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.

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