Assessing the U.S. House of Representatives’ SPACE Act of 2015 (H.R. 2262) and the related U.S. Senate Bill (S. 1297), Part IV – Providing for or Allocating On-Orbit (or In-Space) Jurisdiction

© Matthew Schaefer. All rights reserved.

On-Orbit (or as some like to call it, “In-Space”) jurisdiction or regulatory authority seems like legal jargon but it is an important issue. Under Art. VI of the OST, the United States is obligated to “authorize and continually supervise” it’s non-governmental, including commercial, actors space activities. For launch activities and re-entry activities, the Congress has expressly allocated licensing authority to the FAA. However, the legislative history of amendments to the Commercial Space Launch Act indicates that Congress did not intend to allocate licensing authority to the FAA for in-space or on-orbit activities.

Certainly, Congress has allocated licensing authority over selected activities in-space or on-orbit to particular federal agencies. The FCC licenses or allocates radio frequency use connected with space activities (both launch and in-space). NOAA licenses remote sensing satellites, or, more accurately, those satellites capable of sensing the Earth. The FCC and FAA impose debris mitigation requirements on licensees. But outside of spectrum use, remote sensing and debris mitigation, currently no Executive Branch agency maintains clearly delineated authority to license or regulate on-orbit or in-space activities. Those activities might include asteroid mining, on-orbit servicing of satellites, active space debris removal, space hotels and private research labs, amongst others.

The lack of on-orbit or in-space licensing authority likely does not impact sub-orbital flights because one might say the launch and reentry of such vehicles is relatively seamless — with tourists enjoying 5-10 minutes of weightlessness.  Indeed, the regulations actually define “launch” of a reusable launch vehicle for sub-orbital flight as only ending when the vehicle touches down – so the launch license already covers everything, i.e. in essence, at least from a regulatory perspective, there is no in-space activity or reentry in such a case. But for the other activities, the United States obligation to “authorize and continually supervise” may not be provided for in the current U.S. system.

Some have suggested leveraging launch licensing authority, perhaps under the guise of the payload safety review, to at least create non-interference zones. Indeed, the FAA does institute a non-interference zone around the ISS.   And, FAA said as much to Bigelow Aerospace in its request in the form of a payload safety review. At the time the FAA response became public earlier this year, I blogged the following:

“The US government (FAA AST in consultation with State Dept., Dept. of Defense, NASA, NOAA and other agencies) is saying that it will use its current launch licensing authority as best it can to protect space facilities, hardware and personnel by ensuring zones of non-interference with commercial operations.  The zones of non-interference will only apply vis a vis others being licensed by FAA AST, largely US corporations.  The decision is a sign that the US government is fully engaged in this issue and recognizes the importance of protecting and stimulating private sector investments in new space activities; it puts some “meat” on the “bones” of long-standing US policy to “advance U.S. leadership in the generation of new [space] markets.”  Hopefully, the federal government’s engagement in this issue leads to further steps in the next year or two by the US Congress: ….[including] to establish a licensing or registration regime for on-orbit or in-space activities that does not over-regulate in a manner that stifles investments in new activities but allows the US government to meet its minimal obligations under the Outer Space Treaty Art. VI to “authorize and continually supervise” US commercial activities in outer space.”

However, the FAA is understandably hesitant/resistant to stretch such leveraging authority too far – into a wholesale regulation of on-orbit activities – given the legislative history/intent. House Committee Report 105-347, part of the legislative history of the 1998 amendments adding “reentries” to FAA’s “launch” licensing authority, states:

“The Committee wishes to make clear that the Secretary has no authority to license or regulate activities that take place between the end of the launch phase and the beginning of the reentry phase, such as maneuvers between two Earth orbits or other non-reentry operations in Earth orbit; or after the end of a launch phase in the case of missions where the payload is not a reentry vehicle.”

Neither H.R.2262 and S.1297 go so far as to allocate or delegate on-orbit or in-space authority to any Executive Branch agency. H.R. 2262 in the property rights section of the bill (Sec. 202) calls for the following:

“Report Required.–Not later than 180 days after the date of the enactment of this section, the President shall submit to Congress a report that contains recommendations for–

(1) the allocation of responsibilities relating to the  exploration and utilization of space resources among Federal agencies; and

(2) any authorities necessary to meet the international  obligations of the United States with respect to the exploration and utilization of space resources. (emphasis added).”

