An insurance policy and insurance method for providing financial
assurance for decommissioning a nuclear power plant using insurance
is described. In one embodiment, a financial product, such as a
decommissioning insurance policy, provides financial assurance for
the decommissioning of a nuclear power facility, and provides, in
exchange for payment of a premium, for an insurer to pay actual
decommissioning expenses for the nuclear power facility between
a policy inception date and a policy termination date. In another
embodiment, the insurance policy includes a premium that is based
on an adjusted sum of costs and expenses that is equalized over
a plurality of scenarios, where each scenario is based on the decommission
starting, e.g., in a different year.
What is claimed is:
1. A method for providing financial assurance for decommissioning
a nuclear power facility via an insurance policy, the method comprising
the steps of: supplying, by an insurer, the insurance policy to
a trust, said insurance policy includes a predetermined monetary
premium payable to said insurer; receiving said premium by said
insurer from said trust; and paying by said insurer, in accordance
with terms of said insurance policy, actual decommission expenses
to said trust between a policy inception date and a policy termination
date, to provide financial assurance for decommissioning said facility
wherein said premium is calculated by: (a) determining a plurality
of scenarios, wherein each scenario is based on said decommissioning
starting on a different time schedule, and wherein each scenario
has a monetary sum; (b) determining a net present value (NPV) of
expected decommissioning expenses for each said scenario; (c) determining
a risk transfer element for each said scenario, said risk transfer
element being an NPV of unexpected expenses multiplied by a probability
of actual occurrence; (d) determining insurer expenses for each
said scenario, said insurer expenses being an NPV of expected expenses
incurred by an insurer of said facility; (e) adding the monetary
value of steps (b), (c), and (d), for each scenario, to calculate
said monetary sum of each said scenario; and (f) adjusting said
monetary sum of each said scenario, so that each said monetary sum
is substantially equal, wherein said premium of said insurance policy
is based on the adjusted sum.
2. The method of claim 1, further comprising the step of investing,
by said insurer, the received premium in a financial instrument.
3. The method of claim 2, wherein said step of paying actual decommission
expenses pays said trust using proceeds at least in part from the
4. The method of claim 1, wherein said step of paying pays said
actual decommission expenses to said trust, between the policy inception
and termination dates, based on a predetermined time schedule, wherein
said predetermined time schedule includes a plurality of stages.
5. The method of claim 4, wherein said stages include a first,
second, and third stage, wherein said first stage includes a time
period for removing spent fuel and disconnecting operating systems
from said facility, said second stage includes a time period for
dismantling all equipment and buildings of said facility, except
a reactor core and its shielding, and said third stage includes
a time period removing all materials with radioactivity levels above
a predetermined limit.
6. The method of claim 1, wherein said insurance policy is an existing
insurance policy between said policy inception and termination dates.
7. The method of claim 1, wherein said trust is one of a qualified
or non-qualified trust.
8. The method of claim 1, wherein the step of paying further pays,
in accordance with said terms of said insurance policy, unexpected
9. The method of claim 1, wherein said premium is received in one
of a onetime payment or a series of periodic payments.
10. The method of claim 1, wherein at least one of steps (a) (f)
is performed with a computer.
FIELD OF THE INVENTION
The present invention relates to a financial product and method
for providing financial assurance for decommissioning a nuclear
power plant using insurance. More specifically, the present invention
relates to a financial product, such as a decommissioning insurance
policy, and method for receiving premiums from a trust, investing
the received premiums, and paying actual decommissioning expenses
back to the trust in accordance with the decommissioning insurance
policy. Further, the present invention relates to a financial product
and method for determining the premium of the financial product.
BACKGROUND OF THE INVENTION
Nuclear Power Facilities and Licenses
The Nuclear Regulatory Commission ("NRC") sets requirements
for the safe operation of commercial nuclear power reactors, licenses
the construction and operation of the reactors, and inspects them
to assure they are operating safely within the agency's regulations.
According to the NRC, there are 103 operating nuclear power reactors
at 65 sites. These plants use nuclear energy to generate electricity
and generate approximately 22% of electricity in the United States.
From the 103 operating plants, there are approximately 48 licensees,
4 reactor vendors, and 80 different nuclear power plant designs.
Commercial nuclear power plants are licensed by the NRC for a 40-year
operating period with possible renewal of the license for an extended
period of operation of up to 20 additional years. The last new license
granted by the NRC was issued in 1978 and there are currently no
new licensing requests. Further, the NRC is not expecting any new
applications in the near future. However, in 1998 two plants, Calvert
Cliffs and Oconee, have applied for and received a 20-year license
renewal. Further, the NRC and other regulatory authorities may encourage
the extension of nuclear power plants in order to meet air emission
Unless license extensions are granted, all current licenses will
expire by 2035, including Calvert Cliffs and Oconee whose extensions
will expire in 2018. In particular, licenses for twelve plants will
expire by 2011, and licenses for thirty-six plants will expire between
2011 and 2015. It should also be noted that the NRC may issue an
order to a licensee to suspend or permanently cease operations if
the licensee fails to operate the facility in accordance with the
terms of the license.
Nuclear Value Chain--Nuclear Plants Considered as a Business
Due to low and steady variable costs, nuclear power plants provide
long-term stability of total costs. This allows nuclear power plants
to offer forward sales that capture a market premium which can be
much more valuable than the margin from low current production costs.
In particular, when the electricity industry is considered as a
business, the economic value of nuclear power plants can be defined
in stages. The Nuclear Energy Institute ("NEI") refers
to this analysis of economic value as the "nuclear value chain."
The nuclear value chain includes: Low production cost: The going
forward cost of electricity from a nuclear power plant is clearly
competitive when compared to the market clearing price of electricity
in the day-ahead market. However, nuclear units have significantly
more value than simply the price they receive for electricity in
the wholesale market. Improved performance: The industry can continue
to achieve improved performance through increased rates, shorter
refueling outages, higher fuel burn-ups, and better management of
O&M costs. Future price stability: Nuclear facilities can leverage
its high degree of future price stability by selling at a premium
to large users an assured source of electricity supply at a known
price. For example, presently some users in California are willing
to pay this premium to protect themselves against the damaging effects
of price volatility in the day-ahead market. Site value: Nuclear
power plants have significant additional site value, such as switchyards,
access to the power grid, ingress and egress, and spare cooling
capacity. In many cases, nuclear power sites were planned for more
units than were built, providing room to build additional non-nuclear
generation. Such diverse generation would enable a single site to
execute forward sales in the bilateral contract market and participate
in the day-ahead market, in particular selling highly profitable
10-minute spinning reserve capacity. Clean air compliance value:
The substantial emissions avoided by the use of nuclear energy reduce
the compliance obligation and associated costs for affected fossil-fueled
power plants, including capital outlays to bring fossil-fueled plants
Accordingly, based on the many advantages of nuclear power plants
shown in the above nuclear value chain, the number of new nuclear
power plants built, as well as the sale of existing plants, may
When nuclear facilities are shut down permanently, they enter a
decommission process which will lead to the release of the site
for unrestricted uses. Specifically, decommissioning a nuclear power
plant can be defined as the cessation of operations and the withdrawal
of the facility from service, followed by its transformation into
an out-of-service state and eventually, its complete removal. Decommissioning
activities are intended to place the nuclear facility in a condition
that provides for the health and safety of the general public and
the environment, while at the same time protecting the health and
safety of the decommissioning workers.
