ML19350A490

Transcript of 810303 Public Meeting W/Representatives of Nuclear Insurance Pools in Washington,Dc.Pp 1-35

ML19350A490
Person / Time
Issue date:	03/03/1981
From:	NRC COMMISSION (OCM)
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ML19350A491	List: ML19350A490 ML19350A495 ML19350A497
References
REF-10CFR9.7 NUDOCS 8103160310
Download: ML19350A490 (37)

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{{#Wiki_filter:i y. NUCLEAR REGULATORT COMMISSIO O , q { COMMISSION MEETING I h h NN d: PUBLIC MEETING l MEETING NITE REPRESENTATIVES OF NUCLEAR INSURANCE POOLS (t DATE: March 3, 1981 PAGES: 1 - 35 ATr wa sh incr+ nn. n. c. l O d, 8 6 -4 k k %g$*"l)' ~ _6

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i AR/ar I UNITED STATES OF AMERICA 2 NUCLEAR REGULATORY CO!G1ISSION 3 4 PUBLIC MEETING 5 j MEETING WITH REPRESENTATIVES OF a 0 NUCLEAR INSURANCE POOLS R 7 M g 8 d N 4 5 h 10 Tuesday, March 3, 1981. = II Room 1130, 9 1717 H Street, W.W. g 12 Washington,' D.C. S5 I3 The Commissioners met at 2:00 p.m., a h I4 pursuant to notice. n h 15 Present: a d Ib JOHN AHEARNE, Chairman. JOSEPH HENDRIE, Commissioner. II VICTOR GILINSKY, Commissioner, s II Present for the Office of General Counsel: E g" 19 LEONARD BICKWIT, Esq. Present for the Nuclear Insurance Industrv: 21 BERT PROOM. JOSEPH MARRONE. 21 RICHARD SCHMALZ. JAMES MORROW. 23 AMBROSE KELLY. MICHAEL O'CONNELL. 2# I LEROY SIMON. THOMAS O'HARA. l l -o0o-i 1 ALDERSON REPORTING COMPANY, INC. J

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e 2 1 _P _R O_ _C E_ E_ _D _I N_ G_ _S 2 CHAIRMAN AHEARNE: The Commission is meeting this 3 afternoon to hear the views of the representatives of the 4 nuclear insurance pools. = 5 This came about as a result of Commission review K a { 6 of amendments to the nuclear insurance liability policy, and R 7 ended up leading to a Federal Register' notice that was K l 8 published, asking for public comment regarding not only the dd 9 particular form of endorsements that had been submitted by 10 the pool, but also some alternative suggested by the NRC, as Ej 11 well as raising a question of the role of the NRC in publishing it (,11 these. 5 y 13 In response to that, the American Nuclear Insurers a l 14 wrote to us and asked whether it would be feasible for the !2 2 15 pool to address the Commission, and that's what brings us here f 16 this afternoon. e i g 17. Commissioner Bradford is sick today. Mr. Hendrie g u 18 will join us shortly, I believe. I-" 19 Mr. Proom, I gather you are the initial spokesman X l t 20 for the group, so I turn it over to you. 21 MR. PROOM: All right. I am Bert Proom, President 22 l of American Nuclear Insurers. Let me introduce my associates 21 i here today. 24 On my far left is James Morrow, who is Chairman of 25 the Mutual Atomic Energy Liability Underwriters, and also 1 ALDERSON REPORTING COMPANY, INC.

4 3 l 1 Vice Chairman of the Governing Committee of the Mutual Atomic 2 Energy Reinsurance Pool, the mutual pool organization. He is 3 also a Vice President of Liberty Mutual Insurance Company. 4 Next to him is Ambrose Kelly, who is the manager of ia 5' MARP, Mutual Atomic Reinsurance Pool, and General Counsel of Xa {-6 American Mutual Reinsurance Company. R { 7 Next is Leroy Simon who<is the Chairman of the e K 8 8 Board of Directors of ANI, and Senior Vice President of d

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Prudential Reinsurance Company. .-io7 10 On my right is Richard Schmalz, who is Chairman 3_ g il of the Government Relations Committee of American Nuclear it y 12 Insurers, and General Counsel of the Hartford Insurance Group. 3 5 13 On his right is Joseph Marrone, who is Vice President a h 14 and General Counsel of American Nuclear Insurers. 2 15 On his right is Michael O'Connell, who is Assistant 16 g Manager of MARP and Assistant Counsel of AMRICO, American as d 17 Mutual Reinsurance Company. $i 18 And on the end is Thomas O'Hara, Washington i \\ 19 g representative of the Prudential Insurance Company. n 20 We are pleased to have the opportunity to talk with l 21 you today about same of the items that we have on our agenda, 22 and I think because of the time constraints of Mr. Simon, we 23 would like to talk to the items dealing with nuclaar exclusions 24 and the homeowners' policies and work up through insurance 25 capacity, and at the end talk about the amendatory endorsements. ALDERSON REPORTING COMPANY, INC.

1 4 I So that I would like to -- Leroy, would you like to start of f 2 on the homeowners? 3 MR. SIMON: Yes. I particularly appreciate your 4 flexibility in allowing.me to go first and treat those topics g 5 in which I am primarily interested, and when we feel we have E i j 6l done all we can with those topics, I will excuse myself from R 7 the room and head elsewhere. 3l 8 It has been suggested that it might be of interest d q 9 to make a comment about a subject which has, from time to time, zog 10 since the Three Mile Island event, been asked of the insurance 3 II companies, and that is in regard to the presence in the 3 y 12 homeowners' and other policies that we sell to insurers themselves S 5 13, covering their own property, why is it we have an exclusion in u l 14 there with respect to nuclear events. m! 15 This goes back to the very beginning and was the z (( I6 result of great consideration, debate and discussion within e I7 the insurance industry in the middle 1950s as we struggled to -{ 18 come up with the answer to how we cocid best provide the maximum E "g amount of viable insurance protection for this new nuclear 19 20 technology. 2I It was felt that the potential for damage was great and, of course, that the probability of it occurring was U 23 exceedingly small. However, the insurance company has to look 24 at any kind of catastrophe coverage, whether it be nuclear 25 insurance, war ~ damage, windstorms, or earthquakes, whatever i ALDERSON REPORTING COMPANY, INC.

