Nuclear Incident Liability Reform Act of 1985

Nuclear Incident Liability Reform Act of 1985 - Amends the Atomic Energy Act of 1954 to extend from August 1, 1987, to August 1, 2007, the authority of the Nuclear Regulatory Commission (NRC) to enter into indemnification agreements with its contractors for the construction or operation of production or utilization facilities (including activities under the risk of public liability for a substantial nuclear incident).

States that the amount of financial protection required of a licensee licensed under such Act for purposes of nuclear incidents shall be the maximum amount of liability insurance available from private sources. Provides for periodic redetermination of such amount by the NRC based on the cost of living (including health care costs). Requires that all licensees required to maintain such financial protection participate in an industry retrospective rating plan under which the deferred premium charged following any nuclear incident shall be an amount required by rules promulgated by the NRC.

Precludes State premium tax payments from inclusion in the retrospective premium established by the NRC.

Authorizes the NRC to make a loan to any licensee unable to meet any assessment of deferred premiums within a reasonable time following any nuclear incident without impairing the provision of electric utility service by such licensee.

Requires that provisions waiving certain defenses with respect to any nuclear incident be incorporated in insurance policies or contracts furnished as proof of financial protection. (Under current law, the NRC may require the incorporation of such waiver provisions in such policies or contracts.)

Permits parties (including the U.S. Government) that have paid or will pay deferred premiums or indemnity payments with respect to any nuclear incident to recover damages from any other party liable for the nuclear incident. Declares that the U.S. Government shall exercise all secondary liability rights preserved by this Act. Precludes any Federal discretion to settle or compromise any secondary liability suit for less than the actual payments made by the Government.