Mr. MORSE. Oh, yes.

Senator MAGNUSON. They will indemnify you?

Mr. MORSE. That is correct.

Senator MAGNUSON. That is if something should happen?

Mr. MORSE. That is correct. But that is not the point I mention. We can only write this insurance under the act at the present time during a period of national emergency. We cannot write the same insurance during peacetime even though the need may exist during peacetime on this particular activity.

Senator MAGNUSON. Would you suggest legislation to give you that authority?

Mr. MORSE. I think it would be worth considering by the committee.

Senator MAGNUSON. Why don't you prepare suggested legislation and submit it to us?

Mr. MORSE. We will do so.

Senator MAGNUSON. We can bring that up at the same time that we bring up the question of valuation. I think you are right because there are some times when you need to do this in peacetime, not only just in emergencies.

Mr. MORSE. That is right. Thank you kindly, Senator.

Senator MAGNUSON. The Greene statement will go in the record at this point.

(The statement is as follows:)

STATEMENT OF FRANCIS T. GREENE, EXECUTIVE VICE PRESIDENT, AMERICAN MERCHANT MARINE INSTITUTE, WITH REGARD TO S. 741, A BILL TO EXTEND THE WAR-RISK INSURANCE PROVISIONS OF TITLE XII OF THE MERCHANT MARINE ACT, 1936, AS AMENDED

The American Merchant Marine Institute represents the owners of a substantial majority of American-flag shipping of all categories, dry-cargo liners, contract carriers, industrial carriers, and subsidized lines. As such, we desire to express our support for S. 741, a bill introduced by the chairman of this committee, to delete section 1214 of the Merchant Marine Act, 1936, the section which now terminates the authority of the Secretary of Commerce to provide war-risk insurance for American shipping on September 7, 1955, 5 years from the original enactment of title XII of the 1936 act.

This extension bill, as introduced by Senator Magnuson, is necessary because peacetime insurance to cover war risks, as now available in the private insurance market, expires, generally speaking, 48 hours after the oubtreak of any major war or the arrival of a vessel in a safe harbor. After the outbreak of any war between the great powers, France, Great Britain, Russia, and the United States, private war-risk insurance will either be unavailable or prohibitively expensive. During World War II, the Congress found it to be in the national interest for the Government to issue insurance covering war risks to ships that private underwriters were unable to provide. During World War II, the Government took in premiums on such war-risk insurance which exceeded by $131,926,857 claims payable thereunder, a tidy profit for the Government. Inasmuch as the risk of war

is substantially the same today as it was in September 1950, when title XII, warrisk insurance, was added by the Congress to the Merchant Marine Act, 1936, it is equally necessary that the authority of the Secretary of Commerce to issue such Insurance should be continued as proposed in S. 741.

However, the situation under title XII as it now stands, with regard to the inrable value of the vessel, has become confused from the shipowner's viewpoint as well as from that of the Senate Interstate and Foreign Commerce Committee of the 83d Congress, by reason of the following language which was incroporated a rider in the Third Supplemental Appropriation Act, 1951, and in other appropriation acts for 1952, 1953, and 1954:

"No money made available to the Department of Commerce, for maritime activities, by this or any other Act shall be used in payment for a vessel the title to which is acquired by the Government either by requisition or purchase, or the

use of which is taken either by requisition or agreement, or which is insured by the Government and lost while so insured, unless the price or hire to be paid therefor (except in cases where section 802 of the Merchant Marine Act, 1936, as amended is applicable) is computed in accordance with subsection 902 (a) of said Act, as that subsection is interpreted by the General Accounting Office."

The present law, therefore, gives no assurance that a war-risk insurance valuation for actual or constructive total loss of a vessel will be as much as "just compensation" would be in the case of the loss of a vessel under requisition. The situation had become so confusing that after hearing testimony on behalf of the Secretary of Commerce, the Maritime Administration, the General Accounting Office, and the shipping industry, the Senate, last year, on the recommendation of this committee, passed S. 1878 as recommended by this committee in Senate Report No. 1212, 83d Congress, 2d session. S. 1878, as thus reported by this committee and as passed by the Senate on April 19, 1954, was a compromise bill suggested by and acceptable to the General Accounting Office. It is fully analyzed in Senate Report No. 1212.

