Space Insurance & Space Law

With the increasing privatisation of space activities, it has proved crucial to be able to accurately determine liability issues in these activities, but also to financially secure space projects. Outer space activity represents a high or even catastrophic risk environment, with a relatively high loss frequency. Effective insurance solutions are therefore crucial to the development of a profitable economic activity in outer space.

As a result, insurance has become a major topic in the conduct of space activities. Today, “Space Insurance”, which provides complete coverage of the risks to which a spacecraft is exposed during its lifecycle, should ideally cover the risks of pre-launch, launch, and operations in orbit (and soon in-orbit operations?), including the risk of damage to space assets, and the risk of liability claims.

Space insurance is governed, as all classes of insurance, by general insurance principles: mutualisation (the premium of the many pay for the claims of the few), fortuity (notion of random occurrence as opposed to prediction), indemnity (not to be richer after the loss than before), due intelligence (insurance should not alter the behaviour of the insured), and true and fair declaration of the risk.

Space insurance has some inherent features which makes it unique: mutualisation difficult to achieve (high severity, high frequency events, and high value), inaccessibility of the insured asset (impossibility to repair), insurance of the non-respect of the specifications, and different legal environment (for third party legal liability).

Introduction

Space has long been fantasised before becoming accessible. The first reaction when space law is evoked is to ask whether it is intended to govern relations with extraterrestrials. Space law in fact covers the activities happening in outer space, which are numerous. Space law undeniably has a universal character, like the law of the high seas and the seabed, or that of Antarctica.

It is from this universal character that we can summarise the fundamental principles of space law as follows. On the one hand, a refusal to apply the principle of sovereignty to outer space, a principle that some states have tried in vain to defeat. On the other hand, a principle of freedom of space activities. This second principle includes free access to space regions beyond the airspace of states, and freedom of exploration and use of outer space. Finally, a principle of allocation of space to the whole of humanity.

We must remember that the space conquest began with a rivalry. At the time of the Cold War, the U.S.S.R. and the United States of America sought the place of the world’s leading power. Mastering the outer space environment provided them with a good way of spreading their supremacy across borders. It was therefore necessary to create laws (public international law) for this nascent activity, originally developed by states and their army.

Subsequently, private companies were able to access the areas of satellite design and launch. And the legal framework has expanded to include new players, in a high value-added transport trade. More recently, low cost and tourist flights have been successful, forcing established institutions in the sector to revise their business model.

Understanding Space Insurance

The five Onusian treaties have put in place a specific legal regime applicable to outer space. It follows from this legal regime that states, considered as “launching states” under the treaties, support an obligation to register space objects. First, it imposes on launching states an obligation to register space objects to determine the nature and origin of an object launched in outer space, but also to know the state that will bear international responsibility attached to this space object. In the absence of registration, the launching state will not be able to benefit from the provisions of space law and general public international law will have to be applied.

As far as liability is concerned, it covers two meanings. First of all, there is a liability for damage to third parties caused by a space operation. The regime of this responsibility is detailed by the 1972 Liability Convention. This liability is qualified as “absolute” when damage is caused on land or in airspace, the victim is thus exempted from showing the fault of the (launching) state, and has just to prove that a damage was caused by a space object. The objective here is to facilitate victims’ recourse against a launching state. On the other hand, liability is said to be “for fault” where damage occurs in outer space.

The second responsibility borne by the launching states is a responsibility for monitoring, surveillance and verification of the space activity under its international responsibility. Thus, the launching state must verify that the activity in question is in conformity with international law, from a technical and legal point of view.

National regulations have intervened to manage private and commercial space activities. The 1970s and (especially) 1980s saw the rise of private and commercial space activities, including the creation of private launch companies to provide launch services to private commercial satellite operators. As a result, space law had to adapt to these new and purely private activities. The United States of America was the first state to adopt legislation dedicated to space activities conducted by private U.S. enforcement entities (Commercial Space Launch Act of 1984, amended several times). Other states, such as Great Britain (Outer Space Act 1986), quickly followed. It was not until 2008 that France adopted a specific legislation for space activities, with the LOI du 3 juin 2008 relative aux opérations spatiales.

