[Federal Register Volume 63, Number 165 (Wednesday, August 26, 1998)]
[Rules and Regulations]
[Pages 45592-45625]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22728]
[[Page 45591]]
_______________________________________________________________________
Part IV
Department of Transportation
_______________________________________________________________________
Federal Aviation Administration
_______________________________________________________________________
14 CFR Part 440
Financial Responsibility Requirements for Licensed Launch Activities;
Final Rule
Federal Register / Vol. 63, No. 165 / Wednesday, August 26, 1998 /
Rules and Regulations
[[Page 45592]]
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 440
[Docket 28635; Amendment No. 98-1]
RIN 2120-AF98
Financial Responsibility Requirements for Licensed Launch
Activities
AGENCY: Federal Aviation Administration, Associate Administrator for
Commercial Space Transportation, DOT.
ACTION: Final rule.
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SUMMARY: Under its licensing authority, the Associate Administrator for
Commercial Space Transportation (AST) of the Federal Aviation
Administration (FAA) determines financial responsibility requirements
for licensees authorized to conduct commercial space launch activities.
This rulemaking establishes procedures for demonstrating compliance
with those requirements and for implementing risk allocation provisions
of 49 U.S.C. Subtitle IX, chapter 701, formerly the Commercial Space
Launch Act of 1984, as amended.
DATES: This final rule is effective on October 26, 1998.
FOR FURTHER INFORMATION CONTACT: Ms. Esta M. Rosenberg, Attorney-
Advisor, Regulations Division, Office of the Chief Counsel, Federal
Aviation Administration, U.S. Department of Transportation, (202) 366-
9320.
SUPPLEMENTARY INFORMATION:
Availability of Final Rules
An electronic copy of this document may be downloaded, using a
modem and suitable communications software, from the FAA regulations
section of the Fedworld electronic bulletin board service (telephone:
703-321-3339), the Federal Register's electronic bulletin board service
(telephone: 202-512-1661), or the FAA's Aviation Rulemaking Advisory
Committee Bulletin Board service (telephone: 800-322-2722 or 202-267-
5948).
Internet users may reach the FAA's web page at http://www.faa.gov/
avr/arm/nprm/nprm.htm or the Federal Register's webpage at http://
www.access.gpo.gov/su__docs/aces/aces140.html for access to recently
published rulemaking documents.
Any person may obtain a copy of this final rule by submitting a
request to the Federal Aviation Administration, Office of Rulemaking,
ARM-1, 800 Independence Avenue, SW., Washington, DC 20591, or by
calling (202) 267-9680. Communications must identify the amendment
number or docket number of this final rule.
Persons interested in being placed on the mailing list for future
Notices of Proposed Rulemaking and Final Rules should request from the
above office a copy of Advisory Circular No. 11-2A, Notice of Proposed
Rulemaking Distribution System, that describes the application
procedure.
Small Entity Inquiries
The Small Business Regulatory Enforcement Fairness Act of 1996
(SBREFA) requires the FAA to report inquiries from small entities
concerning information on, and advice about, compliance with statutes
and regulations within the FAA's jurisdiction, including interpretation
and application of the law to specific sets of facts supplied by a
small entity.
If you are a small entity and have a question, contact your local
FAA official. If you do not know how to contact your local FAA
official, you may contact Charlene Brown, Program Analyst Staff, Office
of Rulemaking, ARM-27, Federal Aviation Administration, 800
Independence Avenue, SW, Washington, DC 20591, 1-888-551-1594. Internet
users can find additional information on SBREFA in the Quick Jump
section of the FAA's web page at http://www.faa.gov and may send
electronic inquiries to the following Internet address: 9-AWA-
[email protected]
Background
49 U.S.C. Subtitle IX, chapter 701--Commercial Space Launch
Activities, formerly the Commercial Space Launch Act of 1984, as
amended (CSLA), directs the Secretary of Transportation to establish
insurance (or other financial responsibility) requirements in amounts
sufficient to address certain risks associated with the conduct of
licensed launch activities. In addition, the CSLA provides detailed
requirements for allocating risk among the various launch participants,
including U.S. Government agencies involved in launch services. Enacted
in 1988, this comprehensive scheme was intended to facilitate
development of the U.S. commercial launch industry by allowing it to
compete effectively in the international marketplace and by providing
to launch participants certain protections against the risk of
catastrophic losses that could result from hazardous launch activities.
The U.S. Government benefits from these provisions by limiting its own
liability exposure including obligations that arise under international
treaties. Additionally, a viable commercial launch industry contributes
to the national interest of the United States.
The Secretary implements statutory-based financial responsibility
and risk allocation requirements through the licensing and regulatory
program carried out by the Federal Aviation Administration's Associate
Administrator for Commercial Space Transportation (referred to herein
as the FAA or agency). Under delegated authority, the agency licenses
commercial space launches and the commercial operation of launch sites
carried out within the United States or by U.S. citizens abroad. As
directed by the CSLA, the agency exercises its licensing authority in a
manner consistent with public health and safety, the safety of
property, and U.S. national security and foreign policy interests. The
CSLA is also intended to encourage and facilitate private sector launch
activities through simplified licensing procedures and use of
Government-developed space technology, and to enhance U.S. space
transportation infrastructure with public and private involvement.
This rulemaking is vital to the agency's goal of creating a stable
regulatory environment, with predictable costs and benefits, for the
commercial launch industry. Through a clear enunciation of regulatory
requirements for insurance and allocation of risk, the commercial
launch industry will have the information and certainty it requires to
make informed risk management decisions that affect relationships with
customers and suppliers.
Notice of Proposed Rulemaking
The agency issued a notice of proposed rulemaking (NPRM) on July
25, 1996 (61 FR 38992), soliciting public comments on its proposal for
implementing financial responsibility and allocation of risk
requirements. The NPRM provided a 60-day comment period that closed on
September 23, 1996. A technical corrections document was published on
August 23, 1996 (61 FR 43814). In response to requests for an extension
of time in which to submit comments, the agency reopened the comment
period for an additional 60 days. The comment period closed again on
December 2, 1996. (See Notice published October 2, 1996 (61 FR 51395).)
In the NPRM, the agency proposed to codify existing practices,
except where otherwise indicated, and to standardize its approach to
implementing the CSLA financial responsibility and allocation of risk
regime in rules of general applicability.
[[Page 45593]]
Eight comments were submitted to the docket. Three comments were
submitted by launch services providers currently licensed by the FAA to
conduct commercial space launch activities. They are Lockheed Martin
Corporation (Lockheed Martin), Orbital Sciences Corporation (Orbital
Sciences) and McDonnell Douglas Corporation (McDonnell Douglas). Boeing
Commercial Space Company commented on behalf of Sea Launch Limited
Partnership (Sea Launch), an international joint venture not yet
licensed by the FAA, and The Boeing Company (Boeing) commented
separately. Since the close of the comment period in December 1996, The
Boeing Company merged with McDonnell Douglas Corporation; however,
McDonnell Douglas Corporation, operating as a wholly-owned subsidiary
of The Boeing Company, remains responsible for providing commercial
launch services for the Delta family of launch vehicles. In this
document, comments submitted by McDonnell Douglas before the merger are
identified as McDonnell Douglas comments for ease of reference and to
distinguish them from Boeing's comments. Spaceport Florida Authority
(Spaceport Florida) was a prospective commercial launch site operator
at the time it submitted comments and has since obtained an FAA
license. Hughes Electronics, a communications satellite manufacturer,
and Intelsat, a public international organization that owns and
operates a global telecommunications network for members and users,
also submitted comments. The agency sought clarification of certain
comments it received and the clarifications are reflected either in the
discussion below or in the docket maintained by the FAA Rules Docket
Clerk and available for public inspection.
Second Reopening of Comment Period and Request for Comments
Several events following the close of the comment period on
December 2, 1996, resulted in an agency decision to reopen the
rulemaking docket a second time in order to allow industry an
additional opportunity to offer views on the content of the NPRM.
A Delta launch vehicle failure at Cape Canaveral Air Station (CCAS)
during a Government launch on January 17, 1997, damaged real and
personal property located at the facility. Although it was not an FAA-
licensed launch, and therefore not subject to CSLA financial
responsibility requirements, the failure led to heightened scrutiny of
insurance certificates provided by launch licensees in demonstrating
satisfaction of FAA license orders.
The ensuing dialogue between agency officials and industry
representatives revealed a fundamental lack of understanding within the
commercial launch services industry of agency requirements with respect
to coverage for claims of Government employees and employees of
Government contractors and subcontractors. Since 1989, the agency has
intended for launch licensees to provide coverage for these claims as
part of the liability coverage required under a license, and has
determined the necessary amount of insurance accordingly. However, this
requirement was not evident to launch licensees until the agency
provided clarifying information, in writing, in late April and early
May, 1997.
Shortly thereafter, the Commercial Space Transportation Advisory
Committee (COMSTAC) adopted a resolution recommending that the FAA
publish a supplemental notice of proposed rulemaking for additional
industry comment before adopting a final rule. In lieu of accepting the
COMSTAC recommendation, the agency deemed it appropriate to reopen the
comment period on the outstanding NPRM in order to afford industry an
additional opportunity to formally express views on the agency's
approach to financial responsibility and risk allocation for licensed
launch activities. Reopening the docket also provided to industry the
first opportunity to comment on these matters with the benefit of the
agency's proposed definition of the term, ``licensed launch
activities,'' which appears in a Notice of Proposed Rulemaking on
Commercial Space Transportation Licensing Regulations (Licensing
Regulations), published March 19, 1997 (62 FR 13216). A Notice
reopening the comment period for an additional 30 days was published in
the Federal Register on July 3, 1997 (62 FR 36028). The Notice posed a
number of questions regarding the appropriate scope of CSLA-based
liability insurance requirements and requested specific comments on
costs and benefits associated with the rulemaking; however, commenters
were not limited to responding to those questions. Four additional
comments were submitted to the docket. Lockheed Martin and Orbital
Sciences supplemented their initial responses and Kistler Aerospace
Corporation (Kistler) and Marsh & McLennan, an insurance brokerage,
commented for the first time. (Both the initial and supplemental
comments of Lockheed Martin and Orbital Sciences are referenced in this
Supplementary Information and distinguished as appropriate.)
Upon consideration of all of the comments received, the agency has
determined that issuance of a final rule is appropriate at this time in
order to ensure that Government, as well as commercial, interests are
adequately protected. Absent a clear understanding of how the risks
that attend licensed launch activities are to be allocated and managed
under the CSLA, all launch participants, including the U.S. Government,
may unwittingly remain exposed to uncovered liabilities.
Costs and benefits of this final rule have been assessed by the
agency and appear in the final Regulatory Evaluation available for
public review in the docket.
General Comments
The three commenters currently licensed by the FAA to conduct
launch activities, Lockheed Martin, Orbital Sciences and McDonnell
Douglas, have been subject to the agency's case-by-case implementation
of financial responsibility requirements since commencing commercial
launch activities. Accordingly, they are each well-situated to assess
the significance of the NPRM to their current business practices. Their
comments indicate that in a number of instances the agency's existing
practices, as explained in the NPRM, were not apparent to the
commercial launch industry or their insurers, and in their view the
NPRM reflects fundamental changes in the agency's approach.
Two commenters noted that the NPRM reflects a trend towards
significant reallocation of risk from the Government to commercial
launch services providers. Two launch licensees indicated that the NPRM
would require extensive and difficult changes to existing long-term
contractual arrangements between launch services providers, their
customers and their contractors. Rather than facilitating the industry,
the NPRM, if made final, would have damaging and adverse effects on the
U.S. commercial launch industry, according to these commenters.
Although the licensees agreed that rulemaking to clarify financial
responsibility requirements would be useful to the industry, they
believe that additional opportunities for input and submission of
comments should be afforded to the industry before issuance of a final
rule. Two licensees recommended that the FAA utilize the COMSTAC by
tasking it to review and comment on a redrafted document
[[Page 45594]]
reflecting industry comments on the NPRM.
The agency has determined that it is appropriate and timely to
issue a final rule. The FAA's decision follows years of dialogue
between the agency and the commercial launch industry, a public meeting
covering financial responsibility matters, and a total comment period
of 150 days on the NPRM. The agency will not further delay this
rulemaking proceeding on the basis of the comments received. However,
the agency's existing regulations allow any interested person to
petition for amendment or repeal of a regulation and this remedy
remains available to members of the public who seek a change in these
final rules, 14 CFR 404.3.
In its general comments, Lockheed Martin suggested that certain
issues raised in the NPRM be segmented from this rulemaking and the
subject of separate, more focused, rulemaking proceedings. The agency
agrees generally with this comment and, as indicated below, has
identified issues that may require more detailed regulatory treatment
beyond the general requirements contained in this final rule.
McDonnell Douglas has suggested that additional discussions between
the commercial launch industry, the agency and the Air Force would be
useful before issuance of final rules in light of ongoing Air Force
efforts to replace existing commercialization agreements with the
Commercial Space Operations Support Agreement (CSOSA). The CSOSA would
also address insurance requirements and allocation of risk between the
Air Force and range users.
The agency has participated in discussions between the Air Force
and the commercial launch services industry to ensure that financial
responsibility and risk allocation requirements under the CSLA apply to
range users conducting licensed launch activities. Financial
responsibility for unlicensed activities would be addressed by the
CSOSA. The pending rulemaking on Licensing Regulations will determine
in final rules the point at which lines are drawn by the agency between
unlicensed and licensed launch activities. Given that understanding,
the agency does not see the need to tie issuance of these rules to
execution of a CSOSA.
McDonnell Douglas further urged that any changes to current
industry practice that would be effected by proceeding directly to a
final rule should not apply to licensed launch activities conducted in
connection with any launch contracts, including options, executed prior
to issuance of the final rule. In clarifying remarks, McDonnell Douglas
explained its concern that this rulemaking would affect its costs.
Where a fixed price contract has been negotiated with a commercial
customer there would be no opportunity to adjust the price or allocate
those costs differently. Therefore, in fairness to the industry and to
facilitate the smooth implementation of these requirements, contract
negotiations already concluded should not be impacted by this
rulemaking, according to the commenter.
The agency maintains that, for the most part, these final rules
reflect longstanding agency practices and should not impose significant
additional costs on the industry. A Regulatory Evaluation prepared as
part of this rulemaking proceeding assesses its cost implications. As
required, the agency has considered those costs, as well as benefits,
to the public in determining to issue this final rule. A single
effective date for imposition of a final rule is necessary to ensure a
common understanding of CSLA-based financial responsibility and risk
allocation requirements, and staggered effective dates would be
unworkable and confusing to all launch participants. Accordingly, the
FAA rejects the suggestion of deferring the rule's effective date.
Spaceport Florida provided general comments to the docket
maintaining the view that the proposed rules do not apply to a licensed
commercial launch site operator. The agency agrees that the NPRM
proposes requirements applicable to licensed launch activities.
Customers of a launch site operator that hold FAA launch licenses would
be required to comply with the agency's financial responsibility
requirements. In the agency's view, a licensed launch site operator
would obtain the benefits and responsibilities of a contractor to the
launch licensee as a provider of launch property and services. The
recently concluded memorandum of agreement between the Department of
Defense, National Aeronautics and Space Administration (NASA) and the
FAA reflects this approach to risk allocation for licensed commercial
launch site operators.
Spaceport Florida further noted that the import of the NPRM would
be to add to the levels of insurance historically required of launch
licensees. This would make launch activities conducted within the
United States more expensive and would hurt the competitive posture of
the U.S. commercial launch industry vis-a-vis its foreign competitors.
The agency disagrees with Spaceport Florida's supposition that
insurance levels will increase if the proposed rules are made final.
The maximum probable loss methodology as well as the agency's general
approach to assessing risks to certain property and personnel, as
described in the NPRM, are utilized currently by the agency in
establishing required levels of insurance. Insurance requirements will
not necessarily increase by virtue of this rulemaking.
Risk Allocation Under the 1988 Amendments
In developing this rulemaking, the agency's goal has been to carry
out congressional intent and facilitate the competitive posture of the
U.S. commercial launch industry through statutory-based risk sharing
arrangements. However, in certain instances, the statutory language has
left more questions unanswered than settled. For this reason, the
agency sought industry views and clarification of the appropriate means
of implementing particular provisions of the statute concerning
liability insurance coverage and allocation of risks, including the
requirement for inter-party waivers of claims.
This final rule represents the agency's position on how best to
reconcile statutory requirements with the divergent views reflected in
industry comments, taking into account the Government's limited
acceptance of risk under the CSLA. In this discussion, the FAA has
articulated its understanding of basic risk allocation principles of
the 1988 Amendments (Pub. L. 100-657) and, in particular, the
reciprocal waiver of claims provisions of 49 U.S.C. 70112(b) which lie
at the heart of this rulemaking effort.
As outlined in the NPRM, two principal purposes of risk allocation
under the 1988 Amendments to the CSLA are to limit the cost of managing
launch risks by restricting litigation among launch participants and
protect the commercial launch industry from the risk of catastrophic
losses from third-party liability claims. The CSLA also insulates the
U. S. Government from a significant measure of liability exposure at
little or no cost to the Government. As explained in the NPRM, the
Government faces liability exposure to third-party claims by virtue of
its involvement in licensed launch activities through use of its
property, personnel, facilities, equipment and services to support
commercial launches and as a result of treaty obligations which impose
strict liability on the United States for certain damage when the
United States is a launching
[[Page 45595]]
state (Convention on International Liability for Damage Caused by Space
Objects (Liability Convention), entered into force September 1972). The
United States also bears international responsibility for national
activities in outer space carried on by non-governmental entities which
require authorization and continuing supervision by the appropriate
State Party, according to Article VI of the Treaty on Principles
Governing the Activities of States in the Exploration and Use of Outer
Space, including the Moon and Other Celestial Bodies (Outer Space
Treaty), entered into force October 1967.
In order to ensure the comprehensive intent of the CSLA risk
allocation scheme is fulfilled, the agency sought to identify all
potential sources of claims against the various launch participants for
injury, damage or loss and the financial resources that would be
available to respond to those claims, either through insurance, self-
insurance or congressional appropriations. Sources of claims can be
separated into two broad groups: (1) those entities and individuals who
are involved in licensed launch activities, and (2) those entities and
individuals who are not involved in licensed launch activities. The
agency then sought to identify potential targets of claims to ensure
that their liability exposure would be addressed. These entities can
also be classified into two groups: (1) the licensee, its customer, and
the contractors and subcontractors of each involved in launch services,
referred to collectively in this document as private party launch
participants (PPLPs), and (2) the United States and its agencies, and
their contractors and subcontractors, involved in licensed launch
activities, referred to collectively herein as Government launch
participants (GLPs). These categorizations are important because
implementation of the benefits and responsibilities that flow from the
CSLA risk allocation scheme depends upon how an entity is
characterized. Traditionally, AST has utilized the classification of
PPLPs and GLPs in license orders establishing financial responsibility
requirements.
Absent the CSLA risk allocation scheme, each launch participant is
vulnerable to claims from other launch participants for injury, damage
or loss to property and personnel as well as persons having no
involvement in launch activities. The CSLA alters relationships among
launch participants in several ways.
First, the CSLA directs that each PPLP enter into a mutual or
reciprocal waiver of claims whereby each launch participant agrees to
waive claims it may have against the other launch participants for its
own property damage or loss and further agrees to be responsible for
property damage or loss it sustains as a result of licensed launch
activities. When implemented properly, each of the entities
participating in the launch should be effectively estopped or
foreclosed from asserting claims for property damage or loss against
the other launch participants, and each launch participant is relieved
of the threat and cost of inter-party litigation as well as the need to
obtain liability insurance covering its potential liability to other
launch participants for property damage or loss for which it might
otherwise be legally responsible. However, the waiver of claims
agreement is not intended to replace contractual rights and remedies
negotiated by the parties, such as the right to a replacement launch in
the event of a failed launch attempt.
Example 1: Launch company A's contractor is negligent and damages
satellite customer B's spacecraft. By executing the statutory waiver of
claims agreement, B has waived its right to pursue a claim for damages
against A and A's contractor based on the latter's negligent act.
Second, the CSLA further directs the Government to execute a
similar waiver of claims agreement with PPLPs when the Government is
involved in launch services by virtue of its property or personnel;
however, the Government's acceptance of risk under the statutory waiver
of claims agreement is more limited than that undertaken by PPLPs. For
property damage, the Government's waiver is limited to claims in excess
of the required amount of Government property insurance. The CSLA
instructs the Department of Transportation (DOT) to enter into the
agreement for, or on behalf of, the Government, executive agencies of
the Government involved in launch services, and the Government's
contractors and subcontractors involved in launch services,
collectively referred to herein and in agency license orders as
Government launch participants (GLPs). The agency views this provision
as establishing for the Government's contractors and subcontractors
involved in licensed launch activities third-party beneficiary rights
in the waiver agreement between the DOT and PPLPs.
Example 2: Launch company A's vehicle is destroyed seconds after
ignition and lift-off causing extensive damage to the Government-owned
launch pad from which the launch took place. As a condition of A's
license, the agency required that A obtain insurance covering damage to
Government property at the launch site in the amount of $40 million,
based upon the agency's determination of maximum probable loss. If the
amount of damage to the launch pad is assessed at $60 million, the
Government absorbs $20 million of loss to its property because it has
waived claims for property damage in excess of the required amount of
insurance.
Third, the CSLA provides that each signatory to a reciprocal waiver
of claims agreement must also agree to be responsible for personal
injury, property damage or loss sustained by its own employees
resulting from licensed launch activities. Individuals employed by the
various launch participants do not waive claims for their own property
damage or loss or for personal injury suffered on the job under the
CSLA reciprocal waiver of claims requirement. An employee who is
injured or suffers loss in the course of employment as a result of
licensed launch activities may recover workers compensation from his or
her employer. Alternatively, that employee may elect to pursue his or
her legal remedies against another launch participant whose negligence
caused or contributed to the injury or loss. Ascertaining where
financial responsibility lies under the CSLA for covering individual
employee claims has proven to be one of the more controversial issues
in this rulemaking.
The CSLA also alters traditional insurance practices with respect
to third-party liability coverage. Under the CSLA, each launch
participant involved in licensed launch activities is also an
additional insured under the statutorily-mandated liability policy
obtained by the launch licensee and is covered in the event of third-
party claims, up to the required level of insurance. In this manner,
entities participating in the launch are relieved of the need to obtain
separate liability policies covering the shared risk of third-party
liability. This approach of insuring all launch participants against
third-party liability maximizes the capacity of the space launch
insurance market to cover the risk of third-party claims.
Example 3: Launch company A's launch vehicle is destroyed mid-
flight and debris impacts a nearby community. Community residents file
suit naming both launch company A and its customer, satellite company
B, as defendants and joint tortfeasors. Launch company A's liability
policy must respond to cover both A's and B's liability, up to the
limits of the policy established by the agency, unless a policy
exclusion applies.
[[Page 45596]]
Finally, the CSLA provides a mechanism whereby the Government
accepts the risk of third-party claims that exceed the limits of the
liability insurance established by the agency, subject to approval of a
compensation plan prepared by the agency and congressional
appropriation of funds. This catastrophic risk protection is frequently
referred to within the space transportation industry as
``indemnification'' although that term does not appear in the statute.
In the previous example, if successful claims against A and B exceed
the amount of insurance established by the FAA for A's launch, the FAA
would prepare a compensation plan for the President to submit to
Congress for an additional appropriation or other legislative
authority, up to $1.5 billion (as adjusted for inflation occurring
after January 1, 1989) above the amount of insurance established by the
FAA. Above that amount, A and B would remain liable for judgments
against them.