Decommission begins when operations at a nuclear power plant are
terminated. In most cases, the nuclear fuel, the mobile radioactive
materials in the process systems, and the radioactive waste produced
during normal operations are removed as soon as the plant ceases
to operate. Certain equipment can also be removed and discarded.
If the entire facility were to be dismantled immediately, however,
the decommissioning workers would be exposed to higher levels of
radiation than if the dismantlement were to be accomplished in several
steps. Therefore, decommissioning activities have been divided into
three stages. Each of these stages can be defined by two characteristics:
the physical state of the plant and its equipment, and the surveillance
needed to maintain that physical state. Stage 1 decommissioning
entails removing the spent fuel from the reactor, draining the liquid
systems, disconnecting the operating systems, blocking and sealing
the mechanical openings such as valves and plugs, and controlling
the atmosphere inside the containment building. The facility is
kept under surveillance, access is limited and routine inspections
are carried out to assure that the plant remains in a safe condition.
Stage 2 decommissioning requires all equipment and buildings which
can be easily dismantled to be removed or decontaminated and made
available for other uses, leaving only the reactor core structure
and its extensive shielding. The containment building and the ventilation
system may be modified or removed if they are no longer needed for
safety reasons, or they may be decontaminated to allow access for
other purposes. Other buildings and equipment which are not radioactive
may be converted for new purposes as well. Surveillance during Stage
2 is reduced, but it is desirable to continue periodic spot checks
of the buildings as well as surveillance of the surrounding environment.
Stage 3 decommissioning requires that, unless the site, buildings
or equipment are to be re-used for other nuclear purposes, all materials
with radioactivity levels exceeding those closely equivalent to
the natural radiation environment will be removed and the site released
without restrictions or further surveillance.
These three stages may be carried out by rapidly progressing from
one stage to the next or carried out over a prolonged period lasting
as long as 100 years or more. Although most facilities intend to
complete all three stages, a facility could remain at Stage 1 or
Stage 2 for a relatively long period of time, or decommissioning
could proceed directly from Stage 1 to Stage 3.
According to the NRC, however, decommissioning must be completed
within 60 years of permanent cessation of operations. In contrast,
conservation groups such as the Sierra Club lobby for a 30 to 50
year completion time-frame. However, some decommissioning tasks
cannot begin immediately after plant cessation. For example, current
dry storage cask designs are licensed for spent fuel with a core
discharge decay time averaging approximately five years or longer.
Therefore, decommissioning operations for the plant's "fuel
building" cannot be expected to begin prior to five years after
the cessation of plant operations.
One open question regarding NRC licensing relates to possible deregulation
of the nuclear power industry. Deregulation may cause some NRC licensees
to cease being an "electric utility", as defined in NRC
regulations. If this occurs, the NRC will require the licensees
to meet more stringent decommissioning funding assurance requirements
that apply to non-electric utilities. Further, NRC is considering
revising its financial and decommissioning funding assurance requirements.
Acceptable Decommissioning Alternatives
Decommissioning involves three different alternatives: DECON, SAFSTOR,
or ENTOMB. Under DECON (immediate dismantlement), shortly after
the nuclear facility closes, equipment, structures, and portions
of the facility containing radioactive contaminants are removed
or decontaminated to a level that permits release of the property
and termination of the NRC license. Note that the required work
force during DECON is one-third to one-tenth the required number
of people employed during normal operations. As is evident, the
work force and associated costs are high.
Under SAFSTOR, often called "delayed DECON," a nuclear
facility is maintained and monitored in a condition that allows
the radioactivity to decay; afterwards, the nuclear facility is
dismantled. For example, if a new plant is built next to an existing
plant, then this will enable the existing plant to go into SAFSTOR
upon license expiration. The personnel that operate the new plant
will be able to look over the SAFSTOR plant without incurring significant
costs. Therefore, decommissioning the plant after SAFSTOR will lower
the cost of decommissioning. It follows that if new nuclear power
plants are ever built, it would be likely that they would be built
next to existing facilities. This may allow the older facilities
to be placed into SAFSTOR at little cost.
Under ENTOMB, radioactive contaminants are encased in a structurally
sound material such as concrete and appropriately maintained and
monitored until the radioactivity decays to a level permitting release
of the property. ENTOMB is not presently allowed by NRC regulations
but is under consideration as a possible option.
A licensee may also choose to adopt a combination of the first
two alternatives in which some portions of the facility are dismantled
or decontaminated while other parts of the facility are left in
SAFSTOR. The decision may be based on factors besides radioactive
decay such as availability of waste disposal sites. However, most
facilities will use either immediate DECON or a DECON after some
period of SAFSTOR.
As stated, under NRC regulations, decommissioning must be completed
within 60 years. A time beyond that will be considered only when
necessary to protect public health and safety in accordance with
Actual Decommissioning Experience
As of January 1998, there have only been five plants that have
completed the DECON process, three nuclear power plants, and two
Department of Energy ("DOE") plants. Further, six nuclear
power plants are now in various stages of dismantlement and decontamination
and eleven nuclear power reactors are currently in long term storage
Decommissioning Cost Estimates
The total cost of decommissioning is dependent on the sequence
and timing of the various stages one through three, described above.
Deferment of a stage tends to reduce its cost, due to decreasing
radioactivity, but this may be offset by increased storage and surveillance
Even allowing for uncertainties in cost estimates and applicable
discount rates, decommissioning contributes less than 5% to total
electricity generation costs. In the United States, many utilities
have revised their cost projections downwards in the light of experience,
and estimates from 1998 now average $325 to $500 million per reactor
Financing methods vary; however, the most common methods are: Prepayment:
Money is deposited in a separate account to cover decommissioning
costs even before the plant begins operation. This may be done in
a number of ways but the funds cannot be withdrawn other than for
decommissioning purposes. External sinking fund (Nuclear Power Levy):
A fund is built up over the years from a percentage of the electricity
rates charged to consumers. Proceeds are placed in a trust fund
outside the utility's control. This method is the main method in
the United States, where sufficient funds are set aside during the
reactor's operating lifetime to cover the cost of decommissioning.
Surety fund, letter of credit, or insurance: Purchased by the utility
to guarantee that decommissioning costs will be covered even if
the utility defaults.