These national laws have different fields of application, but have in common that they regulate the activities of private entities falling under the application of these laws through authorisation or licensing. States bear international responsibility under international treaties for the space activities of their private entities, so it is imperative for them to authorise, control and monitor private space activities.

In addition to the regime of public international law and national law, it should be added that the space sector is the subject of specific contractual practices adapted to the specific nature of this sector. The purpose of these practices is to protect the space industry and to avoid litigation in jurisdictions. Thus, the contracts concluded between the different space actors (launching agency, satellite operator, satellite manufacturer, subcontractors, suppliers, etc.) try to limit the responsibilities between the parties, by applying clauses intended to allocate responsibilities, and avoid recourse between the parties.

Traditionally, one of the most impacted clauses along the entire chain of contract is the “waiver of recourse” clause, which is systematically provided for in launch service contracts. These waiver of recourse clauses are written to be mutually enforceable, that is, none of the contractors will be able to turn against each other because of the damage caused to them by space activity. These clauses are usually supplemented by “guarantee pacts” granted by the launching agency to the entire contractual chain linked to the launcher, in the event of damage caused to third parties as a result of the launching operation.

In general, and depending on the law applicable to the contract, the exceptions to these waiver of recourse clauses and guarantee pacts are “gross negligence” or “intentional misconduct”, with all the difficulties related to the interpretation of these concepts, and to the modes of proof. It should be noted here that with regard to satellite contracts, clauses allowing recourse between contractors are increasingly present. In fact, waiver of recourse clauses are in some legislation mandatory for launching activities, such as the U.S. Commercial Space Launch Act, or the LOI du 3 juin 2008 relative aux opérations spatiales. They become optional for contracts relating to satellite activities.

How do Space Insurances work?

Insurance is defined by the Oxford English Dictionary as “An arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium”. It is also defined as “The business of providing insurance”, “Money paid for insurance”, or “Money paid out as compensation under an insurance policy”.

While the insurance market has developed a long and rich experience in other sectors, such as land, sea or air transport, the specificities of space activities have involved implementing substantial adaptations to traditional insurance, or even introduce new insurance practices.

To run a space project, there are a number of actors involved. These actors bear risks that are unique to them. Thus, for the various phases of risks, including manufacturing, storage, transportation, launch, and satellite operations, there are responsibilities identified and specific for each actor. These responsibilities are associated with insurance solutions, which have in some cases been specifically set up for these particular risks.

The development of space insurance has coincided with the privatisation and commercial development of satellite launch and operation activities. This development concerns not only damage insurance for satellites or launchers, on the ground or in outer space, but also liability insurance for space operators, manufacturers, equipment manufacturers, suppliers, etc. In general, it can be said that there are two main categories of space insurance: damage insurance for space assets, and liability insurance.

Damage insurance for space assets

Traditionally, in the context of damage insurance for space assets, three risk phases are to be counted: on the ground, during launch and during life in orbit. For these risk phases, policyholders, risks, guarantees, and insurers will not be the same. On the ground, the satellites, but also the launchers, are insured during the phases of assembly, integration, test, transport, and on the launching site, against the risks of damage because of external causes (falls, clashes, fire, etc.). Generally, these insurances are underwritten by “Marine Cargo” insurers.

From the launch (when the launch is said to be irreversible), the “launch insurance policies” take over from the “ground insurances”. During this phase, only satellites are covered; launchers are not directly insured. However, it should be noted that the launching agencies offer their clients “Launch Risk Guarantees”, allowing, in case of failure to launch, a new relaunch or financial compensation. These LRGs may be covered by specific insurance policies. During the orbiting phase of space objects, satellites, and mainly commercial satellites, can be covered from the end of the launch to the end of their contractual life.