Identified earlier in this discussion, is the troublesome issue of
determining how the CSLA is intended to address financial
responsibility for employee losses and injuries. Defining the class of
``third parties'' whose claims would be covered by the statutorily-
required liability policy has also been one of the more problematic
issues associated with this rulemaking. The two issues are closely
related, as explained below.
In this final rule, the FAA concludes that although all employees
of the various entities involved in licensed launch activities meet the
statutory definition of the term ``third party,'' the statutorily-
mandated liability policy is not intended to respond to PPLP employee
claims. Rather, the CSLA imposes on PPLPs financial responsibility for
covering their employees' claims in a manner that is separate from the
launch liability coverage a licensee must obtain. In essence, the
agreement undertaken by each PPLP to be responsible for its employees'
losses contractually obligates each PPLP to indemnify and hold the
other launch participants harmless in the event of claims by one's own
employees for injury, property damage or loss.
From the comments received and clarifications provided by licensees
concerning their existing risk management programs, the agency
understands that different methods are employed to provide the
financial responsibility that covers this additional obligation. Some
launch liability policies will respond to a contractual obligation
assumed by an insured under the policy, including the obligation
assumed under the reciprocal waiver of claims agreement to be
responsible for one's own employees' losses. Alternatively, launch
participants may rely on separate insurance, such as their
comprehensive general liability policy, to respond to this obligation.
Either way, the agency concludes that financial responsibility for PPLP
employee losses is intended to be addressed, first, through employer-
provided workers compensation coverage, and second, through contractual
obligations undertaken by each PPLP through the reciprocal waiver of
claims agreement in the event one's own employee claims against another
launch participant for loss or injury.
A different approach is utilized for claims of GLP employees,
referred to in the NPRM as Government personnel. Because of limitations
under appropriations laws on the Government's ability to assume an
unfunded contingent financial responsibility and the additional costs
that would otherwise flow to the Government if additional risks were
imposed on Government contractors and subcontractors, the Government
does not accept the additional financial responsibility of indemnifying
other launch participants in the event of GLP employee claims within
the limits of the liability policy. Therefore, GLP employee claims
against other launch participants must be covered by the licensee's
launch liability policy, together with other third-party claims.
By removing from the statutorily-required liability coverage those
claims that have the greatest probability of occurrence, that is, PPLP
claims for property damage or loss and claims of PPLP employees for
injury, property damage or loss, along with the attendant risks and
costs that would accompany inter-party litigation in the event of such
claims, the universe of risks covered by statutory-based insurance is
significantly reduced. In this manner, the launch liability insurance
market is able to cover all launch participants' potential liability to
uninvolved persons and claims of GLP employees. The agency understands
that insurance satisfying CSLA-based requirements is available at
reasonable cost under current market conditions.
Detailed immediately below is a more complete discussion of the
agency's initial proposal on risk allocation, specifically as it
relates to coverage for employee losses, industry comments on the
proposal and the agency's rationale for adopting this final rule.
Comments on other substantive areas of the rulemaking are summarized
and addressed following this discussion in the section-by-section
analysis.
Notice of Proposed Rulemaking
Proposed Approach to Government Risk Allocation
Under the NPRM, financial risks associated with commercial launch
activities would be allocated primarily to the commercial entities
engaged in such activities. The only exceptions are for those financial
risks expressly assigned to the Government by the CSLA. They are: (1)
the risk otherwise borne by the U.S. commercial launch industry of
catastrophic losses and unlimited liability associated with commercial
launch activities, up to the statutory limit of $1.5 billion (as
adjusted for inflation occurring after January 1, 1989) above required
third-party liability insurance, subject to enactment of legislation,
49 U.S.C. 70113(a); (2) the risk of property damage or loss to U.S.
Government launch property or facilities in excess of required
insurance, 49 U.S.C. 70112(b)(2); and (3) acceptance of liability for
death, bodily injury or property damage or loss that results from the
willful misconduct of the United States or its agents, 49 U.S.C.
70112(e).
All other financial risks would be allocated under the NPRM to
commercial entities engaged in the commercial launch business. Through
reciprocal waiver of claims agreements, private party launch
participants (PPLPs) would be required to accept responsibility for
their own property damage or loss and for injury or loss sustained by
their employees. Except for insurance required by the CSLA, the NPRM
proposed to leave to the various launch participants the determination
of how best to cover their resultant financial responsibilities.
Financial protection for the Government would be provided through
required insurance and the reciprocal waiver of claims scheme.
Insurance covering the Government's risk would be in the form of: (1)
liability insurance that protects the Government from third-party
liability, including liability imposed on the United States by virtue
of treaty obligations; and (2) property insurance up to a prescribed
amount that covers Government property, range assets and property of
Government launch participants (GLPs), on or near a Federal range
facility, that is exposed to risk of loss or damage as a result of
licensed launch activities.
The CSLA reciprocal waiver of claims scheme would benefit the
Government by freeing GLPs from the risk of claims
[[Page 45597]]
for property damage or loss by PPLPs. The Government would waive claims
for property damage or loss occurring at a Federal range facility, on
behalf of itself and GLPs, to the extent losses exceed the required
amount of Government property insurance. The Government could also
waive property damage claims, consistent with the CSLA, where a policy
exclusion is deemed ``usual'' for the type of insurance involved.
Unlike the additional financial responsibilities accepted by PPLPs for
their employees' losses, the NPRM further explained that the Government
does not accept this responsibility with respect to losses suffered by
Government personnel, defined as employees of GLPs, because they would
be deemed ``third parties'' whose claims must be addressed by the
launch licensee's liability policy.
The NPRM proposed that Government contractors and subcontractors
involved in launch services would be treated no differently than the
United States for purposes of required insurance coverage and risk
allocation. The rationale offered for the agency's approach was three-
fold: (1) that contractors and subcontractors of the United States are
third-party beneficiaries of the Government's waiver of claims
agreement with the licensee, its customer, and their respective
contractors and subcontractors, (2) to relieve the Government of
certain costs and burdens that would otherwise flow to it in the event
of damage to property of Government contractors and subcontractors, and
(3) to avoid violation of the Anti-Deficiency Act which prohibits the
Government from agreeing to assume an unfunded contingent liability
absent specific statutory authority to do so.
The approach proposed to risk allocation for Government contractors
and subcontractors was intended to facilitate commercial use of Federal
range launch property and services. When a commercial user contracts
with a Government agency for use of a Federal range facility, the
commercial user also obtains the benefit of certain services provided
by the Government through its contractors and subcontractors. Services
include base operations support, equipment, maintenance and other
ancillary activities that support Federal range operations. Although
the Government has a means of accounting for contractor services
utilized in support of commercial operations and is able to allocate
direct costs to commercial users, the Government does not contract
differently in terms of risk allocation depending upon whether the
support or services provided are in support of commercial as opposed to
government launches. Therefore, if Government contractors were
confronted with additional risks of liability and financial
responsibilities arising out of their support for commercial launch
operations and had to obtain additional insurance to cover those risks,
either the cost of the additional insurance would be charged to the
Government as an allowable cost but one that is not recoverable from
the commercial user or the contractor could refuse to assume the risk
of additional liability and decline to do business with the Government
or to support commercial operations.
To avoid these results, and to limit financial exposure of the
Government, the agency has consistently treated Government contractors
and subcontractors as though they stand in the Government's shoes for
purposes of insurance and risk allocation. Accordingly, the NPRM
proposed to continue the agency's longstanding practice of imposing on
Government contractors and subcontractors only the limited obligation
to waive claims and assume responsibility for employee losses in excess
of required property and liability insurance, respectively, that the
agency currently accepts when entering into a reciprocal waiver of
claims agreement on behalf of the Government and its agencies involved
in licensed launch activities. Thus, under the NPRM, and consistent
with existing license orders, property belonging to Government
contractors and subcontractors involved in launch services at a Federal
range facility would be covered by the insurance provided for damage or
loss to Government property, even if those entities maintain their own
property insurance. Similarly, Government contractor and subcontractor
employees would be accorded ``third party'' status whose claims would
be addressed by the launch licensee's liability policy. In addition,
Government personnel would be named as additional insureds under the
launch licensee's liability policy and their potential liability to
third parties would also be covered.
Proposed Risk Allocation for Employee Losses
(1) Definition of ``Third Party''
In the NPRM, the agency proposed a new definition of the term
``third party'' to facilitate understanding and implementation of the
agency's approach to risk allocation for employee losses. The term
``third party'' is especially significant in this rulemaking because it
is used to determine the universe of potential third-party claimants
under the required liability insurance obtained by the licensee,
determines eligibility for payment by the U.S. Government of excess
third-party claims, and has implications bearing on the proper
implementation of reciprocal waiver of claims agreements whereby launch
participants assume responsibility for losses sustained by their own
employees as a result of licensed launch activities. The definition of
``third party'' must be examined with each of these considerations in
mind to ensure a fair allocation of risk as contemplated by the CSLA.
The statutory definition of ``third party'' is one of exclusion. It
means ``a person except--(A) the United States Government or the
Government's contractors or subcontractors involved in launch services;
(B) a licensee or transferee under (49 U.S.C. Subtitle IX, ch. 701);
(C) a licensee's or transferree's contractors, subcontractors, or
customers involved in launch services; or (D) the customer's
contractors or subcontractors involved in launch services. 49 U.S.C.
70102(11). Conspicuous by its absence from the statutory definition is
any mention of employees of the various launch participant entities
involved in launch services, including the Government. Therefore,
employees of all entities involved in launch services may be considered
``third parties'' under the statutory definition because they are not
excepted from the definition. In essence, the CSLA defines a third
party as any person that is not directed by the statute to sign a
reciprocal waiver of claims agreement.
Nevertheless, the definition of ``third party'' proposed in the
NPRM explicitly included Government personnel, defined to include
Government employees and employees of Government contractors and
subcontractors involved in launch services for licensed launch
activities, and excluded employees of private party launch participants
(PPLPs). The definition, as proposed, differentiates between employees
of PPLPs and those of Government launch participants (GLPs) because
under the NPRM the former's claims are intended to be addressed through
reciprocal waiver of claims agreements and the latter's are intended to
be covered by the required liability policy. This distinction was
justified as necessary (and intended by Congress) because, in the
agency's view, financial responsibility for all claims of Government
employees and employees of Government contractors and
[[Page 45598]]
subcontractors against other launch participants has not been assumed
by the Government. Under the proposed definition, claims for damage or
loss suffered by Government personnel against other launch participants
would be covered up to the limits of the liability insurance required
of a launch licensee. The Government would only be responsible for
covering its employees' claims against other launch participants, as
well as other third-party claims, if the liability policy would not
respond because of a policy exclusion deemed usual for the type of
insurance or if the policy limits were exhausted. Claims of employees
of PPLPs would not be covered by the liability policy and would have to
be addressed through some other means. Accordingly, the NPRM definition
of the term ``third party'' nearly echoes the statutory definition,
with the following proviso: ``Government personnel, as defined in this
section (at 440.3(a)(6)) are third parties. For purposes of these
regulations, employees of other launch participants identified in
paragraphs (a)(15)(i) (B) and (C) of this section are not third
parties.''
In practice, this definition is consistent with the agency's
approach since 1989, to setting risk-based insurance requirements. That
is, for all launch licenses issued to date, the amount of liability
insurance required as a condition of each license takes into
consideration the value of the maximum probable loss from claims by
Government personnel for death, bodily injury, or property damage or
loss. It does not account for potential claims of PPLP employees.
(2) Assumption of Responsibility for Employee Losses
The NPRM explained the assumption of responsibility for losses
sustained by one's own employees as a mutual undertaking by each entity
to ``cover'' losses of its own employees, and leaves to each launch
participant the determination of how best to manage their resultant
risk. As one possible approach, the agency offered that launch
participants could maintain other liability insurance to cover the
financial risk that arises out of this contractual obligation.
The Government is not able to assume an unfunded contractual
liability under appropriations laws absent explicit statutory authority
to do so, and the agency does not view the statute as providing the
necessary authority except to the extent third-party claims may be the
subject of an additional appropriation under the statutory payment of
excess claims procedures presented in 49 U.S.C. 70113. Therefore,
according Government employees the status of a ``third party'' ensures
that financial resources will be available, through the licensee's
liability policy, to cover Government employee claims against other
launch participants and avoids the need for each launch participant to
maintain insurance covering their potential liability for such claims.
It also reconciles the statutory assumption of responsibility
obligation with limitations on the Government's ability to assume an
unfunded contingent liability except where Congress has clearly
provided a mechanism for doing so and allowed the Government to accept
this risk. For example, Public Law 85-804 authorizes certain agency
heads to enter into contracts for national defense purposes which
expressly provide that the United States will hold harmless and
indemnify its contractors for third-party claims, loss or damage to
contractor property and loss or damage to Government property, without
regard to appropriations laws applicable to Government contracting.
This authority is limited to claims or losses arising out of or
resulting from unusually hazardous or nuclear risks.
To avoid passing additional costs to the Government, third-party
status is also accorded to employees of Government contractors and
subcontractors involved in launch services under current practice and
this is the approach reflected in the NPRM.
In 1993, the agency revised the form of Agreement for Waiver of
Claims and Assumption of Responsibility (Agreement) that accompanies
each launch license to clarify that the Government waives claims and
assumes responsibility for property damage it sustains and for any
bodily injury or property damage sustained by its own employees only to
the extent that those claims exceed the amount of property and
liability insurance required under the CSLA. Under current practice, it
is this limited waiver, release of claims and assumption of
responsibility that the Government obligates itself to extend to its
contractors and subcontractors under paragraph 4(c) of the Agreement
now in use. In this regard, the FAA maintains that the approach to risk
allocation set forth in the NPRM is, in practical effect, consistent
with current practice. However, because Government employee claims
would be regarded as third-party claims the agency proposed to remove
reference to responsibility for losses sustained by Government
employees from the proposed form of agreement presented in Appendix II
of the NPRM. Additionally, because employees of Government contractors
and subcontractors would also be deemed third parties, the Government
would not be required to obligate its contractors and subcontractors to
accept responsibility for their employees' losses and reference to this
obligation was also omitted from the proposed form of agreement
presented in Appendix II.
In summary, whereas PPLPs would waive claims against the other
launch participants and agree to be responsible for their own property
damage or loss and for losses sustained by their employees, the
Government's waiver would be limited to property damage suffered by
GLPs at the launch site, in excess of required property insurance.
Claims of Government personnel would be covered by the required
liability insurance up to the limits specified by the agency. Uncovered
claims of Government personnel would be included in a compensation plan
submitted to Congress as part of a request for appropriations to cover
excess third-party claims.
Comments on the NPRM
The agency requested comments on the approach to risk allocation
proposed in the NPRM in light of the following considerations: (1)
absence of any indication in the CSLA or legislative history that
employees of nongovernmental launch participants are intended to be
included in the definition of ``third parties,'' whereas the
legislative history explicitly indicates that Government employees are
to be considered ``third parties,'' S. Rep. No. 100-593, 100th Cong.,
2d Sess. 8 (1988); (2) absence of any indication that the Government
would compensate the claims of employees of PPLPs as excess third-party
claims; (3) considering employees of launch participants as third
parties would run counter to the assumption of responsibility for their
losses required by the statute; and (4) third-party liability insurance
requirements would likely increase if employees of all launch
participants are considered third parties.
Industry reaction to the NPRM and the agency's clarification of
insurance requirements in the spring of 1997, following a Delta launch
vehicle failure earlier in the year, led the agency to reopen the
docket for an additional 30-day comment period. In doing so, the agency
queried whether employee claims are intended to be addressed by the
liability policy a launch licensee obtains to cover all launch
participants' third-party liability. Alternatively, we
[[Page 45599]]
asked whether the reciprocal waiver of claims agreement in which launch
participants agree to assume responsibility for losses sustained by
their employees imposes additional financial responsibilities on the
parties to cover these claims. More specifically, the Notice announcing
the reopened docket requested answers to the following questions: ``Are
employees of the Federal Government and its contractors and
subcontractors (defined in the NPRM as ``Government personnel'')
properly classified as third parties? If not, how should their claims
against other launch participants for damage, injury, or loss be
addressed, particularly in light of the limits on the Government's
ability under appropriations laws to accede to unfunded contingent
liability? From an insurance perspective, what issues or problems does
the proposed definition present in providing liability insurance
coverage for third-party claims? Should employees of all private party
launch participants also be deemed third parties? If so, how would this
affect CSLA-based liability coverage? If these employees are not third
parties, how should their claims be managed? That is, how should the
various launch participants protect themselves financially from claims
by other launch participants' employees?'' (62 FR 36029, July 3, 1997).
The range of comments received and summarized below underscores the
lack of clarity in the statute. In particular, industry opinion was
divided on the appropriate definition of the term ``third party'' and
the intent of the reciprocal waiver of claims requirement.
Both Boeing, commenting in September 1996, before its merger with
McDonnell Douglas Corporation, and Sea Launch suggested that all
employees of all launch participants should be viewed as ``third
parties'' whose claims must be addressed by the required liability
policy obtained by the licensee.
In support of its position, Boeing stated that the intent of the
CSLA is to provide to all launch participants protection against claims
by those who suffer injury as a result of an errant launch--either
through statutorily-required liability insurance or through the inter-
party waivers required by the CSLA. Because employees are not required
to enter into waiver of claims agreements their individual claims
against the other launch participants are not waived. Yet, according to
Boeing, if employees are not accorded third-party status their claims
may not be covered by the required third-party liability insurance nor
would they be eligible for payment by the Government as part of the
catastrophic loss protection contemplated by the CSLA. (Boeing
erroneously refers to umbrella insurance coverage provided by the U.S.
Government to cover excess third-party claims. The Government does not
maintain insurance to cover catastrophic losses resulting from licensed
launch activities. Rather, the CSLA provides a procedure whereby
Congress may vote to appropriate funds to cover those losses.)
According to Boeing, this is an ironic result because launch
participant employees are the most likely to be injured in the event of
a launch accident. Moreover, absent liability insurance coverage for
employee claims, launch participants would be vulnerable to, and
potentially liable for, claims from launch participant employees and
there is no clear statutory basis for suggesting that launch
participants must indemnify each other for those claims. Finally,
according to Boeing, there is no basis for treating Government
employees differently from all other employees in light of the
statutory definition of ``third party'' which omits any reference to
employees of any entity involved in launch services, and therefore all
employees should be considered ``third parties.''
Boeing also refuted any suggestion that the assumption of
responsibility provisions of the CSLA and reciprocal waiver of claims
agreement imposes a requirement on a party to indemnify another launch
participant for successful claims by that party's own employee. Without
offering an opinion as to the meaning of the assumption of
responsibility provision of the statute, Boeing argued that if Congress
had intended for there to be an indemnification obligation it would
have done so explicitly and the term ``indemnification'' does not
appear in the CSLA. The comment cites a legal encyclopedia in support
of the argument that a party claiming a right to be indemnified against
its own negligence must establish that a contract clearly expresses
such an intention and notes further that such agreements have been held
void as against public policy. The better view, according to the
comment, is that all employees, government and nongovernment, should be
considered third parties.
Sea Launch commented that all employees of the various launch
participants should be considered ``third parties,'' based on the
statutory definition, whose claims would be covered by the required
liability insurance and then by the Government under the excess claims
provision of the statute. Sea Launch echoed many of the concerns
expressed by Boeing in noting that unless considered ``third parties,''
injured employees would be unable to recover for their losses in the
event the negligent party did not maintain adequate coverage for the
claim.
Sea Launch also suggested that if employee claims are not eligible
for payment by the Government as excess third-party claims because they
are covered by their employer's assumption of responsibility, then the
same reasoning should apply to claims of Government personnel. In Sea
Launch's view, it is reasonable to expect the Government to cover
excess claims of Government personnel as third party claims and the
same eligibility should apply to claims of all employees. Finally, Sea
Launch disagreed that covering all employees' claims as third-party
claims would significantly increase the amount of required insurance
because a responsible launch licensee would obtain such coverage in any
event, whether or not required by regulation.
Like Boeing, Sea Launch also did not offer a definitive view on the
intended meaning of the reciprocal waiver of claims provisions of the
statute; however, it postulated that if the assumption of
responsibility is an agreement to indemnify other parties for claims
brought by one's own employees then that obligation should be backed by
financial resources, such as the liability coverage obtained by the
licensee, in order to effectuate the intent of the CSLA. In clarifying
remarks, Sea Launch indicated that the statutory-based assumption of
responsibility is intended to be an affirmative obligation to indemnify
other launch participants in the event one's own employee, a third
party, claims against another participant, and the licensee's liability
policy provides the financial resources covering this obligation. In
other words, the liability policy effectively provides a financial
guaranty that each launch participant will fulfill its contractual
obligation to other launch participants to be responsible for its
employees' losses. Whether the basis for the claim is viewed as the
contractual obligation to indemnify another party, or as a third-party
claim, the policy should respond, according to Sea Launch, because
ultimately it is the employee/third party that must be compensated for
his or her loss. As between a launch participant and its contractor,
Sea Launch commented that it would be a contractual matter that would
be negotiated by the parties outside of the CSLA.
[[Page 45600]]
Kistler offered the view that all employees should be considered
third parties otherwise employees of PPLPs would be limited to workers
compensation while Government personnel would benefit from more
extensive recoveries. The substance of this comment has already been
addressed in the preceding summary of the 1988 Amendments; however, the
agency reiterates here that no employees are required to waive their
claims under the reciprocal waiver of claims agreement and that any
injured employee may elect to pursue legal remedies against a negligent
launch participant other than his or her employer.
Lockheed Martin, Orbital Sciences and McDonnell Douglas put forward
a contrasting view of the intended coverage of the term ``third
party.'' According to these three launch licensees, no employees should
be considered ``third parties'' for purposes of the required liability
insurance coverage. Under their view, the assumption of responsibility
for employee losses requires that each signatory to the reciprocal
agreement indemnify the other signatories for claims made by one's own
employees.
McDonnell Douglas and Orbital Sciences specifically commented that
personnel are part of the entity of which they are members and
therefore no personnel, not even Government personnel, should be
considered ``third parties'' for purposes of required liability
insurance coverage. According to McDonnell Douglas and Orbital
Sciences, an employee's claims are the responsibility of his or her
employer, including the U.S. Government and its contractors. Under the
inter-party waiver agreement, that responsibility includes a
requirement to indemnify other signatories to the agreement in the
event of claims by one's own employee against the other signatories.
As a result of the Boeing-McDonnell Douglas merger, effective
August 1, 1997, the risk management program for commercial launches of
the Delta family of launch vehicles was consolidated within Boeing.
Because of the divergence of views expressed in docket submissions by
McDonnell Douglas and Boeing prior to the merger, the agency sought
clarification from Boeing's Insurance Department, Space and Liability
Risks, as to Boeing's views of appropriate implementation of risk
allocation under the CSLA. By way of clarification, Boeing's insurance
manager endorsed the view espoused by McDonnell Douglas in its written
comments that financial responsibility for one's own employees' losses
is intended to be addressed by the reciprocal waiver of claims
agreement undertaken by each launch participant and not by the
liability policy provided by the launch licensee. By implication, no
employees would be deemed ``third parties'' in the sense that their
claims would not be covered by the required liability policy. Rather,
each signatory to a reciprocal waiver of claims agreement is
responsible for maintaining insurance that responds to its contractual
obligation to indemnify other launch participants in the event of an
employee claim for injury, damage or loss.
Orbital Sciences' insurance broker clarified its comment further by
stating that allowing a launch participant's employee to recover as a
third party against another launch participant would defeat the intent
of the reciprocal waiver of claims provisions of the statute to limit
inter-party claims. Also, allowing additional insureds (both the entity
and its employees) to also be claimants under the same policy could be
done at a cost; however, this approach flies in the face of the CSLA,
according to the comment.