In the United States, utilities generally collect 0.1 to 0.2 cents
per kW-hour to fund decommissioning. They must then report regularly
to the NRC on the status of their decommissioning funds. As of 1998,
$22.5 billion of the total estimated cost of decommissioning all
U.S. nuclear power plants had been collected, leaving a liability
of about $9.5 billion to be covered over the operating lives of
103 active reactors.
Further, in accordance with NRC regulations, decommissioning cost
estimates are required at five different periods, which are: 1)
at the time of NRC licensing, 2) five years before anticipated shutdown,
3) with a Post-Shutdown Decommissioning Activities Report (PSDAR)
submittal, 4) two years following shutdown (this is the first time
that the cost estimate has to be site specific, prior to this the
facility could use estimates from similar sites as their basis),
and 5) two years preceding the anticipated termination of the license.
Note that decommissioning costs do not include the cost of removal
and disposal of spent fuel or of non-radioactive structures and
materials beyond that necessary to terminate the license.
Nuclear Decommissioning Trusts
As should be appreciated, nuclear facilities have extraordinary
costs at the end of their lives. By NRC regulation, these costs
must be collected and managed during the life of the facility, creating
several valuation issues. As the term of its license ends, a nuclear
facility will be decommissioned and radioactive portions safely
removed or contained. As stated, typical decommissioning costs for
nuclear facilities approach $500 million dollars per reactor, based
on NRC minimum facility funding for a large nuclear unit. Although
funding depends on unit size, and other factors, these current dollar
estimates for decommissioning costs and the future cost could be
triple this estimate, or more, by the end of a typical full life
of these facilities.
By regulation, the dollars collected for decommissioning are periodically
deposited into an externally managed investment fund or trust (external
sinking fund), discussed above, and kept separate from an owner's
other assets. The objective is to accrue an amount that is sufficient
to pay for decommissioning costs as of the termination date of the
Two types of trust funds can be used to accrue amounts for decommissioning:
a qualified trust fund and a non-qualified trust fund. The non-qualified
trust fund receives no special tax treatment, whereas the qualified
trust fund is provided special timing considerations and tax benefits.
Internal Revenue Code Section 468A allows for the establishment
of qualified trust funds.
Under the qualified trust funds, contributions to these funds are
immediately deductible in computing taxable income. Although any
revenue that may be received specifically for decommissioning is
included in taxable income, the contributions to a qualified trust
fund are immediately deductible as an offset. The net effect is
that no taxable income will be recognized until expenditures are
actually incurred for decommission, at which time actual decommissioning
costs are treated as deductible expenses. This tax method has the
advantage of recognizing revenues during the same future tax-period
that the expense will be incurred.
In contrast, contributions to non-qualified trust funds are treated
as income during the tax period earned and therefore are not immediately
deductible. Thus, while amounts collected from customers are included
in taxable income, the contribution to a non-qualified trust does
not offer a current tax deduction. Consequently, non-qualified funds
collected from customers need to include a "gross up"
for taxes, to allow sufficient after-tax amounts to fund the trusts.
The income earned by the funds is also subject to different tax
rates. Qualified funds are subjected to a 20% federal tax rate.
The non-qualified funds are taxed at the federal tax rate, which
currently is typically 35%. Although it is advantageous to maximize
contributions to a qualified find, the amount that is allowed for
deposit into a qualified trust fund is restricted by rules governed
by the state regulatory commission and the Internal Revenue Service.
Any amounts withdrawn from a qualified fund are taxable during
the tax period of the withdrawal. For the non-qualified find, however,
there is no taxable income recognition on withdrawal from the funds
because no tax deduction had been allowed on the original contribution.
A tax deduction for the actual decommissioning costs expended is
taken for both types of funds during the tax period of the expenditure.
Therefore, to the extent that money withdrawn from a qualified fund
is used to meet decommissioning expenses, there will be an equal
offset between revenue and expenses for the tax period.
For example, NISA Investment Advisors, L.L.C. ("NISA")
manages $2.4 billion in fixed income and equity portfolios for twenty-one
Nuclear Decommissioning Trust clients. NISA has estimated that the
total qualified decommissioning trust has $16.3 billion in assets
while the total non-qualified decommissioning trust has $5.6 billion.
Equity allocations in qualified trusts and non-qualified trusts
continue to grow with target allocations of 55% for both trusts.
Currently, the qualified trusts equity allocation is 48% of assets,
while the non-qualified equity allocation is 56% of assets. NISA
expects 1999 total contributions to qualified decommissioning trusts
to be $1,074 million, and $356 million for non-qualified trusts.
In addition, 58% of the investor owned nuclear decommissioning trusts
are subject to state income taxes. The median state tax rate is
7.8%, where the maximum is 12.8% and the minimum is 2.0%. NISA published
after-tax asset returns for investor owned decommissioning trust
in 1998 are:
TABLE-US-00001 Nominal Real* Qualified 6.7% 2.5% Non-Qualified
6.2% 1.8% *Estimated real returns are the difference between sponsors'
nominal return and inflation assumptions.
A 1998 study conducted by NISA indicated the following factors
that contribute to the uncertainty of funding of the decommissioning
liability, according to owners. These factors are (ranked by degree
of uncertainty): Waste Disposal Cost Inflation Regulatory Environment
Asset Returns Early Decommissioning Deregulation Labor Cost Inflation
Energy Cost Inflation Method of Decommissioning Nuclear Decommissioning
NRC licensees are required to annually adjust the amount of decommissioning
funding assurance based on inflation estimations. For example, decommissioning
cost inflation assumptions declined by 40 basis points ("bps")
over the past two years, slightly less than the decline in the Consumer
Price Index ("CPI").
According to NISA, the inflation average rate is 4.3% with a median
rate of 4.1% and a standard deviation of 1.3%. A 1999 study conducted
by NISA indicated that the average inflation assumption for waste
burial costs, accounting for 22% of total decommissioning costs,
were 9.9%. Adjustments by licensees are either based upon a revised
decommissioning estimate or by using the following inflation adjustment
factor (set for by the NRC): 0.65L+0.13 E+0.22 B where L=Labor escalation
factor E=Energy and transportation escalation factor B=Escalation
factor for waste burial Correlation of Decommissioning and CPI Inflation
As part of the CPI, Labor and Energy costs are naturally correlated
therewith. Although, low level waste may not be correlated with
the CPI, based upon the above formula, the annual low-level waste
inflation would need to be 27% in order to have the total decommissioning
inflation be 6.0% above CPI.
