The Honorable Howard Coble July 17, 1996 This inequity could be remedied by amending Section 1004(a)(1) of OPA 90 to define more narrowly the vessels included as "tank vessels” and make LNG vessels subject to the lower tier COFR liability limits currently applicable to other commercial vessels that do not carry petroleum cargoes intended to be addressed by OPA 90. We propose language to accomplish this result by amending Section 413(b) of S. 1004, the Coast Guard Authorization Act for Fiscal Year 1996, as passed by the House of Representatives, to read as follows: (b) FINANCIAL RESPONSIBILITY.-Section 1004(a)(1) of the Oil Pollution Act of 1990 (33 U.S.C. § 2704(a)(1)) is amended by Thus, we urge you to enact an amendment to OPA 90 that would allow tanker vessels carrying non-petroleum cargo to be classified along with other commercial vessels and require them to obtain evidence of financial responsibility only to the extent of the liability associated with the operation of those vessels. Thank you for the consideration of our views on this important matter. We would be happy to discuss any questions concerning these issues. SMR:mew Sincerely, The United States Chamber of Shipping (USCS) represents 20 U.S.-based companies which own, operate or charter oceangoing tankers, containerships, and other merchant vessels engaged in both the domestic and international trades. USCS also represents other entities which maintain a commercial interest in the operation of such oceangoing vessels. Because we did not appear as a witness at the June 26, 1996, oversight hearing on Financial Responsibility Requirements (COFRs) under the Oil Pollution Act of 1990 (OPA 90) the members of the United States Chamber of Shipping (USCS), formerly known as the American Institute of Merchant Shipping (AIMS), request that this statement be included in the June 26, 1996, hearing record as the position of the vast majority of the members of our organization regarding application of, and compliance with, the COFR regulation promulgated by the U.S. Coast Guard. ("Financial Responsibility for Water Pollution Vessels" (CGD 91-005) 61 FR 9264). While the USCS endorses the "polluter pays" principle embodied in OPA 90, and strongly supports the continuing efforts to both reduce the risk of oil spills and minimize the impact of spills that do occur, our organization maintains that the COFR regulation is an unreasonably burdensome and inefficient means of accomplishing these important objectives. Essentially, the inclusion of the "direct action" provision has prevented the participation of the highly effective Protection and Indemnity (P&I) Clubs, the practical result of which has been the imposition of a significant cost on a large portion of the industry with no appreciable corresponding increase in insurance benefits or decrease in environmental risks. Since the initiation of this rulemaking in 1991, the Coast Guard has failed to utilize its flexibility under OPA 90 to make full and effective use of the provisions in Section 1016(c) of the Act. This section specifically empowers the Coast Guard to accept "evidence of insurance, surety bond, guarantee, letter of credit, qualifications as a self insurer, or other evidence of financial responsibility." Instead of using the discretion granted by this congressional language to create a rule that fosters a continuing market for providers of financial responsibility and ensures that the polluter pays principle is efficiently carried out, the Coast Guard interpreted its mandate narrowly. By specifically 1000 16TH ST, N W., SUITE 511, WASHINGTON, D.C. 20036-5705 26-763 97 - 6 defining the term "insurer" to include P&I Clubs, and then exposing "insurers" to "direct action, the Coast Guard effectively excluded participation by the long-established P&I Clubs. Not surprisingly, the P&I Clubs, which have maintained an impeccable record for payment of claims, have declined to expose the global P&I insurance structure to the strict and potentially unlimited liability of acting as a "guarantor under the Coast Guard's COFR regulation. Generally, tanker owners and operators already carry $500 million in pollution cover for damages arising from oil spills. In addition, many owners/operators carry $200 million in supplemental coverage, which is well in excess of that required under OPA 90. Prior to the implementation of this rule, COFRS, which are simply pieces of paper which certify that an owner/operator has sufficient resources available to pay for damages resulting from an oil spill, were provided by the P&I Clubs at no additional cost. Those companies that choose to trade in the United States but are unable to self-insure now incur an additional aggregate cost of approximately $60 million per year to obtain the required certificates. Newly created alternative COFR providers, to which these additional fees are paid, are the real beneficiaries of the regulation. Ironically, companies which seek to obtain COFRS through one of these rapidly formed entities must maintain their existing P&I coverage, indicating that the ultimate responsibility for payment of damage claims remains with the well-established Clubs. USCS believes a solution is readily available under the existing language in OPA 90. By utilizing the flexibility provided by Congress, the Coast Guard has the ability to amend the regulation to allow owners/operators to utilize their P&I insurance to obtain COFRS and enable the P&I Clubs to participate in the market without risking more than they are contractually obligated to provide under the terms of the cover. Such a change in the ruic would enable the industry to effectively demonstrate financial responsibility and to efficiently allocate the resources necessary to maintain and operate its vessels in a manner which provides the greatest level of environmental protection. USCS appreciates your consideration of our views and the opportunity to submit our comments on this matter. We encourage this Subcommittee to develop legislation that directs the Coast Guard to amend its rule and we will be pleased to meet with you to develop a specific proposal to create a COFR rule that restates and reinforces the intent of Congress. Sincerely, Donald P. Shea Donald B. Shea President We submit this letter and its enclosure on behalf of our client, the Greek Shipping CoOperation Committee. We ask that both be included in the record of the Subcommittee hearing held on June 26, 1996. At the Subcommittee hearing on June 26, which addressed the subject of OPA 90 Financial Responsibility requirements, much testimony was devoted to Certificates of Financial Responsibility but none dealt with the issue of adequate insurance. We believe that the overarching problem caused by the liability provisions of the Oil Pollution Act of 1990 (OPA 90) is the unavailability of insurance coverage matching the risk of transporting oil in bulk to the United States. Although insurance may be available for the liability limit amounts prescribed under OPA 90, cover is not available to meet the true risk: a worst case discharge. That fact impelled the Union of Greek Shipowners, the Norwegian Shipowners' Association, the Swedish Shipowners' Association, and the Greek Shipping Co-Operation Committee to propose the creation of the MEIF two years ago. A copy of that proposal, which includes a detailed explanation of the MEIF and recommended implementing legislation, is enclosed with this letter. These materials were also submitted and presented to the Department of Transportation. While the MEIF has not gathered the support we think it deserves, it remains a viable and valuable concept. Moreover, it constitutes a workable solution to a formidable problem that, though now quiescent, can cause severe economic disruptions in the wake of a major pollution event. Our proposed MEIF would provide enhanced coverage to meet realistic liability amounts for cleanup and damages. Although legislation would be needed to establish an MEIF, no change or amendment to OPA 90 would be required; i.e., the present liability and direct action provisions would not be touched. To the contrary, an MEIF would be consistent with those provisions and would serve to insulate the Oil Spill Liability Trust Fund from sporadic DYER ELLIS & JOSEPH The Honorable Howard Coble July 3, 1996 Page 2 and sometimes massive demands upon it. We believe the time for the MEIF will come. Including the MEIF proposal in the record of your hearing will provide a ready reference when the need for it becomes evident. These materials are distributed by Dyer Ellis & Joseph on behalf of the Greek Shipping CoOperation Committee, who is the foreign principal. Additional information is on file with the Department of Justice, Washington, D.C. Sincerely, Duncan C. Smith II Enclosures |