The merchant-marine industry considered last year that S. 1878 as passed by the Senate, did not adequately cover one vital subject, namely, the insurable value of a ship built with the aid of construction-differential subsidy pursuant to title V of the Merchant Marine Act, 1936, as amended. Last year's bill provided in effect that the insurable value of such a ship should be limited to its requisition value under section 802 of the 1936 act, namely, the depreciated construction cost of the ship less the depreciated amount of construction-differential subsidy theretofore paid as an incident to the construction or reconstruction of the ship in question. Although we still believe that the insurable value of a ship built under title V of the Merchant Marine Act, 1936, should be equal to its unenhanced market value, we will not press the point at this juncture provided it is understood that the industry does not concede either the equity or fairness of thus limiting the insurable value of a ship built under title V of the 1936 act to the owner's out-of-pocket cost a value which may have no relationship to the cost of replacing such a ship in the event of its less during war.

Inasmuch as S. 1878 as proposed by the General Accounting Office, as reported favorably by this committee in the 83d Congress, and as passed by the Senate of the 83d Congress, would resolve the confusing situation with regard to ship valuation which has heretofore existed, we recommend that this committee report S. 741 with a committee amendment which would contain the provisions of S. 1878 as heretofore passed by the Senate, in addition to the extension provisions now incorporated in S. 741. We submit that such a committee amendment which has already been the subject of exhaustive consideration on the part of all interests concerned, would be completely noncontroversial in character since it has been already passed by this body in the last Congress. We also believe that it would be noncontroversial in the other body of this Congress because it was initially recommended by the General Accounting Office and has heretofore been accepted by this committee and by the Senate. The American Merchant Marine Institute believes that when the authority of the Secretary of Commerce to write war-risk insurance is extended as it would be by S. 741, the exceedingly confused situation as to the basis for the insurable value of ships-and by the same token, the amount of premium payable by the shipowner-should be resolved through the enactment of the provisions heretofore considered and passed by the Senate of the United States in the form of S. 1878. Such an amendment by this committee, which would incorporate the exact same language of S. 1878, will do away with the double standard of valuations for insurance and valuations for requisitions which is created by title XII as it now stands and the appropriation riders quoted above. Furthermore, the provisions of S. 1878 of the last Congress for an adequate cour review would be, as this committee found last year, in the best traditions of ou American heritage of a system of justice under law. With the one exception o title V vessels, as noted above, the language of S. 1878 as passed by the Senate las year, would, in our opinion, fully protect the interests of the Government and o the owners of the vessels and the insured.

Accordingly, we now recommend, as this committee recommended last year that the provisions of S. 1878 be enacted, and suggest that this can best be don through their incorporation as a committee amendment to S. 741 as introduce and now pending before this committee.

Senator MAGNUSON. There are certain letters and comments S. 741; one from the Secretary of Commerce.

On page 3 the Department recommends enactment of the meassure with an amendment to strike out the 5-year provision and insert the word "ten," a net extension of 5 years. (The letter referred to above is as follows:)

Hon. WARREN G. MAGNUSON,

THE SECRETARY OF COMMERCE,

Washington 25, March 24, 1955.

Chairman, Senate Committee on Interstate and Foreign Commerce,

United States Senate, Washington 25, D. C.

DEAR MR. CHAIRMAN: You have requested the views of this Department with respect to S. 741, a bill to amend title XII of the Merchant Marine Act, 1936, relating to war risk insurance, in order to repeal the provision which would terminate authority to provide insurance under such title.

The bill would repeal section 1214 of title XII of the Merchant Marine Act, 1936, as amended (46 U. S. C. 1281 et seq.). This section provides for expiration of war-risk insurance authority 5 years from date of enactment of title XII (September 7, 1950).