The duration of damage warranties varies from a few days, to one year or several years. For launch and operation phases in orbit, satellites are insured for any total, partial or deemed total loss. These damage policies are designed to guarantee, according to the loss formulas provided for in these policies, the loss of control, destruction, impossibility of reaching the specified orbit, but also the cases of reduction of the operational capacity or the life of the satellite, occurring during the warranty period.

In principle, launch and life in orbit policies cover all risks, which is why they are called “all risk policies except”. Thus, only the exclusions specifically indicated in the policy may be invoked by insurers in order to defeat the guarantee. It will therefore be up to insurers to prove that an exclusion applies. These damage insurance for space assets are now well mastered, but they require adaptation to new technologies and new projects under development, such as, for example, satellite constellations or new launchers.

Liability insurance

Satellite launch and satellite operations include a high degree of risk of liability for third party damage resulting from the intended space activity. As such, the risks associated with the launch and the potential for damage to Earth from the return of the launcher stages, were the first concerns of the international community, which led to the drafting and ratification of the 1967 Outer Space Treaty and the 1972 Liability Convention, dealing in particular with the liability/responsibility of launching states for damage caused by space objects. In addition to these texts, certain states, which can be qualified as launching states under the 1972 Liability Convention, and therefore bear responsibility, have decided to legislate on this subject and certain national laws now require space operators to insure themselves for the risks involved.

The liability insurance policies must therefore respond to possible liability claims, not only under the liability regime provided for in the international treaties and particularly the 1972 Liability Convention, but also under existing national legislation. Schematically, there are two main categories of civil liability for participants in a space operation: civil liability related to the operation of spacecraft, and civil liability for space products. The latter is underwritten by manufacturers, equipment manufacturers, and suppliers, in case of damage caused to a third party due to a defect of the product after delivery.

These two categories of liability can today be covered under certain conditions. Space liability insurance covers the financial consequences of the liability of an insured person for damage caused to a third party by a space activity. These guarantees are available, in the current state of the market, up to five hundred million American dollars, or even seven hundred and fifty million American dollars for certain risks. Typically, policyholders are the launching agencies for the launch phase, and satellite operators for the in-orbit phase of life, given that, traditionally, launching states are additional insured, which means that launch will benefit from the coverage (in the amount, conditions and exclusions of the guarantee) in the event of a blame for their liability.

All participants in the launch operation are also generally covered for liability under the liability policies for spacecraft (including the manufacturers of the launcher and the satellite, and all of their subcontractors and suppliers at whatever level they are). The same is often true in liability policies in orbit. The limits of guarantee vary according to the legal provisions if they exist, or according to the apprehension of the risk by the operators. The premium associated with this risk is determined by the insurers after an exposure analysis based on various elements related to the activity to be insured, such as the launch site used, the launch trajectory, backup and security procedures, launch history, launch agency experience, satellite technical details, orbital positioning, planned movements, etc.

Concluding remarks on Space Insurance

The space insurance market will soon have to face a new trend as space activity is on the brink of intensification, mainly due to the arrival of new players promoting a genuine paradigm shift. Insurers must therefore anticipate these developments in order to be able to assess the associated risks. For example, they will need to learn how to assess the risks specific to mega-constellations of satellites, particularly those related to increased congestion, the intensification of launches, the development of multiple launchers, and the complexity of the tests to which these super-satellite networks must be subjected.

Space insurance is governed, as all classes of insurance, by general insurance principles: mutualisation (the premium of the many pay for the claims of the few), fortuity (notion of random occurrence as opposed to prediction), indemnity (not to be richer after the loss than before), due intelligence (insurance should not alter the behaviour of the insured), and true and fair declaration of the risk.

Space insurance has some inherent features which makes it unique: mutualisation difficult to achieve (high severity, high frequency events, and high value), inaccessibility of the insured asset (impossibility to repair), insurance of the non-respect of the specifications, and different legal environment (for third party legal liability).