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The idea of channeling liability solely to the operator can be traced to principles that evolved in the United States.¹⁰ Until 1954, the U.S. government was liable for any nuclear incident because all nuclear facilities were run by the government or the military. In 1954, the U.S. government decided that private industry would also be permitted to own, operate, and license reactors. Per then-prevalent principles of tort and environmental law, liability could fall on any of the stakeholders: that is, suppliers, designers, contractors, and manufacturers.¹¹ With the memory of the devastating power of nuclear technology still fresh, stakeholders saw that the corresponding risks and liabilities were substantively different from other conventional industrial applications. Exposure to such substantial risks was unacceptable and proved to be a hurdle in attracting meaningful investment to the sector. At the same time, American nuclear suppliers wanted to expand into Western Europe but were not willing to expose themselves to liability claims for nuclear incidents occurring outside the territory of the United States. This factor, along with the difficulty of calculating insurance premiums because of the low-probability but high-risk nature of nuclear incidents, issues pertaining to determination of compensation, proving damage, and so on, led to the enactment of the Price-Anderson Nuclear Industries Indemnity Act, which came into effect in 1957.¹²

Economic Channeling of Liability

The Price-Anderson Act embodies the concept of economic channeling of liability. In accordance with the act, nuclear operators agree to bear the burden of strict liability in return for a limitation of liability over time, guaranteed insurance coverage with manageable premiums, and capped damages.¹³ Under this concept of economic channeling, while a supplier may in principle be liable, the operator would cover the eventual economic burden by paying any compensation. Therefore, operators would be required to obtain the maximum amount of insurance against nuclear incidents that they can avail from the insurance industry. Any liability over and above that covered under such insurance would be paid through the fund created under the Price-Anderson Act, the main contributories of which are members of the American nuclear industry. This is in contrast with legal channeling, under which victims cannot bring claims against any entity other than the operator, even if such other entity were to be at fault, because all liability has been shifted to the operator. The legal principle insulating the supplier from all liability was developed based on this concept of economic channeling and provided suppliers with further protection from liability.

Legal Channeling of Liability

The economic channeling principle was transformed to a legal principle by a report issued in 1959 by Harvard Law School and the Atomic Industrial Forum, International Problems of Financial Protection against Nuclear Risk.¹⁴ The Harvard report took the view that once a supplier had delivered goods/components to an operator, the supplier no longer had control over those goods/components, and hence the liability for the goods/components was completely transferred as well.¹⁵ At the time, this principle was a significant departure from accepted principles of tort law. No other industry had excluded suppliers from the chain of liability in this manner.

The Harvard report articulates a variety of reasons for this new approach to liability, including the importance of keeping costs low, avoidance of litigation, and encouraging investment and innovation in the nuclear industry.¹⁶ The report also notes that potential plaintiffs might target the suppliers rather than operators because of the deeper pockets of suppliers.¹⁷ This observation has proved prescient. India recently modified its own nuclear liability law to make suppliers liable to preserve the ability to sue suppliers in the event of proven negligence on part of the suppliers—whose resources are likely to be far greater than those of the Indian nuclear operators, which presently are all state-controlled companies.

The Harvard report also partially endorses the approach of channeling liability to the operator by arguing that it would improve the victim’s ability to recover compensation (especially in transboundary incidents). In response to the criticism that such a principle would result in suppliers providing poor service, the report argues that operators will choose only those suppliers that have a reputation for being the best and the safest.¹⁸ Further, the operator would be forced to maintain the highest standards of safety.

ENDNOTES

¹⁰ Tom Vanden Borre, “Channeling of Liability: A Few Juridical and Economic Views on an Inadequate Legal Construction,” in Contemporary Developments in Nuclear Energy Law: Harmonizing Legislation in CEEC/NIS, ed. Nathalie L.J.T. Hogback (London: Kluwer Law International, 1999), 13, 17–18.

¹¹ Hariharan, “India’s Nuclear Civil Liability Bill,” 226.

¹² See Evelyne Ameye, “Channeling of Nuclear Third Party Liability towards the Operator: Is It Sustainable in a Developing Nuclear World or Is There a Need for Liability of Nuclear Architects and Engineers,” European Energy and Environmental Law Review 19 (1) (2010): 33, 35. See also Hariharan, “India’s Nuclear Civil Liability Bill,” 226. For the text of the Price-Anderson Act, see 42 U.S.C. sec. 2210.

¹³ Hariharan, “India’s Nuclear Civil Liability Bill,” 226.

¹⁴ Ibid., 227.

¹⁵ Vanden Borre, “Channeling of Liability,” 20.

¹⁶ Ameye, “Channeling of Nuclear Third Party Liability,” 35.

¹⁷ Vanden Borre, “Channeling of Liability,” 20.

¹⁸ Ameye, “Channeling of Nuclear Third Party Liability,” 35.