustbeabletoquantifyitsrisksandtohavesomemeasureofpredictabilitywithrespecttothepotentialcostofalaunchfailureorotherproductfailure.

Participantsincommercialspaceventureshaveliabilityexposureinfourgeneralareas:

personalinjury*4andpropertydamagetothirdpartiesnotparticipatinginthespaceventure;personalinjuryandpropertydamagetootherparticipants;commercialliabilitytothepurchasersandusersofservicesassociatedwiththeventure;andliabilityattheinternationallevelforinjuriesoccurringinouterspaceorintheterritoriesofothernations.

Congresshadenactedlegislationwhichmanages,tosomedegree,thefirstthreeareasofliability.[FN2]Theinternationalcommunityhasadoptedtreatiesestablishingamechanismdealingwiththefourth.

Thispapertouchesbrieflyuponeachoftheareasofliabilityandtheapplicablelaws.Italsoaddressestheproblemsassociatedwithcongressionalattemptstomanagetheliabilitiesoftheprivatesector.

LiabilitytoThirdParties

Intheabsenceoffederallegislation,participantsinacommercialspaceventurearepotentiallyliabletoanyonesufferingpersonalinjuryorpropertydamagecausedbytheirproductsorservices.Thenatureandextentoftheliabilityisgovernedgenerallybycommonlawtortprinciplesofthestateinwhichtheinjuryoccurredorthestatehavingthegreatestinterestintheoutcomeofthespecificclaim.Inmostinstances,theapplicablestatelawwouldimposeliabilityupontheresponsibleparticipantsthatwouldbeabsoluteandunlimited.Thepotentialforeconomicdisasterisenormous.

Congressalteredtheliabilityregimeforthird-partyliabilityinits1988amendmentstotheCommercialSpaceLaunchAct（CSLA）.Theamendmentsmodifiedstatelawwithrespecttothird-partyliabilityclaims,butdidnotpreemptorotherwisedisplacestatelaw.Theamendmentsimposedaneffectivecaponprivateliability,tobefundedbyinsurancewhichmustbepurchasedasaconditiontotheissuanceofthelaunchlicense.

TheCSLArequiresprovidersoflaunchservicestoobtainalicensefromtheDepartmentofTransportationforanylaunchwithintheUnitedStates.Asaconditionoflicensure,thelicenseemusteitherobtainliabilityinsuranceordemonstratefinancialresponsibilityinanamountwhicheitherexceeds$500millionor,iflessthan$500million,isthemaximumofliabilityinsuranceavailableatareasonablecostintheworldinsurancemarket.[FN3]

Coupledwiththisinsurancerequirement,thelegislationimposedaneffectivecaponliabilitytothirdpartiesintheamountequivalenttotherequiredamountofinsurance,$500million,orthedemonstrationoffinancialresponsibility.[FN4]Thelegislationachievesthiscaponprivateliabilitybylettingthegovernmentassumetheliabilityinexcessoftheparticipant'sstatutorylimit.Thegovernmentis,ineffect,theindemnitoroftheprivateparticipantforall“successfulclaims”thatexceedthestatutorycapuptoanaggregatesumof$15million.[FN5]

Thepracticalimpactofthislegislationistofixthecostofthird-partyliabilitytothelicenseeatthecostoftheinsurancecoverage.Thecostoftheliabilityinsuranceisinvariablypassedontothepurchaserofthelaunchservices.SincethestatuteappliesequallytoalllaunchesintheUnitedStates,thereisnocompetitivedisadvantagetothosecompetingforthelaunchservicemarket.

Bycappingthelicensee'sliabilityat$500million,thelegislationeffectivelyeliminatestheriskofopen-endedliability,whichwouldmakeliabilityinsurancecoverageextremelyexpensiveorunavailableatanyprice.Whilesomemaydebatethereasonablenessofthelimitsofliability,thelegislationensuresthatprovidersoflaunchservicesarenotexposedtopotentiallycatastrophiclossesandthattheyareabletoobtainadequatelevelsofliabilityinsuranceatreasonableprices.