Thus, the required report does not address authorities or jurisdiction over on-orbit activities generally, rather only with respect to exploration and utilization of space resources. Another section of H.R. 2262 (Sec. 109 labeled orbital traffic management) calls for a study by an independent contractor related to US space traffic management and orbital debris practices and authorities over space traffic and debris in the agencies. It thus touches on but does not fully encompass the broader issue of authority or jurisdiction over on-orbit or in-space activities.

S.1297 addresses on-orbit or in-space regulatory authority in broader terms than the House bill. Sec. 7 of S.1297 provides:

“Not later than 120 days after the date of enactment of this Act, the Director of the Office of Science and Technology Policy, in consultation with the Secretary of State, the Secretary of Transportation, the Administrator of the National Aeronautics and Space Administration, the heads of other relevant Federal agencies, and the commercial space sector, shall—

(1) assess current, and proposed near-term, commercial non-governmental activities conducted in space;

(2) identify appropriate oversight authorities for the activities described in paragraph (1);

(3) recommend an oversight approach that would prioritize safety, utilize existing authorities, minimize burdens, promote the U.S. commercial space sector, and meet the United States obligations under international treaties; and

(4) submit to the Committee on Commerce, Science, and Transportation of the Senate and the Committee on Science, Space, and Technology of the House of Representatives a report on the assessment and recommended approaches. (emphasis added).”

The Senate’s language (in S.7) is likely preferred to the House bill’s (Sec. 202) narrow property-rights only view of the need for an Executive Branch report on-orbit regulatory authority, specifically any new authorities needed. Asteroid mining is only one of many future on-orbit activities as noted above. The Senate bill focuses on current and “near-term” new activities – without defining what “near term” means (i.e. 3 years? Five years? Ten years?) – and what authorities will be needed for those. S. 7, Clause 3’s direction to “recommend an oversight approach that would prioritize safety, utilize existing authorities, minimize burdens, promote the U.S. commercial space sector, and meet the United States obligations under international treaties,” seems sound as well. Whether the Administration can issue such a report within 120-180 days might be questioned as it’s a difficult, sensitive issue when one is essentially debating which agency has (or should have) what powers.

Clearly, any on-orbit licensing will require an inter-agency process given the expertise within different agencies and the variety of on-orbit activities planned for the future. Moreover, ultimately it will be Congress that will have to act to give on-orbit or in-space regulatory authority to an Executive Branch agency (that will run the inter-agency process). Congress need not lay out the who (what agency), how, and what (needs be licensed or regulated) immediately. There is always a possibility to use (or even very modestly stretch?) current authorities for some activities that creep up earlier than expected. Moreover, many on-orbit activities are in still in the planning or early developmental stages.   Some investors may want certainty as to the on-orbit or in-space licensing processes earlier rather than later; but most may wish for a delay to prevent any risk of adoption of an inappropriate or overly complex framework, created without benefit of first seeing the activities that come to market.  Likewise, some government agencies may wish to have a framework in place sooner rather than later to minimize any diplomatic complaints, possibly serve as a model for other nations, and ensure compliance with international obligations. There are hints of this tension in the Senate bill as it requires a report by the Executive Branch, thus seeming to want to push the process along sooner, but the focus on current and “near term” activities suggests some sympathy to treading more slowly as activities occur. In sum, a framework for regulation of on-orbit activities is not immediately necessary, but putting in place a process to push forward the discussion is likely a very good idea.

A reporting requirement, like that found in Sec. 7 of S.1297, can potentially push forward the debate. A detailed report could give Congress sufficient information to eventually establish a framework and delegate on-orbit authority to an agency before new on-orbit activities become a reality (and if necessary before investment in such activity is hindered, or diplomatic costs become significant, from the lack of a framework). The House bill’s section 109 – focused on orbital debris and space traffic management — can likely live separately in a common bill with Sec. 7 of S.1297 focused on on-orbit jurisdiction and authority more broadly.

