Background information

The nuclear clause and coverage forms

Relation to the war exclusion

|

Background Information

 The introduction of the nuclear exclusion on coverage forms came in 1957, the same year in which the Price-Anderson Act became law; this law required evidence of financial responsibility for all privately owned nuclear reactors. Due to the possible catastrophic potential of nuclear contamination, the financial responsibility requirement had to be met economically through the use of insurance. However, insurers were not willing to offer such insurance coverage on standard lines policies and so, the nuclear exclusion clause was attached to virtually all fire policies by endorsement or as part of some other form. The language of the clause was as follows:

 Loss by nuclear reaction or nuclear radiation or radioactive contamination, all whether controlled or noncontrolled, or due to any act or condition incident to any of the foregoing, is not insured against by this policy, whether such loss be direct or indirect, proximate or remote, or be in whole or in part caused by, contributed to, or aggravated by any of the perils insured against by this policy; and nuclear reaction or nuclear radiation or radioactive contamination, all whether controlled or uncontrolled, is not considered "explosion" or "smoke."

 In addition to this exclusion, the policies discussed and clarified the relationship between the peril of fire and nuclear reaction. The discussion centered on a particular clause that was worded as follows:

 The word "fire" in this policy or endorsements attached hereto is not intended to and does not embrace nuclear reaction or nuclear radiation or radioactive contamination, all whether controlled or uncontrolled, (for a discussion on the meaning of "fire," see What Is "Fire"?) and loss by nuclear reaction or nuclear radiation or radioactive contamination is not intended to be and is not insured against by this policy or said endorsements, whether such loss be direct or indirect, proximate or remote, or be in whole or in part caused by, contributed to, or aggravated by "fire" or any other perils insured against by this policy or said endorsements; however, subject to the foregoing and all provisions of this policy, direct loss by "fire" resulting from nuclear reaction or nuclear radiation or radioactive contamination is insured against by this policy.

 The language of the clauses dealing with nuclear contamination or reaction, then, showed an intent to exclude practically all loss, whether direct or indirect, except that by fire resulting from nuclear reaction or radiation. However, in the one major test to date in the United States, the Three Mile Island incident that occurred in April 1979, several insurance companies surveyed by The National Underwriter took the position that the nuclear exclusion clause, at least in the homeowners policy, does not apply if the home is vandalized or burglarized after it has been evacuated due to the threat of nuclear contamination. It was felt that since "the vandalism and theft are not a direct result of any contamination, the nuclear exclusion clause does not apply." Furthermore, the exclusion itself stated that nuclear reaction or contamination is not explosion or smoke, thereby implying that losses due to such perils are covered even if caused by a nuclear reaction. Thus, the exclusion was not as omnibus in its application as perhaps was originally planned.

 However, just as the early fire policies have evolved into the current property coverage forms, so has the nuclear exclusion clause been revised. Several property insurance forms and the nuclear exclusion clauses on those forms are discussed in this article.

 The Nuclear Clause and Coverage Forms

 The ISO homeowners forms contain a nuclear hazard exclusion that refers to the conditions section of the coverage form. The nuclear hazard clause in the conditions section states that the policy does not apply to loss caused directly or indirectly by nuclear hazard, except that direct loss by fire resulting from the nuclear hazard is covered. "Nuclear hazard" is defined as "any nuclear reaction, radiation, or radioactive contamination, all whether controlled or uncontrolled or however caused, or any consequence of any of these." Loss caused by the nuclear hazard will not be considered loss caused by fire, explosion, or smoke, whether these perils are specifically named in or are otherwise included within the perils insured against section of the policy.

 The nuclear hazard exclusion in the farm property coverage form is somewhat simpler and more definite. This exclusion states that the insurer will not pay for loss or damage caused directly or indirectly by nuclear reaction, radiation, or radioactive contamination however caused. The form does, however, keep with tradition and continues the exception for loss or damage by fire that results from a nuclear reaction.