Orbital Sciences' insurance broker further stated that at the time
the 1988 Amendments were enacted, it had been understood that special
consideration was warranted for Government employees because of
limitations on the Government's ability to assume an unfunded
contingent liability to cover successful claims of Government employees
against other launch participants. However, the same treatment was not
believed to be appropriate for employees of Government contractors
because those entities can obtain insurance to cover this
responsibility.
Orbital Sciences reaffirmed its position in supplemental comments
to the docket noting further that its launch insurance did not cover
claims of Government personnel and that doing so could double the cost
of insurance. Orbital Sciences also made the following additional
points: First, Government personnel are not now and ought not be
classified as ``third parties.'' Second, each signatory to the
reciprocal waiver of claims agreement, including the Government, agrees
to indemnify the other signatories for claims made by its own employees
resulting from licensed launch activities. Third, the agency's views,
as expressed in the NPRM and in correspondence with the industry,
represent an inappropriate, unnecessary and unwarranted expansion of
industry's liability burden, as well as a shift of liability from the
Government to the industry. Fourth, the statutory limitation on the
Government's waiver of property damage has no bearing on and does not
in any way limit its assumption of responsibility for employee losses.
Fifth, limitations on the Government's ability to accede to unfunded
contingent liability should not impede the Government's ability to
assume responsibility for its employees' losses and should be handled
in a manner similar to the excess claims provisions of the CSLA. Sixth,
the notion of reasonable cost of insurance is a relative term and in
any event allowing inter-party claims instead of relying upon the
reciprocal waiver regime defeats a fundamental goal of the CSLA.
Seventh, allowing Government personnel to be claimants and insureds
under the same policy is unorthodox and renders the reciprocal waiver
scheme useless. Eighth, under the agency's proposal the licensee's loss
record would be unfairly impacted because its liability policy would
have to respond to claims caused by a grossly negligent launch
participant, defeating the ``immunity'' from such claims that the
reciprocal waiver scheme would otherwise provide. According to Orbital
Sciences, this is particularly problematic where the Government's
contractor is involved because the licensee has no direct control over
that entity or its employees.
In further clarification of its remarks, OSC's broker explained
that a licensee's liability policy can be written so as to respond to
the liability assumed by an insured under a contract or agreement,
including the contractual obligation each launch participant assumes
under the reciprocal waiver of claims agreement to be responsible for
its employees' losses. This approach fulfills the important objective
that underlies the reciprocal agreement to be responsible for
employees' losses of keeping litigation costs to a minimum.
Lockheed Martin's initial comments also expressed concern over the
inclusion of Government personnel as ``third parties,'' noting that
including them would have far-reaching effects on the statutory risk
allocation scheme, including the maximum probable loss determination
for third-party losses, the nature and scope of required liability
coverage, coverage for employee claims, scope of the reciprocal waivers
of claims, and the U.S. Government's payment of excess third-party
claims. Lockheed Martin noted that the statutory definition of ``third
party'' does not differentiate between employees of the Government or
its contractors and subcontractors and employees of private party
launch participants (PPLPs). Lockheed Martin
[[Page 45601]]
also questioned the resultant lack of responsibility on the part of the
Government for its employees' claims under the definition of ``third
party'' proposed in the NPRM. Lockheed Martin initially suggested that
it might be beneficial to consider all launch participant employees as
``third parties,'' but noted that this action should not be taken
without understanding the consequences, such as higher insurance
requirements for third-party liability. Lockheed Martin also stressed
the importance of understanding how the agency interprets the
reciprocal agreement between launch participants in which parties agree
to be responsible for injury or losses sustained by their own
employees.
In supplemental comments to the docket, Lockheed Martin
unequivocally objected to defining the term ``third party'' to include
any employees, whether Government-related or private party, and opposed
any interpretation of the term ``third party'' that would relieve the
Government of responsibility for its employees' losses and those of
Government contractor employees under the reciprocal waiver of claims
scheme of the CSLA. Lockheed Martin further stressed that although it
has accommodated the Government's clarification that employees of the
Government and its contractors and subcontractors are to be considered
third parties, this was viewed by Lockheed Martin and its insurers as a
new interpretation that transfers additional risk to the launch
liability policy and could have significant adverse impacts on the
licensee's loss exposure and premiums.
Lockheed Martin believes that the assumption of responsibility for
employee losses imposes on each signatory to the interparty waiver
agreement an obligation to indemnify another signatory/launch
participant for the amount recovered by one's own employee for losses
suffered as a result of licensed launch activities. According to
Lockheed Martin, insurance that is separate and apart from the
licensee's launch liability policy is available to cover this
contractual obligation. In this manner, risk exposures and premium
costs are more fairly distributed among launch participants without
overburdening or distorting the licensee's actual loss record. Further
expanding the definition of ``third party'' to include employees of
Government contractors and other launch participants would effectively
negate the inter-party waiver of claims scheme and leave Lockheed
Martin financially responsible for all such losses, resulting in
premium increases as high as $500,000 per launch, according to Lockheed
Martin's supplemental comments.
Lockheed Martin incorporated by reference comments submitted by
Marsh & McLennan, now J&H Marsh & McLennan, an aerospace insurance
broker. According to Marsh & McLennan, insurance underwriters have long
understood that Government employee claims and claims of Government
contractor employees remained the responsibility of the Government or
its contractors, respectively, as evidenced by the waiver of claims
agreement. While the insurance market can respond to the Government's
requirement that its employees be covered as third party claimants,
inclusion of Government contractor employees is more problematic from
an allocation of risk equity standpoint as it could significantly
affect the cost of insurance, according to the comment. This view is
consistent with that expressed to the agency by an insurance
underwriter who added that requiring coverage for Government contractor
employees could adversely affect launch services providers' ability to
obtain insurance in the future at reasonable rates because their loss
records would reflect claims for which they were not responsible.
To sum up, opponents of the proposed definition of ``third party''
argue that the additional coverage that would be required to comply
with regulatory requirements would result in higher risk exposures and
insurance premiums, that doing so is contrary to or would defeat the
purpose of the reciprocal waiver scheme required by statute, and would
lead to difficulties in implementation in that Government launch
participant (GLP) employees would be both additional insureds protected
from third party liability claims, as well as potential claimants, in
effect making claims against their own liability policy. It could also
allow a negligent employee to recover against another negligent launch
participant, neither of whom is under the licensee's control or
direction. This would unfairly impact the licensee's loss record--
assuming the insurance market is able to respond to the additional
risk.
Final Rule Approach to Risk Allocation for Employee Losses
Having summarized the range of views expressed, the agency
resolves, as a matter of regulation, two issues that are critical to
defining appropriate risk allocation and financial responsibility under
the CSLA. First, the agency concludes that the reciprocal waiver of
claims agreement in which launch participants assume responsibility for
their employees' losses is intended to address financial responsibility
for losses sustained by private party launch participant (PPLP)
employees and remove the risk of such claims from the launch liability
insurance coverage required under the CSLA. Second, although the agency
agrees with those commenters who stated that the liability policy
obtained by the launch licensee is not intended to cover PPLP employee
claims because they are addressed through the reciprocal waiver of
claims agreement, the agency further concludes that the launch
licensee's liability policy is required to cover Government launch
participant (GLP) employee claims up to the limits established by the
agency in license orders. In resolving these issues, the agency
maintains the distinction described in the NPRM between PPLPs and GLPs.
This final rule focuses primarily on risk allocation among private
party launch participants (PPLPs) involved in licensed launch
activities and between PPLPs and Government launch participants (GLPs)
when the Government performs its traditional role as manager of the
Federal launch ranges and provider of range safety services. The NPRM
separately addressed the situation in which a Government agency is a
customer of commercial launch services. The NPRM stated the FAA's view
that because Government agencies cannot agree to an unfunded contingent
liability absent express statutory authority to do so, employees of
Government agency customers are also considered third parties whose
claims would be covered by the licensee's launch liability policy.
However, as explained in the NPRM, a Government-owned payload is not
covered by statutorily-required Government property insurance and the
U.S. Government agency customer accepts responsibility for property
damage to the payload. This approach reflects current agency practice
in establishing risk-based financial responsibility requirements for
third-party liability and Government property damage. That said, the
final rule does not resolve, as a matter of regulation, the form of
reciprocal waiver of claims agreement the Government will utilize when
a Government agency is involved in launch services as a customer and
such agreements will continue to be addressed on an individual basis.
(1) Assumption of Responsibility for Employee Losses
This rulemaking requires that the agency clarify proper
implementation of
[[Page 45602]]
the statutory language appearing in 49 U.S.C. 70112(b)(1) and (2) which
provides that ``each party to the waiver agrees to be responsible for
property damage or loss it sustains, or for personal injury to, death
of, or property damage or loss sustained by its own employees resulting
from an activity carried out under the license.'' (Emphasis added.) As
one commenter queried, is it a restatement or elaboration of the
requirement to provide a waiver? Is it a restatement of a requirement
that a party would have even in the absence of the statute? Is it an
affirmative obligation to indemnify other parties for claims brought
against them by one's own employees?
One possible interpretation of the provision is that the agreement
to be responsible for one's own employees' losses means compliance with
workers compensation insurance requirements, a requirement an employer
would have regardless of the CSLA. Ensuring workers compensation
coverage is provided for employee claims reduces the likelihood that an
injured employee will pursue claims against another launch participant
but does not preclude this possibility. Because workers compensation
laws are left to the states, and significant differences are found
among the various state programs, the agency concludes that a federal
statute is not required, or even appropriate, to ensure compliance with
state law and the FAA therefore views this as an unlikely
interpretation. That is, the statutory provision for assumption of
responsibility is intended to have significance beyond a requirement
already imposed on employers by most (49) states to provide workers
compensation insurance coverage for their employees under existing
state laws.
Another possibility is that by enacting this provision Congress
intended to affect certain workers compensation schemes by removing any
rights of subrogation that an employer's workers compensation insurance
carrier may have under state law. This is also not likely, particularly
for PPLPs whose workers compensation insurance carriers are not
signatories to the reciprocal waiver of claims agreement. State workers
compensation programs vary widely in terms of subrogation rights and it
is not likely that Congress intended to interfere directly in their
implementation.
It is conceivable that Congress intended for the Secretary of
Transportation to waive subrogated claims of Federal agencies under the
Federal Employee Compensation Act (FECA), but doing so would still not
affect the rights of Government employees to independently pursue
claims against other launch participants because their claims are not
waived under the reciprocal waiver of claims agreement. However, it is
possible that fewer claims by Government employees against other launch
participants would be brought if Government agencies' subrogated rights
were waived.
Simply put, FECA is the Federal Government's workers compensation
program. Under FECA, a Federal employee is compensated for work-related
injuries and if the injury was caused by a negligent third party, the
employee is advised to pursue a claim against that negligent party. If
the employee is successful in his claim, he or she is required to
reimburse the Government the amount paid to the employee by the
Government, with certain adjustments for legal fees and other expenses.
Even if the CSLA means that the Government must forego its right to
recover, it does not mean that Government employees forego their rights
as injured claimants to proceed against a negligent launch participant.
The presence or absence of workers compensation coverage does not
eliminate inter-party litigation, a primary objective of the CSLA risk
allocation scheme. Workers compensation provides to an employee an
exclusive remedy against his or her employer for injuries arising out
of and suffered in the course of employment. However, an injured
employee may elect to sue a launch participant other than his or her
employer for negligently causing the injury. Generally, a majority of
jurisdictions would deny to that negligent launch participant the right
to seek contribution from the employer because the workers compensation
remedy is exclusive to the employer. Yet, contribution may be possible
under a substantive indemnity law or on the basis of an indemnity
agreement or if an independent duty is owed by the employer to the
negligent launch participant. In that event, the negligent launch
participant may proceed against the employer by maintaining that a
contractual agreement removes the bar that would otherwise prevent the
negligent launch participant from seeking contribution from the
employer. Even so, variations in state workers compensation programs
may result in a host of issues still being litigated.
Therefore, in the interest of avoiding costly inter-party
litigation, the agency concludes that Congress intended to create an
indemnity obligation making each PPLP financially responsible, by
contract, for its employees' claims or otherwise establishing an
independent duty owed by each employer to the other launch
participants. This responsibility may be termed a legislatively-
mandated contractual indemnification obligation.
As between a launch participant and its contractors and
subcontractors, the assumption of responsibility could be viewed as a
``contractor-under'' requirement whereby each party provides workers
compensation insurance that would cover its contractors and
subcontractors employees' claims in the event its contractors and
subcontractors failed to provide coverage. Doing so would minimize the
likelihood that an injured employee of a contractor would look to
another launch participant's deep pockets for recourse. (Generally
speaking, state law provisions of this nature are intended to give a
general contractor an incentive to require subcontractors to carry
workers compensation insurance. 2A Larson, Workers Compensation Law,
72.31(b).) However, the FAA declines to interfere with variations in
state workers compensation programs and concludes that it is
unnecessary to do so as long as we regard the assumption of
responsibility to be a contractual indemnification obligation of each
PPLP to the other launch participants to assume financial
responsibility for its own employees' losses.
That said, the agency does not agree with the commenters that a
comparable obligation is accepted by the Government through the
reciprocal waiver of claims agreement. Whereas each PPLP undertakes a
contractual obligation to indemnify other launch participants from
claims of its own employees through the inter-party waiver agreement,
the Government is unable to accept this contractual obligation absent
express authority to do so because it would amount to an unfunded
contingent contractual liability which is prohibited by appropriations
laws. The agency does not believe that the statute authorizes the
Government to undertake an additional unfunded obligation except if a
policy exclusion is deemed ``usual'' or the available limits of the
policy are exhausted. In either of those events, the Government would
be responsible under the CSLA for covering those claims, subject to
Congress appropriating funds for that purpose.
Moreover, the CSLA authorizes the Secretary of Transportation to
establish financial responsibility requirements, consistent with the
CSLA, to protect the Government, its agencies, and personnel from
liability, death, bodily injury, or property damage or loss as a result
of a
[[Page 45603]]
launch or operation of a launch site involving a facility or personnel
of the Government. 49 U.S.C. 70112(e). The appropriate way to reconcile
this provision with the Government's assumption of responsibility
obligations in 49 U.S.C. 70112(b)(2) is to conclude that the Government
accepts responsibility for its employees' losses but, as in the
Government's waiver for property damage, only to the extent that they
exceed required insurance or other demonstration of financial
responsibility.
The Government's limited agreement to be responsible for losses
sustained by its employees, as reflected in the final rule, is
consistent with similar requirements imposed by the Air Force in
existing commercialization agreements to hold the Government harmless
from third-party liability, including losses suffered by members of the
Armed Forces. Regardless of whether or not an FAA license is issued for
a commercial activity, the Government is not willing to accept
additional financial responsibility for its employees' losses, other
than that imposed under FECA or other comparable Federal compensation
program, when Government personnel are involved in supporting
commercial launch activities and this is the view that is reflected in
the CSLA at 49 U.S.C. 70112(e). Absent further clarification from
Congress, the agency is unwilling to place on the Government
responsibility for covering the liability of other parties whose
negligence causes injury, damage or loss to Government employees
involved in commercial launch services. Moreover, the Government is
foreclosed from insuring this risk under appropriations laws and
therefore it is both necessary and appropriate that claims of
Government employees against the other launch participants be addressed
by the licensee's liability policy.
This approach to covering claims of Government employees results
from the agency's understanding of statutory objectives and the
practical consequences of appropriations laws, as well as the
practicalities of seeking recovery from the Government. The same
approach is not necessary to address the claims of employees of PPLPs.
Therefore, with respect to PPLPs, the agency adopts the view, expressed
by the majority of commenters, that the agreement to be responsible for
losses sustained by one's own employees establishes a contractual,
substantive right in each signatory to the reciprocal agreement to be
indemnified and held harmless from claims of the other signatories'
employees. Commenters offering this understanding of the reciprocal
waiver of claims agreement also stated that insurance, separate from
launch liability insurance, can be obtained by each signatory to the
agreement to cover this contractual obligation.
As a practical matter, the agency's determination that the
Government assumes a limited acceptance of responsibility for its
employees' losses should not impose an unreasonable burden on the
commercial launch industry. Even if the Government assumed
responsibility for losses sustained by Government personnel, a prudent
PPLP would maintain insurance to cover its liability in the event
Congress failed to appropriate funds for this obligation. Rather than
risk an uncovered liability, we believe it should be preferable for all
entities involved in launch services to ensure adequate resources exist
to cover claims of Government employees through the liability policy
obtained by the licensee in accordance with the CSLA.
The issue remains as to whether the agency's approach of addressing
claims of Government employees is appropriate for employees of the
Government's contractors and subcontractors involved in launch
services. Although Government contractors and subcontractors are
private entities not subject to the restrictions of appropriations
laws, the agency maintains that it is appropriate to accord to those
employees the same status as Government employees for this limited risk
management purpose and require that the licensee's liability policy
respond to claims of Government personnel. The waiver requirement set
forth in the statute provides that the Government waives claims ``for''
or ``on behalf of'' its contractors involved in launch services. In
doing so, the Government takes on additional responsibilities to
safeguard the interests and rights of those entities that perform
launch services, at the behest of the Government, in support of
commercial operations. For this reason, Government contractors and
subcontractors should not be required to accept additional liability or
insurance obligations when they perform services in support of
commercial launch operations under contract to the Government. Although
Government contractors and subcontractors could obtain insurance to
cover a contractual indemnification obligation, they are not currently
required to do so. Thus, costs incurred in obtaining this additional
coverage would likely be passed through to the Government as allowable
and allocable costs. Rather than incur additional costs or risks, the
agency has determined to maintain its current practice of requiring
that the liability policy obtained by the licensee under the CSLA
respond to claims of Government contractor and subcontractor employees.
The agency's interpretation of the statutory agreement in which
parties agree to be responsible for losses of their own employees may
be controversial in that it effectively relieves a party of the
financial consequences of its own negligence. At first blush, this
might seem an illogical result, or one that flies in the face of public
policy; however, it is consistent generally with the no-fault, no-
subrogation reciprocal waiver scheme required by the CSLA. Parties may
validly contract for or require indemnification against their own
future negligent acts as long as it is clearly done, as in the revised
form of reciprocal waiver of claims agreement presented in Appendix II
of the final rule. However, it would be contrary to public policy to
allow a party to contract for indemnification against willful
misconduct and the ``Agreement for Waiver of Claims and Assumption of
Responsibility'' contained in Appendix II of the final rule does not
allow a launch participant to be relieved of liability for such
behavior. The agency anticipates that the commercial market will
respond to these requirements by ensuring that only responsible launch
participants will be employed to perform hazardous operations in order
to reduce each participant's risk of financial responsibility for
employee losses.
(2) Liability Insurance Coverage for Third Parties
In making the determinations reflected in the final rule, the FAA
also considered the question of whether the liability policy a launch
licensee obtains ought to respond, in the first instance, to all
employee claims. The approach suggested by Boeing and Sea Launch of
considering all employees to be third parties whose claims must be
covered by the licensee's liability policy under the CSLA is attractive
for several reasons. It ensures sufficient financial resources will be
available to cover employee claims through the liability policy and as
follows: In the event an employee's claims are not compensated by that
policy, either because of an insurance exclusion deemed ``usual''
within the meaning of the statute or exhaustion of policy limits, the
Government may elect to cover the claim under the procedures set forth
in 49 U.S.C. 70113. If the Government fails to do so, then the launch
participant/
[[Page 45604]]
employer's agreement to be responsible for the claim could be invoked
and the sued launch participant would seek indemnification from the
launch participant/employer for the amount of the employee's recovery.
This approach offers the benefit of reconciling the view that employees
of all launch participants may be third parties without stripping the
CSLA-mandated agreement to be responsible for employee losses of
substantive import. However, where the uncovered claim belongs to
Government personnel, the agency would need to resolve whether the
Government's agreement to be responsible for its employees' losses
would be subject to 49 U.S.C. 70113 procedures or absolute.
In evaluating the issue, the agency considered the additional
burdens that would be imposed upon launch licensees if all employees
were deemed third parties whose claims would be addressed by the launch
licensee's liability policy. To do so, the agency surveyed Air Force
installations at which launches take place to ascertain the maximum
number of employees, other than Government personnel (because their
exposure is currently assessed by the agency in setting insurance
requirements), that may be exposed to hazardous operations. Using $3
million as the value of life, the amount currently used by the agency
in making maximum probable loss (MPL) determinations, and applying a
conservative assumption that half the personnel exposed would suffer
casualties within MPL thresholds, the agency determined that liability
insurance levels would increase anywhere from $12-15 million to $54
million depending upon the launch vehicle and the Federal installation
from which it is launched.
Although these increases in loss limits do not seem extraordinary
in light of the statutory ceiling on required liability insurance of
$500 million, the agency understands that directing additional coverage
for claims of all launch participant employees would shift the risk of
such claims to the liability policy and increase its cost, assuming
insurance of this nature could be obtained. The agency considered
whether the imposition of additional costs and risks on the launch
industry that would be associated with this approach is warranted and
justified in light of statutory objectives. Accordingly, the agency re-
examined closely the intent of the 1988 Amendments in light of
liability concerns confronting the commercial launch industry at the
time the 1988 Amendments were enacted.
Extensive hearings on H.R. 3765, a predecessor to the 1988
Amendments, before the Subcommittee on Space Science and Applications
on February 16-17, 1988, are illuminating in this regard. The various
panelists presenting views at the hearings, as well as the Subcommittee
Members, made clear in their remarks that it was the risk of
catastrophic failures and potentially unlimited liability to persons
completely unassociated with launch activities that was at the heart of
the industry's concern in operating in a commercial manner at a time
when insurance capacity was extremely limited.
The testimony suggests that third party liability risks at issue
were risks to the public, that is, the uninvolved, unassociated
innocent bystander having nothing to do with the launch activity, not
employees of launch participants who would at least have some remedy
under workers compensation statutes. In questioning Richard E.
Brackeen, president of Martin Marietta Commercial Titan, Inc.,
Congressman Jack Buechner, R. Mo., asked about the history of claims
for loss or injury of persons who were not involved in activities at
the launch site. In his question, he carved out catastrophic losses to
astronauts and the Challenger disaster, as well as workers compensation
claims. ``I'm talking about people outside of the immediate launch
system. I mean, it seems to me that as we get into these questions of
indemnification, we're talking about a risk analyses [sic] that has to
be done.'' H.R. 3765, The Commercial Space Launch Act Amendments:
Hearings Before the Subcommittee on Space Science and Applications of
the House Comm. on Science, Space, and Technology, 100th Cong., 2d
Sess. 210 (1988).
In passing the 1988 Amendments, Congress determined that financial
resources had to be available to cover claims by the public in the
event a launch accident caused injury or damage to uninvolved persons.
These resources would also satisfy the obligations of the United States
under the Outer Space Treaties in the event of damage caused by a
launch from the United States to a foreign territory. Earlier testimony
suggests reason to believe that claims between the launch participants,
including their employees, were regarded as first and second party
claims that would be addressed through reciprocal waiver agreements,
and not as third-party claims. In this manner, and in combination with
the waiver by launch participants of first party damage or loss, the
highest risk claims would be removed from liability coverage at a time
when insurance capacity was extremely limited. This is consistent with
the views expressed in this rulemaking by some commenters and their
insurance brokers that employees are considered part of their employing
entity whose claims were intended to be addressed through reciprocal
waiver of claims agreements and separately from the third-party claims
of uninvolved persons.