Make no mistake – any on-orbit authority or framework ultimately adopted can be “lite” or “light” in nature (i.e. minimally burdensome). It need not be heavy handed or onerous for the US to live up to its obligations to “authorize and continually supervise” its commercial space activities in Art. VI of the OST. That language does not require 24-7 monitoring and it does not mean chewing gum or brushing one’s teeth in space needs authorization.  The lead sentence of OST Art. VI provides: “States Parties to the Treaty shall bear international responsibility for national activities in outer space, including the moon and other celestial bodies, whether such activities are carried on by governmental agencies or by non-governmental entities, and for assuring that national activities are carried out in conformity with the provisions set forth in the present Treaty.”  Thus, the “authorize and continually supervise” language does require is for the US to have a system in place that ensures that its commercial actors comply with other obligations within the OST – and those are rather limited. For example, the US needs to ensure commercial actors comply with the two-way anti-contamination obligations in Art. IX (“avoid … harmful contamination [of celestial bodies] and also adverse changes in the environment of the Earth resulting from the introduction of extraterrestrial matter…”), and the like.  But also make no mistake – Art. VI is an obligation of the United States that it must live up to – and should want to — since we certainly want other countries doing so to prevent reckless actors or activities in space, particularly given the US is the largest user of space.  Moreover, it is likely the case that beginning a process to address in-orbit regulatory authority will dampen some, but certainly not all, of the diplomatic complaints surrounding the property rights portion of any bill, if they survive a likely House-Senate conference committee.

[For those interested in more international space law background on the issue of in-space or on-orbit jurisdiction, please keep an eye out for my colleague Frans von der Dunk’s article in Vol. 40 of the Journal of Space Law due out in print early next year.]

More blog posts analyzing H.R. 2262 & S. 1297 coming soon; if you are interested in earlier blogs just scroll down from the current one. Blogs already posted on H.R. 2262 & S. 1297 include:

Part I: Liability for Space Flight Participant Injury

Part II: Third-Party Liability

Part III: MPL Calculations

Part IV: On-Orbit or In-Space Jurisdiction/Regulatory Authority

(©Matthew Schaefer. All rights reserved).

Assessing the U.S. House of Representatives’ SPACE Act of 2015 (H.R. 2262) and the related U.S. Senate Bill (S. 1297), Part III – Updating Maximum Probable Loss (MPL) Calculations

© Matthew Schaefer. All rights reserved.

Before looking at the provisions on Maximum Probable Loss (MPL) determinations in H.R. 2262 and S.1297, a short primer on how the MPL calculation fits into the U.S. third-party liability regime for commercial launches is beneficial: “The US third-party liability regime is broken into three tiers. First, the US Government requires, as one of the conditions for obtaining a license, that commercial space flight operators obtain third-party liability insurance in the amount of the maximum probable loss (MPL), according to a calculation performed by the FAA. This amount of required insurance cannot exceed $500 million nor the amount of insurance available on world markets at reasonable cost. Second, if third-party liability claims exceed the insured amount (MPL), the government has in essence made a statutory promise to pay for the next tier or traunch of $2.8 billion dollars in any third-party liability claims faced by a space flight entity. In the third tier, where third-party claims exceed the MPL plus the amount of promised government indemnification, liability reverts back to the operator. (footnotes omitted). ” See Schaefer, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2420538

Some factual background is useful as well. In the 200 plus commercial launches in the United States, since the first one in 1989, the maximum probable loss has averaged around $99 million dollars. Calculations can vary from launch site (think closeness to populations) and launch a vehicle (think fuel aboard). For example, a Falcon 9 launch from Cape Canaveral has third-party MPL of $57million (45 launch + 12 pre-launch) and a Falcon 9 launch from Vandenberg has a third-party MPL of $99million (90 launch + 9 pre-launch). Antares launches from Wallops (Virginia) have an MPL of $43 million (34 launch = 9 pre-launch). Atlas V launches have higher MPL that both of the others. The GAO report prepared in 2012 recommended an update to the MPL calculations performed by the FAA. An example of one factor in the formula that might need updating according to the report was the value of the loss of life. Keep in mind an MPL-exceeding accident has never occurred in those 200 plus commercial launches. In fact, there has been basically no third-party injury or damage connected with any of the 200 plus commercial launches.  Both H.R. 2262 and S.1297 appear to favor updating the MPL calculation formula. The House bill states: “…An appropriately updated methodology will help ensure that the Federal Government is not exposed to greater financial risks than intended and that launch companies are not required to purchase more insurance coverage than necessary.” The Senate bill leads with “sense of Congress that it is in the public interest to update the methodology used to calculate the maximum probable loss…”

