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Court Rules Against Insurers in Suit Over Property Lost in Space

September 02, 1989|ALAN ABRAHAMSON | Times Staff Writer

SAN DIEGO — Ruling on the first lawsuit involving property damage in outer space, a state appeals court has decided that insurance companies cannot recover $5 million they lost when a Western Union satellite sputtered short of orbit.

The 4th District Court of Appeal in San Diego dismissed a case brought by some of the insurance companies that paid out $105 million after the Westar VI communication satellite's booster rocket failed shortly after its deployment from the shuttle Challenger in February, 1984.

The decision--itself an otherwise unexceptional discussion of elementary contract law--is likely to further the commercial exploitation of space by upholding the agreements between companies that protect them from legal risks. That in turn will keep insurance costs from becoming "astronomical," an attorney connected to the case said.

Flood of Cases Feared

The case was widely watched in the space industry. If insurers were allowed to pursue suits to try to recover for their clients' space-related losses, manufacturers feared that the result would be a flood of expensive cases and a greatly diminished incentive to exploit space.

Challenger had launched Westar VI on Feb. 3, 1984. The satellite was supposed to reach an orbit 22,000 miles above the earth, last 12 years and handle television and computer data as well as telephone transmissions.

However, four seconds after the satellite's rocket ignited, its nozzle disintegrated and its motor turned off. The satellite reached a maximum altitude of 655 miles, where it was useless.

Western Union had purchased the rocket from McDonnell Douglas Corp.'s Huntington Beach subsidiary, McDonnell Douglas Astronautics Co. When Western Union bought the rocket from McDonnell Douglas, the two sides signed a contract saying that because of the risk of space flight there would be no suits between Western Union and McDonnell Douglas, its contractors or subcontractors.

McDonnell Douglas had subcontracted out work on the rocket's motor to Morton Thiokol Co. of Chicago, and on the nozzle to Hitco of Gardena.

Because it had agreed not to sue McDonnell Douglas, Western Union protected itself by fully insuring the satellite.

After the launch failed, the insurance companies paid Western Union the $105 million the satellite was worth. Appalachian Insurance Co. and four other insurers, who paid about $5 million of that sum, then sued McDonnell Douglas, Morton Thiokol and Hitco in Orange County Superior Court, claiming that those three firms were negligent and asking for their money back.

The case turned on the sales contract between Western Union and McDonnell Douglas. On Jan. 28, 1987, Superior Court Judge Tully H. Seymour ruled that the contract unambiguously barred the insurers from recovering. The insurers appealed.

In the 4th District opinion, filed Tuesday, Justice Daniel J. Kremer agreed that the contract barred recovery.

The contract applied to the insurers in place of Western Union, since the insurers had paid Western Union for the satellite, Kremer said. The key was the contract provision barring claims, he said.

Western Union and McDonnell Douglas patterned that provision after the same one in the liability waiver Western Union had to sign with NASA, he said.

Justices Richard D. Huffman and Gilbert Nares concurred in the opinion.

"If you stand back and look at what the parties were attempting to do in this case, it was to promote the exploration of outer space," said Steve Hogan, a Los Angeles lawyer for McDonnell Douglas.

Everyone knows space flight is risky, he said. So a company guards itself by buying insurance for those risks, which Western Union did, he said.

But if the appeals court opinion had allowed the insurers to pursue the suit, requiring shuttle customers or contractors to insure against "other companies, other equipment aboard the satellite, damages to NASA, damages to astronauts--if you were talking about that kind of loss, the premiums would be astronomical," Hogan said.

"As a result of premiums being astronomical, manufacturers and others would not enter the space exploration business," Hogan said. "And the exploration of space would suffer as a consequence."

An attorney for the insurers, William F. Rintala of Los Angeles, declined comment.

Prompted by the insurance companies, who gained title to Westar VI and another wayward satellite whose rocket booster also failed on the same Challenger mission, NASA sent the shuttle Discovery to recover both in November, 1984.

NASA and the insurance companies said before the successful rescue that the effort was taken in hopes of holding down launch insurance costs, which had risen dramatically after the failures.

Another court case, concerning that second satellite, is set to go to trial in Orange County as soon as there is a free courtroom, lawyers said.

That case involves the Palapa B2 satellite, which had been owned by the government of Indonesia, attorneys said. It pits various insurers against the same three defendants with many of the same claims but different contract language, they said.

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