U.S. Space Launch and Reentry “Indemnification”

As a lawyer, I am required to use quotation marks when discussing the so-called “indemnification” offered by the Commercial Space Launch Act at 51 USC ch. 509 (Ch. 509).  For those unfamiliar with the FAA’s financial responsibility requirements, they come in three parts.  First, when a launch or reentry operator gets its FAA license to launch or reenter, Ch. 509  requires the operator to enter into reciprocal waivers of claims with its customers, contractors, and the government.  The waivers, however, are  a topic for another day.

Chapter 509 also requires the FAA to set financial responsibility requirements, which the operator usually satisfies by buying insurance for any damage the operator’s launch or reentry may cause to people not involved in launch or reentry (aka “third parties”) or to government property .  The third prong of the regime contains a mechanism for Congress to vote on whether to come up with the money to pay for damages that exceed the operator’s insurance limits.

51 USC 50915 contains a set of instructions for both the Secretary of Transportation and Congress.  If damages arising out of a licensed launch or reentry exceed the amount of required insurance, the FAA and the Secretary shall recommend a compensation plan for the President to submit to Congress.  Among other things, the plan must contain the dollar amount in excess of the licensee’s required insurance, but not more than $1.5 billion–as adjusted for inflation–above whatever insurance the FAA required.   Calculations as of a couple years ago had that inflation adjusted amount as reaching $2.7 billion.

The Senate must consider the plan within 60 days. Another series of instructions follow, this time charging the Senate and its committees with meeting deadlines for consideration of the compensation plan, and setting limits on times allowed for debate.

All of this looks like Congress contemplates speedy resolution of the question.  However, the question itself, we must remember, is whether to make the funds available in the first place.  Indeed, everyone likes to call this “indemnification” because it sounds like the government’s got your back if things get really awful.

But.  When we look at how the dictionary defines “indemnification”–and we’ll use a legal dictionary–we see that true indemnification is pretty fabulous.  To indemnify means

to guarantee against any loss which another might suffer. Example: two parties settle a dispute over a contract, and one of them may agree to pay any claims which may arise from the contract, holding the other harmless.

It is immediately obvious that Congress offering to vote on whether to cover any damages an operator may owe is no guarantee, even if it has set highly detailed procedures in place for the Senate.  After all, Congress might vote not to authorize or appropriate the necessary funds.  This explains the need for quotation marks:  Chapter 509 does not offer indemnification in the true sense of the word.

Nonetheless, this provision has been very popular with industry.  Congress initially passed it with a sunset provision, meaning the offer to vote on the money would only last a few years.  Since it passed in 1988, that provision has been renewed every time it has come up for consideration and will not sunset again until September 30, 2025.  Why is it so popular?  I don’t know and never have figured it out.  Congress makes payment of those excess claims depend on its own actions, namely passage of a resolution.  This means there is no requirement for the government to pay for damages above insurance.  Section 50915 does require the FAA, the Secretary, and the President to present a compensation proposal to Congress, so perhaps forcing the Executive Branch to ask for the money is better than nothing.  As far as I can tell, given the lack of a legal requirement, the decision at the end of the day will be made for reasons of policy and politics.

Suppose, for example, that a foreign operator launched from the United States.  The foreign launch operator would require an FAA launch license, and the FAA would require the foreign operator to buy insurance to cover the maximum probable loss the operator could cause.  Let’s figure $100 million for third party damages.  If the foreign operator had such a bad accident that its damages exceeded $1 billion, duly adjudicated by a court of law, the Executive Branch would have to put together a compensation plan for presentation to both Houses of Congress.  Congress, however, might not want to cover the losses of a foreign operator, and could choose not to.  This approach leaves room for that kind of political decision-making.  But it offers no guarantees either.  To anyone.