The Marine War Risk Insurance Act of September 7, 1950 (title XII, 1936 act), which will expire September 7, 1955, is standby legislation which authorizes the Secretary of Commerce, with the approval of the President, to provide war-risk and certain marine and liability insurance for protection of vessels, cargoes, and crews and personal effects, when commercial insurance cannot be obtained on reasonable terms and conditions. At present, as at the time of enactment of the War Risk Insurance Act, commercial policies covering maritime war risks are issued only subject to automatic termination clauses in the event of outbreak of war between any of the four powers-United States, France, Great Britain, and the Union of Soviet Socialist Republics. Even though the United States may not be involved immediately, American shippers, shipowners, and crew members would be without protection against loss by risks of war. Ships and cargoes could not be moved without adequate insurance coverage.

The preliminary work necessary to have the insurance immediately available when its protection is needed for the commerce of the United States has been completed. War-risk insurance binders have been issued which would protect shipowners and crews in the event that commercial war-risk insurance now covering these risks is canceled or terminated upon the outbreak of war or threat of war. Such insurance was provided by the Government in both World Wars I and II and proved both necessary and effective in protecting the United States and its civilian and military commerce, with premium receipts in excess of losses paid. Under the Marine War Risk Insurance Act, the United States is now prepared to put in effect in case of need a full wartime insurance program on hulls, cargoes, and personnel.

In the current national emergency, we have put into effect, under the War Risk Insurance Act, insurance for the protection of seamen employed on tankers operated for the account of the Military Sea Transportation Service. This insurance is provided without premium in consideration of the agreement of the Secretary of the Navy to indemnify the Secretary of Commerce for all losses covered by the insurance. Insurance has also been provided for contractors with the Department of the Army to cover legal liability resulting from explosion of ammunition transported. The Secretary of Defense has given an indemnity agreement in connection with this insurance. Insurance of the latter type may be provided only when the United States is at war or during a period of emergency declared by the President.

No claims have been made under either of these forms of coverage as of January 1955, although this coverage has been in effect for several years.

We have also, pursuant to section 1203 of the act, made available war-risk insurance on American vessels under construction in shipyards of the United States. Under this authority, war-risk builders' insurance has been issued to cover certain Mariner vessels under construction and under contract for sale to a United States shipping company.

Up to the present time, it has not been necessary to make use of any funds authorized by section 1203 (a) of the act. Binder fees (not premiums) have been collected as of June 30, 1954, in an amount just short of $100,000 after payment of agency fees and expenses.

To avoid the likelihood of total disorganization of United States oceangoing commerce and the danger of catastrophic failure of our shipping in support of

our defense forces and activities, the War Risk Insurance Act should be extended promptly in advance of its termination.

While this statute is standby legislation which may be used only when needed. it may be desirable to continue the limitation on its life for an additional period of 5 years so that the matter can be reviewed within such reasonable time as to the need for further continuation.

The Department recommends enactment of the measure amended to strike out the 5-year limitation in section 1214 and insert a 10-year limitation to provide an additional 5 years of standby operation.

The Bureau of the Budget has advised that it has no objection to the submission of this report.

Sincerely yours,

SINCLAIR WEEKS,
Secretary of Commerce.

Senator MAGNUSON. Without objection, we will make this technical change, Mr. Morse, in the act, to section 1214 of title 12. We amend it by striking out "five" and inserting in lieu thereof "ten", and the net result, of course, becomes a 5-year extension.

Without objection, that amendment will be placed in the record. (The document referred to above is as follows:)

[S. 741, 84th Cong., 1st sess.]

AMENDMENTS (in the nature of a substitute) intended to be proposed by Mr. Magnuson to the bill (S. 741) to amend title XII of the Merchant Marine Act, 1936, relating to war risk insurance, in order to repeal the provision which would terminate authority to provide insurance under such title, viz:

Strike out all after the enacting clause and insert in lieu thereof the following: "That section 1214 of title XII of the Merchant Marine Act, 1936, is amended by striking out 'five' and inserting in lieu thereof 'ten'."

Amend the title to read as follows: "A bill to extend the provisions of title XII of the Merchant Marine Act, 1936, relating to war risk insurance, for an additional five years."

Senator MAGNUSON. Is there anything further on these matters? If not, we will keep the record open for a short time and we will see if we cannot promptly report the bill.