The legislative history points to a unique conclusion with respect
to Government employees, however. As reported out of the House
Committee on Science, Space and Technology, the definition of ``third
party'' in H.R. 4399 included United States personnel involved in
launch services as part of the definition thereby excluding them from
``third party'' status. The Senate Report accompanying the 1988
Amendments indicates generally that the definition of the term ``third
party'' is ``intended to be any person not associated directly with
commercial launch operations.'' S. Rep. No. 100-593, 100 Cong., 2d
Sess. at p. 8 (1988). Yet, the report language expressly reserves third
party status for Government personnel directly associated with
commercial launch operations and reference to Government personnel was
removed from the definition of ``third party'' in the bill. Public Law
100-657, known as the ``Commercial Space Launch Act Amendments of
1988'' also makes no reference to Government personnel in the
definition of ``third party.'' Thus, the FAA concludes that a
deliberate decision was made to reclassify Government employees as
third parties. Despite the lack of clarity in the statutory definition,
ample basis exists to include Government employees in the universe of
potential third-party claimants.
The agency has also been advised by aerospace insurance brokers
that the special circumstances of Government appropriations law was
understood within the insurance community at the time the 1988
Amendments were enacted and that accommodation for covering Government
employee claims could be made. This is accomplished by ensuring that
Government employees are regarded as third parties for purposes of
ensuring that the launch licensee's liability policy will respond to
their claims for injury, damage or loss.
The agency does not find the same indications that the launch
licensee's liability policy was intended to respond to claims of
employees of PPLPs involved in a launch. Even if these
[[Page 45605]]
employees are ``third parties'' within the statutory definition of the
term, the agency concludes that the mandatory agreement by each PPLP to
be responsible for its employees' losses is a substantive requirement
which supersedes the need to address their claims through the required
liability policy. According to the insurance community, this
interpretation is consistent with the universe of risks underwriters
have agreed to accept by insuring launch liability. The agency is
advised that underwriters have agreed to provide coverage for an
unorthodox breadth of risks, as required by the CSLA--a single
liability policy covering all launch participants as additional
insureds--with the understanding that the claims having the highest
risk of occurrence (claims for injury by individuals involved in
licensed launch activities) would be addressed through other means,
specifically, the waiver of claims and assumption of responsibility
obligations of the CSLA. It is unclear whether the launch insurance
market could or would respond to the imposition of additional risks
from PPLP employee claims. Including coverage for GLP employee claims
has been accommodated, but evidently not without some resistance. The
agency does not find it necessary to further strain insurance capacity
by considering all employees as third parties whose claims must be
covered by the liability policy when we believe the assumption of
responsibility provides the appropriate response, and the final rule
reflects this view.
The agency concludes that Government employees, but not PPLP
employees, must be considered third parties whose claims against other
launch participants will be responded to by the licensee's liability
policy. Ensuring that the liability policy is available to cover claims
of Government employees provides financial protection to all launch
participants from Government employee claims. The following scenario
and alternative results illustrate the financial risks that would
confront all launch participants if Government employee claims were not
eligible for coverage under the liability policy:
Scenario: Government employee ``A'' is injured at Cape Canaveral
Air Station while monitoring licensed launch activities. The injury to
``A'' results from the launch licensee's negligence in performing the
hazardous licensed operation of integrating the payload with the launch
vehicle. The launch licensee's customer also performed in a negligent
manner contributing to ``A's'' injuries. ``A'' files a claim under the
Federal Employee Compensation Act (FECA), and receives prompt
notification of his entitlement to compensation from the Government for
his injury. FECA provides employee ``A'' an exclusive remedy against
the Government for job-related injuries. Whether or not the
Government's subrogated rights are waived under the CSLA, ``A'' may
elect to sue the launch licensee and its customer, alleging that their
negligence caused his injury. The launch licensee is a well-known
launch services provider with considerable financial assets. Its
customer is a not-for-profit research institution. ``A'' determines to
sue the launch licensee alleging that its negligence caused his
injuries and does not name the customer in the lawsuit. Assume that
``A'' will be successful and obtain a judgment of $1 million against
the launch licensee.
Alt. 1: Under the view expressed by the agency in this final rule,
the launch licensee has obtained a launch liability policy covering its
liability to ``A.'' The liability policy responds to ``A's'' claim.
Under the final rule, the licensee's insurer waives all rights of
subrogation against the other insureds covered by the policy. Even if
``A'' had named the customer in his suit, the claim would be covered by
the launch licensee's liability policy because the customer as well as
other PPLPs and GLPs are named as additional insureds under the policy.
Alt. 2: The launch licensee's liability policy does not respond to
``A's'' claim because it excludes coverage for claims of any insured's
employees against any other insured under the policy. The launch
licensee presents the reciprocal waiver of claims agreement to the
Government and argues that the Government has agreed to be financially
responsible for its employees. Although FECA provides to ``A'' an
exclusive remedy against the Government, the licensee's action is not
barred if it can establish either a substantive right to indemnity
under the Federal Tort Claims Act or a contractual right to indemnity
under the reciprocal waiver agreement dictated by the CSLA. Assuming
that ``A'' did not perform in a negligent manner and that the
Government was not negligent in its supervision of ``A,'' and the
licensee cannot establish any other duty owed to it by the Government,
the launch licensee will not be successful under the Federal Tort
Claims Act and must establish a contractual obligation on the part of
the United States to indemnify it for ``A's'' recovery. The agency has
long held the view that the Anti-Deficiency Act precludes the
Government from accepting an unfunded contingent liability and does not
find in the CSLA language a clear, unequivocal removal of this
restriction. Moreover, even if a special appropriation were requested
to cover the launch licensee's liability to ``A,'' Congress may refuse
to appropriate the funds, leaving ``A'' with a $1 million judgment
against the launch licensee.
Alt. 3: The launch licensee's liability policy does not respond to
``A's'' claim because it excludes coverage for claims of any insured's
employees against any other insured under the policy and the licensee
impleads its customer as a third-party defendant thereby defeating the
CSLA objective of avoiding inter-party litigation. As a practical
matter, the launch licensee has deeper pockets than the customer who
may or may not have sufficient insurance or assets to cover its
liability, leaving the licensee potentially responsible for satisfying
the entire judgment from other general liability insurance coverage or
corporate assets.
The first alternative described above provides the best outcome by:
(i) relieving each participant of the need to obtain separate liability
insurance to cover Government employee claims; (ii) providing
reasonable assurance of financial protection to Government employees
exposed to risk of loss in supporting commercial launch activities; and
(iii) avoiding inter-party litigation.
In the final rule, the definition of ``third party'' is revised to
remove the express exclusion of employees of private party launch
participants. As revised, the regulation does not preclude coverage by
a licensee's launch liability policy for claims by employees of PPLPs.
A licensee may obtain additional liability coverage in excess of
amounts required under the terms of a launch license to cover claims of
other parties' employees. However, the amount of insurance required by
the agency does not reflect this additional source of claims nor can
claims of other parties' employees dilute or diminish the amount of
insurance that must remain available to respond to the intended class
of third-party claimants, that is, persons uninvolved in the launch as
well as claims of GLP employees. As long as those claims are satisfied,
the Government would have no say as to whether a licensee's liability
policy may respond to satisfy claims of other launch participants'
employees if such coverage is available under the terms of the policy,
either as a liability claim or to cover the contractual indemnification
obligation of an insured. However, in the event the liability insurance
is exhausted, claims
[[Page 45606]]
of employees of PPLPs would be the responsibility of their employer
under the reciprocal waiver agreement and not eligible for Government
payment under 49 U.S.C. 70113. Because providing additional coverage
for losses sustained by employees of PPLPs may result in some
additional expense, the agency leaves it to the parties to negotiate
appropriate cost-sharing arrangements if they elect to pursue this
route.
To summarize briefly, the preceding discussion of risk allocation
under the 1988 Amendments began by characterizing sources of claims for
injury, damage or loss as falling within two groups: 1) those entities
and individuals involved in licensed launch activities, and 2) those
entities and individuals not involved in licensed launch activities.
Those involved in licensed launch activities include PPLPs, GLPs, and
their employees. Financial responsibility for claims of either group is
provided as follows: Whereas PPLPs are required to waive claims for
their own property damage or loss and obligate themselves contractually
to cover or indemnify another launch participant in the event of losses
sustained by one's own employee, the Government accepts a more limited
responsibility. Through its participation in the reciprocal waiver of
claims scheme, the Government agrees to waive claims for its own and
its contractors' and subcontractors' property damage at a Federal range
facility in excess of the amount of Government property insurance
required under the license. The Government also accepts responsibility
for losses of its employees and its contractors' and subcontractors'
employees only to the extent they are not covered by required liability
insurance, either because of a ``usual'' policy exclusion or because
the policy limits have been exhausted. Claims of entities and
individuals not involved in licensed launch activities would be
addressed by the single liability policy obtained by the launch
licensee to cover claims by any third party, as defined in this
rulemaking, against any PPLP or GLP. Claims in excess of the required
amount of liability insurance become the responsibility of the
Government, subject to appropriation of funds, up to $1.5 billion (as
adjusted for inflation occurring after January 1, 1989) above the
amount of insurance that the agency requires.
Section-by-Section Analysis
Summarized in this section are specific comments addressing
particular provisions of the proposed rule or responding to the
agency's request for views on matters not covered above, followed by
the agency's response to the comments. The agency has also identified
certain provisions in the NPRM that would benefit from additional
elaboration. Each is discussed below in numerical order. Nonsubstantive
changes in the regulatory text of the final rule are not specifically
identified or discussed.
Section 440.1--Scope; Basis
Section 440.1 as proposed indicates that the financial
responsibility and allocation of risk requirements of this rulemaking
apply to all licensed launch activities. There are no changes to this
section in the final rule.
Kistler submitted comments and recommendations for the agency's
consideration to the extent these rules would apply to launches of
reusable launch vehicles (RLVs). Legislation under consideration in
Congress would authorize the agency to license separately the reentry
of an RLV and impose financial responsibility requirements to cover
risks associated with the reentry event. Currently, launch, but not
reentry, of an RLV would be covered by existing statutory requirements
for financial responsibility. Accordingly, the agency intends for these
rules to apply to licensed RLV launch activities, as defined in a
license, and will develop rules for reentry financial responsibility
once specific licensing authority over reentry is enacted.
Section 440.3--Definitions
The term ``contractors and subcontractors'' as defined in
Sec. 440.3(a)(2) of the NPRM prompted two comments. The proposed
definition would encompass entities involved directly or indirectly in
licensed launch activities, including suppliers of property and
services and component manufacturers. McDonnell Douglas and Orbital
Sciences expressed concern that broadening the definition from that
contained in the form of Agreement for Waiver of Claims and Assumption
of Responsibility (Cross-Waiver Agreement) currently in use by the
agency would impose additional burdens on the licensee and its
customers to implement the reciprocal waiver of claims requirements of
Sec. 440.17, in the following ways. Long-term contracts with
subcontractors at every tier would have to be amended at significant
burden and expense. By corollary, the licensee (and its customer) would
be required to accept greater responsibility under the proposed form of
reciprocal waiver of claims agreement set forth in Appendix II to the
NPRM in the event it failed to pass on, or flow down, the cross-waiver
requirements to all of its contractors and subcontractors. Commenters
were also concerned that the expanded definition would remove the
licensee's prerogative of either obtaining waiver of claims agreements
from its contractors or indemnifying other parties for failure to
implement properly the waiver of claims agreements. McDonnell Douglas
clarified its comment by noting that the proposed definition would be
acceptable if the indemnification option were preserved.
The agency believes these concerns are misplaced. The proposed
definition has been broadly crafted in order to ensure that the
liability insurance protection required of a launch licensee under the
CSLA is available to cover third-party claims against any contractor or
subcontractor involved directly or indirectly in licensed launch
activities. Consistent with the CSLA scheme, the definition would
include any contractor or subcontractor that has potential liability
exposure to third parties as a result of licensed launch activities.
However, in the section-by-section discussion of proposed Sec. 440.17--
Reciprocal Waiver of Claims Requirements, the NPRM explains that not
all of those entities are expected or required to participate in the
reciprocal waiver of claims scheme in order to carry out its purpose.
Only those participants, including contractors and subcontractors,
whose personnel or property are at risk in the conduct of licensed
launch activities and who therefore could pursue claims against other
participants in the event of injury, damage or loss need enter into the
reciprocal waiver of claims agreement. (61 FR at 39012, July 25, 1996).
The indemnification provisions referred to by the commenters appear
in paragraph 5 of the proposed form of reciprocal waiver of claims
agreement in Appendix II of the NPRM. These provisions continue the
agency's current practice of providing a contractual remedy to launch
participants who must defend against claims brought by other launch
participants' contractors or subcontractors because of the latter
party's failure to implement properly the extension, or flow down,
provisions of the agreement with its contractors and subcontractors.
The indemnification and hold harmless provisions in paragraph 5 of the
proposed form of agreement at Appendix II are not intended to relieve a
launch participant of its responsibility to implement waivers of claims
with its contractors and subcontractors by allowing the launch
participant to elect
[[Page 45607]]
whether or not to comply. The reciprocal waiver of claims scheme works
best when PPLPs implement the waiver of claims requirements fully and
properly because failure to do so will result in additional costs and
burdens to a party that must defend against a claim. (Commenters raised
the very same arguments in opposition to the Government's view that it
need not flow down the waiver requirements to its contractors and
subcontractors. However, because the Government would be responsible
for uncovered property losses sustained by those entities, the agency
believes that the approach proposed in the NPRM wherein the Government
would waive claims on behalf of its contractors and subcontractors
should not be objectionable.)
The revised form of reciprocal waiver of claims agreement appearing
in this final rule at Appendix II continues the current practice of
requiring a three-party agreement to be executed by the licensee, its
customer and the agency on behalf of the Government and imposing an
express indemnification obligation on signatories to the agreement for
failure to implement properly the flow down provisions of the agreement
to contractors and subcontractors. Consistent with current practice,
the agency leaves implementation of these provisions to launch
participants and does not intend to monitor compliance with the flow-
down requirements.
Two comments were submitted regarding the proposed definition of
``customer'' in section 440.3(a)(3). Hughes Electronics, a
communications satellite manufacturer, endorsed the proposed
definition, in that it would include any person to whom the procurer of
launch services conditionally sells, leases, assigns or otherwise
transfers its rights in the payload. Sea Launch suggested broadening
the definition to include not just any person to whom the procurer of
launch services has transferred a right in the payload, but also any
person to whom the procurer of launch services has transferred a right
to the launch services but remains in privity of contract with the
launch services provider, such as when the procuring party transfers or
brokers those rights to another party. The agency agrees with the
comment and has revised the definition accordingly in the final rule
and Appendix II agreement.
Through the broad definition of the term ``customer,'' the agency
intends that the financial responsibility and risk allocation
provisions of the CSLA, including rights to liability insurance
coverage and eligibility for Government payment of excess liability
claims, as well as the responsibility to participate in the reciprocal
waiver of claims scheme, apply not just to the procurer (or transferee)
of launch services, but also to any person having any rights in the
payload to be launched. A question arises as to whether a person who
places property on board a payload to obtain launch or payload
services, or who has rights in the payload, should properly be viewed
as a customer (or customer of the customer) or a contractor in that it
is supplying property. The question is raised in the context of
determining whether, and in what capacity, the person whose property is
on the payload is expected to accede to the reciprocal waiver of claims
scheme. The more traditional view of this person as a customer is
correct and his or her rights and responsibilities under the cross-
waiver agreement are equivalent to those of the customer who signs the
three-party agreement with the licensee and the agency on behalf of the
Government. Thus, it must be clearly understood that the customer who
executes the three-party reciprocal waiver of claims agreement required
as a condition of the license does so on behalf of all of its
customers. It is incumbent upon that party to implement the extension,
or flow down, provisions of the agreement to its customers and the same
indemnification protections would be afforded the other launch
participants in the event of the signatory customer's failure to do so.
In essence, while the customer's customer becomes a third-party
beneficiary of the three-party waiver of claims agreement, it is also
expected to sign a waiver agreement and assume the burdens of a
customer that signs the reciprocal waiver agreement with DOT and the
licensee. The definition of ``customer'' is further modified in the
final rule to include any person who places property on board a payload
for the purpose of obtaining launch or payload services and the form of
reciprocal waiver of claims agreement in Appendix II of the final rule
is also revised to reflect the additional indemnification obligations
of the customer.
The term ``Government personnel'' remains unchanged in the final
rule and is used to facilitate the distinction between employees of
Government launch participants (GLPs) whose claims must be addressed by
the launch licensee's liability policy and employees of private party
launch participants (PPLPs) whose claims are the responsibility of
their employer, as discussed above. The agency considers FAA personnel
who carry out inspections or compliance monitoring activities at the
launch site to be Government personnel.
No comments were received on the proposed definition of
``liability'' contained in Sec. 440.3(a)(8). However, the agency wishes
to clarify that legal liability of the United States under
international law may include treaty obligations of the United States
and the liability insurance policies obtained by licensees must cover
those obligations. No change in the proposed definition is required.
For reasons explained above in the supplementary information, the
proposed definition of the term ``third party'' is revised in the final
rule by removing the following sentence: ``For purposes of these
regulations, employees of other launch participants identified in
paragraphs (a)(15)(i)(B) and (C) of this section are not third
parties.'' The licensee's liability policy may respond to losses
sustained by employees of PPLPs either as a third-party or contractual
liability and the agency is not foreclosing that possibility. However,
the public is advised that the agency does not consider potential
losses of PPLP employees in determining the required amount of
liability insurance and does not find in the statute congressional
intent to address those losses through the excess claims provisions of
49 U.S.C. 70113.
Definitions of other terms not specifically addressed herein remain
as proposed in the NPRM.
Section 440.5--General
Section 440.5 as proposed sets forth the basic requirement that
launch licensees must comply with financial responsibility and
allocation of risk requirements established by the agency. Once
established, the prescribed financial responsibility requirements
become the exclusive requirements of the Government for financial
responsibility, allocation of risk and related matters covered by 49
U.S.C. 70112 and 70113. Other agencies may impose requirements to
address matters that are not covered by the financial responsibility
provisions of 49 U.S.C. 70112, such as unemployment insurance or
comprehensive automobile liability, and licensees are not relieved of
the obligation to comply with them.
Proposed Sec. 440.5(b) provides that the agency will prescribe in a
license order the amount of financial responsibility a licensee must
obtain. Similarly, any modifications of that amount would also be
established through license orders.
Lockheed Martin, McDonnell Douglas and Orbital Sciences registered
concern
[[Page 45608]]
over the agency's assertion of continuing authority to revise
requirements based upon changes in exposed property or risks,
indicating that such revisions create uncertainty and could impact cost
and availability of insurance.
Operator licenses are currently issued for a two-year period, and
may be renewed upon application by a licensee. It is reasonable to
expect that some change will occur in the property or number of third
parties exposed to risk of loss over the course of several years and
the agency must be able to respond appropriately to those changes.
Changes may result from actions of the licensee, such as a change in
launch plans, the Government, or third parties. For example, a change
in launch trajectory may heighten or reduce risks to third parties or
Government property. Similarly, a person uninvolved in a licensee's
activities may establish facilities on a launch site, possibly
increasing risk to third-party property and increasing the value of the
maximum probable loss (MPL) determination associated with licensed
launch activities. A change in the MPL, in either direction, should
properly be reflected in the mandated amount of insurance coverage.
The FAA does not anticipate frequent or rapid fluctuations in
required levels of insurance. As indicated in the NPRM, transient
Government property is not included as part of the MPL analysis.
Although it must be covered by the licensee's insurance, the amount of
insurance coverage required would not depend upon the presence or
absence of transient Government property on any given day and it is not
the Government's intent to alter this approach in retaining discretion
to revise requirements. No change to this provision is required in the
final rule to address the commenters' concern.
A number of comments were directed at Sec. 440.5(c), which states
the fundamental principle that a demonstration by a licensee of
financial responsibility for liability, loss or damage suffered by the
United States as a result of licensed launch activities is not a
substitute for actual financial responsibility. Section 440.5 of the
NPRM further provides the only circumstances under which the licensee
would be relieved of this responsibility, as follows: (1) when
liability, loss or damage sustained by the United States results from
willful misconduct of the United States or its agents, including
Government personnel; (2) third-party claims for bodily injury or
property damage covered by the licensee's liability insurance exceed
the amount of financial responsibility established by the agency under
the regulations up to $1.5 billion (as adjusted for inflation occurring
after January 1, 1989) above that amount and are payable under the
payment of excess claims provision of the CSLA (49 U.S.C. 70113); (3)
claims for loss or damage to property of the U.S. Government, its
agencies, contractors and subcontractors exceed the required amount of
Government property insurance; and (4) in the event the licensee has no
liability for third-party claims arising out of any particular launch
that exceed $1.5 billion (as adjusted for inflation occurring after
January 1, 1989).
Lockheed Martin requested that the agency reconcile various
statements regarding the Government's responsibility in the event of
its own willful misconduct with other provisions in the proposed
regulations concerning waiver of claims and assumption of
responsibility.
Section 70112(e) of the CSLA directs the Secretary of
Transportation to establish financial responsibility requirements and
other assurances necessary to protect the Government and its agencies
and personnel from liability, death, bodily injury, or property damage
or loss as a result of licensed activities involving Government
facilities or personnel. 49 U.S.C. 70112(e). Significantly, 49 U.S.C.
70112(e) does not relieve the licensee's obligation to cover claims for
damage to Government property or personnel that result from willful
misconduct of the Government or its agents. However, it does provide
that the Secretary may not relieve the Government of liability under
this subsection for death, bodily injury, or property damage or loss
resulting from the willful misconduct of the Government or its agents.
As a matter of public policy, the Government ought not be able to
assert claims against the licensee or any other person for property
damage that it suffers as a result of its own willful misconduct or
that of its agents. In the limited circumstances in which willful
misconduct by the Government or its agents results in property damage
or loss to Government property, the licensee is relieved of ultimate
responsibility for the claim under Sec. 440.5(c)(1) of the final rule.
Consistent with current practice, the Agreement for Waiver of Claims
and Assumption of Responsibility presented in Appendix II of the final
rule also requires that the licensee hold the Government and its
agencies, servants, agents, employees and assignees harmless from
liability for property damage or injury except where, among other
things, the claim results from willful misconduct of the Government or
its agents. Because Government contractors and their employees are not
typically considered agents of the Government in most circumstances,
the final rule is revised to remove reference to Government personnel
in Sec. 440.5(c)(1); paragraph 7(b) of the form of agreement presented
in Appendix II of the final rule is similarly revised.
Two additional revisions appear in Sec. 440.5(c) of the final rule.
First, section 440.5(c)(3) effectively provides that the licensee is
relieved of ultimate responsibility for damage to or loss of GLP
property in excess of Government property insurance required under
Sec. 440.9(d). As a matter of public policy and consistent with current
practice, licensees are not relieved of financial responsibility for
excess Government property damage where the Government's claims result
from the licensee's willful misconduct and this policy is now reflected
in Sec. 440.5(c)(3) of the final rule. No change is necessary in the
Agreement for Waiver of Claims and Assumption of Responsibility in
Appendix II of the rule because, consistent with current practice, it
provides that waivers of claims shall not apply where the claims result
from willful misconduct of any of the parties.
Second, several commenters pointed out an inadvertent omission in
Sec. 440.5(c)(4), as proposed. This exception to the licensee's
ultimate responsibility for liability or losses sustained by the United
States from licensed launch activities is intended to refer to claims
in excess of $1.5 billion above the amount of required insurance, and
is corrected in the final rule. The Agreement for Waiver of Claims and
Assumption of Responsibility appearing in Appendix II of this final
rule is also corrected.
Lockheed Martin further objected to Sec. 440.5(c)(4), as corrected.
It believes the practical effect would be to make the licensee jointly
and severally liable with other launch participants for damages in
excess of the required amount of insurance plus the $1.5 billion
payable under 49 U.S.C. 70113, unless the licensee could prove no
liability whatsoever. Lockheed Martin objected that limiting this
provision to those instances in which the licensee proves it has no
liability would be unduly burdensome to launch licensees. Lockheed
Martin also noted that requiring a licensee to be solely responsible
for these claims could even be uninsurable if the exposure were viewed
by insurers as an unlimited indemnification, presumably of the
[[Page 45609]]
other launch participants, regardless of fault.
