In Quake’s Wake, Revelations About Nuclear Insurance

By Linda Koco
Contributing Editor, InsuranceNewsNet

March 29, 2011 – Japan’s struggle with its nuclear plant disasters is rippling out in many ways on this side of the Pacific Ocean, including revelations about a little-known insurance pool in the United States that would provide insurance coverage for victims of nuclear reactor accidents occurring in the United States.

The pool has been around for decades but it is getting renewed attention in the wake of the nuclear reactor damage following Japan’s powerful earthquake and tsunami on March 11. Created under the Price-Anderson Nuclear Industries Indemnity Act of 1957 (Price-Anderson), the pool provides general liability insurance. This insurance will compensate victims who suffer bodily injury, sickness, disease or death due to a U.S. nuclear reactor accident. It also covers incident-related property damage and loss as well as reasonable living expenses for those who are evacuated.

Because claims resulting from nuclear accidents are covered under Price-Anderson, “all property and liability insurance policies issued in the U.S. exclude nuclear accidents,” according to theNuclear Regulatory Commission (NRC) website.

The pool’s coverage applies not only to  claims by local residents but also to transients if they have proof of damage or harm, says Bryant Kinney, spokesman for the Nuclear Energy Institute (NEI), Washington, D.C. NEI is a policy organization in the nuclear energy and technologies industry.

Who Pays What?

If victims already own personal life and health insurance, would they receive benefits from their own policies or as well as compensation from the nuclear pool?

In general, a person’s own health coverage would probably pay for health care made necessary by the incident, says Susan Pisano, vice president-communications for America's Health Insurance Plans (AHIP), Washington, D.C. She says her understanding is that the person’s health insurer would then seek to recover from the pool.

This would be the case even if the person were only visiting or passing through the area when the incident occurred, Pisano says.

If a nuclear plant worker suffers an incident-related injury while on the job, that would be a workers’ compensation issue, Pisano adds.

Regarding life insurance policies, most if not all would pay out their death benefits if death occurs as a result of a nuclear accident, especially if the two-year contestability period has ended, experts agree.

“Exclusions for nuclear incidents are not standard provisions in life insurance policies,” points out James Miles in an email. He is a consulting staff fellow-individual life and annuity solutions for the Society of Actuaries, Schaumberg, Ill.

“There may be life insurance policies that exclude nuclear incidents but they would be very rare,” Miles writes.

If a life policy has an “Acts of Wars exclusion” and if the nuclear incident were related to an act of war, then payment under the policy may be excluded, Miles allows. However, the Acts of Wars exclusion has generally not been included in life policies since the end of the Vietnam war, he says.

Whether life insurers that pay out death benefits from such claims would then subrogate against the nuclear reactor company is not clear. InsuranceNewsNet.com contacted several industry experts about this but none offered an answer.

As for whether a nuclear reactor’s general liability insurance would also pay incident-related death claims, Mike Cass says, “the family (of the deceased) would have a claim against operators of the nuclear site if the person died as a result of exposure to the nuclear material.” Cass is general counsel for the American Nuclear Insurers (ANI), the Glastonbury, Conn., joint underwriting association that provides coverage for nuclear power plants under Price-Anderson.

“The death claim would be handled according to terms of the liability policy and other financial protections under the Price-Anderson Act,” Cass adds.

Two-tiered program

The Price-Anderson liability insurance program is made up of two tiers, says NEI’s Kinney.

Tier One pays first. It provides up to $375 million of liability insurance per incident at each of the 104 operating nuclear reactor facilities in the country. Insurance companies back this tier through ANI.

The nuclear reactor companies pay the premiums for their Tier One coverage. The average annual premium for a single-unit reactor site is $400,000, according to the NRC. Sites that have more than one reactor would get discounts.

Tier Two kicks in if Tier One is exhausted. It provides “excess” coverage of up to $12.2 billion per incident, bringing the per-incident maximum (including Tier One coverage) to $12.6 billion, Kinney says. Each operating nuclear plant would pay a prorated premium for its share of the excess, but the facilities do not contribute to this fund until an incident occurs. 

If the second tier is depleted, Congress will determine whether additional disasterrelief is required, the NRC website says.

Three Mile Island                                                                   

For the March 1979 incident at the Three Mile Island (TMI) nuclear plant in Pennsylvania, the pool paid out a total of $71 million as of June 2010, Kinney says. The payment came from Tier One, which had a $140 million maximum at the time. (The maximum has gone up over the years to today’s $375 million.)

The TMI payments covered both claims and litigation. The claims were for living expenses, evacuation expenses and lost wages, but not for injuries or death—because “there were no offsite or onsite injuries or deaths at TMI,” Kinney says.

The TMI payout total includes payments made under a $20 million court settlement reached in 1981. These payments were to compensate for economic harm to businesses and individuals within 25 miles of the TMI plant, plus $5 million to establish a public health fund in the area, according to the website of the American Nuclear Society (ANS), La Grange Park, Ill.

The liability coverage created under Price-Anderson “applies only to claims made for bodily injury or property damage caused during the policy period, and only if such claims are brought within 10 years of policy termination,” according to ANI.

Disaster relief would also be available through state and local governments under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, NRC says. This would happen if the president declares a nuclear accident to be an emergency or major disaster. The Energy Policy Act of 2005 extended the Price-Anderson Act to Dec. 31, 2025.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.