i i 5 1 it may be, has to look at it on two bases: 2 One, what is the probability that the event is 3 going to occur, but from the company's total ability to meet 4 demands, to has to say what are the likely consequences if 1 5-the event does occur? = Xe{ 6, The people at that time in the mid-1950s, after G l 7 considerable discussion and debate, concluded that the best Kl 8 way to make coverage available and to assure the availability d q 9 of insurance companies to respond when the event happened, was i z og 10 to pull together the coverage, give it to the utilities in 3_ j 11 the form of liability insurance, get as much of it as we could E I 12 throughout the world. But in order to maximize that amount, 3 y 13 to not have it compound with other insurance policies that we t = l 14 were writing. l C g ?.5 Hence, the homeowners ' exclusion and the exclusion z g' 16 in other property policies that we write directly with the e 6 17 public excludes the nuclear hazard, and the policy that we write E { 18 for the utility is our means of maximizing the amount of E 19 insurance protaction that we can bring to them. 20 This question was examined again after the Three l 21 Mile Island event. It was examined by the industry. It was 22 examined and debated by the National Association of Insurance 23 ; commissioners which is an organization of insurance regulatory 24 l officials of the various states in the U.S., and we again, as 25 insurers, restated our position that we felt that this was the 1 l l ALDERSON REPORTING COMPANY, INC.

a t 6 I most effective way to bring coverage to the affected people 2 through the continuation of exclusions in the indiv11ual 3 policies, and channeling of that coverage into the policies 4 issued to the nuclear utilities. g 5 A common misconception is that if one were to wave a E{ 6' magic wand and make the exclusion disappear from all of the R 7 7 other policies, that this would suddenly create a great deal 8 more of insurance capacity. d d 9 z. Unfortunately, it won't happen that way because many oF 10 g companies who now are willing to advance substantial commitments E II for the' ANI and the mutual insurance pools would have to drop out g 12 of those pools because they would be committed otherwise by a" 13 5 their primary policies. m b I# So this is not an alternative way of doing things, n! 15 or it is not a way that one could create additional capabity, e d I0 but rather would have serious impact ca how the insurance w h I7 product was brought to bear on the situation. x II I would be happy to answer any questions on the I9 g exclusion in the basic policies, if there are any. O therwise, n 20 I would go on and make some comments about our thoughts for 2I capacity in the future. 21 COMMISSIONER GILINSKY: I don't have any questions. 23, I would like to hear about your thoughts on future capacity. 24 MR. SIMON: All right. We started with a total of 25l $120 million worth of insurance capabity in 1957. We have, I I I ALDERSON REPORTING COMPANY, INC.

l 7 I from time to time --- and most recently it has been every other 2 year -- conducted what we call a capacity campaign. We tried 3 to get a little enthusiasm among our United States insurance 4 companies and go t) our foreign reinsurers and solicit additional' 5-g capacity from them. a d 6 These decisions by the various companies, both here ^= I in the U.S. and abroad, are individual decisions as to whether O they wish to participate, how much they wish to participate, and. dd 9-so on. ze { 10 (Whereupon, Commissioner Hendrie entered = II the room at 2:10 p.m.) f Il We do our best. We want additional capacity. We S k'- 5 13 think it is a good product that we have to sell, and we do x l 14 try to sell it. Mr. Proom and his staff and Ambrose Kelly g 15 and the folks on the mutual side allthavecthe same motivation x E I0 in this. W II CHAIRMAN AHEARNE: Do you get much pressure from x IO utilities to increase that capacity? II ( g MR. SIMON: Yes, the utilities would like to buy as 20 much property insurance as we can possibly make available, and 2I as you know, under the existing statutes, they will buy as much 22 (j liability insurr.ce as we make available. 23 So, from our standpoint, it is virtually an unlimited I 'I market. If we could make "X" dollars worth of capabity 25l available, we are sure that it would be purchased by the i I i ALDERSON REPORTING COMPANY, INC.

8 1 utilities. 2 COMMISSIONER GILINSKY: Well, it would have to be, 3 presumably. 4 MR. SIMON: It would have to be in the liability e 5 area, and we know they would like it in the property area, M a g 4' ! because at the present time in that area we have $300 million a 7 worth of capacity. They would like to insure their property K 8 8 for much more than that, because they know it is worth much more a dd 9 than that, and they would be interested in insuring it for as z 10 much value as we could put together. I 11 So the motivation is there on their part and on our <E d 12 Part. z 3 ( d 13 COMMISSIONER GILINSKY: Is it really there on their ~. g l 14 Part in the liability insurance? In that I wonder whether it u 2 15 makes much difference to them where the insurance comes from, 5 16 whether it's from the private insurers or the government kd g 17 indemnity or the retrospective portion.

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18 b1R. SIMON: Well, that's a question which, of course, 5 19 they can answer better, as to what their motivations and 3n 20 interests are. 21 COMMISSIONER GILINSKY: I have no idea what the 22 answer is, but it doesn't seem to me to be clearly in the 23, direction of them wanting more private insurance. I am wonder-l 24 I ing whether you had any thought on that. 25l MR. SIMON: Well, I don't like to impute to them what ALDERSON REPORTING COMPANY, INC.

9 ! their interests or motivations might be. 1 I think that would be I 2 a good question to ask them. 3 We do know that they want to buy from us all the 4 property insurance we can make available. r; 5 CHAIRMAN AHEARNE: You haven't received any N{ 6 similar pressure to increase the liability insurance? R { 7 MR. SIMON: I think it's fair to say no, we haven' t X g a received more pressure. dd 9 MR. KELLY: If I might break in, we have had an i C 10 indication and an actual loss of the fact that the property g 11 coverage that we are making available is inadequate at Three t y 12 Mile Island, where we anticipate that we will go through -- 5g 13 we haven' t had any similar experience in the liability field, u i l 14 as you perhaps know. It has been reported in the press there $0 15 has been a tentative settlement, still subject to review by wa f 16 the court, which has been approved by the District Court in s h II l Harrisburg for all cf the economic loss. m 18 We, of course, settled on the liability side of the E" 19 H claims that were made for evacuation expense. All these are 20 absolutely insignificant in amount. Not that we regard $25 21 million insignificant; we don't. But compared to $300 million, 22 it isn't important. And although there are still claims to l 23 ; come for bodily injury -- and I'll grant this is something 24 ' that may very well be litigated, but the evidence we have, 25 ; the bodily injury claims that have been filed -- and there ALDERSON REPORTING COMPANY. INC.