The intent of this provision is to ensure that the Government's
liability will be covered as directed by 49 U.S.C. 70112(e) and the
agency has retained the proposed approach in the final rule. However,
nothing in this rule prevents a licensee from contractually allocating
this risk with other PPLPs so that the cost of the liability would be
shared among responsible PPLPs.
Section 440.7--Determination of Maximum Probable Loss
This section of the final rule sets forth the agency's procedure
for issuing maximum probable loss (MPL) determinations that form the
basis for financial responsibility requirements contained in license
orders. Lockheed Martin commented on this section of the NPRM by
indicating that it is difficult to understand how actual determinations
are made and what the impact of the NPRM would be on existing MPL
determinations.
It has not been the agency's intent to announce changes to its MPL
methodology through this rulemaking. Rather, the agency has attempted
to shed some light on the methodology employed in setting insurance
requirements pending completion and issuance of a comprehensive report
on MPL. In doing so, the agency learned that its inclusion of certain
risks in the MPL analysis, such as risks to Government personnel, was
not clearly understood within the commercial launch industry. To avoid
additional misunderstandings and to facilitate industry's ability to
obtain financial protection from launch risks, the agency agrees with
the comment recommendation to make its analytical documentation
available to licensees upon request. In fact, this is the agency's
current practice although few licensees have made such requests.
Two launch licensees, Orbital Sciences and McDonnell Douglas,
commented on the 90-day period in which the agency issues its MPL
determination following receipt of all required information. Section
440.7(b) provides for notification to a licensee if issuance of the MPL
determination will be delayed due to statutorily-mandated interagency
consultations. The commenters expressed concern that an open-ended
review period is contrary to the CSLA's intent to protect launch
licensees by limiting and clearly defining the review period. The
agency understands the industry's need to receive MPL determinations in
order to obtain required insurance in a timely manner. Moreover, until
the agency establishes its financial responsibility requirements,
insurance requirements imposed by the Federal range facility remain in
place and are not preempted or superceded by the agency's risk-based
requirements under the CSLA. The agency commits to facilitating as
efficient and expedited an interagency review as practicable but hopes
the industry will understand those infrequent occasions when the
process is not as fluid as intended.
Kistler also expressed reservations that the 90-day provision for
issuing an MPL determination would compromise the fast turn-around
anticipated for RLV operations. Kistler suggested that MPL
determinations could be issued for a class of launches and payloads at
the time a license is issued, and that the determination could
``stand'' unless a proposed launch or payload falls outside of
specified parameters. In that event, only the changed information
should be required of the licensee for purposes of recalculating the
MPL determination using the initial determination as a baseline. The
agency agrees with Kistler and, in practice, already implements the
approach proposed in Kistler's recommendations. The agency notes that
Kistler is not yet licensed to conduct launch activities and therefore
may not be familiar with the agency's approach to establishing
insurance requirements that cover a range of authorized launch
activities within identified parameters.
Section 440.7(d) provides that the agency amends an MPL
determination, if warranted, before completion of licensed launch
activities when new information requires an adjustment in insurance
requirements. Lockheed Martin, Orbital Sciences, and McDonnell Douglas
expressed concern that the ability to amend insurance requirements
would create uncertainty for the industry and add unpredictability to
the industry's ability to manage risks. Marsh & McLennan offered its
concerns that licensees and their brokers be allowed sufficient time--
at least 30 to 60 days--to work with underwriters to increase policy
limits and noted that doing so may be impossible if insurance market
capacity is insufficient to provide increased limits at a reasonable
price.
As indicated above in the discussion of comments to Sec. 440.5, the
agency is apprised of new information from time to time in the life of
a license, currently a two-year renewable term for operator licenses,
that affects the MPL determination. In some cases, the MPL may even be
reduced on the basis of this information. It would be irresponsible to
ignore changes in the risks that attend launch activities; however, the
FAA intends to provide licensees a sufficient period of time in which
to comply with revised insurance requirements.
Kistler objected to increasing insurance requirements mid-flight.
Section 440.7(d), as proposed, was intended to allow the agency
flexibility to address longer term changes in risk that would affect
insurance determinations for the remaining life of a launch license.
The need to do so is driven, generally, by the agency's practice of
issuing licenses that cover a multitude of launches or that remain
effective for a multi-year, renewable term. It was not intended to
alter risk allocation arrangements between the launch participants and
the Government in mid-flight by revising required levels of insurance
after ignition. The agency does not agree that any change to this
provision is required in the final rule.
Appendix I of the final rule contains information requirements
relevant to establishing MPL. Information concerning post-flight
processing operations may become unnecessary if the agency defines
licensed launch activities as ending, for purposes of ground
operations, upon successful lift-off of a launch vehicle. In that
event, the agency would amend its requirements by removing post-flight
processing operations from Appendix I.
Section 440.9--Insurance Requirements for Licensed Launch Activities
Section 440.9 presents in a regulation the requirement for launch
licensees to obtain two types of insurance coverage--one for third-
party liability and one for damage or loss to Government property at a
Federal range facility. Section 440.9(b) requires that the third-party
liability policy protect Government personnel as additional insureds.
Sea Launch indicated its belief that employees of the PPLPs should also
be identified as additional insureds. Lockheed Martin queried why
Government personnel would be treated differently than other employees.
The agency agrees with the commenters and currently requires that
all launch participant employees be protected from third-party
liability. This coverage is routinely provided in liability policies
that name, among the additional insureds, employees of the various
launch participants acting within the scope of their employment. The
CSLA singles out personnel employed by Government agencies in the
statutory requirement set forth in 49 U.S.C. 70112(a)(4), and for this
reason so did Sec. 440.9(b), as proposed. The final rule is revised to
require liability coverage for third-party claims against
[[Page 45610]]
employees of all launch participants involved in licensed launch
activities.
The CSLA specifically mandates protection for the Government, its
executive agencies and personnel from liability, death, bodily injury
or property damage or loss as a result of a launch or operation of a
launch site involving a facility or personnel of the Government. 49
U.S.C. 70112(e). Thus, the agency concludes that it is reasonable and
necessary that employees of the Government be classified as both
additional insureds and third parties. And, for reasons detailed above
in the discussion of risk allocation, passes on similar status and
benefits to employees of Government contractors and subcontractors
involved in licensed launch activities. Some of the comments received
point out that employees are viewed, for insurance purposes, as part of
the entity that employs them and therefore it would be unusual, and not
customary, to also view them as claimants against the policy.
Accordingly, the approach adopted in the final rule with respect to
Government personnel is the exception.
Section 440.9(c) provides that the agency will prescribe liability
insurance requirements not to exceed the lesser of $500 million or the
maximum available on the world market at a reasonable cost, as
determined by the agency. Marsh & McLennan offered, as a caveat to this
provision, that insurers of weak or questionable solvency that provide
coverage at reasonable cost may not be financially able to cover claims
and that care should be taken in determining what is available at
reasonable cost. The agency appreciates this caution and hopes to avoid
this situation by requiring that policies be placed with insurers of
recognized reputation and responsibility, as provided in
Sec. 440.13(a)(8) of the final rule. A future rulemaking may be
necessary to provide criteria for assessing an insurer's acceptability
to the agency.
Section 440.9(d) sets forth the requirement for Government property
insurance and requires coverage for property of Government contractors
and subcontractors at a Federal range facility. In its comments,
Lockheed Martin observed that doing so relieves the Government from the
obligation to pass on to its contractors and subcontractors the waiver
of claims provisions of Sec. 440.17, as reflected in the form of
agreement in Appendix II to the NPRM, and relieves those contractors
and subcontractors from the obligation to assume responsibility for
their property damage or loss. The comment stated that the rationale
for disparate treatment of Government contractors and subcontractors as
compared to PPLPs' contractors and subcontractors is unclear.
The agency's rationale for treating Government contractors and
subcontractors differently than PPLPs is based on statutory language.
Whereas 49 U.S.C. 70112(b)(1) directs the licensee to make a reciprocal
waiver of claims with its contractors, subcontractors, and customers,
and the contractors and subcontractors of its customers, involved in
launch services, 49 U.S.C. 70112(b)(2) directs the Secretary of
Transportation to make, for the Government, executive agencies of the
Government involved in launch services, and contractors and
subcontractors involved in launch services, a reciprocal waiver of
claims with the licensee and other PPLPs. (Emphasis added.) This
difference in language is meaningful. As stated in the NPRM, the agency
views Government contractors and subcontractors as third-party
beneficiaries of the reciprocal waiver agreement and the Government is
responsible for protecting their interests. In addition, by waiving
claims for property damage in excess of required insurance on behalf of
its contractors and subcontractors, the Government accepts the
additional risk of their property damage. The additional risk to the
Government is managed in two ways. First, the licensee is required to
obtain property insurance covering damage or loss to property of
Government contractors and subcontractors involved in licensed launch
activities, in addition to Government-owned property. Second,
Government contractors and subcontractors must also maintain insurance
for their property, the cost of which is charged to the Government as
an allowable cost. In the event Government contractor property is
damaged, the Government would look first to the licensee's property
policy for coverage in order to relieve financial risks to the
Government. The contractor's insurance would cover the second tier of
risk up to policy limits. In both instances, the risk of loss above
statutorily-required insurance is borne by the Government.
A technical correction is added to Sec. 440.9(d) to more accurately
reflect Government contractor and subcontractor property that must be
covered under this insurance requirement as that belonging to
contractors and subcontractors involved in licensed launch activities.
As stated in the NPRM, other Government contractor and subcontractor
property would be covered by a licensee's launch liability policy (61
FR 39000-39001).
An inadvertent omission is corrected in Sec. 440.9(e) of the final
rule by providing that the maximum amount of property insurance that
would be required under this provision is the lesser of $100 million or
the maximum amount available on the world market at a reasonable cost,
as determined by the agency.
Two commenters, Orbital Sciences and McDonnell Douglas, objected to
the agency's view that all Government property located on the Federal
range facility must be covered by insurance, wherever located. The
commenters viewed this requirement as excessive and offered, as an
alternative, that only Government property located in the launch hazard
corridor as defined by the National Range Safety Office should be
covered. In clarifying remarks, McDonnell Douglas suggested that
perhaps Government property outside this corridor should be self-
insured by the Government and that reclassifying it as third-party
property may simply shift the risk (and therefore the cost of
insurance) to different insurance rather than limiting industry's risk
exposure for damage to Government property. Orbital Sciences submitted
supplemental comments in which it narrowed further the scope of
Government property that it believes should be covered by insurance as
that within the care, custody and control of the licensee. Orbital
Sciences asserted that the cost of insuring other Government property,
even that within the launch hazard corridor, could be prohibitive and
that a requirement to insure such property does not account for
differences in liability and property insurance.
The agency considered defining the specific property at a Federal
range facility that must be covered by property insurance and found
this approach cumbersome and unnecessarily limiting and risky for the
Government. Although accident scenarios can be used to identify the
property most exposed to risk, they may not cover the full range of
accidents which, by definition, are unpredictable events. Also, this
alternative approach would eliminate from coverage any transient
property not identified by the Government in its insurance requirements
but that was on the site at the time of a launch accident and therefore
must be covered by insurance.
The agency's approach to assuring coverage for Government range
assets exposed to risk from commercial launch activities is necessarily
comprehensive. The CSLA is clear that financial responsibility and
other assurances are necessary to protect the Government
[[Page 45611]]
from the risk of damage or loss when its property or personnel are
exposed to risk from licensed activities. The agency views as
significant the distinction in the CSLA between liability insurance for
third-party claims and Government property insurance protection that
must respond to Government claims against any person. The purpose of
the Government property insurance requirement is to ensure funds are
immediately available to restore valuable range assets and property
damaged by a commercial launch effort. This requirement is not limited
to the space launch complex within the immediate care, custody and
control of the licensee. An errant launch vehicle may expose other
range property to risk. For example, an Athena-2 launch from Launch
Complex 46, operated by Spaceport Florida Authority under an FAA
license, at CCAS exposes both Launch Complex-36A and 36B, utilized for
Atlas launches, to risk of damage or loss within the MPL threshold for
quantifying Government property risks. Accordingly, coverage for all
range assets, as well as Government contractor property involved in a
licensed launch, is consistent with CSLA objectives and risk allocation
principles. Furthermore, the agency does not regard the Government's
waiver of claims for excess property damage as extending beyond the
Federal range facility at which a launch takes place and any adjacent
or nearby range assets. As explained in the NPRM, no greater risk or
cost to licensees should result from considering off-site, non-launch
related Government property as equivalent to any other third-party
property for purposes of liability coverage. Section 440.9(c), as
revised in the final rule, makes clear that claims for such property
damage or loss are covered by the licensee's launch liability policy.
This provision reflects the FAA's existing practice in establishing
financial responsibility requirements for third-party liability and
should not be construed as requiring excess insurance for waived
Government property damage claims.
The agency currently affords a fair amount of latitude to the
commercial launch industry in providing coverage for Government
property. For example, the agency has allowed the licensee's property
policy to cover only that Government property which is in the
licensee's care, custody and control, and risks to all other Government
range property to be addressed through the licensee's liability policy,
as long as doing so does not reduce the amount of coverage that must be
available to cover third-party liability. The agency accepts this
approach based on its understanding that it relieves a burden on the
launch industry and conforms with certain insurance industry practices
for insuring property. Also, because all launch participants are
insureds, the liability policy is expected to respond to Government
claims for damage or loss to range assets, regardless of fault, absent
willful misconduct by the Government or its agents. The agency will
continue to allow certain Government property to be addressed through
the liability policy as long as doing so does not defeat the statutory
objective of ensuring funds are quickly made available to restore or
replace damaged Government assets. However, the agency is not willing
to compromise the effectiveness or breadth of coverage it requires for
Government range assets and property.
Section 440.11--Duration of Coverage
Section 440.11(a) provides that insurance coverage must attach upon
commencement of licensed launch activities and remain in effect for the
time period specified in the license order. The time period is intended
to extend up to the point when risk to third parties and Government
property is sufficiently small, as determined through the agency's risk
analysis, such that insurance is no longer necessary. As proposed,
Sec. 440.11(a) would allow the agency to amend the required duration in
the event of a launch anomaly to ensure that insurance remains in place
until the resultant risks are considered to be sufficiently small. As
explained in the section-by-section analysis of the NPRM, the period of
time required for orbital launch insurance is typically 30 days
measured generally from payload insertion. Thirty days is considered to
be sufficient time to assess the possible consequences of a launch
anomaly, such as delivery to a wrong orbit or failure of a payload to
separate from the vehicle's second stage such that reentry is likely,
and determine whether extended insurance coverage appears to be
necessary.
The agency's current practice is to require that insurance remain
in place for 30 days following flight of the launch vehicle. As
explained in the NPRM, the agency has viewed 30 days as an appropriate
length of time in which to determine whether an anomalous situation has
occurred, the consequences of which are yet unknown. The agency also
has taken the position in the past that in the event such a situation
arises, the agency can require the licensee to maintain its insurance
for more than 30 days, until risks to third parties or the Government
can be determined to be sufficiently small such that insurance is no
longer needed. This approach was utilized early in the agency's
licensing program when an Intelsat payload failed to separate from the
second stage of a Titan launch vehicle. The agency considered that the
second stage and payload would reenter the earth's atmosphere, with the
possibility of reentry impacts and resultant damage, and advised the
licensee that if reentry did not occur within the 30-day period
specified in the license for insurance duration, the agency would
require the licensee to extend its policy coverage. (This eventuality
was considered by the agency in assessing MPL. At issue was the
required duration of insurance, not the sufficiency of amount.) The
agency's authority to dictate this extension and the licensee's ability
to respond were never tested because reentry took place within three
weeks of the launch event.
Lockheed Martin, Orbital Sciences, and McDonnell Douglas objected
to the proposal that would allow the agency to extend the required
duration of insurance coverage in the event of a launch anomaly. All
three licensees stated that this requirement was not in conformance
with insurance practices and would be difficult and costly, if not
impossible, to fulfill. McDonnell Douglas objected on the grounds that
doing so places unrealistic and open-ended liability on the commercial
launch industry and therefore undermines the National Space Policy and
CSLA goals of promoting the growth and international competitiveness of
the industry. Lockheed Martin pointed to this proposal as a clear
instance of the Government's efforts to reallocate risks from the
Government to the licensee. Lockheed Martin opined that if risk
analysis is the basis for the agency's determination of the appropriate
duration of insurance, then the anomaly should be viewed as foreseeable
and addressed in the MPL analysis and determination. In the event the
anomaly was so improbable that it would not be a factor in determining
MPL, under the CSLA the Government assumes the risk either by waiving
property damage claims or providing indemnification for third-party
losses. Marsh & McLennan cautioned that uncertainties in the insurance
market make it difficult to know whether coverage available and
provided one year will be available the next and these market factors
should be taken into account in determining the required duration of
insurance requirements.
[[Page 45612]]
Based on these comments, the agency has reconsidered its views on
the appropriate duration of insurance coverage, keeping in mind that
Arianespace provides customers with a 3-year indemnification for
liability. The difficulty in establishing appropriate time limits on
insurance stems from the statutory language and the Government's
continuing prospect of fault-based liability under the Outer Space
Treaties long after the launch is concluded. The Government's exposure
under the Liability Convention, in particular, suggests that insurance
should be required to remain in place for as long a time as
practicable. However, absent the quid pro quo notion underlying the
allocation of risk provisions of the CSLA, that is, if there will be no
Government payment of excess claims (or ``indemnification'') for damage
not proximately caused by the launch event, the agency would feel
reluctant in requiring long-term insurance.
In reevaluating its position on the appropriate duration of
insurance, the agency considered an event test, a time test, and a
combination of the two.
Under an event test, the duration of insurance coverage could be
tied to a specific event for a nominal launch, such as payload
separation or safing of the vehicle's upper stage, as explained in the
NPRM. However, if an anomalous event occurred, it would be difficult to
identify a particular point in time at which insurance coverage could
terminate. Forecasting a range of anomalous on-orbit scenarios could be
extremely time-consuming, yield great uncertainty and result in
extremely long timeframes (up to hundreds of years, perhaps) associated
with measurable risk.
Alternatively, a time test could be fashioned to capture only near-
term anomalous events that could result in third-party losses or damage
to Government property, such as anomalous payload delivery or
separation that results in an unplanned reentry or collision. However,
it could also result in an extremely long-term insurance requirement
because anomalous situations could result in adverse conditions
remaining long after launch vehicle flight is concluded. These
situations are difficult to predict, because the space environment is
constantly changing with additional placement of objects on orbit and
the effects of orbital decay.
The agency has determined that a combination of event and time
tests should be utilized in setting the required duration of insurance
for licensed launch activities. The result is similar to the current
requirement of the agency that insurance remain in place for 30 days
following launch, measured generally from the time of payload
separation. However, the revised requirement in the final rule limits
the duration of insurance to 30 days following launch and removes the
agency's discretion to impose extended insurance requirements on
licensees during the 30-day period.
Accordingly, for risks associated with orbital launches, the agency
believes the appropriate insurance duration is 30 days following
launch, measured from payload separation for nominal launches or
attempted separation in the event an anomaly results in unsuccessful
payload separation. For other launch anomalies or failures, the 30-day
requirement runs from initiation of launch vehicle flight. For
suborbital launches, insurance duration is at least through motor
impact and payload recovery; however, the agency may prescribe a
different duration in a license order depending upon the results of its
risk analysis. Suborbital launches may, in the foreseeable future,
include reusable launch vehicle activities that must be evaluated on a
case-by-case basis. The agency reserves discretion to conclude that a
different duration of required insurance is appropriate for such
activities based on its case-by-case evaluation of suborbital reusable
launch vehicle missions and their attendant risks.
For purposes of ground operations the licensee is required to
maintain insurance at all times during occupancy of a Federal range
facility under a launch license.
Despite limitations on the duration of required insurance, the
space industry should be cognizant of its liability in the event its
space object damages another on-orbit space object or reenters at any
time, and manage risks appropriately. The industry should also be aware
of views previously expressed by congressional staff that a sufficient
causal nexus does not exist between a launch and a planned payload
reentry that causes third-party damage or loss to invoke the
Government's responsibilities under 49 U.S.C. 70113.
In the NPRM, the agency requested views on the appropriate causal
nexus that must exist between a launch event and a third-party claim in
order for the payment of excess claims provisions of the CSLA to be
applicable. Under 49 U.S.C. 70113(a), the Government provides for the
payment of successful claims against a launch participant ``resulting
from an activity carried out under the license.* * * '' (emphasis
added) As pointed out in the Supplementary Information accompanying the
NPRM, the Government's responsibilities under 49 U.S.C. 70113 apply
from the first dollar of loss when the licensee is no longer required
to maintain insurance under the license if the claim results from the
licensed activity. However, events associated with a launch may result
in damage years after the launch is concluded and it is not clear at
what point events become too attenuated from the launch to be
considered eligible for consideration under 49 U.S.C. 70113.
Only Sea Launch responded and questioned the wisdom or practicality
of attempting to characterize this nexus beyond the statutory language
of ``resulting from an activity carried out under the license.'' In
doing so, the comment noted that a proximate cause analysis would be
required and would depend on the unique facts of the situation. The
agency agrees that determining eligibility for payment of excess third-
party claims is necessarily a fact-based inquiry and will depend on the
particular circumstances giving rise to the claim and does not propose
to issue rules of general applicability to determine eligibility
requirements.
Section 440.11(b) provides that financial responsibility shall not
expire by its own terms prior to the time specified in a license order.
Many licenses are issued for a multi-year period and may be renewed
upon application of the licensee; however, the agency understands that
certificates evidencing insurance coverage are typically valid for one
year. This has not been a problem as long as evidence of policy renewal
is provided to the agency sufficiently in advance of the certificate
expiration date to allow the agency ample review time. Accordingly, the
final rule is revised to provide that a renewal certificate must be
provided at least 30 days in advance of the expiration date of the
current certificate. A licensee may petition the agency for a waiver or
extension of this or any time requirement in the final rule if it is
unable to comply.
Environmental and Clean-Up Costs
The agency's current practice of determining maximum probable loss
from claims resulting from licensed launch activities does not include
assessment of the environmental consequences associated with licensed
launch activities. These risks are difficult to quantify and, to the
extent coverage is not available, assigning a dollar value to these
risks could increase required amounts of insurance without assuring
coverage.
[[Page 45613]]
As part of the NPRM discussion on the appropriate duration of
required insurance, the agency requested comments on a number of
related issues having to do with environmental consequences of launch
activities. First, to what extent should insurance be required to
compensate claims of third parties and the Government for short-term,
or immediate, environmental damage or, alternatively, whether the costs
of cleaning up hazardous waste or removing this type of damage should
be paid by the launch licensee to the Government as part of launch
services which are charged as a direct cost under the CSLA. Second, to
what extent should insurance be required to protect against claims for
long-term environmental or property damage. As part of this request for
views, the agency asked commenters to address the implications on MPL
determinations of requiring insurance coverage for these potential
claims and the adequacy of existing insurance ceilings under the CSLA
($100 million for Government property coverage and $500 million for
third-party liability insurance, or the maximum available on the world
market at a reasonable cost if insurance up to those amounts is not
available). Third, whether and to what extent insurance to protect
against property damage resulting from orbital debris long after the
launch is completed should be required. The damage contemplated by the
question could be to other on orbit or airborne objects or to property
on the ground in the event of reentering debris.
Only Lockheed Martin offered a view with respect to the immediate
environmental consequences associated with a launch event. Lockheed
Martin indicated that this type of immediate consequence should not be
treated as a matter for ``direct cost'' charges to the launch licensee,
but should be addressed in terms of an appropriate allocation of
financial responsibility for the risk.