Interestingly, while favoring an updating, neither bill appears to absolutely require it, only that updating be studied and strongly considered. H.R. 2262 calls on the Secretary of Transportation to submit a plan to the Congress that considers a variety of mandates – including the following: 1) the reasonableness of the single casualty estimate currently used, and “if needed,” an estimate of when it will be updated; 2) the reasonableness of the required insurance amount commercial launch providers must obtain, and calculations as to a reasonable threshold if determined the current one must change; 3) a schedule for when updates to methodology and calculations will be implemented; and 4) consideration of the costs of implementing new methodology and calculations, both on industry and government. The House Bill then directs the Comptroller General of the United States to conduct an independent assessment of the plan.

The Senate bill provisions are even less strong and less detailed. The Senate bill calls for the Secretary of Transportation, in consultation with the commercial space industry and the insurance industry, to “evaluate and, if necessary, develop a plan to update the methodology used to calculate the maximum probable loss…” (emphasis added).

One common feature of both bills is that they recognize the dual goals of ensuring the “federal government is not exposed to greater costs than intended” and that “launch companies are not required to purchase more insurance than necessary.” Further, both bills want the costs (on both government and industry) of any new methodology considered in any plan.

In a November 2013 White Paper prepared for Nebraska Law’s 6th Annual DC space law conference –and that subsequently was refined into a law review-styled article appearing in Vol. 33 of the Berkeley Journal of International Law, pp. 223-273 (2015), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2420538

I made the following recommendation :

“FAA should not modify the current model for MPL calculations.

Rationale: Current MPL is already calculated such that chance of loss exceeding that amount is lower than 1 in 10 million. Any new model is highly likely to increase required insurance and thus launch costs with no proven benefit given the exceedingly low probability of third-party damages exceeding the MPL as currently calculated. One concern with creating a third-party liability cap is that it might lead to increased calls to adjust the current calculation for MPL. Indeed, some want the MPL calculation factor on the value of the loss of life to be adjusted. However, a large factor affecting MPL already is the choice to base the calculation on a 1 in 10 million probability of loss exceeding that figure. That choice already leads to a very conservative approach to MPL and one that does not need to be adjusted given the familiarity the FAA, the launch industry, and insurance market have with the current calculation. US commercial launches over the past 20 years have averaged less than 9 per year and new estimates only anticipate this figure increasing to somewhere between 20-30 launches per year in the next decade. Even with a launch rate of 100 per year, an MPL-exceeding third-party loss event could only be expected once every 100,000 years.”

In any consideration by a conference committee, the Senate bill’s more modest, succinct approach probably makes the most sense, basically encouraging FAA to look at MPL calculations but only take action to change “if necessary.”

First, despite the concerns by Congress over government being on the hook for a MPL-exceeding third-party damage event, one has never occurred and never even come close to occurring.   There simply is little to no risk to the government to making a longer-term promise of indemnification at the current MPL formula (or for that matter one that even reduces the amount of required insurance to half of current MPL), even though reentries will likely be added to the mix with launches with the development of reusable vehicles (that will be game changers in the economics of launch). Should an MPL-exceeding event occur Congress could live up to its promise to indemnify launch operators (and others involved in the launch) for third-part losses above the MPL, but simultaneously re-examine the approach for future events.

Second, Congress and the Administration must be careful that any recalculation does not raise current MPLs, particularly for frequent sub-orbital flights. Foreign industry benefits from permanent liability caps. The US approach already provides US industry less certainty so to raise MPLs by a new calculation method would be a step backwards for US industry – one that is truly important to national security and the national economy as Congress itself has recognized. Increased MPLs might particularly affect the soon-to-be sub-orbital market that anticipates frequent flights – with more frequent insurance purchases, although discounted bulk buys of coverage may be possible.

Third, it’s important to keep in mind that accuracy in predicting effects of such a low probability event are always going to be hard to be performed100% accurately.

Fourth, it’s hard to re-examine the value of a loss of life, for example, in the calculation without also re-examining the somewhat arbitrary choice of 1 in ten million probability of the loss exceeding the MPL amount. If one in a million or one in 100,000 were chosen instead MPL may shrink considerably or even be non-existent. One in ten million was selected, in part, to achieve an MPL that was not infinitesimal but if other factors are increased significantly, then the rationale/justification for one-in-ten million probability of an MPL-exceeding event dissipates.

