Pre-launch insurance covers physical loss of or damage to the satellite during the manufacturing contract signing phase up to the actual launch (intentional ignition of the first stage engine or lift-off of the rocket or launch vehicle):
- Handling, assembly, integration, testing and possible storage of the satellite at the manufacturing facility and/or the outside testing center
- Transportation of the integrated satellite to the launch site.
- Launch pad assembly (preparation of satellite and mating with rocket)
- Final pre-lift-off activities (testing and verification).
This coverage, which is also extended to the launch vehicle, insures against the physical loss of or damage caused by external factors (falls, contacts, collisions) or by internal factors related to the insured units (short-circuit, fire, explosion), human error, or willful misconduct or gross negligence on the part of employees.
Arbitration
Article 1 of the bylaws hold that the Court's" purpose is to find rapid and cost-effective solutions via arbitration for all disputes that arise from activities that are related, directly or indirectly, to the fields of air and space." The parties to the conflict have access to a list of the world's most renowned arbitrators and experts in the field of aeronautics and space. With the exception of rare technical problems, arbitration awards are handed down within one year. To date, this Court has not been petitioned.
This is the principal contract in the space insurance package, covering satellites and launch vehicles during the launch period. However, when they are designed to self-destruct once their mission is accomplished, or if their value is very high, launch vehicles are generally not insured during the launch period.
The launch period is the period during which risks are the highest. It generally begins as soon as the rocket lifts off from the ground, or from the time the motors) are ignited, until the time the satellite is placed in orbit, i.e. when the satellite(s)) separate from the rocket. If the launch period begins with ignition, an aborted launch is covered under the insurance policy.
The launch period may extend several months after the satellite is put into orbit.
This insurance policy is an "all risks" policy, under which coverage extends not only to accidental damage to the satellite, but also to functional failure or performance defects and design flaws.
Indemnification is based on the loss of operational capability.
The insured value is an agreed value that is exhaustible. In general, it is the sum of three elements: the cost of replacing the satellite, the cost of launch services contracted and the cost of the insurance premium.
The total insured value serves as a basis for calculating the premium, and is used as a benchmark for pricing partial losses. In the event that the satellite's payload is composed of several components, the policy may specify an insured value per component.
The insured value may, at the option of the insured, correspond to:
- The assessed value of the satellite
- The cost of construction
- The cost of re-manufacturing an identical satellite
- The cost of launch services, if the launch services provider has not offered its client a launch refund/reflight guarantee in the event of failure.
This decision may be influenced by the banks, which may have requirements with respect to the financial guarantees taken by the insured to cover catastrophic risks, or by the premium rate, which may prove to be too high.
The period of the policy should be long enough (possibly three or four years) to cover the totality of the guarantee, regardless of when the risk attaches. During this risk period, property insurance coverage is of the "all risks" type, which means that it covers all damage to the satellite, whatever the cause, except damage that is caused by an occurrence that is specifically excluded under the policy.
The coverage period is defined as the period between the attachment of the risk, most often at the time of the launch, and the end of the risk—which may be anywhere from 180 days to one, two or even three years after the launch.
Deductibles* may be used to remove from the scope of coverage minor claims. In general, these deductibles are expressed in units of operational capability, in fuel years, in number of channels (transporders) or in terms of received power on the ground.
A total total loss is declared in the event of the total destruction of the satellite or the failure to place the satellite in the proper orbit within a reasonable period of time (180 days after launch), or to maintain a position that renders the satellite operable. When the system is still operable, a constructive total loss is declared, and defined as the threshold (often 50%) beyond which the loss of operational capability is such that the remaining useful life or payload of the satellite is insufficient to ensure the project will turn a profit, which means that it is necessary to replace the system entirely.
Partial losses are all losses over and above the deductible and below the constructive total loss, calculated on the basis of percentage loss in operational capability* .
A salvage clause is introduced to enable insurers to lower the cost of a partial loss or a constructive total loss in the event that the residual commercial value of the system, after indemnification, is not zero. In some cases, salvage may mean transferring ownership of the satellite to insurers for possible resale or operation.
To be eligible for payment, a claim must be formally investigated. The impossibility of conducting a physical loss assessment means that claims are payable only when losses can be compared against benchmark telemetry data. For this reason, the investigation of claims frequently requires the insured to produce detailed technical data, and in some cases to take corrective measures at the request of the insurer's appointed surveyor.
In the event of third party recourse, insurers are subrogated to the rights of the insured. However, such policies often include clauses that waive the right to recourse against various manufacturers or service providers involved in rolling out the insured system. The satellite manufacturer and its subcontractors, the launch agency, and the final operator of the satellite are in this case jointly liable.
Finally, launch insurance policies contain arbitration clauses describing the dispute resolution process. These clauses specify the choice of law and the procedure for choosing arbitrators. For example, space market players may refer disputes to the International Air and Space Arbitration Court, which was set up in March 1994 by the Société Française de Droit Aérien et Spatial, headquartered in Paris.Once it has separated from the launch vehicle, the satellite must be placed in its final orbit (also called its operational or target orbit) and, for a period that generally does not exceed six months, demonstrate its ability to function properly. This period is also called the in-orbit or on-orbit acceptance.
In-orbit acceptance coverage is for physical damage and/or failures that may occur during this test period.
In-orbit insurance or satellite life insurance is the logical extension of the previously described policy, and has the same architecture. The clauses are drafted in the same basic spirit as for the launch-acceptance policy.
In-orbit insurance commences when normal life in space begins, and covers the risks of partial or total loss of the satellite during this period. In particular, it covers:
- The total loss of the satellite due to an insured occurrence
- The reduction in the functional capacity of the payload
- The reduction in the satellite's normal life expectancy.
This coverage goes into effect when coverage under launch insurance ends (in general when acceptance is announced, i.e. after the initial operational phase of functionality testing ends) and ends when the satellite's fuel cell depletes.
The coverage period varies from one to three years or more. In-orbit insurance usually consists of one-year renewable policies, for as long as the satellite is in orbit and operating. Some insurers offer two-year policies, renewable at each anniversary date after the insured has submitted a health report on the condition of the satellite.
The insured value often decreases on a straight-line basis over the period of coverage. This reflects the depreciation of the book value of the insured asset. However, there are whole life policies that offer a constant insured value, and that cover some losses due to business interruption.
The insured may contract insurance that guarantees the performance of the satellite throughout its launch and in-orbit life.
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