OtherParticipantsintheSpaceVenture

Thesecondgeneralareaofpotentialliabilityconcernspersonalinjury,propertydamage,orlosstootherparticipants.Congresshasalsoattemptedtomanagethisformofliabilityinthe1988amendmentstotheCSLAbutitsmethodismarkedlydifferentfromthoseoutlinedunderthethird-partyliabilityprovisions.Unlikethird-partyliability,thelegislationgoverningliabilityamonglaunchparticipantsdoesnotrelyuponliabilitylimitsormandatoryinsurance.Instead,itrequiresthelicenseetoissuecrosswaiversofliabilityinfavorofallotherparticipants.Crosswaiversalsomustbeobtainedfromallotherparticipantsintheventure.

Thecrosswaiversofliabilityarecontracttermswherebyeachparticipantagreestobeartheriskofitsownlossestopersonsorproperty,regardlessofwhomaybeatfault,andtowaiveallrightsagainstotherparticipantsinthesamespaceventure.Eachparticipantisinthebestpositiontoknowitsownlosspotentialandtoobtainadequateinsurance.Thewaiversareintendedtoavoidlitigationandthepotentiallycatastrophiclosseswhichcanarisewhentheventuregoeswrong.

TheCSLArequireslicenseestoobtaincrosswaiversofliabilityfromallparticipantsintheventure,includingcontractors,subcontractorsand,perhapsmostimportant,customersaswellascontractorsandsubcontractorsofcustomers.[FN6]Itisimportanttonote,however,thateventhroughthecrosswaiversofliabilityareaconditiontotheissuanceofalaunchlicense,thestatutedoesnotautomaticallyimplytheexistenceofacrosswaiverofliabilitywherethereisnone.Ifthelicenseeoroneoftheotherparticipantsfailstoobtainacontractualcrosswaiver,thefailurecouldleadtothecancellationofthelaunchlicenseorotheradministrativesanctions.Thelawwillnotimplyacrosswaiverofliabilityclausetoprotecttheparticipantfromliabilitywherethecontractitselfdoesnotcontainexpresscrosswaiversofliabilitylanguage.

ThiswasthecostlylessonlearnedbyMartinMariettaCorporationafteralaunchfailurethatresultedinthelossofanINTELSATsatelliteandtriggeredenormousfinanciallossesandcostlylitigation.[FN7]In1988,MartinMariettasufferedalaunchfailureofanINTELSATsatelliteduringanattemptedlaunchaboarditsTitanIIIrocket.Thelossresultedfromseparationproblemsthatpreventedthesatellitefromreachinggeostationary*5orbit,leavingitstrandedinanorbitwherethesatellitewasessentiallyuseless.Thelaunchfailureresultedinalossoftheusefulvalueofthesatellite,withthecostofrescueestablishedat$90millionandthecostoftheill-fatedlaunchat$120million.

MartinMariettarecognizeditspotentialliabilityexposure.Ratherthanwaitingtobesued,itfiledapreemptivelawsuitagainstINTELSAT.MartinMariettasoughtadeclarationfromthecourtcontendingthatthecorporationwasinsulatedfromliabilitybasedupon（a）theprovisionsoftheCSLArequiringcrosswaiversofliabilityand（b）thecontractualdisclaimeroftortliabilityinthecontractbetweenMartinMariettaandINTELSAT.

ThecontractbetweenMartinMariettaandINTELSATdidnotcontainanexpresscrosswaiverofliabilityclauseaslegallyrequiredasaconditionofthelaunch.MartinMariettaarguedthatthetermsoftheCSLA,whichrequirecrosswaiversofliabilityclauses,preemptedallstatelawandautomaticallycreatedreciprocalwaiversevenwheresuchwaiverswerenotincludedexpresslyinthecontracts.Thetrialcourtdisagreedandheldthatthelicensee'sfailuretoobtaintherequiredcrosswaiverofliabilityclausecouldresultinadministrativesanctionsbutthatthelawdidnotimplyacrosswaiverofliabilitytoprotec