10 1 have been some filed -- not for what I would call physical 2 injury, rather than bodily injtiry, where the claim is for 3; psychological stress as a result of the incident, -- but we have 4 had an incident which seems to indicate that the property e 5 coverage is now substantially inadequate, and the liability is k I .] 6 more than adequate, without going into supplementary coverage R 7 at all. l 8 COMMISSIONER GILINSKY: What puzzles me is that O ' c[ 9 after that experience, you seem to be willing to come up with property coverage even though you had to pay on that 13 10 more z h Il part of the policy, and reluctant to come up with money to back U y 12 the - 3 13 MR. KELLY: We are in the insurance business. We 5w i l 14 knew when we wrote these policies that there was the 2 15 possibility -- we always regarded the real exposure to loss f 16 as on-site,.'because we recognized from the very beginning that ! d ti 17 radioective contamination to physical property on-site might 5li 18 well cost us a great deal in decontamination. But we have _i: 19 confidence, both in the revised regulations of the Commission, and "g ln 20 the steps being taken by the public utilities, through such 21 things as INPO, and our engineering efforts and reviewing what's 22 been done, to feel that experience in the future will be 23 sufficient to enable us in time on an insurance, basis to cover 24 all the losses that occur without any real. loss to those 25 [ companies. ALDERSON REPORTING COMPANY. INC.

11 1 I must say, in all honesty, although our companies 2 did not join the pools with the thought they were going to 3 make money from them, they did not join the pools with the 4 thought they were going to subsidize the nuclear industry, 5 g e ither. e d 6 COMMISSIONER GILINSKY: As a follow-up to my R I question, you said that you are confident with the various K! 0l changes that you will be able to ensure the plants and come d d 9-z, out reasonably in the process. I would think since the amounts, og 10 even with the settlements that have been discussed here, would E 5 II have to get paid off on the liability side are very much less, b y 12 you would be more confident on that side, and therefore more 5" 13 5 willing to provide greater coverage. LJ l 14 MR. KELLY: No, this gets back to the point that h 15 Mr. Simon made. Although the possibility of a major loss on u d 16 the liability side seems to us far less than the possibility w h II of a major loss on the property side --- see, we have had etcady a { 18 losses on the property side over the years --- the potential P 19 for catastrophe loss on the liability side is, at least in the 20 judgment of our people, probably greater than it is on the II property side. l 22 There is a limit on the property side to the value l 23 ; of the plant and the cost of decontaminating it. i 24 l CHAIRMAN AHEARNE: Mr. Kelly, when you say the 25 'i potential, are you putting a probability estimate into that? i ALDERSON REPORTING COMPANY,INC.

l l 12 1 MR. KELLY: We know that the probability -- and this 2 has been studied, as you know, by an awful lot of people --- 3 the probability is very, very low, the probability of a major 4 liability loss is far less than the probability of a major g 5 property loss. N { There are those of us who feel that the chance, R 7 the probability of a major liability loss, has to be measured K j 8 out with several zeros, you know, before you come to the first d 2 9 one. But if it happens, the potential for total financial io 10 loss is much greater than it is on the property side. E_. g 11 COMMISSIONER GILINSKY: Isn't it still related to k j 12 the amount of insurance you are providing? (. 13 MR. KELLY: There is a limit to the amount we are = l 14 providing now and, as was brought out in Commissioner Ahearne's 2 15 U remarks, there has been some feeling on the part of the utilities f 16 that although they have, through their experience, seen the w g 17 need for more property insurance, their feeling is -- and 1 {$ 18 they are the people who pay the premiums -- that with the G { 19 supplementary protection which continues to grow and which n 20 may, by Act of Congress, depending on what action is taken 21 by this Congress, that there is adequate protection for the 22 public, and that it is adequate protection which costs them 23 very little money. I 24 In other words, it will only cost them money if this 25 very, very low probability incident should occur. Their i ALDERSON REPORTING COMPANY, INC.

13 1 obligation to come up with S5 million in retrospective premiums 2i which they have had since the Price-Anderson Act was revised, 3 has so far cost them very little. 4 COMMISSIONER GILINSKY: I guess I still don't g 5 understand what the larger bound on the possible consequences g to the public has to do with being willing or not willing to i g 7 provide S3 million worth of insurance. l 8 MR. KELLY: Leroy, I think, was trying to say you d n} 9 cannot make a contractual commitment to pay a loss without z C 10 being willing to pay that loss. E j 11 Suppose we have $1 billion in liability coverage 3 y 12 which is - - the probability is very low. Why don't you give b (' 13 a billion dollars in liability coverage? If the event occurs, 5a l l 14 then we have the problem of providing the billion dollars. C 15 CHAIRMAN AHEARNE: Well, back up to the $300 s 1 l g 16 million,you are now faced with the problem of providing $ 300 W 6 17 million on equipment. 18-MR. KELLY: Yes. 5 19 CHAIRMAN AHEARNE: Not only was that, as you yourself R 20 said, a higher probability, but it actually is now happening. 21 MR. KELLY: And that, of course, is in case the 22 companies in both pools were very aware of the fact that such 23, a loss could happen, and at the time they became members, they l 24l gave us financial commitments which would enable us to meet i 25; such a loss, as we did. i I i l l ALDERSON REPORTING COMPANY, INC.

