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Rethinking Third Party Risk-Sharing: The Need for Change in Indemnification Practices

As indemnification extensions shrink and government demonstrates limited support, industry stakeholders are urged to rethink risk-sharing frameworks. With government increasingly exposed to claims, it's vital to reassess licensee responsibilities and the balance of financial obligations. Licensees bear the burden of insurance costs but often shield the government from claims while facing legal vulnerabilities themselves. To create a sustainable and protective risk-sharing regime, a new approach must address fairness and the evolving landscape of liability.

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Rethinking Third Party Risk-Sharing: The Need for Change in Indemnification Practices

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Presentation Transcript

  1. Third Party Risk-Sharing Extension Time to try something different? Jim Muncy

  2. 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?

  3. 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

  4. 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

  5. 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

  6. 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?

  7. 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

  8. 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?

  9. 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

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