Fifth, it’s important to remember why government says we are going to serve as a backstop in cases of massive, catastrophic damage for certain industries in the first place – it is so industry involving particular technologies do not risk or suffer “crushing liability” in pursuing activities that are beneficial for society. It’s the reason Congress gave the nuclear energy industry a liability cap for several decades in its early evolution and it’s the reason the Congress passed the SAFTEY ACT giving protection to the anti-terrorism technology industry since 2001. It’s not to protect owners, investors, and shareholders in those particular industries but rather because of the benefits those industries produce for the society – for national security, economic growth, and the like – that would be at risk without the government backstop.

Next blog post analyzing H.R. 2262 & S. 1297 coming soon; see last week’s posts on SFP and government indemnification for third party liability.

(©Matthew Schaefer. All rights reserved).

Assessing the U.S. House of Representatives’ SPACE Act of 2015 (H.R. 2262) and the related U.S. Senate Bill (S. 1297), Part II – Provisions Governing Liability for Third-Party Injury

©Matthew Schaefer. All rights reserved.

Foreign country launch providers and those involved in the launches (i.e. contractors and customers) benefit from permanent liability caps with respect to third-party (e.g. bystanders) injuries. In contrast, the U.S. launch industry has not been given even a long-term extension of the promise of U.S. government indemnification in the case of a launch failure causing massive, catastrophic third-party injury. However, there is some hope that more long-term certainty with respect to third-party liability can be adopted by Congress this year. The U.S. House of Representatives passed H.R. 2262 (Spurring Private Aerospace Competitiveness and Entrepreneurship Act or SPACE Act of 2015) on May 22nd and the U.S. Senate passed S. 1297 (U.S. Commercial Space Launch Competitiveness Act) on Aug. 4th. The two bills would need to be reconciled (likely in a conference committee) and then passed by both houses of Congress to become law (or, alternatively, one body would need to pass what the other has already passed in identical form to become law, although that is much less likely).

In a November 2013 White Paper prepared for Nebraska Law’s 6th Annual DC space law conference –and that subsequently was refined into a law review-styled article appearing in Vol. 33 of the Berkeley Journal of International Law, pp. 223-273 (2015), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2420538

I made the following recommendation :

“Congress should create a cap on third-party liability for commercial space launch operators equivalent to the maximum probable loss. Until such a cap is enacted, Congress should enact a long-term extension of the promise of US government indemnification for third-party liability.

Rationale: The most significant US competitors in the commercial space launch sector benefit from de jure or de facto liability caps. Moreover, Congress has set third-party liability caps for other industries for national security related reasons, such as anti-terrorism technology sellers, and for national economic reasons, such as the nuclear industry, particularly during its nascent stages when few nuclear operators existed.   Setting the cap at the Maximum Probable Loss (MPL) still allows risk factors that differ between launches to be taken into account, such as the launch vehicle and launch location. With the current government promise of indemnification for third-party liability set to expire [Dec. 31, 2016] and liability caps likely requiring a lengthy legislative process, Congress should first extend the promise of government indemnification for third-party liability. A long-term extension ensures no instability ensues in the US commercial space launch industry as the indemnification regime is a factor in commercial launch contract negotiations and also allows Congress ample time to create a liability cap.”

Well, a pure liability cap such as those enjoyed by French, Russian and Chinese launch providers (and other parties involved in the launch) is probably a not obtainable in the near term. One reason is committee jurisdiction within the House and Senate. While that is still the most desired result, the back-up or interim recommendation to enact a long-term extension of US government indemnification for third-party liability is a real possibility.

