Third Party Risk-Sharing Extension

Time to try something different?

Jim Muncy

The trend is not good

• Indemnification extensions are getting shorter

• Even the proposed extensions are getting shorter

• Conflation with other issues• Annual/Biennial horse-trade?

The Fault is not in our Stars, but in our Framing

• Asking for government to do something for industry

• Needed to be affordable, competitive, in business

• Other governments do more for their providers

Before 1988 there was nothing

• USG strictly liable in international court• License action made USG vulnerable in U.S.

courts • Launch operator vulnerable in U.S. courts• No financial responsibility

(insurance/assets) &no guarantee of rapid payment of third party claims

Why we call it a risk-sharing regime

• Licensee not only demonstrates financial responsibility

• Licensee shields the government from claims up to MPL

• Government oversees plan… licenses… terminates…

• Government is legally exposed & shielded by licensee

Problem: one side of deal permanent, other temporary

• Appropriate to require licensee to be responsible

• Licensees should also protect USG’ physical assets

• But why should licensees shield USG from all claims?

Compare cost/value of protection

• Licensees pay substantially for insurance • Expected value of indemnification <<$300 – ~$3B above MPL x 1/10,000,000 if all are @$3B– Given ever-declining probability, perhaps only

$10

New framing (part 1): USG is already exposed

• Responsibility limited to MPL/$500m/max insurance

• So USG can be sued for amounts above that today

• What is the extra cost of shielding industry?

New framing (part 2): fairness

• Government either keeps its “half” of deal… or no deal

• Industry will still insure itself against claimsso third parties can be repaid (incl USG assets)

• But the government will be also at risk for $1 thru MPL