Japanese Government Responsible for Nuclear Cleanup Costs, Brokers Say

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The liability costs associated with cleaning up after the crippled Fukushima nuclear plant will ultimately be borne by the Japanese government instead of the private insurance market, according to experts from the insurance industry.

Those liability costs, if they prove substantial, will place an added burden on the government as it copes with tens or even hundreds of billions of dollars in other expenses linked to the massive rebuilding effort that lies ahead.

The utility company operating the Fukushima site is required under Japanese law to carry about ￥120 billion, or $1.5 billion, of liability protection to cover costs associated with a radioactive leak, said Dan McGarvey, a nuclear engineer who chairs the U.S. power and utility practice at insurance broker Marsh Inc.

Japanese law says the plant operator, in this case Tokyo Electric Power Co., is responsible for any radiation leaks, several insurance experts said. The reactor manufacturer, General Electric Co. and any contractors doing work at the site aren't liable, they said. GE wouldn't comment on liability issues.

Much of the liability coverage purchased by Tokyo Electric and other Japanese plant operators comes from a group of domestic insurance companies that pool the risk, but the pool doesn't cover major natural disasters like earthquakes, tsunamis and volcanoes. Instead, power companies buy coverage for those perils straight from the government, Mr. McGarvey said.

Such policies typically cover compensation for anyone exposed to substantial amounts of radiation, whether at the plant or offsite, and pays for cleanup of contaminated property not owned by the utility, said Marshall Nadel, a managing director of the global power group for Aon Risk Solutions. It may also cover costs for those forced to evacuate from the area around the plant.

Chief Cabinet Secretary Yukio Edano, the government's top spokesman, said at a news conference Saturday that very little radiation has so far leaked from the troubled reactor. So actual liability costs could be significantly less than the limit.

But were costs to go higher than ￥120 billion, Japan's legislature, the Diet, would have to approve additional compensation for victims of the radioactive leak, Mr. McGarvey said.

The pool of domestic insurers also sells coverage to utility companies for property damage. And often, similar pools of companies operating in other countries, including the U.S., sell each other reinsurance on their nuclear-power risks. Such deals are attractive to the national pools because they help spread the risk to more companies.

But Shannon Moyer, the head of Marsh's U.S. nuclear practice, said earthquake protection isn't included in standard policies and that Tokyo Electric may not have purchased the added protection.

If that's the case, said Mr. McGarvey, the private insurance market "should probably be completely off the hook" for any costs related to the Fukushima radiation leak.