The costs for low-level waste disposal are determined by market
conditions of the demand for the disposal of low-level waste and
the supply capacity of facilities that can accept the low-level
waste. Currently, there are only three facilities that are licensed
to accept low level waste: Barnwell (in South Carolina), Hanford
(in Washington), and Clive (in Utah). Historical escalation of low-level
waste has been higher than CPI escalation; however, for the following
reasons, this may not be the case in the future: 1. The Federal
government has stated that it is the individual state's responsibility
to dispose of the low-level radioactive waste. The states have formed
eleven compacts to date where the states within each compact will
work together to decide upon, where to develop new disposal facilities
that could be used for all of the states within that compact. There
will be economic pressure on the states to develop their own disposal
sites if the low-level disposal costs continue to escalate, or as
the existing facilities reach their waste capacity. 2. Rapidly increasing
fees for disposal of low-level waste have spawned the creation of
a niche market for firms specializing in the management of low-level
waste. Since these firms are controlling the low level waste disposal
of several companies, they are in a better position to negotiate
disposal fees. These firms also specialize in volume reduction or
waste treatment so that the waste could be disposed of in solid
waste landfills. 3. Efficiencies in decommissioning should be studied
as more and more nuclear power plants go through decommissioning.
Decommissioning Financial Assurance Requirements
An NRC licensee may take credit for projected earnings on the prepaid
decommissioning trust funds using a 2% annual real rate of return
from the time of future funds' collection through the projected
decommissioning period. This includes the periods of safe storage,
final dismantlement, and license termination, if the licensee's
rate-setting authority does not authorize the use of another rate.
However, actual earnings of existing funds may be used to calculate
future find needs.
Insurance Requirements for Financial Assurance of Decommissioning
Any surety method or insurance used to provide financial assurance
must be open-ended, or if written for a specific term, must be renewed
automatically. The exception is if ninety days or more preceding
the renewal date, the issuer notifies the Commission, the beneficiary,
and the licensee of its intent to not renew. The surety or insurance
must also provide that the full amount be paid to the beneficiary,
automatically preceding the expiration date without proof of forfeiture,
if the licensee fails to provide a replacement acceptable to the
Commission within thirty days after receipt of notification of cancellation.
In addition, the surety or insurance must be payable to a trust
established for decommissioning costs, and the trustee and trust
must be acceptable to the Commission. The surety method or insurance
must remain in effect until the commission has terminated the license.
Acceptable Payments for Decommissioning
The NRC licensee is permitted to use 3% of the generic amount of
decommissioning funds, even while the facility is operating for
engineering design, work package preparation, and licensing activities.
After submitting the certification of permanent cessation of operations
and the certification that the fuel has been removed from the reactor
vessel, the licensee may use an additional 20% of the funds for
any legitimate decommissioning activities. However, the licensee
is prohibited from using the remaining 77% of the generic decommissioning
funds until a site specific cost estimate is submitted to the NRC.
Further, the licensee must not perform any decommissioning activity
that results in there no longer being reasonable assurance that
adequate funds will be available for decommissioning.
Disposal of High-Level and Low-Level Radioactive Waste
During decommissioning, both high-level and low-level radioactive
waste must be disposed of properly. High-level radioactive wastes
are: (1) irradiated (spent) reactor fuel; (2) liquid waste resulting
from the operation of the first-cycle solvent-extraction system,
and the concentrated wastes from subsequent extraction cycles in
a facility for reprocessing irradiated fuel; and (3) solids into
which such liquid wastes have been converted.
The DOE became responsible for the permanent disposal capacity
for spent fuel and other high-level nuclear wastes in the Nuclear
Waste Policy Act of 1982. The DOE was suppose to be able to accept
waste in 1998; however, the DOE is still investigating possible
sites. Presently, Yucca Mountain in Nevada is under investigation
as a possible disposal facility; however, it is not likely that
this site will be available prior to 2015.
Although the DOE is responsible for the disposal of the spent fuel,
the licensees are incurring significant costs in the construction
and monitoring of the ISFSI (Independent Spent Fuel Storage Installation)
which is required since the DOE is not ready to accept the spent
fuel. This has created a tremendous amount of litigation where the
licensees are suing the DOE. It is expected that this litigation
may go on for several years.
Low-level waste is any radioactive waste that is not classified
as high-level waste. As stated above, there are currently only three
active licensed disposal facilities of low-level radioactive waste.
U.S. Price Anderson Act
The Price Anderson Act provides coverage for "any legal liability"
arising from a "nuclear incident" with three specific
exclusions: (1) worker's compensation claims for persons employed
at the site in connection with the activity, (2) claims arising
out of an act of war, and (3) damage to property at the site used
in connection with the activities of the licensee. This last exclusion
implies that the Price Anderson Act does not cover decommissioning
Federal Statutes require reactor operators to maintain primary
financial protection equal to the maximum amount of liability insurance
available from private insurance sources at reasonable terms. See
10 C.F.R. .sctn. 50.54(w).
The Act provides a three layered system of financial protection
and indemnity agreements. In the first tier, licensees are required
to provide proof of financial assurance protection in an amount
equal to the maximum liability insurance available from private
sources, currently $200 million. The second tier provides for a
retrospective premium payment mechanism, whereby the industry would
share liability for any damage resulting from a nuclear incident,
currently $9.5 billion. In the event of such an incident, each commercial
reactor licensee would be assessed a prorated share of damages up
to the statutory maximum of $83.9 million per reactor per incident,
but are limited to no more than $10 million annually per reactor
per incident. In the third tier, the indemnity is guaranteed by
the U.S. government.
To meet the requirements of 10 C.F.R. .sctn. 50.54(w), nuclear
power plant licensees need to purchase the maximum coverage available.
Currently, there are two levels of property insurance that provide
coverage of post-accident stabilization and decontamination costs,
"primary" and "excess" coverages.
For example, both American Nuclear Insurers ("ANI") and
Nuclear Electric Insurance Limited ("NEIL") offer primary
property coverage up to a limit of $500 million. ANI offers excess
coverage in the amount of $600 million, and NEIL offers excess coverage
in the amount of $2.25 billion. The combined amount of coverage
available is at least $1.1 billion, and potentially as much as $3.85
billion in property insurance.
It is therefore an object of the present invention to provide a
financial product and method for providing financial assurance for
decommissioning a nuclear power plant using insurance.
Another object of the present invention is to provide a financial
product, such as a decommissioning insurance policy, and method
for receiving premiums from a trust, investing the received premiums,
and paying actual decommissioning expenses back to the trust.
A further object of the present invention is to provide a financial
product and method for accurately determining the premium of the
financial product independent of the actual year decommissioning
Various other objects, advantages and features of the present invention
will become readily apparent from the ensuing detailed description
and the novel features which will be particularly pointed out in
the appended claims.
SUMMARY OF THE INVENTION
The present invention is directed to an insurance policy and insurance
method wherein an insurance company agrees to pay on behalf of an
insured (e.g., a qualified or non-qualified nuclear decommissioning
trust) the decommissioning costs incurred by the insured which occur
after a policy inception date and before a policy termination date
that are required to decommission one or more nuclear power plants.