 For the ISO commercial property program, the causes of loss and the exclusions are listed on a separate form, depending on what causes of loss the insured wants covered. Regardless of whether the insurance is under the basic form, the broad form, or the special form, loss or damage caused directly or indirectly by nuclear reaction, radiation, or radioactive contamination is excluded; as with other property forms, loss or damage by a resulting fire is insured.

 The nuclear hazard exclusion on the Builders Risk Coverage form and the Businessowners form is handled with the same wording as in the preceding paragraph.

 The equipment breakdown form contains a slightly different nuclear hazard exclusion in that the exception to the exclusion for damage by resulting fire is not part of the clause. The nuclear hazard exclusion clause refers only to loss caused by or resulting from nuclear reaction, radiation, or radioactive contamination, however caused.

 Most of the inland marine forms have a nuclear hazard exclusion that precludes coverage for a loss caused directly or indirectly by any weapon employing atomic fission or fusion, or by a nuclear reaction, radiation, or contamination from any other cause; direct loss caused by a resulting fire would be covered if the fire is insured against under the coverage form. The mail coverage form is different in that, while damage from atomic weapons is excluded, the nuclear hazard as such is not mentioned in the form.

 The Personal Auto Policy physical damage coverage excludes loss due to or as a consequence of radioactive contamination. Loss caused by the discharge of any nuclear weapon is also excluded even if the discharge is accidental.

 Under the Business Auto Coverage Form, physical damage coverage section, the wording of the nuclear exclusion is a bit different. The exclusion on this form applies to the explosion of any weapon employing atomic fission or fusion; it also applies to nuclear reaction, radiation, or radioactive contamination, however caused. The garage coverage form and the truckers form also have this wording in their respective physical damage sections.

 The nuclear exclusion on the crime forms is simple and to the point, perhaps owing to the fact that a crime loss caused by nuclear or radioactive contamination is not exactly a common occurrence. The exclusion on the various crime forms states that the coverage will not apply to "loss or damage resulting from nuclear reaction or radiation or radioactive contamination, however caused"; a rather all-encompassing and generalized phrase, but a phrase that, in all probability, would not be the subject of many legal disputes due to such a minor chance of a crime claim arising from a nuclear loss.

 Finally, it should be noted that for information on the nuclear exclusion found in liability forms, see Nuclear Energy Liability Exclusion.

 The commercial property program causes of loss forms have an interesting clause dealing with legal liability coverage and nuclear hazard. Legal liability coverage is, of course, an agreement whereby the insurer agrees to pay those sums that the named insured becomes legally obligated to pay as damages because of a direct physical loss or damage (including loss of use) to covered property; the loss has to be accidental and arise out of any covered cause of loss. Though this pertains to legal liability, the coverage is offered under a property form.

 In any case, the causes of loss forms state that the nuclear hazard exclusion does not apply to the legal liability insurance that the insured has purchased. One might then think that, for example, if a tenant causes damage to his landlord's building due to nuclear or radioactive contamination (however caused), and that tenant is held legally liable for the damages, the legal liability coverage form would respond and pay those damages for which the insured is liable. Not so. The clause goes on to state that the insurer will not defend any claim or suit, or pay any damages or expenses resulting from nuclear reaction, radiation, or radioactive contamination, however caused. What this clause does, in effect, is to exclude the insured's legal liability coverage for damage due to the nuclear hazard. However, this clause does allow legal liability coverage for any damage done by a resultant fire. So, if the insured tenant is legally liable for damage done to his landlord's building as a result of nuclear contamination and a fire that ensued from that contamination, the cause of loss form would respond to the fire damage (fire legal liability) but not to the nuclear contamination damage.

 Relation to the War Exclusion

 It is important to note that there is no necessary relationship between the various war exclusion and governmental action clauses on the one hand and the nuclear clauses on the other. They are entirely separate things. The language in the older fire forms concerning discharge of a weapon of war employing nuclear fission and the like.—which was part of the war exclusion clause—was for some years the only direct reference to nuclear energy. Today, however, the nuclear clause stands on its own and the war exclusion clause speaks of war in general and does not concern itself with the discharge of nuclear fission weapons.