1 14 I, CHAIRMAN AHEARNE: Are you saying you don' t think i for an equivalent level you could get the financial commitment 2 3 on liability? 4 MR. KELLY: We have not been able to. e 5 CHAIBMAN AHEARNE: Have you tried? M Let me see if I can answer that in this a 5 0 MR. SIMON: E I 7 way: K When American Nur'2ar Insurers solicits its j 8 i the companies receive information with respect to d

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companies, z the historical performance of the property insurance part of og 10 5 this activity, and with the liability part of this activity. = II 4* y 12 They are made aware of the interest that we have in increasing 5 our capacity in both areas, and they, as independent decision-k/ 5 13 a makers within their companies, make the decision as to how much eg 14 !i and how much they g 15 they willextend to ANI in the property area, And this is the principal o i[ I0 will give us in the liability area. e N I7 determinant of how we reach a given number for property at It's the $300 million, and in liability { 18 the present time. "g we have commitments for our companies that allow us to offer A 19 time. S160 million to the utilities at the present 20 aut those decisions are individual company decisions, 21 based upon the things we all know, what the probability is U 23 ; and what the likely outcomes are going to be if different and events happen, what the price is charged for one coverage, M s_ 25 i what it is for another. ALDERSON REPORTING COMPANY, INC.

15 1 You know, of course, that there is an unequal risk 2 factor in the two types of coverage. One does not charge the 3 same premium for liability as he does for property. They are ( 4 different kinds of coverage. e 5 COMMISSIONER GILINSKY: What is the relationship, 3e{ 6 if you can generalize? R d I MR. SIMON: I don' t think you can generalize. They X 8 8 are rated under different philosophies. The utility pays a d c 9 different premium based upon the property values, and they ,2 h 10 purchase a liability policy based upon certain rating factors Z _~ j 11 in a liability rate structure. E y 12 The coverages are different in the two, and it is 5 ( j 13 just not an interchangeable sort of capacity, m k 14 CHAIRMAN AHEARNE: For the same dollar coverage g 15 for a typical utility, what would be the ralationship between z d 16 the two utilities? l d I g 17 MR. PROOM: Maybe I can shed some light on this, E h 18 but let me back up for just a moment. 19 g When we put this capacity together, it's the world-n 20 wide insurance market we are dealing with, not just domestic 21 I companies. There are 17 other nuclear pools around the world. 1 22 a We receive capacity from Lloyds of London and other foreign 23 ; reinsurance companies. 24 COMMISSIONER GILINSKY: Presumably we supply 25 capacity for foreign reactors? ALDERSON REPORTING COMPANY, INC.

16 I MR. PROOM: Yes, we do. We insure reactors overseas 2 I as well. It's a reciprocity situation. When these companies 3 provide the insurance, they provide it in the manner in which I' 4 they wish to. They provide it either for the liability pool or g 5 the property pool. O j 6 As you are aware, overseas, the tort system is not W d 7 as finely developed as it is over here, and there is more of a Kl 8 leaning towards providing property cover rather than liability. d m; 9 Now to get to some relativity on the premium size, zog 10 for the 300 million we provide on the property side, we z ll anticipate that will generate here in the United States about I Il $70 million worth of premium during 1981. 5 ( I '~ 4 5 The 190 million, we provide 60 million for the third s l = h I4 party liability, some 30 million for the contingent liability. 15 That 190 million will generate about $26 million worth of = g 16 premiums. w N II Now to take a typical plant with a single reactor t I { 18 on the site, that might generate a property premium of about j 1 c. 19 g $1 million, I would say, give or take a hundred thousand on each n 20 side. 2I The liability policy at that site would run maybe l 21 S250 to $280,0000. T.2 23' CHAIRMAN AHEARNE: Joe, Mr. Simon is going to have 24 l to leave early. Did you have any particular questions? 25 COMMISSIONER HENDRIE: I take it from the letters and l [ l ALDERSON REPORTING COMPANY, INC.

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17 I package in hand, with regard to the subject, the regulations 2 and the setting forth in the regulations of the provisions on 3 j these po]icies, that you would prefer to have it in the 4 regulations for various reasons? e 5 MR. S IMON: Mr. Hendrie, we had asked if we could K n 6 handle that aspect of the discussion last, and I will talk 3 3 7 I about capacity and related subjects first, and then I would K 3 8 leave. n d:i 9 MR. HENDRIE: Oh, I see. You're going to be held Y E 10 harmless on that. E. I 11 (. Laughter. ) 1 i e 12, CHAIRMAN AHEARNE: The two subjects he spoke on 3 ( p 13 were the exclusion in the homeowners and then the capacity E E 14 factor. 2 in 2 15 COMMISSIONER HENDRIE: I don' t have any q uestions

sx 16 on the capacity.

3 ad 6 17 MR. SIMON: Thank you very much. =z tu2 lii 18 MR. PROOM: Well, I think the next subject is the r. I 19 one that Commissioner Hendrie just brought up, and I would ask Xa 20 Dick Schmalz to lead that discussion. 21 MR. SCHMALZ: To answer your question, I think l 22. that we have arrived at the conclusion that we would prefer to s, 23 ' see a full text of an approved acceptable form of financial 24 j protection in the regulations. 25j This little shape that we have provided for you I i ALDERSON REPORTING COMPANY, INC.

f 18 I sort of takes. you th' rough our chain of reasoning. 2 CHAIRMAN AHEARNE: I will ask at the appropriate 3 point the gentleman on the right to comment on your chain of ( 4 reasoning. i 5 [, MR. SALTZMAN: I'll have to listen carefully. I { 6 haven't seen it. R 7 CHAIRMAN AHEARNE: Did you get a copy? 'n! O Go ahead. d Y 9 MR. SCHMALZ: We are discussing this now in the zoH 10 g general context without regard to the specific endorsement. = 5 II We would like to make some separate comments on that later. But a d 12 z as a matter of general approach, we note, of course, that c ( 13 l Section 170 of 'the Atomic Energy Act authorizes the Commission c E 14 to require or authorize certain licensees to maintain financial m 2 15 protection of such type and in such amounts as the Commission am j 16 shall require. w h I7 And then in Section 170(b), after studying the x 18 = amount of the f'nancial protection, the act provides that b I' 8 the financial protection shall be subject to such terms and e-20 conditions as the Commission may by rule, regulation or order li prescribe. ~ 22 ( So it follows from that, that the NRC has discretionary 23 l authority to ptascribe the terms of financial protection for 24 licensees and indirectly, as a practical matter, authority 9 25 i over the key insurance policy provisions relating to the scope I ALDERSON REPORTING COMPANY, INC.