In one embodiment, an insurance policy provides financial assurance
for the decommissioning of a nuclear power facility. The policy
provides, in exchange for payment of a premium, for an insurer to
pay actual decommissioning expenses for the nuclear power facility
between a policy inception date and a policy termination date. As
an aspect of this embodiment, the insurer will invest the received
premium in, e.g., securities, and will use the accrued value of
the premium to pay the actual decommissioning expenses in accordance
with the terms of the policy.
In another embodiment, an insurance policy, issued by the insurer,
such as an insurance company, for decommissioning a nuclear power
facility, includes a monetary premium that is determined based on
a plurality of scenarios. Each scenario is based on the decommission
starting on a different time schedule, e.g., by year, where each
scenario has a monetary sum of estimated expenses and risk.
The premium is based on an adjusted sum of the scenarios, where
the adjusted sum is determined by 1) determining a net present value
(NPV) of expected decommissioning expenses for each scenario, 2)
by determining a risk transfer element for each scenario, where
the risk transfer element is an NPV of unexpected expenses multiplied
by a probability of actual occurrence, and 3) by determining insurer
expenses for each scenario, where the insurer expenses are an NPV
of expected expenses incurred by an insurer of the nuclear facility.
The above three NPVs are then added for each scenario, to calculate
the monetary sum of each scenario. The monetary sum of each scenario
is then adjusted, so that each monetary sum is substantially equal
to one another. The premium of the insurance policy is based on
the adjusted sum. As an aspect of this insurance policy, an insurance
profit value is added to the adjusted sum to obtain the premium.
Note that all of the above is preferably performed by a computerized
In addition, the inventive financial products advantageously offer
tax efficiencies. For example, regarding tax implications of transferring
non-qualified trust funds when a nuclear power plant is sold, the
inventive financial products and methods provide tax efficiencies
on the transfer of such non-qualified funds.
Further, under the existing decommissioning trust accounts, the
contributions to the qualified trust fund accounts should be tax
deductible when paid into the trust, while the contributions to
the non-qualified trust fund accounts may need to wait until the
actual decommissioning costs are paid out before a deduction may
be taken. Under the inventive financial products and methods, the
entire premium payment may be tax deductible when paid.
In addition, regarding interest income, under the existing decommissioning
trust accounts, the qualified trusts are taxed at a 20% rate, while
the non-qualified accounts are taxed at the corporate rate (typically
35%). Under the inventive financial products and methods, the interest
income will be earned in a tax deferred environment, from the insured's
Further, the insured will have better ability to access funds.
The inventive financial products may be set up to pay for maintenance
of the facility, while providing adequate coverage for decommissioning.
As another advantage, the inventive financial product may be AAA
rated. Such a AAA rating is very important to the NRC, since the
companies that are looking at acquiring the nuclear power plants
are generally private companies (not utilities). The NRC will want
to make sure that a financially strong company is providing the
In addition, the inventive financial product provides financial
assurance to the seller of a nuclear power plant that the decommissioning
obligations are secured. The seller may also require the potential
buyer to demonstrate that money will be available for the ultimate
As yet another advantage, the inventive financial product maybe
set up to allow the owner of several plants to pool their exposure.
Such advantages listed above are merely illustrative and not exhaustive.
Further, these and other features and advantages of the present
invention will become more apparent from the accompanying drawings
and the following detailed description.
BRIEF DESCRIPTION OF THE DRAWINGS
The following detailed description, given by way of example and
not intended to limit the present invention solely thereto, will
best be understood in conjunction with the accompanying drawings
FIG. 1 schematically illustrates the process of providing insurance
for decommissioning a nuclear power plant, in accordance with the
FIG. 2A schematically illustrates a plurality of scenarios for
decommissioning a nuclear power plant, in accordance with the present
FIG. 2B is a flow chart of a process for calculating a premium
for an insurance policy for decommissioning a nuclear power plant,
in accordance with the present invention.
FIG. 3 schematically illustrates a computer system used to calculate
the premium according to the process of FIG. 2B, in accordance with
the present invention.
DETAILED DESCRIPTION OF THE INVENTION
FIG. 1 schematically illustrates the use of an insurance policy
to provide financial assurance for decommissioning a nuclear power
plant, according to the present invention.
As shown in step 1 of FIG. 1, an insurance company 10 delivers
an insurance policy 12 to cover the costs of nuclear power plant
decommissioning. As an example, insurance policy 12 may include
several items, such as the name and address of the insured, the
policy period (policy inception date and policy termination date),
the covered locations(s), the limit of liability, the self-insured
retention, co-insurance participation percentage, and policy premium.
An example of insurance policy 12 is described below. Illustratively,
the insurance policy is held by a nuclear decommissioning trust
14. As shown, the trust 14 may be a qualified or non-qualified trust.
In step 2, the trust, in turn, delivers a one-time premium payment
16 (or alternatively a time sequence of premium payments, not shown)
to insurance company 10. An illustrative computer implemented method
for calculating the premium is described below in connection with
FIGS. 2A, 2B, and 3, described in detail hereinbelow.
In step 3, the insurance company invests the premium in financial
instruments, such as securities 18 and commodities, which are chosen
according to conventional techniques. For example, securities 18
may include zero coupon bonds and Treasury Inflation Protected Securities
(TIPS). The investments are structured so that funds for decommissioning
expenses are available at the appropriate times.
In step 4, at an appropriate time according to a decommissioning
plan, the insurance company pays to the policy holder the decommission
expenses 20 including any unexpected decommissioning expenses within
the limits of the insurance policy. Payments may be made for each
actual decommissioning expense. For example, payments may be made
during each of the three stages described heretofore, where the
first stage includes a time period for removing spent fuel and disconnecting
operating systems from the nuclear facility, the second stage includes
a time period for dismantling all equipment and buildings of the
nuclear facility, except a reactor core and its shielding, and the
third stage includes a time period removing all materials with radioactivity
levels above a predetermined limit. The time sequence of payments
will be set forth in insurance policy 12.
In step 5, the actual decommissioning of the plant 22 commences.
FIGS. 2A, 2B and 3 illustrate how the premium of the insurance
policy is determined. FIG. 2A shows a plurality of decommissioning
plans or scenarios for a particular nuclear power plant. For both
new and existing decommissioning insurance policies, typically neither
the insurer nor the facility know the precise year that decommissioning
will take place. Of course, the cost for decommissioning, as well
as the cost estimates of such decommissioning, will change depending
on when (e.g., in what year) the decommission begins. Generally,
the costs will increase each year decommissioning is delayed. For
this reason, the inventive method provides that a plurality of "scenarios"
be included in the insurance financial product (i.e., in the insurance
policy), where each scenario is based on the decommission starting,
e.g., in a different year. In this manner, the premium may be accurately
determined, as set forth below.