First, a little primer on the third-party liability regime for commercial space launches in the United States: “The US third-party liability regime is broken into three tiers. First, the US Government requires, as one of the conditions for obtaining a license, that commercial space flight operators obtain third-party liability insurance in the amount of the maximum probable loss (MPL), according to a calculation performed by the FAA. This amount of required insurance cannot exceed $500 million nor the amount of insurance available on world markets at reasonable cost. Second, if third-party liability claims exceed the insured amount (MPL), the government has in essence made a statutory promise to pay for the next tier or traunch of $2.8 billion dollars in any third-party liability claims faced by a space flight entity. In the third tier, where third-party claims exceed the MPL plus the amount of promised government indemnification, liability reverts back to the operator. (footnotes omitted). ” See Schaefer, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2420538

Both H.R. 2262 and S. 1297 extend the promise of government indemnification for MPL-exceeding events beyond its current expiration date of Dec. 31, 2016. The House bill extends the promise through Dec. 31, 2025 and the Senate bill extends the promise through the end of 2020. Which length of extension is to be preferred? The House bill for several reasons.

First, an MPL-exceeding third-party damage event has never occurred and never even come close to occurring so there is little to no risk to the government to making a longer-term promise of indemnification, even though reentries will likely be added to the mix with launches with the development of reusable vehicles (that will be game changers in the economics of launch).

Second, as noted above, foreign industry benefits from a permanent third-party liability caps. A promise of government indemnification provides less certainty that a liability cap and any certainty provided to the US launch industry, and its customers and contractors, is weakened further when the promise is only extended for short periods, particularly when one realizes launch contracts are often negotiated 1-2 years in advance of launch. Customers and contractors are additional insureds on insurance policies obtained by launch companies and also benefit from the promise of government indemnification for any MPL-exceeding event. Thus, uncertainty over third-party liability can impact contract negotiations, even though pre-existing licensed launches are still covered when the promise expires – as has happened several times in the past five years.

Extending the promise for three years at the beginning of 2014 was an improvement over one-year extensions previously adopted but both the recent House and the Senate bills recognize that a longer-term extension is beneficial and helps level the playing field with foreign industry. A five year extension is an improvement from recent practice, but a ten-year extension does a much better job of providing enhanced certainty, encouraging space activities in the United States, leveling the playing field with foreign industry, and stimulating a sector important for the US economy and ultimately national security. When one realizes increased attention being paid by venture capital and angel investors to the sector, certainty as regards third-party liability makes even more sense.

Next blog post covering revisiting the Maximum Probable Loss (MPL) issue coming soon.

(©Matthew Schaefer. All rights reserved).

Assessing the U.S. House of Representatives’ SPACE Act of 2015 (H.R. 2262) and the related U.S. Senate Bill (S. 1297), Part I – Provisions Governing Liability for Space Flight Participant Injury and Space Flight Participant Liability for Third-Party Injury

©Matthew Schaefer. All rights reserved.

Sub-orbital flights with space flight participants (SFP’s) – such as space tourists and researchers — aboard are anticipated in the next year or two. There is hope that the uncertain liability situation surrounding SFPs can be cured by Congress this year before such flights begin. The U.S. House of Representatives passed H.R. 2262 (Spurring Private Aerospace Competitiveness and Entrepreneurship Act or SPACE Act of 2015) on May 22nd and the U.S. Senate passed S. 1297 (U.S. Commercial Space Launch Competitiveness Act) on Aug. 4th. The two bills would need to be reconciled (likely in a conference committee) and then passed by both houses of Congress to become law (or, alternatively, one body would need to pass what the other has already passed in identical form to become law, although that is much less likely).

In a November 2013 White Paper prepared for Nebraska Law’s 6th Annual DC space law conference –and that subsequently was refined into a law review-styled article appearing in Vol. 33 of the Berkeley Journal of International Law, pp. 223-273 (2015), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2420538

I made the following recommendation :

“Congress should pass legislation that fully includes space flight participants (SFPs) in the federal cross-waiver regime and bar claims by heirs of SFPs.

Rationale: The vast majority of SFPs, at least for the first decade or so, will be high net worth individuals who can adequately insure through personal accident insurance or self-insure against risk of injury or death. SFPs were included in the full federal cross-waiver regime in the 2004 House bill. The partial exemption of SFPs in the final 2004 Commercial Space Launch Amendment Act provisions on cross-waivers has led to a patchwork of inconsistent and uncertain state laws regarding immunity in suits by SFPs or their heirs, leaving an uncertain liability situation for US space operators. The patchwork of uncertainty also impacts the ability of insurance companies to offer insurance coverage to SFPs or operators as it makes standardized policies more difficult and increases the costs of risk analysis.”

