Status Report

Testimony of Raymond F. Duffy Jr: The Commercial Space Act of 2003

By SpaceRef Editor
November 5, 2003
Filed under , ,

Testimony of Mr. Raymond F. Duffy Jr.

Senior Vice President

Willis Inspace

Before the House Science Committee

Honorable Dana Rohrabacher, Chairman

November 5, 2003

Mr. Chairman, distinguished committee members and staff:

I’m pleased to have the opportunity today to discuss some of the issues concerning H.R. 3245, the Commercial Space Act of 2003.

I will respond to the committee’s questions as outlined in the invitation letter, but will primarily be responding to question #2 regarding government indemnification for commercial human flight. As my resume indicates, the area of professional expertise in which I concentrate is directly involved with the insurance coverages that would respond to any launch vehicle failure.

1. Should the government regulate commercial human space flight? If so, what should the public policy objectives (e.g., encouraging development of the industry, protecting third parties, protecting passengers, etc.) of that regulation be and how should they be balanced?

Government should regulate human space flight. Public policy objectives of encouraging development of the industry, protecting third parties and protecting passengers are all important, but I believe that regulations should focus primarily on flight safety issues. Prior experience for any new launch vehicle has shown us that most failures occur during the first three flights. Poor results for any new launch program will have a detrimental effect not only on that particular vehicle but also on all future commercial human space flight. Rigorous concern for flight safety issues would help assure the public that all was being done even in the unfortunate event of a launch or flight failure. This concern would also have a very positive effect on the insurance underwriters’ decisions as they reviewed the insurability of the risk.

2. Should the government offer indemnification for commercial human space flight, and if so, against what sorts of liability? How should any indemnification relate to existing policies and international treaties?

The government offer of indemnification should not be extended to commercial human space flight. The current indemnification protection provided to the commercial space industry is unique to commercial industries in the US and critical to the success of it. The inclusion of government indemnification to commercial space flight would potentially dilute the effectiveness of the indemnification and possibly jeopardize the availability of it in the future.

The commercial space industry is suffering from a significant downturn. This downturn is the result of a number of factors, including the economy, manufacturing defects, and to a significant degree the technology transfer regulations that have been imposed by the government. The international competition offers similar, if not superior liability risk sharing protection, to that offered by the US. Any loss of or negative development of the availability of indemnification to the commercial space industry would only have the result of further damaging its position as world leader.

The current license requirements for a commercial launch under the CSLA require liability insurance to be purchased up to the maximum probable loss for the launch site as established by the government. This indemnification would only be used in the event of a loss that exceeds this. The required insurance is available at reasonable costs and would also be available for commercial human space flight licenses as well. The severity of a launch failure for a commercial human space flight would most likely be significantly less than a commercial space launch due to size of the launch vehicle and the location of the launch. The cost for insurance excess of the maximum probable loss would be expensive at first, but I believe it would be available. The cost of this excess would drop following successful experience of the flight vehicle.

Although the loss of a commercial human space flight would not likely be as severe as a commercial launch vehicle failure, because new launch vehicles have a high failure rate the potential frequency of loss is significant. If a FAA license for a commercial human space flight mission was provided with the CSLA indemnification, the frequency of loss even without severity could erode the availability of the indemnification for the commercial space industry. Historically government contracts have paid for the research and development of new launch vehicles and absorbed the new launch risk. By the time commercial launches take place, the vehicle’s bugs have been worked out. If the indemnification was provided to commercial human space without the government’s involvement during this initial period this would also increase the degree of risk being covered and erode the availability of the indemnification for the commercial space industry.

At this point I believe an understanding of the workings of the aviation insurance industry would be helpful. Generally, an aviation underwriter writes all lines of aviation insurance for airlines, product liability, general-aviation, and in some cases space. The aviation insurance industry’s annual premium is less than 1% of the annual casualty premium. The total annual premium for launch liability is less than $20 million. If there were a launch liability loss greater than that, the loss would be paid from all the supporting lines of business mentioned. Depending on the severity of the loss, payment may even end up coming from the non-aviation property and casualty lines. A high frequency of losses in this area would quite likely affect the availability of coverage for it, just as such a frequency could effect the availability of indemnification in the future. The potential lack of indemnification and insurance following poor experience along with strict regulations could all work towards the development of a safer commercial human space flight program.

I do not believe that there should be any passenger liability protection provided by the government. Except for instances of gross negligence or willful misconduct the passengers should assume this risk. It would not be appropriate for the government to extend any protection to these people. If someone is willing to participate in commercial human space flight at this stage of its development than the risk should be dealt with solely between the passenger and the launch provider. It is unlikely there would be any commercial insurance available to respond to this risk.

As indicated in the Risk Management Working Group Report to COMSTAC on October 31,2002, “the current risk-sharing regime assigns financial responsibility for the most probable third-party damages arising from US based launches and those conducted by US commercial entities to the launch licensee whose insurance protects the interests of the US government as an additional insured. Accordingly, under the existing liability risk-sharing regime, the government is afforded financial protection in meeting certain of its international treaty obligations, up to the maximum probable loss, at no cost to the government (or the US taxpayer).” This would be the same case for the commercial human space flight industry if the same approach were followed regardless as to whether indemnification is provided.

3. What changes would you recommend to H.R. 3245? In particular do support commercial human space flight being regulated by the Office of Commercial Space Transportation at the Federal Aviation Administration? If not, where and in what manner would you propose to regulate commercial human space flight?

I would recommend that the bill transfer the regulation of suborbital human spaceflight vehicles from the FAA office of the associate administrator for Commercial Space Transportation (AST) to the FAA Regulation and Certification Group (AVR). As I’ve indicated previously, safety concerns for the vehicles should be paramount. The AVR has considerable experience in this area and would be more suited to promulgate the appropriate regulations.

SpaceRef staff editor.