As shown in FIG. 2A, each scenario is a sequence of expected annual
dollar payments for the decommissioning expenses, and each scenario
has a different start year. Thus, scenario 1 starts in year 1, scenario
2 starts in year 2, and scenario N starts in year N.
FIG. 2B illustrates an exemplary flow-chart of the method for determining
the premium using scenarios as discussed above. As stated, each
scenario contains a set of "expected annual expenses"
related to the decommission starting from the year the decommission
starts in the particular scenario, which can be expressed as the
net present value ("NPV") of the expected expenses. Further,
each scenario includes a set of "risk transfer" values
and "expenses to the insurer" values, which can both be
represented in NPV terms as well. Note that the NPV of each are
determined in monetary values.
To determine the risk transfer value for each scenario, it is determined
in NPV how much risk, above the expected decommission payments,
is transferred to the insurer. Usually, the amount of risk transferred
is above a floor amount and below a ceiling amount. Specifically,
for each scenario, the NPV of the risk transfer is unexpected expenses,
in each year, weighted by a probability of actual occurrence. As
will be described below, the net present value of the risk to be
transferred to the insurer is added to the net present value of
the stream of expected decommissioning payments described above.
To determine the insurer expenses for each scenario, the expenses
that the insurer will incur in connection with the decommission
are determined. For example, such expenses may be monitoring programs,
engineering expenses, taxes, etc. As will be described below, the
net present value of these expected expenses is added to the sum
of the expected NPV and risk NPV.
Referring to FIG. 2B, in step 100, the NPV of the expected expenses
for decommissioning of each scenario is determined. Thus, there
is obtained for each scenario the NPV of the expected decommissioning
expenses. This is the first element in the premium.
In step 110, the NPV of the risk transfer of each scenario is added
to each respective NPV of the expected expenses of each scenario.
As stated, the risk transfer value is an amount above the expected
decommissioning expenses for which the insurance company will be
responsible if events require such expenses to be incurred. Note
that scenarios having different risk transfer levels will have different
NPVs of the risk transfer. This is the second element in the premium.
In step 120, the NPV of insurer expenses, such as monitoring costs,
engineering expenses, and taxes, is determined and added to each
scenario, respectively. This is the third element in the premium.
These three NPV elements, added together, may be referred to as
the "monetary sum" for each scenario.
It should be noted that the monetary sum for each scenario will
generally be different for each scenario. In order to arrive at
a single premium value, the sums for the different scenario are
equalized, in accordance with the present invention. This is accomplished
by adjusting (e.g., subtracting) each monetary sum by a "self-insured
retention" value for each scenario. The self-insured retention
represents the amount of self insurance provided by the insured
party for each scenario. By providing a self insurance retention
value separately for each scenario, the sums described above may
be equalized across all the scenarios, so that there is a single
premium for all scenarios in the insurance policy. The self insured
retention value schedule is usually attached to the insurance policy,
as indicated above with reference to insurance policy 12.
Accordingly, in step 130, all monetary sums (for each scenario)
are made equal by adjusting the monetary sums by a respective self-insured
retention. Thus, an adjusted sum, which is substantially the same
for each scenario, is obtained.
In step 140, an "insurer profit" is added to the adjusted
sum to arrive at the premium (step 150). The profit is an amount
determined by the insurer and agreed to by the insured. Because
the premium is invested on behalf of the insured (i.e., the trust)
in step 3 of FIG. 1, the insurer does not profit from either the
premium payment (absent the added insurer profit) or the interest
accrued therefrom. As stated, these are used to pay the decommissioning
Illustratively, the process of FIG. 2B may be implemented by a
computer system 300, shown in FIG. 3. Generally, computer system
300 will have a local hard drive 350 that stores a software program
to compute the premium as set forth in FIG. 2B. Such software program
may be written in any desired programming language, such as C++
or Java. In addition, the software program may be located at a remote
server across the Internet or over a dedicated line (not shown).
Further, the process of FIG. 2B may be implemented in hardware or
firmware (not shown). As illustrated, the input to the computer
system 300 are the scenarios 305, risk transfer amounts 310, insurer
expenses 315, insurer profit 320, and self-insurer retention 325.
The output of computer 300 is the premium 360.
It should be appreciated that the above financial product and method
of utilizing the insurance policy to provide financial assurance,
as well as the above financial product and method of determining
the premium, is equally applicable to new and existing decommissioning
insurance policies. For example, existing policies that are currently
in effect may be converted to the inventive decommissioning insurance
An example of insurance policy 12 is now set forth:
Nuclear Decommissioning Insurance Policy
POLICY NUMBER: Item 1: NAMED INSURED: ADDRESS: Item 2: POLICY PERIOD:
(a) POLICY INCEPTION DATE: (b) POLICY TERMINATION DATE: (12:01 A.M.
standard time at the address stated in Item 1.) Item 3: COVERED
LOCATION(S): Item 4: LIMIT OF LIABILITY: Item 5: SELF INSURED RETENTION:
Item 6: CO-INSURANCE PARTICIPATION PERCENTAGE: Item 7: POLICY PREMIUM:
Broker: ______ ______ Authorized Representative
Summary of Coverage
Refer to Policy Terms for Complete Coverage Information
The coverage provided by this policy is for "Decommissioning
Costs" as defined in Section II This policy has certain provisions
and requirements unique to it and may be different from other policies
the Named Insured may have purchased. The policy requires that the
"Decommissioning Costs" be first incurred by the Named
Insured during the policy period and reported in writing to the
Company during the same policy period.
Various provisions throughout this policy restrict or exclude coverage.
Please read this entire policy carefully.
Terms appearing in boldface are defined in Section II of this policy.
Nuclear Decommissioning Insurance Policy
In consideration of the payment of the premium listed under Item
7 of the Declarations, in reliance upon the statements in the Declarations
and Application made a part hereof and subject to all terms of this
policy, the Company agrees with the Named Insured as follows:
Section I. Insuring Agreement
The Company agrees, subject to the terms, conditions and limits
of this policy, to pay on behalf of the Insured, the Decommissioning
Costs the Insured first incurs on or after the Policy Inception
Date and before the Policy Termination Date, which are required
to Decommission the Covered Location(s).
Secton II. Definitions
A. Application means the submission and application and other materials
submitted by the Insured to the Company in connection with the issuance
of this Policy, including without limitation, the Decommissioning
Plan, the PASDAR and [LIST OTHERS]. B. Bodily Injury means physical
injury, or sickness, disease, mental anguish or emotional distress
whether or not accompanied by physical injury, sustained by any
person, including death resulting therefrom. C. Co-Insured Participation
means the percentage of Decommissioning Costs the Insured must bear
in excess of the Self-Insured Retention as shown in Item 6 of the
Declarations. D. Covered Location(s) means the Nuclear Power Station
designated in Item 3 of the Declarations. E. Decommission or Decommissioning
means the safe removal of a facility from service and reduction
of residual radioactivity to a level that permits termination of
the NRC license under an Unrestricted use or a Restricted use standard.