Well, H.R. 2262 provides for that result in Sec. 108 of the bill. Unfortunately, the Senate Bill (S. 1297) does not. When a conference committee is formed, the House result should be adopted because leaving liability issues connected with SFP’s – which both the White Paper recommendation and H.R. 2262 (see Sec. 104) make clear does not include NASA astronauts – to the patchwork of state laws leads to an uncertain liability situation for companies and SFPs alike (and even potentially hampers the creation and operation of insurance markets for SFP coverage). Seven states (Texas, California, Florida, New Mexico, Virginia, Colorado, and Arizona) have passed law that seek presumably to immunize launch companies from negligence claims. However, many of the state laws suffer from one or more of the following problems:

  • Failure to include manufacturers and suppliers in the immunity granted;
  • Allowing “knew or should have known”-language, i.e. the language of negligence, to creep back into the exceptions to immunity;
  • Limiting liability only for “inherent risks exclusively,” when in some cases in the space context it can be hard to distinguish an inherent risk v. negligence, one of the reasons the whole federal cross-waiver of claims regime was established among parties involved in launches in the first place;
  • Failure to account for the impact of the immunity statutes on state common law treatment of contractual waivers, i.e. the risk in some states that the statute will set a ceiling on immunity and essential negate what otherwise might be a valid contractual waiver.

Additionally, state court interpretations of immunity statutes for other industries have on occasion been interpreted very narrowly.  Moreover, plaintiff lawyers will likely make arguments that the existing CSLAA of 2004 preempts state space operator immunity statutes. Such arguments, if successful, risk undermining even the “gold standard” of state immunity statutes, that of Texas. Companies and SFPs should not be forced to deal with one another in such an uncertain liability regime. Liability issues surrounding an important national industry, such as space launch and space vehicle manufacturing, should not be left to a patchwork of uncertain and inconsistent state laws.

The House bill (H.R. 2262) also treats SFPs fairly in one other way – it protects them from exposure from third-party claims in the exceedingly unlikely event there are third-party damages as a result of launch (or reentry) activity. In the Nov. 2013 White Paper I stated: “It is possible that third-parties injured during space activities could attempt to add high-net worth SFPs as defendants in cases against the space operator. Under the current FAA regulations, space flight operators are not required to include SFPs unless they are employees of a flight sponsor (i.e. employees of a “customer”) as an additional insured in their third-party liability insurance policies. With SFPs joining the full federal cross-waiver regime, Congress could also consider requiring the addition of all SFPs as additional insureds on third-party liability policies obtained by space flight operators. (footnotes omitted).”

Sec. 105 of H.R. 2262 follows the recommendation and requires SFPs be additional insureds on third-party liability policies required to be obtained by the launch company. It goes a bit further and even allows for government indemnification of claims against an SFP that would exceed the insurance amount, although it hedges a bit by requiring in Sec. 106 a study to be conducted by the Comptroller General of the US to assess what situations claims against SFPs could be made by third-parties in the exceedingly unlikely event third-party damage occurs and if there are any possible unintended consequences of extending government indemnification to SFPs for third-party claims that exceed the insurance amount. The Senate Bill does not require SFPs to be included as additional insureds on third-party liability policies required to be obtained by launch licensees. Again, it would be best for any conference committee to side with the House approach. SFP’s will know they need to assess whether to obtain insurance for their own injuries, but also know they are protected from third-party liability claims through insurance and possibly even government indemnification like others involved in commercial space launches.

A few other White Paper recommendations to provide extra certainty when it comes to suits by heirs of SFPs and the possibility of foreign litigation and foreign court judgments, given the international nature of the SFP market, were not provided for in the House bill. However, these absences may be explained by committee jurisdictional issues and/or a calculation that the risk associated with not addressing them are very small.

For more on these issues, see http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2420538, 33 Berkeley J. Int’ L. at pp. 250-255.

In summary, Sec. 105 (requiring SFPs to be additional insureds on third-party liability policies obtained by launch licensees) & Sec. 108 (requiring SFPs to enter into cross-waivers of liability with others involved in the launch) of H.R. 2262 are substantial improvements over the status quo – they provide greater certainty for the commercial space industry and thereby promote national security and the national economy, but also provide greater certainty for SFPs in arranging their financial affairs.Next blog post covering third-party liability issues coming soon.

©Matthew Schaefer. All rights reserved.