19 1 of coverage which the pool affords licensees in connection with (' 2 their obligation to maintain t'nancial protection. 3 So, clearly, the scope of financial protection 4 required by the Atomic Energy Act is a matter of federal policy. 3 5 Eistorically, however, the states have usually approved or d j 6 required companies to submit for approval the full text of R I liability insurance policies and endorsements which licensed K j 8 insurers issue on risks located within their borders. d m; 9 We believe it would create serious problems for the zo b 10 public, for the NRC, for the NRC's licensees, and for the Z )I II insurers, if the NRC were to set one set of insurance standards a p 12 in the states of various mixture of other standards. States 5 1 y 13 could conceivably frustrate federal policy indirectly and in-m .h I4 advertently by requiring conditions of coverage that we, as G 15 insurers, simply could not fulfill, which conflict with the ai l' NRC's indemnity agreements, or which may otherwise be d I7 incompatible with the smooth operation of the Price-Anderson x IO Act as a whole. P 19 g i CHAIRMAN AHEARNE: Can you give me a potential n 20 example? II MR. SCEMALZ: Well, for example, we have some unique 22 ( coverage in our facility policy. The third-party liability 21 coverage to meet public liability in the general sense, 2' persons who might be injured or damaged on their property off-1 25 l site. ALDERSON REPORTING COMPANY, INC.

O 20 1 Then there is sort of an indirect coverage for on-2 site property of a licensee that has nothing to do with 3 relation to the reactor. 4 This is an unusual provision in the liability policy. g 5 It's the first of its kind and still the only one that I know W j 6, of, R [ 7' Another one in which we make protection available Kl 8 to certain compensation carriers who have paid fines for on-d 9 site injury and for off-site injury to employees, and then we zog 10 have various provisions that relate to common occurrence E 11 provisions. in N 12 The whole idea of a policy that lasts forever and 5 ( 5 13 is subject to a lifeti'ae aggregate which includes defense costs a 14 within the limit of the liability, these are all somewhat ir g 15 unusual provisions in comparison with standard general liability z j 16 policies. e l N 17 They were made necessary by the unique requirements E h 18 of Price-Anderson, the Omnibus Clause, which covers virtually i:" 19 g everyone who might be liable. 20 These could be conceivably, if the state chose to 21 disapprove them or raise questions as to how they are phrased E or expressed - which they very often do in connection witn 23 the policies that we normally file -- would create problems if i l l 24 we could not have a uniform standard base of coverage everywhere 25 : throughout the country. i 4 l ALDERSON REPORTING COMPANY, INC.

21 1, CHAIRMAN AHEARNE: And you see that as a slight l 2' possibility or a real possibility that the states would dis-3 allow some of your provisions? I I 4' MR. SCHMALZ: It's entirely possible that they might. 5 g They are 50 separate sovereign jurisdictions, and sometimes we b{ have been absolutely unable to get a uniform policy. C d I For example, uninsured motorists' coverage in the A l 8 automobile field. It's almost impossible to get a single type d o; 9 of coverage. zog 10 CHAIRMAN AHEARNE: Currently, do you knew of Z li 11 states where a state has raised that objection and you have t { 12 pointed to our regulations, NRC regulations, and said, "It's ( 13 embedded in the regulations, so you cannot raise it"? m 14 MR. SCHMALZ: I don't know of a single case where u g 15 a state has disapproved of a policy that has been approved by a y 16 the NRC. They normally looit to the fact that it has been e l ( 17 approved for use as financial protection and, as a matter of E k 18 fact, they have approved it. P 19 CHAIRMAN AHEARNE: And they view our publication g 20 as our approval of it? l 21 MR. SCHMALZ: Yes, I'm sure they do. 22 There is one other factor that I think has been of l 27 some importance in the past, and that is that the licensees 24 of the Commission themselves have looked upon the Commission 25 ; as sort of a moderator between themselves and the insurance l t l l ALDERSON REPORTING COMPANY, INC.

22 1 industry in arriving at a scope of protection, a scope of 2' coverage that would meet the financial protection requirements, 3 so they could be sure that when they purchase the policy and i i 4 maintain it as proof of financial protection, that it would 5 g always meet your requirements, and that it would meet their e{ 6 requirements. R d 7 We have never objected to that. We thought it was a Il 8 useful role to have the Commission take, and we would not d =; 9 particularly want to see that role che.nged. 2og 10 There is a sort of dual regulatory system that we N 11 have to give --- have to pay attention to, and that is although, E y 12 as we said, we think the NRC has a primary role with respect c ( y 13 to the scope of the coverage, the states have always maintained a e i 14 jurisdiction as far as the rates are concerned, and we will Dl 15 always have to file our policies, our rates, with the states a j 16 for approval. e g 17 And. sometimes states have looked at the form in h I8 relation to the rates, holding that they go hand in hand, and P 19 we would not want to have the form subject to alteration 20 ] simply because of the rating approval, which is another reason 21 why we think it is important that the NRC take the lead in 22 shaping the essentials of the coverage. i I 23l In the past, I think we have submitted everything 24 for approval and all of the material that we have submitted 25 l has been placed into regulations as an approved form. ALDERSON REPORTING COMPANY, INC.