In clarifying its view, Lockheed Martin distinguished between
environmental consequences and the usual activities involved in
readying a launch pad or complex for future use. Typically, Lockheed
Martin would clean up the launch complex from which its launch has
taken place in anticipation of the next launch campaign. For example,
it would remove any ground debris and restore the complex to its prior
condition, as required under the terms of its agreement with the
Federal range facility. If it failed to do so, the Federal range could
provide this service and under these circumstances could charge the
direct cost of doing so.
Lockheed Martin pointed to the legislative history accompanying the
1988 Amendments to the CSLA which lists the types of Government support
that were envisioned to be provided under direct costing principles as:
operations and maintenance services and range support costs. Operations
and maintenance services include facilities engineering support,
vehicle and equipment support, launch complex support, power system
support, and roads and ground support. Range support costs include
logistics, ordinance support, radar support, communications support,
tracking support, documentation, fire services, range safety, work
control (administration), security services and meteorological
services. S. Rep. 100-593, 100th Cong., 2d Sess., at p. 24. It appears
that launch complex maintenance and range services are appropriate for
direct cost charging. In the commenter's view, the notion of
environmental damage falls outside these categories and was not
intended to be subject to the direct cost pricing provisions of the
CSLA for launch property and services provided by the Government to the
private sector.
Lockheed Martin indicated that the consequences of a particular
launch, like any other damage, should be part of the financial
responsibility and risk allocation scheme provided in the CSLA.
However, Lockheed Martin's comments further indicated that the issue of
how to allocate financial responsibility for risks associated with
environmental damage, both short-term and long-term, is extremely
complex and merits further study and analysis before the agency
proceeds to rulemaking.
McDonnell Douglas noted that long-term environmental damage
insurance is generally unavailable, and to the extent it is obtainable
would be narrow and limited in coverage, not to mention cost
prohibitive. McDonnell Douglas felt strongly that claims of this nature
should not be included in the MPL determination for a licensed launch
activity.
The issue of environmental damage before the agency in this
rulemaking can be reframed as follows: whether the consequences of a
launch event to which CSLA-based insurance and waivers of claims are
intended to apply should be limited to immediate impacts and
destructive risks, such as collision of a launch vehicle with ground,
airborne or space objects or the consequences of explosion. (Even an
explosion or collision could result in the types of short-term
environmental consequences under consideration.) By short-term or
immediate risks, the agency intends to refer generally to the sudden,
immediate, and identifiable and foreseeable, though unintended,
consequences of a launch. These consequences could include fuel spills,
toxic release, and ground contamination resulting from a particular
launch. Whether or not insurance coverage is available for these risks,
they are comprehended by the terms ``bodily injury'' and ``property
damage'' for which the CSLA requires insurance and they are reasonably
intended to be addressed by CSLA financial responsibility and risk
allocation provisions. This is also consistent with an early Air Force
commercialization agreement which defines ``damage'' as including
``that caused by a release of or exposure to a hazardous substance, as
that term is defined in [CERCLA]'' and the current Air Force definition
of ``damage.'' These risks are properly addressed through the CSLA and
should be comprehended by the statute's risk allocation scheme. A
future rulemaking may be necessary to better define the types of
immediate environmental consequences intended to be included under the
CSLA scheme for risk management.
The agency views long-term environmental consequences, sometimes
referred to as long-tail liability, as more problematic for a number of
reasons. First, it would be difficult to prove that liability attaches
to a particular launch event. It is probably impossible to ascertain
whether damage results from a government or commercial launch when the
same vehicles are used for both purposes, and perhaps an apportionment
theory would be required. There is no indication that CSLA risk
allocation mechanisms, with ceilings on insurance and statutory
references to claims resulting from a particular launch, were intended
to address long-term environmental consequences. Similarly, there is no
indication that the so-called indemnification provisions of the CSLA
were intended to cover claims other than those directly and proximately
associated with a particular launch event. Accordingly, the agency
takes the position that the consequences of a licensed launch that are
reasonably foreseeable and proximately caused by a particular launch
are covered by CSLA financial responsibility and risk allocation. Long-
term environmental consequences would not qualify for coverage under
this characterization and, accordingly, the FAA concludes that their
associated risks are not
[[Page 45614]]
intended to be addressed through CSLA risk-based insurance requirements
and risk allocation.
Section 440.13--Standard Conditions of Insurance Coverage
Section 440.13 provides the terms and conditions applicable to
insurance policies licensees must obtain under existing licenses and
the proposed regulations.
Marsh & McLennan requested clarification of the requirement in
Sec. 440.13(a)(2) that policy limits apply separately to each
occurrence and to the total claims arising out of licensed launch
activities in connection with any particular launch. The per-occurrence
limit applies to the total of all claims arising from the same
occurrence, and not for each claimant per occurrence, and this is made
clear in Sec. 440.13(a)(6). It provides that all policy provisions,
except the policy limits, must operate as if there were a separate
policy with and covering the licensee and each additional insured. To
remove any doubt, the final rule is revised to clarify that the policy
limits apply for each occurrence and that for each occurrence the
limits apply to the total of claims that arise out of licensed launch
activities in connection with any particular launch.
The three current launch licensees, Lockheed Martin, Orbital
Sciences and McDonnell Douglas, cautioned that two of the required
terms, breach of warranty coverage and a severability of interest
clause are available under current conditions in the insurance market
but may not be in the future. In clarifying remarks, one commenter
indicated that a licensee's ability to obtain the required coverage may
become an issue if coverage not currently provided, such as for claims
of Government personnel, is required. Licensees may request a waiver of
these terms or petition for rulemaking in the future if market
conditions make it impossible to comply with them.
Section 440.15--Demonstration of Compliance
Section 440.15(a)(1) of the final rule continues the agency's
current practice of requiring that licensees submit an executed
reciprocal waiver of claims agreement at least 30 days before
commencement of licensed launch activities involving the customer(s)
that is required to sign the agreement. This requirement appears in all
currently effective financial responsibility license orders. Under this
final rule, the term ``licensed launch activities'' would be defined in
a launch license; however, the agency is in the process of
standardizing the definition of ``launch'' in a related rulemaking
addressing launch licensing requirements and standards.
A question arises as to whether the agreement must be submitted
before commencement of any licensed launch activities or whether timing
of its submission should be tied to arrival of the customer's payload.
Presumably, the customer would not have significant property at risk
before arrival of its payload and therefore does not need to waive
claims for damage or loss to its property until that event. However, as
between the launch licensee and the Government, and the respective
contractors and subcontractors of each, the agency views with concern
the risk to which each participant is exposed in the event of damage to
its property or injury to personnel in the absence of an executed
waiver of claims agreement. Moreover, taken literally, until the
Government executes the reciprocal waiver of claims agreement with the
licensee and customer, the Government has not waived claims in excess
of required Government property insurance for damage or loss to its
property and PPLPs could face liability exposure for excess claims by
the Government or its contractors and subcontractors.
To avoid these unnecessary risks, the time requirement set forth in
the final rule for submission of a reciprocal waiver agreement signed
by the licensee and its customer is 30 days before the licensee intends
to commence licensed launch activities involving that customer.
Generally speaking, commencement of licensed launch activities
involving a particular customer should coincide with arrival of the
launch vehicle or its major components at the launch site. The agency
is not aware of circumstances in which a launch services provider
engages in a launch campaign, consisting of such hazardous activities
as erecting the launch vehicle or processing vehicle components at the
launch site, without a customer under contract for the launch event.
However, because outstanding operator licenses utilize the agency's
gate-to-gate approach to licensing commercial space launch activities,
it is foreseeable that a launch vehicle operator will occupy a launch
site under an FAA license before arrival of the launch vehicle and may
perform preparatory activities other than vehicle processing. Because
these activities are not typically ultra-hazardous in nature, the
agency views their associated risks as limited in nature and therefore
manageable without the benefit of the completed statutory risk
allocation scheme dictated by the CSLA. The agency will not require
that a reciprocal waiver of claims agreement be submitted 30 days prior
to the licensee's occupancy at the site, but rather, 30 days before it
intends to commence licensed launch activities involving a particular
customer.
Early submission of the agreement allows the agency sufficient time
to complete its review, resolve any outstanding concerns surrounding a
licensee's demonstration of financial responsibility, and fulfill the
Government's responsibility to waive claims on behalf of its agencies
and contractors and subcontractors involved in launch services. Issues
may arise that require modification of an agreement to accommodate a
Government agency customer, a reluctant customer, participation of
multiple customers in the inter-party waiver scheme, or a licensee's
request to modify the standard form of agreement that accompanies a
launch license. On occasion, resolution of a party's concerns delays
execution and submission of the agreement by the licensee or the
agency's ability to complete execution of the agreement on behalf of
the U.S. Government during the 30-day period preceding commencement of
licensed launch activities involving a particular customer. The agency
has demonstrated its willingness to work with licensees and customers
to address their unique concerns. However, in the absence of an
executed reciprocal waiver of claims agreement, launch participants may
be assuming risks that are intended to be allocated through the
reciprocal waiver scheme dictated by 49 U.S.C. 70112(b).
To avoid this result and ensure that launch participants remain
mindful of the time constraints imposed by these regulations and in
license orders, the agency intends to enforce compliance with the time
requirements codified in Sec. 440.15 of the final rule, absent good
cause shown for waiving or extending them. Enforcement of these
requirements may be accomplished through the imposition of civil
penalties in accordance with the CSLA or suspension of the
authorization granted in a launch license to perform licensed
activities. Licensees are urged to keep the agency informed, in
writing, of foreseeable difficulties in meeting these regulatory
requirements so that the agency may determine whether an extension of
the deadline for submission of an agreement is warranted. Of course,
once the agreement is executed by all three parties, licensees need not
wait an additional 30 days before commencing
[[Page 45615]]
licensed launch activities involving a particular customer.
Evidence of insurance would be required at least 30 days before
commencement of any licensed launch activities, and additional time is
required if a form of financial responsibility other than insurance is
used. The agency's experience has been that most licensees are able to
comply with these time constraints and all have been extremely
responsive to agency questions and concerns regarding evidence of
insurance.
Proposed Sec. 440.15 contains additional requirements for licensees
in demonstrating compliance with financial responsibility requirements
from those currently required in license orders. Specifically, the
proposed regulations would require a signed opinion of the insurer
stating that the insurance obtained by the licensee complies with
regulatory requirements and license orders concerning insurance. The
three launch services providers licensed by the agency, Lockheed
Martin, Orbital Sciences, and McDonnell Douglas, objected to this
requirement and stated that it would be difficult to obtain an
insurer's opinion. Marsh & McLennan also asserted that insurers will
not agree to provide an opinion letter because it could impose
additional obligations on the insurers that are above and beyond the
terms and conditions of policies. They prefer to provide certificates
of insurance and let the certificates speak for themselves. Orbital
Sciences and McDonnell Douglas suggested that requiring an opinion of
the insurance broker should suffice.
The agency will accede to the commenters' suggestion that a signed
opinion of the insurance broker accompanying insurance certificates
will be sufficient under the regulations. The agency's current practice
is to accept insurance certificates in lieu of policies as evidence of
compliance with insurance requirements. Doing so relieves a burden on
licensees to supply policies in advance of licensed launch activities
and we understand that complete policies may not be available for
agency review sufficiently in advance of licensed launch activities
even though the required coverage is in place. This practice also
relieves the agency of the burden of reviewing policies.
The agency continues to be satisfied with this approach but
stresses the caveat stated in license orders and reflected in these
regulations that demonstration of financial responsibility does not
relieve the licensee of ultimate responsibility for liability, loss or
damage sustained by the United States. The agency may need to
reconsider its position if there is any indication that the coverages
and exclusions are not sufficiently detailed in insurance certificates
to assure the agency of the adequacy of licensees' compliance.
Section 440.17--Reciprocal waiver of claims requirement and Appendix II
Comments received on Sec. 440.17 and the proposed form of waiver of
claims agreement presented in Appendix II to the NPRM concern the
third-party status accorded to Government personnel in the NPRM and the
proposed method by which the Government waives claims for its
contractors and subcontractors. Most of these comments have already
been addressed and resolved by clarifying that, for purposes of
establishing liability insurance requirements, employees of the
Government and its contractors and subcontractors are considered third
parties. Employees of all other launch participants are the
responsibility of their employing entity. Through the reciprocal
agreement required under this section, PPLPs agree to be responsible
for their employees' losses and property damage. The agreement to be
responsible for losses suffered by an employee amounts to a contractual
obligation to hold harmless and indemnify other launch participants
against whom an employee has made a claim and this obligation is now
expressly stated in the form of agreement presented at Appendix II of
the final rule. According to the comments received, insurance is
available to cover this contractual obligation.
Additional comments on the requirements of Sec. 440.17 and the
proposed form of agreement are discussed below.
Sea Launch suggested that launch participants should be required to
waive claims against employees of the other launch participants. The
agency agrees in principle with this comment because claims by PPLPs
against employees would amount to an attempt to circumvent the inter-
party waiver of claims. The reciprocal waiver of claims agreement
currently in use requires that a signatory to the agreement hold
harmless and indemnify employees of the other signatories to the
agreement from and against liability for claims against them by its
contractors and subcontractors and the form of agreement that appears
at Appendix II to the final rule continues this practice, absent
willful misconduct by the individual employee. Therefore, claims
against individual employees should be effectively precluded by the
waiver of claims agreement, absent the employee's willful misconduct,
and further changes to the rule are not necessary to address Sea
Launch's suggestion.
Intelsat, a public international organization which owns and
operates a global commercial telecommunications network for its members
and users, objected to the requirement that parties waive claims
``regardless of fault.'' This language appears in the Agreement
currently used by the agency and in the proposed form of agreement set
forth in Appendix II to the NPRM to carry out the no-fault reciprocal
waiver scheme. Intelsat objected that the language could relieve or
insulate a party from its own gross negligence and that the CSLA and
its legislative history do not support such an expansive view of the
waiver requirement. The comment cites the Fourth Circuit's holding in
Martin Marietta Corporation v. International Telecommunications
Satellite Organization, 978 F.2d 140 (4th Cir. 1992); op. amended, 991
F.2d 94 (1993), for support of its position. Moreover, Intelsat argued
that there is no basis either in the CSLA or its legislative history to
support waiving claims regardless of fault, presumably even if that
phrase is limited to negligence-based claims.
The agency is troubled by the comment and for the following reasons
has determined to retain the ``regardless of fault'' language in the
final rule. The FAA understands that the intent of the reciprocal
waiver of claims requirement is to relieve launch participants of the
threat of inter-party claims for damage or loss. If the waiver of
claims did not apply to fault-based claims, and assuming it is not
intended to relieve parties of contractual rights and responsibilities
for which they have bargained in good faith, then the waiver would be
of very little use. The only exception indicated to the statutory risk
allocation scheme is for willful misconduct in that the Secretary is
not required to provide for payment of excess third-party claims which
result from willful misconduct by the licensee and the Government is
not relieved of liability under 49 U.S.C. 70112(e) for damage or losses
resulting from the Government's willful misconduct or that of its
agents.
The Fourth Circuit opinion is not fully dispositive in the agency's
opinion. The dispute before the court involved a waiver provision in a
launch services contract that pre-dated the 1988 Amendments to the
CSLA. The court held that under Maryland state law, parties to a
contract cannot waive
[[Page 45616]]
liability for gross negligence. The court further opined that even if
the 1988 Amendments could apply retroactively to the contract, neither
the statutory language nor its legislative history evidences
Congressional intent to protect parties from liability for their own
gross negligence. 991 F.2d at 100. The Fourth Circuit addressed the
issue because the district court, in dismissing a counterclaim alleging
gross negligence, had interpreted the waiver of claims requirement of
the CSLA as evidence of the intent of the contractual waiver provision.
Martin Marietta Corporation v. International Telecommunications
Satellite Organization, 763 F. Supp. 1327 (D. Md. 1991). The Fourth
Circuit reversed the district court's holding on the gross negligence
counterclaim and remanded it to the district court. A settlement was
reached in the latter half of 1993.
Careful examination of the Fourth Circuit's reasoning reveals the
following. In construing Maryland state law, the Fourth Circuit relied
upon Boucher v. Riner, 68 Md. App. 539, 514 A.2d 485 (Md. Ct. Spec.
App. 1986), which held that a waiver of a right to sue is ineffective
to shift the risk of a party's own willful, wanton, reckless, or gross
conduct. 514 A.2d at 488. (Emphasis added.) It appears from the court's
holding that Maryland may be among those states that tend to blur the
distinction between gross negligence and willful misconduct.
The Court of Appeals for the District of Columbia defines the
standard for finding willful misconduct differently than that for gross
negligence. To prove willful misconduct, there must be a showing of
intent, that is, that an act was intentionally performed with the
knowledge that it was likely to result in injury, or with reckless and
wanton disregard of the probable consequences of the act. Saba v.
Compagnie Nationale Air France, 78 F.3d 664, 316 U.S. App. D.C. 303
(D.C. Cir. 1996). In Saba, the court described a ``continuum that runs
from simple negligence through gross negligence to intentional
misconduct. Recklessness, or reckless disregard, lies between gross
negligence and intentional harm,'' 78 F.3d at 668. According to the
court's opinion, willful misconduct and reckless disregard are
equivalent in that reckless disregard evidences the subjective
knowledge of the likely consequences of an act and thereby fulfills the
requirement to show the requisite intent.
The issue before the court in Saba was whether the facts presented
amounted to willful misconduct, thereby avoiding the limitation of
liability provisions of the Warsaw Convention. In maintaining a higher
standard for willful misconduct than for negligence, gross or
otherwise, the court stated:
It is not all that easy to avoid the Convention's limitations by
establishing willful misconduct (or reckless disregard). But the
signatories obviously thought the economics of air travel, and
therefore the overall welfare of passengers, dictated those
limitations. It simply will not do for courts to chip away at that
liability limit out of a natural desire to remedy the negligence
that can be all too apparent in any individual case.
78 F.3d at 671.
Jurisdictions that equate the standard for gross negligence with
that of willful misconduct could effectively undo the congressional
intent underlying the reciprocal waiver of claims requirement and
thereby have more far reaching consequences on the economics of launch
services than Congress intended in enacting the comprehensive risk
allocation provisions of the 1988 Amendments.
That said, the question before the agency is whether it has the
authority to resolve, as a matter of federal law, whether claims
between a launch licensee and its customer for gross negligence are
necessarily removed from the statutory inter-party waiver scheme when
Congress has indicated its intended purpose is to limit the total
universe of claims that might arise as a result of a launch and
maximize the coverage of available insurance resources by avoiding the
costs of duplicate litigation between the parties. S. Rep. No. 100-593,
100th Cong., 2d Sess. 14 (1988). The FAA declines to presume this
authority.
Under the agency's current implementation of the statutory-based
risk allocation scheme, the only exclusion expressly provided is for
willful misconduct and this is consistent with views recently expressed
by the Air Force in revising its commercialization agreement. Absent
legislative clarification otherwise, and for the reasons expressed in
the NPRM of July 25, 1996 (61 FR 39013), the final rule retains the
regardless of fault language.
Two commenters, Orbital Sciences and McDonnell Douglas, objected to
the proposed form of agreement for waiver of claims in Appendix II to
the NPRM in that it does not contain a provision requiring the
Government to flow down, or extend, the waiver provisions to its
contractors and subcontractors. The comment overlooks that the
definition of ``United States Government'' in the proposed form of
agreement includes Government contractors and subcontractors; hence
there would be no need to flow down the waiver requirement. In this
regard, the NPRM proposed a deviation from the agency's current
practice. The form of reciprocal waiver agreement presented in Appendix
II of the final rule reverts to the approach used in current practice
whereby the FAA signs on behalf of the United States and its agencies
involved in licensed launch activities and agrees to pass to its
contractors and subcontractors the limited agreement and assumption of
responsibility assumed by the Government in the reciprocal waiver
agreement.
Lockheed Martin expressed concern with the qualifying language
appearing in Sec. 440.17(d) of the NPRM and reflected in paragraph 5(c)
of the proposed form of agreement in Appendix II as to the need for
additional legislation to support the indemnification agreement by the
Government to other launch participants for failure to implement
properly the waiver requirement.
The CSLA directs the Government to waive claims in excess of
Government property insurance on behalf of its contractors and
subcontractors involved in launch services. In the agency's view, the
effect of this waiver requirement is to make the Government responsible
for the excess property damage claims of those contractors and
subcontractors. Therefore, even if the Government fails to flow down
the waiver of claims and assumption of responsibility provisions of the
agreement to its contractors and subcontractors, PPLPs will be
financially protected from Government contractor and subcontractor
property damage claims. In addition, by entering into the reciprocal
waiver agreement for its contractors and subcontractors, the Government
takes on responsibility to cover losses sustained by employees of the
Government's contractors and subcontractors that are not covered by the
licensee's liability policy because they exceed the required amount of
insurance or are subject to a policy exclusion deemed usual for that
type of insurance. Although appropriations must be authorized for this
purpose, the CSLA effectively obligates Congress to act to appropriate
funds for this express purpose. The form of agreement that appears in
Appendix II of this final rule reflects at paragraph 5(c) the hold
harmless and indemnification obligation of the United States for claims
of its contractors and subcontractors against PPLPs for property damage
or loss and responsibility for their employees' losses in excess of
required levels of insurance, respectively.
[[Page 45617]]
McDonnell Douglas and Orbital Sciences further noted that the
proposed form of reciprocal waiver of claims agreement restricts the
Government's waiver to property damage claims, whereas the Agreement
currently in use refers also to claims of Government employees. The
agency's rationale for removing reference to employee claims from the
proposed form of agreement presented in the NPRM was that their third-
party status removed the need for the Government to accept
responsibility for their claims. Upon reconsideration, the FAA has
restored to the form of agreement the Government's acceptance of
responsibility for uncovered claims of its employees against the other
launch participants.
Orbital Sciences, in clarifying remarks, indicated that the
approach utilized in the NPRM is particularly awkward where the same
entity is both a contractor to the Government and to the launch
licensee. The agency agrees and acknowledges that the ability of
various entities to wear different hats, including the Government when
it is both range services provider and launch customer, complicates the
reciprocal waiver of claims scheme even further. In the agency's view,
the capacity in which a party was functioning when the claim arose will
determine the rights and responsibilities of the various parties to the
waiver agreement.
In discussions unrelated to this rulemaking, the agency has been
asked whether cross-waivers of claims are required between a licensee
or customer and its contractors and subcontractors given that the form
of reciprocal waiver agreement currently in use does not appear to
require them. The CSLA intends for parties to enter into such
agreements with their contractors and subcontractors and this
requirement appears in Sec. 440.17(b) of the final rule. However, the
FAA leaves it to those entities to carry out the requirement as part of
their contract negotiations. As a regulatory matter, the FAA has been
primarily concerned with ensuring that parties not otherwise in
contractual privity with a licensee or customer are protected from
claims by those entities and their contractors and subcontractors.
Accordingly, the form of agreement in Appendix II of the final rule
does not address waivers between a licensee or customer with its
respective contractors and subcontractors.
Finally, reference to the special circumstances of a Government
agency customer is removed from Sec. 440.17(c) of the final rule. As
indicated previously in the Supplementary Information, necessary
modifications to the form of reciprocal waiver of claims agreement
utilized when a Government agency is a customer of commercial launch
services will be addressed on an individual basis.
