Tokyo Electric may be held liable for nuclear plant explosions

SINGAPORE/TOKYO (Reuters) - Tokyo Electric Power could still be held liable for the problems at its nuclear power plant as the Japanese government has not yet decided whether to classify Friday's devastating earthquake an "exceptional" natural disaster.

Japan's 1961 Act on Compensation for Nuclear Damage states the operator of a nuclear facility will not be responsible for any damage caused by their reactor if it was due to "a grave natural disaster of an exceptional character or by an insurrection."

Insurers of the nuclear plant have already cited this law to signal that claims are unlikely to be made following the explosions.

However, a person involved in this matter said the quake that hit Japan's northern coast is not yet considered as an exceptional natural disaster, adding that the official consensus will have to be made by the ministry for education, culture, sport, science and technology -- which is in charge of the law.

While Friday's 9.0-magnitude earthquake and tsunami caused devastating damage along Japan's northeast coast, it may not meet the criteria of an "exceptional" disaster because quakes and tsunami are events to be expected in Japan, the person said.

"An exceptional disaster is something that is beyond expectations and out of the realm of common sense," the person said, noting that such an exception has never been applied in the past.

The person spoke on condition of anonymity because a decision on the matter has not been made. Tokyo Electric did not return a call seeking comment.

The operator of the nuclear plant has unlimited liability for its plant. Depending on the cause of an accident, either the government or the group of insurers are to provide 120 billion yen ($1.47 billion) for liability coverage.

The operator has to compensate for all the damage exceeding that amount unless the exception of a natural disaster is granted. It has never been granted before.

If the operator is threatened with financial ruin then it can ask the government to assist.

"Usually the plant would be liable for some of the damage but if it's caused by a natural disaster then they should escape liability," said Kenji Kawada, a senior analyst covering insurers at Moody's Investors Service in Tokyo.

The news that Japan has not yet decided whether to classify Friday's earthquake and tsunami as an exceptional grave natural disaster is likely to come as a surprise to some insurers.

Nuclear Risk Insurers, the underwriting agent for all UK nuclear insurers, said Monday, "NRI does not anticipate significant losses from this event," pointing to the 1961 act.

Chaucer, one of the world's leading nuclear-risk insurers, also said it expected the act to absolve the operator of liability.

There have been four explosions at TEPCO's Fukishima Daiichi complex since it was damaged in the massive earthquake and tsunami.

Japan has warned that radiation levels around the stricken plant have become "significantly" higher following the explosions.

($1 = 81.635 Japanese Yen)