D a 23 I I The regulations now provide for what I would call a 2 full text approval system, so that all that is necessary to 3 furnish proof of financial protection is to file a certified 4 . copy of the declarations page of the actual policy that is issued < 5 j CHAIRMAN AHEARNE: So. u make no changes -- do I 9 6 understand your correctly -- without first having sent it to the R CS I NRC? X! O MR. SCHMALZ: We generally have sent everything, I d 9 believe, Mr. Ahearne, to the NRC. Certainly all of the zo h 10 substantive endorsements or anything that could be considered = II substantive. We might not have submitted a change of name in f Il endorsement or something of that sort; but anything we would / 3 5 II \\ consider to be at all substantive. We have-erred on the side of z I4 sending everything, I think, to you. x h 15 So I think that in general, as a general proposition, z i[ I0 if the NRC desires to have a uniform policy throughout all of ai f I7 their jurisdiction, the best way to do it would be through z II the full text approval systen. If you do something less than 3 the full text approval system, there is always a possibility n E that a state may adopt some provision-that is incompatible. II CHAIRMAN AHEARNE: Now your use of the term " full 22 text approval system" would lead me to conclude that you 23 recognize that we would then have the right to -- or at least to refuse to accept part of it. Approval must mean we approve. 25 MR. SCHMALZ: That's true. It goes both ways. And l ALDERSON REPORTING COMPANY, INC.

o 24 I in thatconnection, we have, as I said in the past, always 2 submitted them, been willing to do whatever we could to do 3 satisfy the Commission that the endorsement of a particular 4 policy provision was sound. And we have not, I don't believe, 5 j i ever reached an impasse. n 1 k bI COMMISSIONER GILINSKY: What is it that keeps the I R I states from opposing the condition on the existing policy? K ~ E MR. IHMALZ : There isn't anything that keeps them dd 9 z. from doing it, but the fact that the Commission has in its o 10 regulations approved the form and announced that this is what iE II the Commission will accept as proof of financial protectior in d 11 E has in every case been satisfactory. 4 5 I2 MR. KELLY: If I could supplement what Mr. Schmalz a I4 has said so well, it is difficult for someone who has not. 15 worked in the insurance business to recognize that the full s I0 iii implicationc of the separate regulation by the 50 states -- l

s h

II we as an ind1stry live with the system. We like it and have z IE opposed any effort to substitute a feceral system for it. But I9 g you cannot work in the insurance business'for years without n E being aware that it makes very difficult the task of having II natior.4J. uniformity on your contracts. U My field years ago uced to be standard fire 23 insurance. We were never able to get a complete national M standard. We came to the point where there was one type of D I policy that was accepted in the majority of the states. But ALDERSON REPORTING COMPANY. INC.

25 7 there are always states like Massachusetts and Texas --- I 2 don't know why those two should always be willing to impose 3 their views to those of the majority, but they are always 4 different. So is Minnesota and California. And this made it 5 very difficult for our insurers who had operations across Me{ the country, and for the companies themselves. And this which R R 7 was true in fire insurance has been true in many other areas as K 8 8 well. d d 9 I think one of the most effective parts of the iog 10 nuclear insurance program has been that because in a sense 5j 11 all endorsements or forms have been filed with and reviewed y 12 by you, they have been accepted by the states. I wouldn't 5 i y 13 say not without question, perhaps at times, but.there has never = l 14 been a serious question, and they have always been approved, 2 15 And as Mr. Schmalz has also pointed out, your E j 16 approval has not been a rubber-stamp, pro forma approval. i d l 6 17 We have had enough correspondence and discussions with Mr. 5 l { 1& Saltzman when he has raised questions about forms and endorse-P { 19 ments that we have filed and he has asked us to perhaps make n i 20 changes and justify what we were doing. 11 So it is not a pro forma approval. It is a real 22 review. 23 GAIRMAN AHEARNE: Do you want to make any commeucS7 l 24 MR. SALTZMAN: To supplement the last point that 1 25 Mr. Kelly made, I can recall one case of an endorsement that j L-- l ALDERSON REPORTING COMPANY, INC.

26 I did not go through. I think Mr. Marrone would remember it. A 2 transportation endorsement that came about before Three Mile Island, which was the largest liability that we had, and there 3 4 it was during the period of the Atomic Energy Commission, and e 5 the situation where a fuel shipment was ccvered both by Ae { 6 contractor indemnity and private insurance. And at that point R 7 it was decided that insurance companies would pay, even though K l it was under contractor indemnity, and the pools tried to come do 9 out with a new endorsement that would take care of the i Oy 10 situation, and we were never able to settle it, because it 3_ g 11 kept going around in circles. So we kept going back and forth n y 12 with them a lot. E y 13 We do not considercat the Staff level that we give a 14 rubber-stamp approval to what they do. 2 15 On the other hand, I think we see here better the E y 16 dilemma in that the Commission is being asked to approve w( 17 everything that is presented, at least by the Staff. Once E { 18 the Staff has finished going over it with the pools, and to now P" 19-R know that that approval carries a certain weight when it goes 20 to the state insurance commissions, and yet at the point where 21 it would like to raise a question about certain provisions, 22 to be told, "Well, it's not something you understand or should 23 j get into." 24 I'm not quite sure of a way out of that dilemma. 25l MR. MARRONE: Would not the states be able to offer l i 1 ALDERSON REP ORTING COMPANYn INC.

I 1 27 I their co= cent to your published endorse =ent before it becomes 2 effective, just as anyone else might be? - 3< MR. S ALT:: MAN : If they read the Federal Regisrer, ? yes. g 5 MR. MARRONE: So they would have the opportunity a+g 6 to respond and their concerns coz.ld be considered by you, or R 7 they might approach us directly with their concerns. K j 8 CHAIRMAN AEEARNE: Jerry, do you know of any state d" 9 who has never responded to a notice? 4 5 10 MR. SALTZMAN: Never. No. iE k II CHAIRMAN AHEARNE: That dcesn't mean that they it j 12 couldn't. ,= y 13 MR. SALTZMAN: Furthermore, I have to say this: = m 14 i From the point of view of the Staff, when we -z ]r 15 reviewed endorsements, we reviewed them with respect to the z d I6 compatibility with the act, and with our regulations. We do not

d h

17 go into detail into any other questions that we have heretofore E 18 thought were simply a contractual matter between the insurance P e. 19 e companies and the insurers. We are neutral on it, and never M E really thought that we were carrying through this an endorsement 21 of all the words that were 11 there. 21 MR. TFMALZ: I wcaid like to say just a little bit T., U about this particular endorsement, and maybe just touch back M ! on this again lightly. 25 It does seem clear that with respect to the scope of ALDERSON REPORTING COMPANY. INC.