You have a statement on the war-risk matter, Mr. Dewey?

STATEMENT OF RALPH B. DEWEY, REPRESENTING THE PACIFIC AMERICAN STEAMSHIP ASSOCIATION

Mr. DEWEY. Yes, sir. The substance of the Pacific American Steamship Association statement is support for this legislation, but we add a comment at the end that we would like to have these proceedings expanded to include the revisions in the war-risk insurance sections of the Merchant Marine Act, such as were proposed last year. You have already indicated that you intend to do that.

Senator MAGNUSON. Yes, in separate legislation. This deals only with the extension of the present. We assure you people we will have some suggestions on valuation and other matters. I will introduce that bill by request and we can go into the details of that in a short time.

Mr. DEWEY. Thank you, sir.

(The statement referred to above is as follows:)

STATEMENT OF RALPH B. DEWEY, PACIFIC AMERICAN STEAMSHIP ASSOCIATION, ON S. 741, WAR RISK INSURANCE: TERMINATION OF AUTHORITY

My name is Ralph B. Dewey, Washington representative of Pacific American Steamship Association. As spokesman in these proceedings for the 12 principal American-flag steamship lines on the Pacific coast, I would like to indicate at this time our wholehearted support for the passage of S. 741.

As the members of the committee are well aware, passage of the War Risk Insurance Act of 1950 (Public Law 763, 81st Cong.) was precipitated by the announcement by American and British hull underwriters that henceforth the coverage of war-risk insurance under the "free of capture and seizure clauses" in hull contracts would expire 48 hours after the outbreak of hostilities between any 2 of the 4 great powers-i. e., Great Britain, France, United States, and Russia. It thus became imperative that if private ship operators were to remain in business, Congress would have to step into the picture and insure the hull risk at such time as private underwriters relinquished their coverage-i. e., 48 hours after the outbreak of hostilities.

At the time of passage of Public Law 763, no one could foresee how long this policy of the underwriters might continue, and, therefore, Congress set a time limit of 5 years under the terms of the law. The 5 years have almost expired and the removal of the 48-hour clause by the underwriters does not appear in the horizon. Therefore, it seems only consistent with the practicalities of the present world situation that section 1214 of the Merchant Marine Act should be deleted so as to provide the Secretary of Commerce with permanent authority to provide insurance under title 12 of the act.

Mr. Chairman, that ends my formal remarks on the subject of S. 741. However, I would like to add that in our view the subject of war-risk insurance needs a more thorough airing than is provided under the strict confines of S. 741. For this reason, we would advocate that these hearings not be adjourned, but rather recessed temporarily during which time we would sincerely urge the chairman of this committee to introduce legislation which would correct certain inequities which exist between the administration of the war-risk program (title 12) of the Merchant Marine Act and the various appropriations acts which make provision for funds to administer the war-risk program.

The necessity for corrective legislation arises out of the fact that the statute (Public Law 763) to give authority to war-risk coverage by the Government has been contravened by subsequent legislation in various appropriations acts; and as is so often the case when legislation is attempted through appropriation acts, it becomes almost impossible for either the operators or the agencies adn inistering the statute to know their prerogatives, responsibilities, or the limits of their jurisdiction.

Legislation was introduced in the last Congress to correct this confusion and inequity (H. R. 4665). In effect, this legislation would have restored to shipowners the privilege of suing in the courts for just compensation. I would sincerely urge that the chairman of the committee might consider the introduction of legislation similar to H. R. 4665 and that hearings on this important matter night be resumed at an early date.

Senator MAGNUSON. I have a letter dated March 22, 1955, from Carl E. McDowell, executive vice president, the Association of Marine Underwriters of the United States.

DEAR SENATOR MAGNUSON: The Association of Marine Underwriters of the nited States is a trade association composed of approximately 72 domestic nsurance companies engaged in the business of marine insurance.

At the time title XII of the Merchant Marine Act of 1936 (war-risk insurance) as enacted (and at the present time), the war-risk insurance policies on hulls sued in the United States provided that in the event of outbreak of war between ny of the four great powers-France, any member of the British Commonwealth