F. Decommission Costs means reasonable and necessary costs, charges
and expenses incurred for Decommissioning as described in the Decommissioning
Plan. However, Decommissioning Costs do not include: 1. Costs, charges
or expenses incurred for litigation, arbitration or other form of
dispute resolution in any way related to or in connection with Decommissioning,
including fees of attorneys, consultants, investigators, adjusters
and experts, unless otherwise expressly consented to in writing
and in advance by the Company; or 2. Costs for SAFSTOR or ENTOMB
unless otherwise expressly consented to in writing and in advance
by the Company; or 3. Transportation and disposal costs of High
Level Wastes. G. Decommissioning Plan means the documentation attached
to and forming part of this policy, which describes the Decommissioning
activities to be undertaken at the Covered Location. H. Decontamination
means any action taken following a Nuclear Incident to reduce the
levels of radioactivity present at the Covered Location or its environs
to those allowable under 10 C.F.R. Part 20, including without limitation
those actions identified in 10 C.F.R. .sctn. 50.54 (w)(4)(ii). I.
ENTOMB means the following method of Decommissioning: radioactive
structures, systems, and components are encased in a structurally
long-lived substance, such as concrete. The entombed structure is
appropriately maintained, and continued surveillance is carried
out until the radioactivity decays to a level that permits termination
of the license. J. High Level Wastes means (1) irradiated (spent)
reactor fuel; (2) liquid waste resulting from the operation of the
first-cycle solvent-extraction system, and the concentrated wastes
from subsequent extraction cycles in a facility for reprocessing
irradiated fuel; and (3) solids into which such liquid wastes have
been converted. K. Insured means the Named Insured or Additional
Insured, and any director, officer, partner or employee thereof
while acting within the scope of his/her duties as such. L. Named
Insured means the person or entity designated as such in Item 1
of the Declarations. M. NRC means the Nuclear Regulatory Commission,
or any governmental agency or body that shall succeed to its functions.
N. Nuclear Incident means any occurrence causing loss of or damage
to property, arising out of or resulting from the radioactive, toxic,
explosive, or other hazardous properties of source, special nuclear,
or byproduct material (as those terms are defined in 10 C.F.R. .sctn.
50.2) present at the Covered Location. O. Policy Inception Date
has the meaning given in Item 2(a) of the Declarations. P Policy
Period has the meaning given in Item 2 of the Declarations. Q. Policy
Termination Date means the earliest of the following: 1. The date
set forth in Item 2(b) of the Declarations; 2. The date on which
the Limit of Liability shown in Item 4 of the Declarations is exhausted;
or 3. When the Insured receives written approval from the NRC and
the State Regulatory Agency that Decommissioning has been completed.
The Policy Termination Date shall not be extended by the exercise
of any rights held by a governmental entity to reopen, reconsider
or otherwise cause the Insured to perform Decommissioning after
previously having approved or acknowledged that Decommissioning
has been completed at the Covered Location. R. Property Damage means
the physical injury to or destruction of real or personal property,
other than Decommissioning Costs covered under this policy, including:
1. the resulting loss of use thereof, 2. loss of use of real or
personal property that has not been physically injured or destroyed;
or, 3. diminution in value of real or personal property or any other
economic or consequential loss. S. PASDAR means a post-shutdown
decommissioning activities report. T. Restricted Use means that
the licensee has demonstrated that further reductions in residual
radioactivity would result in net public or environmental harm or
residual levels are as low as is reasonably achievable, and the
licensee made provisions for legally enforceable institutional controls
(e.g., restrictions placed in the deed for the property describing
what the land can and cannot be used for), which provide reasonable
assurance that the radiological criteria set by the NRC will not
be exceeded. U. Self-Insured Retention means the amount of Decommissioning
Costs stated in Item 5 of the Declarations which the Insured has
retained for its own account and which are characterized as a self-insured
retention. V. Unrestricted Use means that there are no restrictions
on how the site may be used.
Section III. Exclusions
This Policy does not apply to Decommissioning Costs arising from
or in any way in connection with: 1. Any Bodily Injury; 2. Any Property
Damage; 3. Any liability to any third-party for any reason whatsoever,
other than for Decommissioning Costs otherwise covered under this
policy; 4. Any expense, charges or costs incurred by the Named Insured
resulting from, relating to, or incurred in connection with, the
Decontamination of the Covered Location following a Nuclear Incident.
5. Any fines, penalties, interest payments, punitive damages, exemplary
damages, statutory assessments or the multiplied portion of any
multiplied damages imposed for violation of federal or state law;
6. The Insured's intentional, willful or deliberate noncompliance
with any federal or state statute, regulation, ordinance, administrative
complaint, notice of violation, notice letter, executive order,
or instruction of any governmental agency or body; any dishonest
or criminal acts of any Insured. However, this exclusion does not
apply to such noncompliance or acts which result in the necessity
to Decommission. 7. Any modification of the Decommissioning Plan
made by the [Named] Insured, unless: a) Such modification is required
by the governmental entity responsible for supervision of the Decommissioning;
or b) The Company has consented to such modification in advance,
Section IV. Limit of Liability and Retention
The Company's total liability under this policy for all Decommissioning
Costs in excess of the Self-Insured Retention shall not exceed its
percentage of the Limit of Liability stated in Item 4 of the Declarations,
regardless whether or not the Insured is financially unable, or
is unwilling to pay its Co-Insurance Participation or its Self-Insured
Retention. The Self-Insured Retention and Co-Insurance Participation
are to be borne by the Insured and are not to be insured.
Section V. Rights of the Company and Duties of the Insured in Connection
1. The Company shall have the right but not the duty to review,
assess and inspect all aspects of any Decommissioning activities
to which this policy applies, regardless of whether the Insured
has incurred any Decommissioning Costs in excess of the Self-Insured
Retention. Neither the Company's rights nor its exercise of its
rights under this paragraph shall constitute an undertaking to determine
or warrant that the Decommissioning is safe, healthful, or in conformity
with applicable law. 2. The Insured shall take all reasonable and
prudent steps to minimize the Decommissioning Costs. The Insured
shall limit access to the Covered Location and prevent the spread
of further contamination. 3. The Insured shall retain competent
professional(s) or contractor(s) acceptable to the to undertake
and complete Decommissioning. 4. The Insured shall include the Company
on communications with the NRC dealing with Decommissioning. This
communication would include, but not be limited to, the following:
a) Copies of all Decommissioning Costs estimates, including copies
of and amendments to the PASDAR; and, b) Annual reports on the status
of Decommissioning funding. 5. The Insured shall cooperate with
the, and at the Company's request, assist in obtaining information
relative to any Decommissioning Costs hereunder. The Insured shall
not, except at its own cost, voluntarily make or approve any payments,
assume any obligations or incur any expense relating to Decommissioning
which is not in accordance with the Decommissioning Plan. 6. The
Insured shall keep detailed records of all Decommissioning Costs.