28 i financial protection to the public, your interest is paramount, 1 2i and in that particular area, we do agree that tbe substance 3 should be very, very carefully examined to make Te that it is 4 compatible with your policy, and also we will, if it is 5 possible to insure it, we will do it; and if it is not possible e 3 e j 6 for us to insure it, we will tell you so, and try to reach R R 7 son ~ ,reement. i K g With respect to some of the other provisions in d c 9 the policy, as Mr. Saltzman says, they have not looked at them

s Cy 10 as carefully because they are in truth principally matters E

{ 11 between ourselves and the policyholders. 5j. 12 To some extent, that's exactly what is involved in

=2 i

13 this particular set of endorsements. One of the changes was a ga l 14 small technical change in the substance of the coverage. !if 2 15 Clearly that's the sort of thing, I think, that -- E y 16 CHAIRMAN AHEARNE: Like mill tailings? as( 17 MR SCHMALZ: You ought to be satisfied that the way lii 18 we have handled it is right. ?- { 19 The other question of the suspension condition, the 1 t'! 20 basic thrust of the inspection condition was worked out in the 21 very beginning with the Commission, so that the notice and 22 the cancellation in those provisions were all agreed upon as 23, satisfactory to everyone. The idea of inspection liability i 24 is something that has been growing, a matter of growinc.oncern 25 l to insurers everywhere. l ALdERSON REPORTING COMPANY, INC.

29 bu3 I Suits are becoming more frequent. The Insurance 2I Services Office, which is the major rating organization which 3 does inspections for property risks throughout the country, 4 appears to be the type of suit in almost every major fire. 5 g The Three Mile Island experience has shown us that supplies 7 { 6j of service can be the target of a suit by a propertyowner. er R 7 CHAIRMAN AHEARNE:. We have noticed. Kl 8 (Laughter.) d ci 9 MR. SCHMALZ: I thought you would. zo h 10 Well, unlike the situation for other risks, we in = II the insurance business are just like every other supplier. We E I I2 don' t. have any insurance for the nuclear hazard, because we put Q j 13 it over in the pools, because we just don't have any more, and a h I4 there is no place else we can get it. We don't have any 15 governmental immunity to rely on, and we have to do just about x if 16 what-every other major supplier has done, and that is take a e h II -- with respect to the on-site damage, we don't think that we z h II are doing anything different from what is commonly done in the F g" 19 industry. D It enables us to go forward and make the inspections 'I that we - ink we have to make to service the insurance properly, 22 (, and we like to think we are some help of a general nature, and 23 we don't really see it as a matter that affects in any substantial 24 way or any way at all the obligation to pay for damage off-site. 25 I We think that we need this as a practical matter to ALDERSON REPORTING COMPANY,INC.

30 t continue to grow as much capacity as we can. 2 CHAIRMAN AHEARNE: Are you saying also, though, that 3 you cannot get it unless it's embedded in our regulation? 4 MR. SCHMALZ: No, we are not saying that. But what i e 5 we are saying is if it is not included in your regulations, it K I { 6 li is not inconceivable that we might not be able to get it approved j e {2 T. in one or more states, and the fact that you express a g K g a preference for a form which does not have in it almost encourages dd 9 someone else to take a view that might cause them not to approve ioy 10 it. 5 I 11 COMMISSIONER GILINSKY: Well, we wouldn't be taking it j 12 a preference. E ( y 13 MR. 3CHMALZ: It's just a matter of psychology. I a l 14 know you don't aan to preclude somebody from approving the 2 15 form, or at least I don't believe you do. f 16 CHAIRMAN AHEARNE: The preference statement, the way ad l 6 17 I thought it was worded, was trying to narrow down to those l l $i 18 elements where we.could see a direct relation to our responsibilit t l 5 19 and the others which seem to be contractual matters between the l l l 20 pool and the licensee seem not to be necessarily something we l 21 need to be concerned with putting in our regulations. That 21 was the issue. l Q.s 23

11. SCHMALZ:

We thought that was it. I think it 24 had perhaps an unfortunate twist to it. 25 COMMISSIONER GILINSKY: Well, that's something that . AL7ERSON REPORTING COMPANY, INC.

1 ~ 31 1 ) could be cleared up. ,~ 2 l CHAIRMAN AHEARNE: I thought the Federal Register 3 notice spelled it out in the beginning, anyway. 4 Are there other points, Mr. Schmalz? 5 g MR. SCHMALZ: No. ? 3' 6-l COMMISSIONER GILINSKY: I wonder if we could return g T to the question of the ext. ended coverage at some point, but I ]" 8 want to be sure we finish this before we do that. d j

i 9l MR. PROOM:

I think we have expressed all our thoughts 2o 10 on this one matter. E II MR. KELLY: Yes, I think so. E g Il CHAIRMAN AHEARNE: Do you have some other items on 4 ,C 5 II-your agenda? a E 14 a MR. PROOR: No, we do not. h CHAIRMAN AHEARNE: From the other panel members? a 2[ 16 MR. PROOM: Do you have any comments on this? e C 17 .j* COMMISSIONER GILINSKY: I have been informed -- and z II correct me if I'm wrong here - that in the case of aviation F 19 g incidents, the insurance provided, I believe, is larger in n D total amount than that provided for nuclear accidents. Is that 21 right? 22 v MR. PROOM: That's always been hard to pin down. I E We've always tried to use that comparison to help us. I think M the aircraft liability amounts to somewhere over $500 million. .s I 25 ' We have 490 right now with our various coverages. The one ALDERSON REPORT.NG COMPANY, INC.

A G w 32 1 outstanding one is the drilling platforms in the North Sea, or 2 wherever they might be, where this capacity of S750-800 million 3 is available, and we understand soon to go to S1 billion. i 4 COMMISSIONER GILINSKY: This is liability insurance? e 5 MR. PROOM: No, that's property. The drilling Xn 3 6 Platforms would be pure property. The aircraft is liability, e R 7 and the whole of the property value. But in these cases there K 8 8 is a much broader premium base. a d ei 9 In other words, there is a greater return on the I I h 10 premium capacity ratio which is much higher in both of those 5 I 11 instances than it is with our situation. E d 12. MR. SCHMALZ: I think also that we have to take z_ o ( d 12 into account the fact that in the drive to gnt maximum i E 14 liability capacity as quickly as possible under the Price-Ns 2 15 Anderson program, that retrospective coverage and the er:ess E 16 there was developed as a means of doing that, and reducing E ad i 17 government indemnity as rapidly as possible. E lii 18 This was a goal that was laid down by the Congress s-" l 19 at that time, and it worked. It worked for that purpose very R 20-well. But 73u have to remember that the private market 21 commitment on the liability side really does include in addition 22 to the $160 million that we put down and the 300--odd million v 23 that the utilities put on top of it, so that in trying to boost 24 our capacity without any restraints at all, it runs into that restraint. 25j ALDERSON REPORTING COMPANY,INC.