Section 440.19--United States Payment of Excess Third-Party Liability
Claims
Section 440.19 of the final rule provides in a regulation general
procedures for implementing the statutory payment of excess claims
provisions of 49 U.S.C. 70113. The issue that generated the most
comments on this proposed section of the regulations concerns the
determination of ``usual'' exclusions. Where an exclusion is considered
usual for the type of insurance involved, the Secretary may provide for
paying uncovered third-party claims from the first dollar of loss and
will likewise waive claims for Government property damage from the
first dollar of loss. In the section-by-section analysis of the NPRM,
the agency explained that it does not make a final determination on
what may be considered a usual exclusion upon submission of insurance
certificates in advance of licensed launch activities. This
determination would be made if and when the agency is required to
prepare a compensation plan to cover excluded claims. The NPRM proposed
a reasonable cost standard for determining whether an exclusion may be
deemed ``usual.''
Lockheed Martin, McDonnell Douglas and Orbital Sciences, as well as
Sea Launch objected to the after-the-fact approach the agency utilizes
in making the determination as to whether an exclusion is usual for the
type of insurance, stating that the Government has an obligation to do
so in advance of licensed launch activities in order to afford
licensees some measure of certainty and predictability in their
management of launch risks. Marsh & McLennan similarly stated that the
government should not wait for a loss to occur before making its
determination and should do so before commencement of launch
activities. Lockheed Martin, McDonnell Douglas and Orbital Sciences
objected to using a reasonable cost standard for determining whether
insurance could have been provided to cover the excluded risk. The
notion of ``buying out'' an exclusion is viewed by these commenters as
objectionable because of the unpredictability and fluctuation of the
insurance market. This approach does not comport with the CSLA,
according to the commenters, which is intended to promote a predictable
and stable environment in which the commercial launch industry can
operate.
The agency is troubled by the suggestion implicit in the
commenters' views that the proposed requirement imposes additional
burdens and uncertainty on the industry and that the Government should
accept both this burden and uncertainty. As a practical matter, the
industry is, or ought to be, in the best position to know whether
insurance coverage is available to address the risks that attend its
hazardous business. It is not unreasonable for the Government to expect
the industry, as part of prudent risk management practices, to keep
abreast of the insurance market, its capacity and the availability of
insurance to cover the risks that confront this industry.
When a launch licensee submits an insurance certificate evidencing
various exclusions, in essence, the licensee is representing to the
agency that the exclusion is usual for that type of insurance under
prevailing market conditions, otherwise coverage for that risk would
have been obtained. If the industry wants to obtain a formal finding
from the agency it can submit factual data, such as cost information
and market data, in support of an assertion that an exclusion should be
deemed usual either because the coverage simply is not available or
because it is cost prohibitive. Absent such proofs, the agency should
not be required to insure or guarantee the industry's representation
that insurance is not available at reasonable cost. The agency is
considering whether a future rulemaking to better define ``usual''
exclusions would be desirable but is reluctant to effectively waive
insurance coverage for certain risks thereby foreclosing the
development of new insurance markets that might respond to those risks.
The agency also wishes to stress that it currently does not make
findings that an exclusion is usual upon submission of insurance
certificates in advance of licensed launch activities even though the
agency does question, and may request correction of, representations
that do not appear to comply with license order requirements.
Acceptance by the agency of a licensee's insurance certificate does not
signify a finding by the agency as to the sufficiency of the coverage.
Consistent with naming employees of PPLPs as additional insureds
under Sec. 440.9(b), Sec. 440.19(a) is revised in this final rule to
reflect that excess third-party claims against an employee of any
launch participant that is an additional insured under the liability
policy would also be eligible for payment by the Government under 49
U.S.C. 70113,
[[Page 45618]]
absent willful misconduct by that employee.
Statutory Authority for This Proposed Rule
This final rule is issued pursuant to 49 U.S.C. Subtitle IX, ch.
701--Commercial Space Launch Activities, Secs. 70101-70119, formerly
the Commercial Space Launch Act of 1984 (CSLA), as amended (49 U.S.C.
App. 2601-2623). In 1988, Congress amended the CSLA by replacing
general insurance requirements with a detailed financial responsibility
and allocation of risk regime for licensed operations. The provisions,
referred to as the 1988 Amendments, include procedures whereby the
United States Government requires risk-based insurance to compensate
for third-party liability and Government property damage claims, waives
certain claims for its property damage and, subject to an appropriation
law or other legislative authority, agrees to provide for payment of
third-party claims in excess of required liability insurance. In
addition, the 1988 Amendments require launch participants to enter into
reciprocal waivers of claims in which the parties agree to absorb
certain losses and the private party launch participants agree to be
responsible for claims of their employees for damage or loss.
The agency has been implementing the 1988 Amendments on a case-by-
case basis, through license orders issued with each license authorizing
commercial space launch activities. In this final rule, the agency
standardizes financial responsibility requirements in rules of general
applicability, wherever practicable.
Paperwork Reduction Act
Information collection requirements in the new part 440 have been
approved by the Office of Management and Budget (OMB) under the
provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)),
and have been assigned OMB Control # 2120-0601.
Regulatory Evaluation Summary
Issuance of Federal regulations is subject to several economic
analyses. First, Executive Order 12866 directs that agencies shall
propose or adopt a regulation only upon a determination that the
benefits of the intended regulation justify its costs. Second, the
Regulatory Flexibility Act of 1980 requires agencies to analyze the
economic effect of regulatory changes on small entities. Third, the
Office of Management and Budget (OMB) directs agencies to assess the
effect of regulatory changes on international trade. In addition, under
Regulatory Policies and Procedures of the Department of Transportation
(44 FR 11034; February 26, 1979), this rule is considered significant
because there is substantial public interest in the rulemaking. The FAA
certifies that this rule will not have a significant impact on a
substantial number of small entities and will not constitute a barrier
to international trade. The FAA invited the public to provide comments,
including supporting data on the assumptions made in the draft
regulatory evaluation during the comment period. All comments received
were considered in the final regulatory evaluation. This rule has been
reviewed by OMB under Executive Order 12866.
Economic Impacts
This final rule formalizes the procedures for implementing
financial responsibility requirements imposed on commercial space
launch licensees by the Commercial Space Launch Act of 1984, as amended
in 1988. These requirements have essentially been implemented so this
rule does not change present practice. The rule will provide launch
licensees (i.e., commercial launch operators) with clear and reliable
information on the financial responsibility requirements they must meet
to carry out licensed activities. To provide some perspective, this
evaluation estimates the financial responsibility costs on both the
commercial space industry and the U.S. Government as a result of the
1988 Amendments to the CSLA.
The FAA estimates that, based in part upon an analysis by Princeton
Synergetics Inc.1 (PSI), as a consequence of the U.S.
Government's assumption of exposure up to $1.5 billion (as adjusted for
inflation occurring after January 1, 1989) for third-party claims, the
1988 Amendments will result in the maximum reallocation of costs from
licensees to the Federal government in the range of $21,000 to $37,000
undiscounted or $18,200 to $30,300 discounted over a five-year period.
The actual economic impact on a licensee is small and not quantifiable
because the increase in the risk of bearing the costs of injury or loss
of life to third parties due to the ``redefinition'' of Government
employees is estimated to be ``de minimus'' and could not be
calculated. The administrative or paperwork cost to the Federal
Government associated with FAA's responsibilities under the 1988
Amendments is estimated at $884,000 undiscounted or $725,000 discounted
over five years. The paperwork cost estimate is an upper bound and it
is believed that the actual costs are substantially lower. Given
current practice, these costs will be reduced to $606,000 undiscounted
or $414,000 discounted. The additional paperwork costs incurred by the
licensees in complying with the requirements for reciprocal waivers is
expected to be negligible.
---------------------------------------------------------------------------
\1\ The basis for this analysis is Contract DTOS-59-59 by
Princeton Synergetics Inc. (PSI) entitled: Economic Impact
Assessment of Financial Responsibility Requirements for Licensed
Launch Activities (14 CFR Part 440). Princeton, New Jersey. March
16, 1998.
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The final rule should result in a stronger, more stable, commercial
space transportation industry. The reciprocal waiver provisions of the
final rule should lower the costs of litigation among private party
launch participants in licensed activities. The benefit of transferring
expected costs of damage and loss or injury claims from the licensees
to the government will aid the commercial space transportation industry
by eliminating the need to insure for these claims and by showing
support for the commercial space transportation industry by the U.S.
Government. Also, limiting risk based on maximum probable loss (MPL)
should result in greater certainty for potential costs (and resulting
lower business risk) to commercial space transportation firms. Finally,
the requirement for cross-waivers limits the risk of liability to
others in licensed activities (other than the licensee) and results in
a more certain business environment (or lower business risk) for these
parties.
Regulatory Flexibility Analysis
The Regulatory Flexibility Act of 1980 (RFA), as amended, was
enacted by Congress to ensure that small entities are not unnecessarily
and disproportionately burdened by Government regulations. The Act
requires that whenever an agency publishes a general notice of proposed
rulemaking, an initial regulatory flexibility analysis identifying the
economic impact on small entities, and considering alternatives that
may lessen those impacts must be conducted if the proposed rule would
have a significant economic impact on a substantial number of small
entities.
The FAA issued a notice of proposed rulemaking on July 25, 1996 (61
FR 38992) soliciting comments on its proposal for implementing
financial responsibility and allocation of risk requirements. As a
result, eight comments were submitted to the docket. Several events
following the close of the comment period on December 2, 1996 resulted
in a decision to reopen the
[[Page 45619]]
docket in order to allow industry another opportunity to offer views on
the content of the proposed rule. There were no significant issues
raised by public comments in response to the regulatory flexibility
certification.
The FAA has estimated that an average of four launch licenses per
year will be issued. The vast majority of these licenses will be issued
to companies like Lockheed Martin Corporation, Orbital Sciences
Corporation, McDonnell Douglas Corporation, now The Boeing Company.
There are a number of firms (probably fewer than 10) that are currently
attempting to enter the space launch services business by developing
both advanced expendable and reusable launch vehicles. Perhaps 50 to 75
percent of these may be considered small business entities in that they
are start-up situations though typically having large capitalizations.
Thus, the universe of small entities that may be concerned with the
provision of space launch services and that may be potentially affected
by this financial responsibility rulemaking is on the order of 5 to 10.
The regulatory evaluation states that over five years, the change
in the expected cost of claims to licensees will be a cost savings of
between $21,000 and $37,000 or between $17,200 and $30,300 discounted.
The annualized cost savings to all of these firms will be between
$4,200 and $7,400. If four licenses are issued annually, then the
annualized cost savings per license would be less than $2,000 per
license. As previously stated, the final rule results from the
financial responsibility requirements imposed by the Commercial Space
Launch Act of 1984, as amended. This final rule formalizes current
practice. The FAA concludes that this regulation will impose little or
no cost or cost savings on this industry, and certifies that it will
not have a significant economic impact on a substantial number of small
entities.
International Trade Impact Assessment
This final rule is not expected to have any impact on trade
opportunities for U.S. firms doing business overseas or foreign firms
doing business in the United States.
Unfunded Mandates Assessment
Title II of the Unfunded Mandates Reform Act of 1995 (the Act),
enacted as Pub. L. 104-4 on March 22, 1995, requires each Federal
agency, to the extent permitted by law, to prepare a written assessment
of the effects of any Federal mandate in a proposed or final agency
rule that may result in the expenditure by State, local, and tribal
governments, in the aggregate, or by the private sector, of $100
million or more (adjusted annually for inflation) in any one year.
Section 204(a) of the Act, 2 U.S.C. 1534(a), requires the Federal
agency to develop an effective process to permit timely input by
elected officers (or their designees) of State, local, and tribal
governments on a proposed ``significant intergovernmental mandate.'' A
``significant intergovernmental mandate'' under the Act is any
provision in a Federal agency regulation that will impose an
enforceable duty upon State, local, and tribal governments, in the
aggregate, of $100 million (adjusted annually for inflation) in any one
year. Section 203 of the Act, 2 U.S.C. 1533, which supplements section
204(a), provides that before establishing any regulatory requirements
that might significantly or uniquely affect small governments, the
agency shall have developed a plan that, among other things, provides
for notice to potentially affected small governments, if any, and for a
meaningful and timely opportunity to provide input in the development
of regulatory proposals.
This final rule does not contain a Federal intergovernmental or
private sector mandate that exceeds $100 million a year. Therefore, the
requirements of Title II of the Unfunded Mandates Reform Act of 1995 do
not apply.
Federalism Implications
This final regulation would not have substantial direct effects on
the states, on the relationship between the Federal Government and the
states, or on the distribution of power and responsibilities among the
various levels of government. Therefore, in accordance with Executive
Order 12612, it is determined that this final regulation does not have
sufficient federalism implications to warrant the preparation of a
Federalism Assessment.
List of Subjects in 14 CFR Part 440
Armed forces, Federal buildings and facilities, Government
property, Indemnity payments, Insurance, Reporting and recordkeeping
requirements, Space transportation and exploration.
The Amendment
In consideration of the foregoing, the Associate Administrator for
Commercial Space Transportation, Federal Aviation Administration amends
the Commercial Space Transportation Licensing Regulations, 14 CFR Ch.
III, as follows:
1. Subchapter C of Chapter III, Title 14, Code of Federal
Regulations, is amended by adding a new Part 440 to read as follows:
PART 440--FINANCIAL RESPONSIBILITY
Subpart A--Financial Responsibility for Licensed Launch Activities
Sec.
440.1 Scope of part.
440.3 Definitions.
440.5 General.
440.7 Determination of maximum probable loss.
440.9 Insurance requirements for licensed launch activities.
440.11 Duration of coverage; Modifications.
440.13 Standard conditions of insurance coverage.
440.15 Demonstration of compliance.
440.17 Reciprocal waiver of claims requirement.
440.19 United States payment of excess third-party liability
claims.
Appendix A to Part 440--Information requirements for obtaining a
maximum probable loss determination for licensed launch activities
Appendix B to Part 440--Assignment for waiver of claims and
assumption of responsibility
Authority: 49 U.S.C. 70101-70119; 49 CFR 1.47.
Sec. 440.1 Scope of part.
This part sets forth financial responsibility and allocation of
risk requirements applicable to commercial space launch activities that
are authorized to be conducted under a launch license issued pursuant
to this subchapter.
Sec. 440.3 Definitions.
(a) For purposes of this part--
(1) Bodily injury means physical injury, sickness, disease,
disability, shock, mental anguish, or mental injury sustained by any
person, including death.
(2) Contractors and subcontractors means those entities that are
involved at any tier, directly or indirectly, in licensed launch
activities, and includes suppliers of property and services, and the
component manufacturers of a launch vehicle or payload.
(3) Customer means the person who procures launch services from the
licensee, any person to whom the customer has sold, leased, assigned,
or otherwise transferred its rights in the payload (or any part
thereof) to be launched by the licensee, including a conditional sale,
lease, assignment, or transfer of rights, any person who has placed
property on board the payload for launch or payload services, and any
person to whom the customer has
[[Page 45620]]
transferred its rights to the launch services.
(4) Federal range facility means a Government-owned installation at
which launches take place.
(5) Financial responsibility means statutorily required financial
ability to satisfy liability as required under 49 U.S.C. 70101-70119.
(6) Government personnel means employees of the United States, its
agencies, and its contractors and subcontractors, involved in launch
services for licensed launch activities. Employees of the United States
include members of the Armed Forces of the United States.
(7) Hazardous operations means activities, processes, and
procedures that, because of the nature of the equipment, facilities,
personnel, or environment involved or function being performed, may
result in bodily injury or property damage.
(8) Liability means a legal obligation to pay claims for bodily
injury or property damage resulting from licensed launch activities.
(9) License means an authorization to conduct licensed launch
activities, issued by the Office under this subchapter.
(10) Licensed launch activities means the launch of a launch
vehicle as defined in a regulation or license issued by the Office and
carried out pursuant to a launch license.
(11) Maximum probable loss (MPL) means the greatest dollar amount
of loss for bodily injury or property damage that is reasonably
expected to result from licensed launch activities;
(i) Losses to third parties, excluding Government personnel and
other launch participants' employees involved in licensed launch
activities, that are reasonably expected to result from licensed launch
activities are those having a probability of occurrence on the order of
no less than one in ten million.
(ii) Losses to Government property and Government personnel
involved in licensed launch activities that are reasonably expected to
result from licensed launch activities are those having a probability
of occurrence on the order of no less than one in one hundred thousand.
(12) Office means the Associate Administrator for Commercial Space
Transportation of the Federal Aviation Administration, U.S. Department
of Transportation.
(13) Property damage means partial or total destruction,
impairment, or loss of tangible property, real or personal.
(14) Regulations means the Commercial Space Transportation
Licensing Regulations, codified at 14 CFR Ch. III.
(15) Third party means:
(i) Any person other than:
(A) The United States, its agencies, and its contractors and
subcontractors involved in launch services for licensed launch
activities;
(B) The licensee and its contractors and subcontractors involved in
launch services for licensed launch activities; and
(C) The customer and its contractors and subcontractors involved in
launch services for licensed launch activities.
(ii) Government personnel, as defined in this section, are third
parties.
(16) United States means the United States Government, including
its agencies.
(b) Except as otherwise provided in this section, any term used in
this part and defined in 49 U.S.C. 70101-70119, or in Sec. 401.5 of
this chapter shall have the meaning contained therein.
Sec. 440.5 General.
(a) No person shall commence or conduct launch activities that
require a license unless that person has obtained a license and fully
demonstrated compliance with the financial responsibility and
allocation of risk requirements set forth in this part.
(b) The Office shall prescribe the amount of financial
responsibility a licensee is required to obtain and any additions to or
modifications of the amount in a license order issued concurrent with
or subsequent to the issuance of a license.
(c) Demonstration of financial responsibility under this part shall
not relieve the licensee of ultimate responsibility for liability,
loss, or damage sustained by the United States resulting from licensed
launch activities, except to the extent that:
(1) Liability, loss, or damage sustained by the United States
results from willful misconduct of the United States or its agents;
(2) Covered claims of third parties for bodily injury or property
damage arising out of any particular launch exceed the amount of
financial responsibility required under Sec. 440.9(c) of this part and
do not exceed $1,500,000,000 (as adjusted for inflation occurring after
January 1, 1989) above such amount, and are payable pursuant to 49
U.S.C. 70113 and Sec. 440.19 of this part. Claims of employees of
entities listed in Sec. 440.3(a)(15)(i)(B) and (C) of this part for
bodily injury or property damage are not covered claims;
(3) Covered claims for property loss or damage exceed the amount of
financial responsibility required under Sec. 440.9(e) of this part and
do not result from willful misconduct of the licensee; or
(4) The licensee has no liability for covered claims by third
parties for bodily injury or property damage arising out of any
particular launch that exceed $1,500,000,000 (as adjusted for inflation
occurring after January 1, 1989) above the amount of financial
responsibility required under Sec. 440.9(c) of this part.
(d) A licensee's failure to comply with the requirements in this
part may result in suspension or revocation of a license, and subjects
the licensee to civil penalties as provided in part 405 of this
chapter.
Sec. 440.7 Determination of maximum probable loss.
(a) The Office shall determine the maximum probable loss (MPL) from
covered claims by a third party for bodily injury or property damage,
and the United States, its agencies, and its contractors and
subcontractors for covered property damage or loss, resulting from
licensed launch activities. The maximum probable loss determination
forms the basis for financial responsibility requirements issued in a
license order.
(b) The Office issues its determination of maximum probable loss no
later than ninety days after a licensee or transferee has requested a
determination and submitted all information required by the Office to
make the determination. The Office shall consult with Federal agencies
that are involved in, or whose personnel or property are exposed to
risk of damage or loss as a result of, licensed launch activities
before issuing a license order prescribing financial responsibility
requirements and shall notify the licensee or transferee if interagency
consultation may delay issuance of the MPL determination.
(c) Information requirements for obtaining a maximum probable loss
determination are set forth in Appendix A of this part. Any person
requesting a determination of maximum probable loss must submit
information in accordance with Appendix I requirements, unless the
Office has waived requirements. In lieu of submitting required
information, a person requesting a maximum probable loss determination
may designate and certify certain information previously submitted for
a prior determination as complete, valid, and equally applicable to its
current request. The requester is responsible for the continuing
accuracy and completeness of information submitted under this part and
shall promptly report any changes in writing.
(d) The Office shall amend a determination of maximum probable
[[Page 45621]]
loss required under this section at any time prior to completion of
licensed launch activities as warranted by supplementary information
provided to or obtained by the Office after the MPL determination is
issued. Any change in financial responsibility requirements as a result
of an amended MPL determination shall be set forth in a license order.
(e) The Office may make a determination of maximum probable loss at
any time other than as set forth in paragraph (b) of this section upon
request by any person.
Sec. 440.9 Insurance requirements for licensed launch activities.
(a) As a condition of each launch license, the licensee must comply
with insurance requirements set forth in this section and in a license
order issued by the Office, or otherwise demonstrate the required
amount of financial responsibility.
(b) The licensee must obtain and maintain in effect a policy or
policies of liability insurance, in an amount determined by the Office
under paragraph (c) of this section, that protects the following
persons as additional insureds to the extent of their respective
potential liabilities against covered claims by a third party for
bodily injury or property damage resulting from licensed launch
activities:
(1) The licensee, its customer, and their respective contractors
and subcontractors, and the employees of each, involved in licensed
launch activities;
(2) The United States, its agencies, and its contractors and
subcontractors involved in licensed launch activities; and
(3) Government personnel.
(c) The Office shall prescribe for each licensee the amount of
insurance required to compensate the total of covered third-party
claims for bodily injury or property damage resulting from licensed
launch activities in connection with any particular launch. Covered
third-party claims include claims by the United States, its agencies,
and its contractors and subcontractors for damage or loss to property
other than property for which insurance is required under paragraph (d)
of this section. The amount of insurance required is based upon the
Office's determination of maximum probable loss; however, it will not
exceed the lesser of:
(1) $500 million; or
(2) The maximum liability insurance available on the world market
at a reasonable cost, as determined by the Office.
(d) The licensee must obtain and maintain in effect a policy or
policies of insurance, in an amount determined by the Office under
paragraph (e) of this section, that covers claims by the United States,
its agencies, and its contractors and subcontractors involved in
licensed launch activities for property damage or loss resulting from
licensed launch activities. Property covered by this insurance must
include all property owned, leased, or occupied by, or within the care,
custody, or control of, the United States and its agencies, and its
contractors and subcontractors involved in licensed launch activities,
at a Federal range facility. Insurance must protect the United States
and its agencies, and its contractors and subcontractors involved in
licensed launch activities.
(e) The Office shall prescribe for each licensee the amount of
insurance required to compensate claims for property damage under
paragraph (d) of this section resulting from licensed launch activities
in connection with any particular launch. The amount of insurance is
based upon a determination of maximum probable loss; however, it will
not exceed the lesser of:
(1) $100 million; or
(2) The maximum available on the world market at a reasonable cost,
as determined by the Office.
(f) In lieu of a policy of insurance, a licensee may demonstrate
financial responsibility in another manner meeting the terms and
conditions applicable to insurance as set forth in this part. The
licensee must describe in detail the method proposed for demonstrating
financial responsibility and how it assures that the licensee is able
to cover claims as required under this part.
Sec. 440.11 Duration of coverage; modifications.
(a) Insurance coverage required under Sec. 440.9, or other form of
financial responsibility, shall attach upon commencement of licensed
launch activities, and remain in full force and effect as follows:
(1) Until completion of licensed launch activities at the launch
site; and
(2) For orbital launches, until the later of--
(i) Thirty days following payload separation, or attempted payload
separation in the event of a payload separation anomaly; or
(ii) Thirty days from ignition of the launch vehicle.
(3) For suborbital launches, until the later of--
(i) Motor impact and payload recovery; or
(ii) The Office's determination that risk to third parties and
Government property as a result of licensed launch activities is
sufficiently small that financial responsibility is no longer
necessary, as determined by the Office through the risk analysis
conducted before the launch to determine MPL and specified in a license
order.
