EchoStar
Sues Insurers After Policies Expire
EchoStar filed
suit in U.S. District Court in Denver July 31, claiming 13 insurers
around the world have conspired to leave the company without
insurance. Three of EchoStar Communications Corp.'s six satellites
are flying without insurance as the company battles insurers over a
US$219.3 million claim. Coverage
of the three satellites, launched between 1995 and 1997, expired
July 25. According to EchoStar, the insurers refused to renew the
coverage at reasonable prices.
EchoStar contends that the insurance companies' refusal to negotiate
or provide a reasonable premium is the result of a claim it filed on
EchoStar 4, a satellite that malfunctioned after launch.
 EchoStar
sued the insurers, saying they "conspired to boycott" the
Littleton satellite-TV company. EchoStar was rebuffed when they
approached the companies about renewing coverage. "That is
unprecedented in the market, for insurers not to be willing to
provide insurance on satellites in orbit," said David Moskowitz,
EchoStar's senior vice president and general counsel. "To think
that each came to that conclusion on their own, in my opinion, is
implausible." The companies have since offered coverage, but at
prices well above the industry standard.
Since 1998,
EchoStar has been battling with a group of 13 U.S. and European
insurance companies that split the considerable risk of launching
and operating EchoStar's satellites. At that time, the company filed
a claim for US$219.3 million for the partial failure of its fourth
satellite. Because of a problem with one of its solar panels, only
16 of EchoStar 4's 44 transponders function, limiting it to
providing service to only Alaska and Hawaii.
EchoStar says
that under its insurance contract, the insurers must pay the full
amount if more than half of the satellite doesn't work. EchoStar
rejected an offer from the insurers in March to pay US$88 million,
or about 40 percent of the total value of the coverage.
The company
says the insurers represent the entire segment of the industry
providing launch insurance, and that it has no other options.
EchoStar typically insures each of its satellites for about US$200
million, which includes the cost of the spacecraft and launch. The
three uninsured satellites are the oldest in EchoStar's fleet, so
their value would be less. Annual premiums typically run about 2
percent of the insured amount, meaning the company pays about US$4
million a year to cover each satellite.
EchoStar wants
to extend a policy covering its EchoStar 5 satellite that is due to
expire next month. Two of EchoStar 5's transponders failed last
month, leaving it with 14 spares. EchoStar has also been unable to
line up insurance for the three new satellites it plans to launch in
the next few years. Until EchoStar can find commercial coverage, the
company will have to self insure all its satellites.
Armand Musey of
Banc of America Securities wrote, "We believe that the
self-insurance meets the conditions of the bond covenants and the
company indicates that the insurance lapse, in its opinion, does not
pose any great risk to the company. We note that the company, which
has roughly US$1 billion worth of satellites in space, is not in the
business of assuming its satellites' technical risk. We believe that
investors will be more comfortable if and when this risk is
mitigated through satellite insurance. However, we do not believe
the magnitude of the risk is overwhelming."
DirecTV,
an EchoStar competitor, commented that it has not had any trouble
acquiring insurance for its satellites.
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