33 1 CHAIRMAN AHEARNE: What would your sense be if we 2 were to increase the requirement of that a:aount that currently 3 totals 300 million? m d 4 MR. EROOM: You're speaking of the assessment? e 5 CHAII< MAN AHEARNE: Right. An { 6) MR SCHMALZ: We ourselves as insurers would have Rg 7-no objection to that, providing we do get concerned with the K j 8 potential retrospective assessment as out of reason and size d

i 9

in relation to the utility's ability to respond.

i h

10 I think some people have suggested it would be placed iE E 11 in amounts that would border on that. I don't mean to suggest it y 12 you would. But other than that point of view, we would not have 5 ( 13 -- we would not be opposed to an increase in that premium, if g a [ 14 that seems to be the thing to do. lI 2 15 We "ould like to be able to continue to supply the E f 16 underlying laying in substantial amounts, hopefully increased as p 17 , sounts, which is the layer that is first exposed to loss, and E $i 18 which I think responded very well to the Th.ee Mile Island 1 = E= E 19 situation with a minimum scurrying around trying to find claims A. l 20 people and so forth. It worked quite well with that. l 21 COMMISSIONER GILINSKY: How much of the U.S. liability 22 incurance is subscribed to by foreign insurers? 23 MR. PROOM: Just about 50 pe.; cent. l 24 COMMISSIONER GILINSKY: And dces that apply also to i 25 the foreign reactors? Or are you then supplying 50 percent of l ALDERSON REPORTING COMPANY, INC.

34 1 those? I 2 MR. PROOM: No. Not necessarily, no. In the 3 foreign countries, the only countries that really have a 4 liability system are Germany, Switzerland and Japan, who have g 5 some liability schemes somewhat similar to the Price-Anderson ? 3 6 Act, patterned after it, and we provide coverage there, but R 7 nowhere near that amount. Nor are their limits anywhere near K g 8 the U.S. dollars that Price-Anderson requires. dd 9 COMMISSIONER GILINSKY: Are their premiums comparable icg 10 for insurance premiums? E} 11' MR. PROOM: You're speaking of liability now? y 12 COMMISSIONER GILINSKY: Either one. 3 ( y 13 MR. PROOM: I'm not sure I can give you an answer n l 14 on what their liability premiums are. They are probably -- I n 2 15 don't have any idea. Joe, do you know? E f 16 MR. MARRONE: No. a i g 17 MR. KELLY: I don't know exactly, but my impression U Ni 18 is 2at uhey are less than ours and, of course, their liability 5" l 19 claims experience, because of the absence of a major accident, 1 20 and because the litigation climate in Europe as a whole is l 21 far different than that in the United States. Not only are the 22. premiums less, but the claims experience has been much better. ( 23 I do not think we provide as much as 20 percent of 24 the coverage in foreign reactors. I think it's less than that, 25l because in such as a German reactor or German power company, l ALDERSON RE?QRTING COMPANYa INC0

35 1, they are using the full international market. The only reason 1 2 there is so much foreign reinsurance in the American market 3 is that we have pressured them for higher limits than are norma 11 7 s, 4 followed, and we have a rule that we will take all the capacity 5l we can get. The Europeans do not operate that way at all. = Ae { 6 They, in many cases, take a much larger percentage G 7 of the total coverage in their own national pool because the Kl 8l limits are much lower, and they can. d:! 9 CHAIRMAN ASEARNE: Joe? i Og 10 Jerry, any comments? E { 11 Our General Counsel is.ucre. Let me ask him whether I 12 he has any? No? E y 13 All right, Mr. Proom, gentleiet, I appreciate very a = .z 14 much your willingness to come and share with us your thoughts. $i .E 15 You can see from the concerns we have, we will carefully ,z d 16 consider your points, in addition to any others we get back, s $[ 17 but it is an issue that obviously, as your little brochure 5 h 18 mentions, after Three Mile Island, there has been increased E 19 interest in it. 20 MR. PROOM: We appreciate the opportunity to be here. 21 CHAIRMAN AHEARNE: Thank you. 22 (Whereupon, at 3:00 p.m., the meeting was 23 adjourned.) 25 l cnd ALDERSON REPORTING COMPANY, INC.

1 i NUCLEAR REGULATORY COMMISSION i i This is to certify +,ha: the attached proceedings 'cefere the ~ NRC CO.*EISSICNERS in the =atter of: Date of ?receeding: March 3, 1981 Docket Nu=ber: ? lace of ?receeding: Washington, D.C. i were held as herein appeses, and that this is the original ;ranscript thereof for the file of the Cc==ission. ANN RILEY j Official Reporter (Typed) 1 - (W u Official Reporter (Signature) a 4 1 1 a 4

March 2, 1981 REVISED LIST OF REPRESENTATIVES OF THE NUCLEAR INSURANCE P0OLS ATTENDEES FOR MARCH 3, 2:00 P.M. MEETING: 1. Bert Proom, President American Nuclear Insurers 2. Joseph Marrone, Vice President / General Counsel, American Nuclear Insurers 3. Richard Schmalz, General Counsel, Hartfo'rd Insurance Group 4. James Morrow, Chairman, Mutual Atomic Energy Liability Underwriters (MAELU) Governing Committee 5. Anosa Kelly, Manager, MAELU 6. Michael O'Connell, MAELU 7. Leroy Simon, Vice President Prudential Reinsurance Company 8. Thomas O'Hara, Prudential Reinsurance Company (Note: Group will be introduced by Mr. Saltzman.) Distribution: Commissioners Comissinn Staff Offices Exec Dir for Operations J. Saltzman, NRR i I. Dinitz, NRR 4 i l l l l 4, G .}}