7. To the extent of the Insured's legal right of access, the Insured
shall permit the Company to inspect the Covered Location, as often
as the Company chooses after providing reasonable notice, and inspect
all financial records, drawings, plans and specifications involved
in the Decommissioning. 8. The Insured shall cooperate with the
Company by providing the Company with: a) All information developed
or discovered by the Insured concerning the Decommissioning, whether
or not deemed by the Insured to be relevant; b) Free access to interview
any agent, servant or employee of the Insured or any contractor
or subcontractor involved in the Decommissioning; c) Any other information
or other responses to reasonable requests from the Company concerning
the Decommissioning. 0. The Insured shall submit any notices required
by these conditions to: ______ or such other address as the Company
may, from time to time, designate in writing.
Section VI. Sale or Transfer of Covered Location(s)
In the event that a Covered Location is sold, or if ownership or
operational control is transferred by the Named Insured prior to
the completion of the Decommissioning to which this policy applies,
this policy shall remain in full force and effect, subject to its
terms and conditions, only if: 1. The Company receives written notification
at least forty-five (45) days prior to the effective date of such
sale or transfer and consents, in writing, to the sale or transfer,
which consent shall not be unreasonably withheld; and 2. The new
owner or operator of the Covered Location agrees, in writing, to
fully comply with all of the terms, conditions, duties and obligations
of the Named Insured, which are set forth in this policy.
Section VII. Condition
1. Cancellation--The Company shall not cancel this policy. The
Company may elect to not renew this coverage, by notifying the [Named]
Insured and the Commission of the NRC of its intent to not renew
by sending, by certified mail, to the Named Insured at the address
shown in this policy and to the NRC, written notice stating not
less than 90 days or more preceding the renewal date. If the [Named]
Insured is unable to provide the NRC with a replacement acceptable
to the Commission then this policy will be renewed. The Named Insured
may not cancel this policy without providing proof of alternative
financial assurance acceptable by the NRC. 2. Declarations--By acceptance
of this policy, the [Named] Insured agrees that the statements in
the declarations and the Application are accurate and that this
policy is issued in reliance upon the truth of such representations
and that this policy embodies all agreements existing between the
[Named] Insured and the Company or any of its agents relating to
this insurance. 3. Assignment--Assignment of interest under this
policy, whether to another individual, corporate entity with the
same parent or a third party corporate entity, shall not bind the
Company until its consent is endorsed onto this policy. 4. Subrogation--In
the event of any payment under this policy, the Company shall be
entitled to exercise rights of subrogation and the Insured shall
execute and deliver instruments and papers and do whatever else
is necessary to secure such rights. The Insured shall do nothing
to prejudice such rights. The Company will act in concert with all
other interested parties, including the Insured, concerned in the
exercise of rights or recovery. The apportioning of any amounts
which may be so recovered shall follow the principle that any parties,
including the Insured, that shall have paid an amount over and above
any payment hereunder shall first be reimbursed up to the amount
paid by them. The Company is then to be reimbursed out of any balance
then remaining up to the amount paid by it; lastly, the parties
of whose interests this coverage is in excess, including the Insured,
are entitled to claim the residue, if any. Expenses incurred in
obtaining recoveries shall be apportioned among the interests sharing
in such recovery in accordance with each such interest's proportionate
share of the recovery. 5. Changes--Notice to any agent of the Company
or knowledge possessed by any such agent or by any other person
shall not effect a waiver or a change in any part of this policy
or prevent the Company from asserting any right under the terms
of this policy; or shall the terms of this policy be waived or changed,
except by endorsement issued to form a part of this policy. 6. Sole
Agent--The Named Insured first named in Item 1 of the Declarations
shall act on behalf of all Insureds for the payment or return of
premium, receipt and acceptance of any endorsement issued to form
a part of this policy, giving and receiving notice of cancellation.
7. Changes.--Notice to any representative of the Insurer or knowledge
possessed by any representative or by any person shall not effect
a waiver or change in any part of this Policy; nor shall the terms
of this Policy be waived, changed, modified or amended unless agreed
to in writing by an authorized representative of the Insurer. 8.
No Third Party Beneficiary.--This Policy shall not be deemed to
give any right or remedy whatsoever to any third party unless said
right or remedy is specifically granted to such third party by the
terms hereof. 9. Waivers.--No waiver of any provision of this Policy
shall be effective unless it be in writing and signed by a duly
authorized officer of the Insurer and the Insured. The failure of
the Insurer or the Insured to enforce any provision of this Policy
shall not constitute a waiver by the Insurer or the Insured, as
the case may be, of any such provision. Any past waiver of a provision
by the Insurer or the Insured shall not constitute a course of conduct
or a waiver in the future of that same provision.
Section VIII. Service of Suit
It is agreed that in the event of failure of the Company to pay
any amount claimed to be due hereunder, the Company, at the request
of the Insured, will submit to the jurisdiction of a court of competent
jurisdiction within the United States. Nothing in this condition
constitutes or should be understood to constitute a waiver of the
Company's rights to commence an action in any court of competent
jurisdiction in the United States, to remove an action to a United
States District Court, or to seek a transfer of a case to another
court as permitted by the laws of the United States or of any state
in the United States. It is further agreed that service of process
in such suit may be made upon Counsel, Legal Department, ______
Insurance Company, or his or her representative, and that in any
suit instituted against the Company upon this Policy, the Company
will abide by the final decision of such court or of any appellate
court in the event of any appeal.
Further, pursuant to any statute of any state, territory, or district
of the United States which makes provision therefor, the Company
hereby designates the Superintendent, Commissioner, or Director
of Insurance, other officer specified for that purpose in the statute,
or his or her successor or successors in office as its true and
lawful attorney upon whom may be served any lawful process in any
action, suit or proceeding instituted by or on behalf of the Insured
or any beneficiary hereunder arising out of this contract of insurance,
and hereby designates the above named Counsel as the person to whom
the said officer is authorized to mail such process or a true copy
IN WITNESS WHEREOF the Company has caused this policy to be signed
by its President and Secretary and signed on the Declarations page
by a duly authorized representative of the Company. Secretary President
Of course, the above example of insurance policy 12 is only one
of many examples. Further, it should be understood that the foregoing
description is merely illustrative of the invention. Numerous alternative
embodiments within the scope of the appended claims will be apparent
to those of ordinary skill in the art.