(b) Financial responsibility required under this part may not be
replaced, canceled, changed, withdrawn, or in any way modified to
reduce the limits of liability or the extent of coverage, nor expire by
its own terms, prior to the time specified in a license order, unless
the Office is notified at least 30 days in advance and expressly
approves the modification.
Sec. 440.13 Standard conditions of insurance coverage.
(a) Insurance obtained under Sec. 440.9 shall comply with the
following terms and conditions of coverage:
(1) Bankruptcy or insolvency of an insured, including any
additional insured, shall not relieve the insurer of any of its
obligations under any policy.
(2) Policy limits shall apply separately to each occurrence and,
for each occurrence to the total of claims arising out of licensed
launch activities in connection with any particular launch.
(3) Except as provided herein, each policy must pay claims from the
first dollar of loss, without regard to any deductible, to the limits
of the policy. A licensee may obtain a policy containing a deductible
amount if the amount of the deductible is placed in an escrow account
or otherwise demonstrated to be unobligated, unencumbered funds of the
licensee, available to compensate claims at any time claims may arise.
(4) Each policy shall not be invalidated by any action or inaction
of the licensee or any additional insured, including nonpayment by the
licensee of the policy premium, and must insure the licensee and each
additional insured regardless of any breach or violation of any
warranties, declarations, or conditions contained in the policies by
the licensee or any additional insured (other than a breach or
violation by the licensee or an additional insured, and then only as
against that licensee or additional insured).
(5) Exclusions from coverage must be specified.
(6) Insurance shall be primary without right of contribution from
any other insurance that is carried by the licensee or any additional
insured.
(7) Each policy must expressly provide that all of its provisions,
except
[[Page 45622]]
the policy limits, operate in the same manner as if there were a
separate policy with and covering the licensee and each additional
insured.
(8) Each policy must be placed with an insurer of recognized
reputation and responsibility that is licensed to do business in any
State, territory, possession of the United States, or the District of
Columbia.
(9) Except as to claims resulting from the willful misconduct of
the United States or its agents, the insurer shall waive any and all
rights of subrogation against each of the parties protected by required
insurance.
(b) [Reserved.]
Sec. 440.15 Demonstration of compliance.
(a) A licensee must submit evidence of financial responsibility and
compliance with allocation of risk requirements under this part, as
follows, unless a license order specifies otherwise due to the
proximity of the licensee's intended date for commencement of licensed
launch activities:
(1) The three-party reciprocal waiver of claims agreement required
under Sec. 440.17(c) of this part must be submitted at least 30 days
before commencement of licensed launch activities involving the
customer that will sign the agreement;
(2) Evidence of insurance must be submitted at least 30 days before
commencement of licensed launch activities;
(3) Evidence of financial responsibility in a form other than
insurance, as provided under Sec. 440.9(f) of this part, must be
submitted at least 60 days before commencement of licensed launch
activities; and
(4) Evidence of renewal of insurance or other form of financial
responsibility must be submitted at least 30 days in advance of its
expiration date.
(b) Upon a complete demonstration of compliance with financial
responsibility and allocation of risk requirements under this part, the
requirements shall preempt any provisions in agreements between the
licensee and an agency of the United States governing access to or use
of United States launch property or launch services for licensed launch
activities which address financial responsibility, allocation of risk
and related matters covered by 49 U.S.C. 70112, 70113.
(c) A licensee must demonstrate compliance as follows:
(1) The licensee must provide proof of insurance required under
Sec. 440.9 by:
(i) Certifying to the Office that it has obtained insurance in
compliance with the requirements of this part and any applicable
license order;
(ii) Filing with the Office one or more certificates of insurance
evidencing insurance coverage by one or more insurers under a currently
effective and properly endorsed policy or policies of insurance,
applicable to licensed launch activities, on terms and conditions and
in amounts prescribed under this part, and specifying policy
exclusions;
(iii) In the event of any policy exclusions or limitations of
coverage that may be considered usual under Sec. 440.19(c) of this
part, or for purposes of implementing the Government's waiver of claims
for property damage under 49 U.S.C. 70112(b)(2), certifying that
insurance covering the excluded risks is not commercially available at
reasonable cost; and
(iv) Submitting to the Office, for signature by the Department on
behalf of the United States Government, the waiver of claims and
assumption of responsibility agreement required by Sec. 440.17(c) of
this part, executed by the licensee and its customer.
(2) Certifications required under this section must be signed by a
duly authorized officer of the licensee.
(d) Certificate(s) of insurance required under paragraph (c)(1)(ii)
of this section must be signed by the insurer issuing the policy and
accompanied by an opinion of the insurance broker that the insurance
obtained by the licensee complies with the specific requirements for
insurance set forth in this part and any applicable license order.
(e) The licensee must maintain, and make available for inspection
by the Office upon request, all required policies of insurance and
other documents necessary to demonstrate compliance with this part.
(f) In the event the licensee demonstrates financial responsibility
using means other than insurance, as provided under Sec. 440.9(f) of
this part, the licensee must provide proof that it has met the
requirements set forth in this part and in a license order issued by
the Office.
Sec. 440.17 Reciprocal waiver of claims requirements.
(a) As a condition of each launch license, the licensee shall
comply with reciprocal waiver of claims requirements as set forth in
this section.
(b) The licensee shall implement reciprocal waivers of claims with
its contractors and subcontractors, its customer(s) and the customer's
contractors and subcontractors, under which each party waives and
releases claims against the other parties to the waivers and agrees to
assume financial responsibility for property damage it sustains and for
bodily injury or property damage sustained by its own employees, and to
hold harmless and indemnify each other from bodily injury or property
damage sustained by its employees, resulting from licensed launch
activities, regardless of fault.
(c) For each licensed launch in which the U.S. Government, its
agencies, or its contractors and subcontractors is involved in licensed
launch activities or where property insurance is required under
Sec. 440.9(d) of this part, the Federal Aviation Administration of the
Department of Transportation, the licensee, and its customer shall
enter into a three-party reciprocal waiver of claims agreement in the
form set forth in Appendix II to this part or that satisfies its
requirements.
(d) The licensee, its customer, and the Federal Aviation
Administration of the Department of Transportation on behalf of the
United States and its agencies but only to the extent provided in
legislation, must agree in any waiver of claims agreement required
under this part to indemnify another party to the agreement from claims
by the indemnifying party's contractors and subcontractors arising out
of the indemnifying party's failure to implement properly the waiver
requirement.
Sec. 440.19 United States payment of excess third-party liability
claims.
(a) The United States pays successful covered claims (including
reasonable expenses of litigation or settlement) of a third party
against the licensee, the customer, and the contractors and
subcontractors of the licensee and the customer, and the employees of
each involved in licensed launch activities, and the contractors and
subcontractors of the United States and its agencies, and their
employees, involved in licensed launch activities to the extent
provided in an appropriation law or other legislative authority
providing for payment of claims in accordance with 49 U.S.C. 70113, and
to the extent the total amount of such covered claims arising out of
any particular launch:
(1) Exceeds the amount of insurance required under Sec. 440.9(b);
and
(2) Is not more than $1,500,000,000 (as adjusted for inflation
occurring after January 1, 1989) above that amount.
(b) Payment by the United States under paragraph (a) of this
section shall not be made for any part of such claims for which bodily
injury or property damage results from willful misconduct by the party
seeking payment.
(c) The United States shall provide for payment of claims by third
parties for
[[Page 45623]]
bodily injury or property damage that are payable under 49 U.S.C. 70113
and not covered by required insurance under Sec. 440.9(b), without
regard to the limitation under paragraph (a)(1) of this section,
because of an insurance policy exclusion that is usual. A policy
exclusion is considered usual only if insurance covering the excluded
risk is not commercially available at reasonable rates. The licensee
must submit a certification in accordance with Sec. 440.15(c)(1)(iii)
of this part for the United States to cover the claims.
(d) Upon the expiration of the policy period prescribed in
accordance with Sec. 440.11(a), the United States shall provide for
payment of claims that are payable under 49 U.S.C. 70113 from the first
dollar of loss up to $1,500,000,000 (as adjusted for inflation
occurring after January 1, 1989).
(e) Payment by the United States of excess third-party claims under
49 U.S.C. 70113 shall be subject to:
(1) Prompt notice by the licensee to the Office that the total
amount of claims arising out of licensed launch activities exceeds, or
is likely to exceed, the required amount of financial responsibility.
For each claim, the notice must specify the nature, cause, and amount
of the claim or lawsuit associated with the claim, and the party or
parties who may otherwise be liable for payment of the claim;
(2) Participation or assistance in the defense of the claim or
lawsuit by the United States, at its election;
(3) Approval by the Office of any settlement, or part of a
settlement, to be paid by the United States; and
(4) Approval by Congress of a compensation plan prepared by the
Office and submitted by the President.
(f) The Office will:
(1) Prepare a compensation plan outlining the total amount of
claims and meeting the requirements set forth in 49 U.S.C. 70113;
(2) Recommend sources of funds to pay the claims; and
(3) Propose legislation as required to implement the plan.
(g) The Office may withhold payment of a claim if it finds that the
amount is unreasonable, unless it is the final order of a court that
has jurisdiction over the matter.
Appendix A to Part 440--Information Requirements for Obtaining a
Maximum Probable Loss Determination for Licensed Launch Activities
Any person requesting a maximum probable loss determination
shall submit the following information to the Office, unless the
Office has waived a particular information requirement under 14 CFR
440.7(c):
I. General Information
A. Mission description.
1. A description of mission parameters, including:
a. Launch trajectory;
b. Orbital inclination; and
c. Orbit altitudes (apogee and perigee).
2. Flight sequence.
3. Staging events and the time for each event.
4. Impact locations.
5. Identification of the launch range facility, including the
launch complex on the range, planned date of launch, and launch
windows.
6. If the applicant has previously been issued a license to
conduct launch activities using the same launch vehicle from the
same launch range facility, a description of any differences planned
in the conduct of proposed activities.
B. Launch Vehicle Description.
1. General description of the launch vehicle and its stages,
including dimensions.
2. Description of major systems, including safety systems.
3. Description of rocket motors and type of fuel used.
4. Identification of all propellants to be used and their hazard
classification under the Hazardous Materials Table, 49 CFR 172.101.
5. Description of hazardous components.
C. Payload.
1. General description of the payload, including type (e.g.,
telecommunications, remote sensing), propellants, and hazardous
components or materials, such as toxic or radioactive substances.
D. Flight Termination System.
1. Identification of any flight termination system (FTS) on the
launch vehicle, including a description of operations and component
location on the vehicle.
II. Pre-Flight Processing Operations
A. General description of pre-flight operations including
vehicle processing consisting of an operational flow diagram showing
the overall sequence and location of operations, commencing with
arrival of vehicle components at the launch range facility through
final safety checks and countdown sequence, and designation of
hazardous operations, as defined in 14 CFR 440.3. For purposes of
these information requirements, payload processing, as opposed to
integration, is not a hazardous operation.
B. For each hazardous operation, including but not limited to
fueling, solid rocket motor build-up, ordnance installation,
ordnance checkout, movement of hazardous materials, and payload
integration:
1. Identification of location where each operation will be
performed, including each building or facility identified by name or
number.
2. Identification of facilities adjacent to the location where
each operation will be performed and therefore exposed to risk,
identified by name or number.
3. Maximum number of Government personnel and individuals not
involved in licensed launch activities who may be exposed to risk
during each operation. For Government personnel, identification of
his or her employer.
4. Identification of launch range facility policies or
requirements applicable to the conduct of operations.
III. Flight Operations
A. Identification of launch range facilities exposed to risk
during launch vehicle lift-off and flight.
B. Identification of accident failure scenarios, probability
assessments for each, and estimation of risks to Government
personnel, individuals not involved in licensed launch activities,
and Government property, due to property damage or bodily injury.
The estimation of risks for each scenario shall take into account
the number of such individuals at risk as a result of lift-off and
flight of a launch vehicle (on-range, off-range, and down-range) and
specific, unique facilities exposed to risk. Scenarios shall cover
the range of launch trajectories, inclinations and orbits for which
authorization is sought in the license application.
C. On-orbit risk analysis assessing risks posed by a launch
vehicle to operational satellites.
D. Reentry risk analysis assessing risks to Government personnel
and individuals not involved in licensed launch activities as a
result of reentering debris or reentry of the launch vehicle or its
components.
E. Trajectory data as follows: Nominal and 3-sigma lateral
trajectory data in x, y, z and x (dot), y (dot), z (dot) coordinates
in one-second intervals, data to be pad-centered with x being along
the initial launch azimuth and continuing through impact for
suborbital flights, and continuing through orbital insertion or the
end of powered flight for orbital flights.
F. Tumble-turn data for guided vehicles only, as follows: For
vehicles with gimbaled nozzles, tumble turn data with zeta angles
and velocity magnitudes stated. A separate table is required for
each combination of fail times (every two to four seconds), and
significant nozzle angles (two or more small angles, generally
between one and five degrees).
G. Identification of debris lethal areas and the projected
number and ballistic coefficient of fragments expected to result
from flight termination, initiated either by command or self-
destruct mechanism, for lift-off, land overflight, and reentry.
IV. Post-Flight Processing Operations
A. General description of post-flight ground operations
including overall sequence and location of operations for removal of
vehicle components and processing equipment from the launch range
facility and for handling of hazardous materials, and designation of
hazardous operations.
B. Identification of all facilities used in conducting post-
flight processing operations.
C. For each hazardous operation:
1. Identification of location where each operation is performed,
including each building or facility identified by name or number.
2. Identification of facilities adjacent to location where each
operation is performed
[[Page 45624]]
and exposed to risk, identified by name or number.
3. Maximum number of Government personnel and individuals not
involved in licensed launch activities who may be exposed to risk
during each operation. For Government personnel, identification of
his or her employer.
4. Identification of launch range facility policies or
requirements applicable to the conduct of operations.
Appendix B to Part 440--Agreement for Waiver of Claims and
Assumption of Responsibility
THIS AGREEMENT is entered into this ________ day of ________, by
and among [Licensee] (the ``Licensee''), [Customer] (the
``Customer'') and the Federal Aviation Administration of the
Department of Transportation, on behalf of the United States
Government (collectively, the ``Parties''), to implement the
provisions of section 440.17(c) of the Commercial Space
Transportation Licensing Regulations, 14 CFR Ch. III (the
``Regulations'').
In consideration of the mutual releases and promises contained
herein, the Parties hereby agree as follows:
1. Definitions
Customer means the above-named Customer on behalf of the
Customer, any person to whom the Customer has sold, leased,
assigned, or otherwise transferred its rights in the payload (or any
part thereof) to be launched by the licensee, including a
conditional sale, lease, assignment, or transfer of rights, any
person who has placed property on board the payload for launch or
payload services, and any person to whom the Customer has
transferred its rights to the launch services.
License means License No. ________ issued on ________, by the
Associate Administrator for Commercial Space Transportation, Federal
Aviation Administration, Department of Transportation, to the
Licensee, including all license orders issued in connection with the
License.
Licensee means the Licensee and any transferee of the Licensee
under 49 U.S.C. Subtitle IX, ch. 701.
United States means the United States and its agencies involved
in Licensed Launch Activities.
Except as otherwise defined herein, terms used in this Agreement
and defined in 49 U.S.C. Subtitle IX, ch. 701--Commercial Space
Launch Activities, or in the Regulations, shall have the same
meaning as contained in 49 U.S.C. Subtitle IX, ch. 701, or the
Regulations, respectively.
2. Waiver and Release of Claims
(a) Licensee hereby waives and releases claims it may have
against Customer and the United States, and against their respective
Contractors and Subcontractors, for Property Damage it sustains and
for Bodily Injury or Property Damage sustained by its own employees,
resulting from Licensed Launch Activities, regardless of fault.
(b) Customer hereby waives and releases claims it may have
against Licensee and the United States, and against their respective
Contractors and Subcontractors, for Property Damage it sustains and
for Bodily Injury or Property Damage sustained by its own employees,
resulting from Licensed Launch Activities, regardless of fault.
(c) The United States hereby waives and releases claims it may
have against Licensee and Customer, and against their respective
Contractors and Subcontractors, for Property Damage it sustains, and
for Bodily Injury or Property Damage sustained by its own employees,
resulting from Licensed Launch Activities, regardless of fault, to
the extent that claims it would otherwise have for such damage or
injury exceed the amount of insurance or demonstration of financial
responsibility required under sections 440.9(c) and (e),
respectively, of the Regulations, 14 CFR 440.9(c) and (e).
3. Assumption of Responsibility
(a) Licensee and Customer shall each be responsible for Property
Damage it sustains and for Bodily Injury or Property Damage
sustained by its own employees, resulting from Licensed Launch
Activities, regardless of fault. Licensee and Customer shall each
hold harmless and indemnify each other, the United States, and the
Contractors and Subcontractors of each Party, for Bodily Injury or
Property Damage sustained by its own employees, resulting from
Licensed Launch Activities, regardless of fault.
(b) The United States shall be responsible for Property Damage
it sustains, and for Bodily Injury or Property Damage sustained by
its own employees, resulting from Licensed Launch Activities,
regardless of fault, to the extent that claims it would otherwise
have for such damage or injury exceed the amount of insurance or
demonstration of financial responsibility required under section
440.9(c) and (e), respectively, of the Regulations, 14 CFR 440.9(c)
and (e).
4. Extension of Assumption of Responsibility and Waiver
(a) Licensee shall extend the requirements of the waiver and
release of claims, and the assumption of responsibility, hold
harmless, and indemnification, as set forth in paragraphs 2(a) and
3(a), respectively, to its Contractors and Subcontractors by
requiring them to waive and release all claims they may have against
Customer and the United States, and against the respective
Contractors and Subcontractors of each, and to agree to be
responsible, for Property Damage they sustain and to be responsible,
hold harmless and indemnify Customer and the United States, and the
respective Contractors and Subcontractors of each, for Bodily Injury
or Property Damage sustained by their own employees, resulting from
Licensed Launch Activities, regardless of fault.
(b) Customer shall extend the requirements of the waiver and
release of claims, and the assumption of responsibility, hold
harmless, and indemnification, as set forth in paragraphs 2(b) and
3(a), respectively, to its Contractors and Subcontractors by
requiring them to waive and release all claims they may have against
Licensee and the United States, and against the respective
Contractors and Subcontractors of each, and to agree to be
responsible, for Property Damage they sustain and to be responsible,
hold harmless and indemnify Licensee and the United States, and the
respective Contractors and Subcontractors of each, for Bodily Injury
or Property Damage sustained by their own employees, resulting from
Licensed Launch Activities, regardless of fault.
(c) The United States shall extend the requirements of the
waiver and release of claims, and the assumption of responsibility
as set forth in paragraphs 2(c) and 3(b), respectively, to its
Contractors and Subcontractors by requiring them to waive and
release all claims they may have against Licensee and Customer, and
against the respective Contractors and Subcontractors of each, and
to agree to be responsible, for any Property Damage they sustain and
for any Bodily Injury or Property Damage sustained by their own
employees, resulting from Licensed Launch Activities, regardless of
fault, to the extent that claims they would otherwise have for such
damage or injury exceed the amount of insurance or demonstration of
financial responsibility required under section 440.9(c) and (e),
respectively, of the Regulations, 14 CFR 440.9(c) and (e).
5. Indemnification
(a) Licensee shall hold harmless and indemnify Customer and its
directors, officers, servants, agents, subsidiaries, employees and
assignees, or any or them, and the United States and its agencies,
servants, agents, subsidiaries, employees and assignees, or any or
them, from and against liability, loss or damage arising out of
claims that Licensee's Contractors and Subcontractors may have for
Property Damage sustained by them and for Bodily Injury or Property
Damage sustained by their employees, resulting from Licensed Launch
Activities.
(b) Customer shall hold harmless and indemnify Licensee and its
directors, officers, servants, agents, subsidiaries, employees and
assignees, or any or them, and the United States and its agencies,
servants, agents, subsidiaries, employees and assignees, or any of
them, from and against liability, loss or damage arising out of
claims that Customer's Contractors and Subcontractors, or any person
on whose behalf Customer enters into this Agreement, may have for
Property Damage sustained by them and for Bodily Injury or Property
Damage sustained by their employees, resulting from Licensed Launch
Activities.
(c) To the extent provided in advance in an appropriations law
or to the extent there is enacted additional legislative authority
providing for the payment of claims, the United States shall hold
harmless and indemnify Licensee and Customer and their respective
directors, officers, servants, agents, subsidiaries, employees and
assignees, or any of them, from and against liability, loss or
damage arising out of claims that Contractors and Subcontractors of
the United States may have for Property Damage sustained by them,
and for Bodily Injury or Property Damage sustained by their
employees, resulting from Licensed Launch Activities, to the extent
that claims they would otherwise have for such
[[Page 45625]]
damage or injury exceed the amount of insurance or demonstration of
financial responsibility required under sections 440.9(c) and (e),
respectively, of the Regulations, 14 CFR 440.9(c) and (e).
6. Assurances Under 49 U.S.C. 70112(e)
Notwithstanding any provision of this Agreement to the contrary,
Licensee shall hold harmless and indemnify the United States and its
agencies, servants, agents, employees and assignees, or any of them,
from and against liability, loss or damage arising out of claims for
Bodily Injury or Property Damage, resulting from Licensed Launch
Activities, regardless of fault, except to the extent that: (i) as
provided in section 7(b) of this Agreement, claims result from
willful misconduct of the United States or its agents; (ii) claims
for Property Damage sustained by the United States or its
Contractors and Subcontractors exceed the amount of insurance or
demonstration of financial responsibility required under section
440.9(e) of the Regulations (14 CFR 440.9(e)); (iii) claims by a
Third Party for Bodily Injury or Property Damage exceed the amount
of insurance or demonstration of financial responsibility required
under section 440.9(c) of the Regulations (14 CFR 440.9(c)), and do
not exceed $1,500,000,000 (as adjusted for inflation after January
1, 1989) above such amount, and are payable pursuant to the
provisions of 49 U.S.C. 70113 and section 440.19 of the Regulations
(14 CFR 440.19); or (iv) Licensee has no liability for claims
exceeding $1,500,000,000 (as adjusted for inflation after January 1,
1989) above the amount of insurance or demonstration of financial
responsibility required under section 440.9(c) of the Regulations
(14 CFR 440.9(c)).
7. Miscellaneous
(a) Nothing contained herein shall be construed as a waiver or
release by Licensee, Customer or the United States of any claim by
an employee of the Licensee, Customer or the United States,
respectively, including a member of the Armed Forces of the United
States, for Bodily Injury or Property Damage, resulting from
Licensed Launch Activities.
(b) Notwithstanding any provision of this Agreement to the
contrary, any waiver, release, assumption of responsibility or
agreement to hold harmless and indemnify herein shall not apply to
claims for Bodily Injury or Property Damage resulting from willful
misconduct of any of the Parties, the Contractors and Subcontractors
of any of the Parties, and in the case of Licensee and Customer and
the Contractors and Subcontractors of each of them, the directors,
officers, agents and employees of any of the foregoing, and in the
case of the United States, its agents.
(c) In the event that more than one customer is involved in
Licensed Launch Activities, references herein to Customer shall
apply to, and be deemed to include, each such customer severally and
not jointly.
(d) This Agreement shall be governed by and construed in
accordance with United States Federal law.
IN WITNESS WHEREOF, the Parties to this Agreement have caused
the Agreement to be duly executed by their respective duly
authorized representatives as of the date written above.
LICENSEE
By: ________________
Its: ________________
CUSTOMER
By: ________________
Its: ________________
DEPARTMENT OF TRANSPORTATION
Issued in Washington, DC, on August 18, 1998.
Patricia Grace Smith,
Associate Administrator for Commercial Space Transportation, Federal
Aviation Administration.
[FR Doc. 98-22728 Filed 8-25-98; 8:45 am]
BILLING CODE 4910-13-P
