Second, do you know of any time when a P&I club attempted to use a policy defense to avoid payment of an oil spill claim? Mr. HORROCKS. I should stress I'm not an insurance expert, and the answer to the second question is no, I am not. But I did specifically ask the question before I left London as to whether there had been any case where the clubs had failed to pay up in respect to an OPA claim, and therefore Firstline or Shoreline, as guarantor, had been called in. I understand that there has been or is in the pipeline at the moment one case which I think is not a policy defenses case, but there is some formal dispute between the P&I club and I don't know which of the two insurers' guarantors, it isFirstline or Shoreline. So I understand that there may have been one case during the last 18 months where there is a question of calling in the guarantee, if you like, but I know nothing of the details, I'm afraid. Mr. COBLE. But a rare occurrence, it would be your belief? Mr. COBLE. Thank you, sir. Mr. Ringbakken, in your testimony you state that the potential pay-out under the international convention of civil liability 1992 protocols will often exceed OPA 1990's claim payouts. Give us some specific examples, if you can, of how the international system of oil spill liability could better compensate the victims of an oil spill, as opposed to OPA 1990 requirements. Mr. RINGBAKKEN. Without having the specific details, I'll try to outline the concept of the international regime. The international regime would set a liability limit at a set level, while OPA 1990 will have the liability limit of OPA 1990 will follow a linear graph. So for a good number of different tonnages, you would have a higher limit under the international regime than you would have under OPA 1990. We'd be glad to submit for the record the actual figures. Mr. COBLE. I would appreciate your doing that, if you will. Gentlemen, I thank you all for being here today. Mr. Sheehan, I thank you for your appearance, as well. I'm just thinking aloud now. This was enacted in August of 1990, I think, and perhaps at conference if we had done this, that, or the other, we might could be avoiding some problem, but this is applying 20/20 hindsight, and I'm real adept at applying 20/20 hindsight. But perhaps we can start here to review the process. Mr. Sheehan heard your testimony. You all heard his. Maybe we can start some building blocks here to address some problems. Hopefully that will be the desired result. Does anybody want to-Mr. Sheehan, you or any member of the second panel want to have a last shot before we adjourn? [No response.] Mr. COBLE. Again, I appreciate very much you all being here and sharing your testimony with us. The members of the subcommittee may likely have additional questions for the witnesses, and we will ask you all to respond to these in writing, and the hearing record will be held open for these responses. If there is no further business, I again thank the Members who did appear today, and for you all, again, for your appearance. The subcommittee stands adjourned. [Whereupon, at 12:35 p.m., the subcommittee was adjourned, to reconvene at the call of the Chair.] PREPARED STATEMENTS SUBMITTED BY WITNESSES STATEMENT OF JOHN J. GALLAGHER before the SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION of THE HOUSE COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE at the OVERSIGHT HEARING ON THE FEDERAL REQUIREMENTS FOR VESSELS TO OBTAIN EVIDENCE OF FINANCIAL RESPONSIBILITY FOR OIL SPILL LIABILITY UNDER THE OIL POLLUTION ACT OF 1990 My name is John Gallagher. I am Chairman of Gallagher Marine Systems, Inc., a company providing OPA-90 spill response management services for more than 400 tank vessels. I am also the Director of the Center for Marine Environmental Protection and Safety at the Massachusetts Maritime Academy. In this role, I create training programs for and teach people from industry and government in matters involving response to marine oil spills, compliance with OPA-90 laws, regulations and related subjects. I have been actively engaged in responding to oil spills for more than 25 years. To date, I have been involved in more than 100 significant maritime spills including such notable casualties as ARGO MERCHANT, EXXON VALDEZ and the Desert Storm oil spill in Saudi Arabia. For the most part, my participation has been in the role of spill response manager, in charge of hiring, directing and compensating oil spill contractors mobilized to clean up oil on the water. In my career, I have also worked with other segments of the maritime industry including academia, ship and cargo owners, underwriters and state and federal government agencies. I have also served as a member of a panel convened by the General Accounting Office to evaluate Coast Guard responses to selected spill incidents in connection with the passage of legislation triggered by the ARGO MERCHANT casualty off of Nantucket in 1976. My interest in testifying today stems from a concern that some features of the Oil Pollution Act of 1990 are counterproductive and/or are wasteful of economic resources without producing tangible benefits. Among these measures, I believe, were the changed requirements in OPA-90 regulations concerning Certificates of Financial Responsibility (COFRS). The COFR insures that vessels entering U.S. waters have the financial capability or backing to satisfy liabilities generated from oil spillage. I feel that my unique experience in this area may be of benefit to the Committee in evaluating the efficacy of the present COFR requirements which stem from the existing regulatory interpretation of OPA-90 mandates and of some use in addressing the problems created thereby. During the years I have been involved in spill response, I have worked extensively on maritime oil spill responses with reliance on the financial support of the P&I Clubs. In the course of these, I have obligated many millions of dollars on behalf of owners in conducting successful responses, millions of dollars which have been readily and unfailingly supplied in each instance by a P&I Club. At no time, before or after OPA-90, have I ever had reason to be concerned with the promised financial support or been forced to have recourse to written contracts or documents such as COFRS to compel such support. The Clubs have always been there to provide the promised support. In view of the trouble-free history of support by the P&I Clubs, both prior and subsequent to OPA-90, it is apparent that the Act, or at least the interpretation that has been put upon it in the implementing COFR regulations, has attempted to "fix something that wasn't broke." In addition to mandating the requisite financial backing for the COFR, the rule now gratuitously and unnecessarily adds the requirement that the provider also become a “guarantor" of that backing. For reasons that others testifying here today are more qualified to present, the P&I Clubs, as indemnity insurers, have found it impossible to enter into arrangements that require them to be a "guarantor" or in any other way put them out in front of an indemnified insured in dealing with his liabilities. The unfortunate consequence of the inability of the Clubs to back OPA-90 COFRS is that a great many vessel owners are now forced to pay heavy premiums to an entirely new breed of insurers, the COFR guarantors, for what appears to be a redundant, unproductive and unneeded layer of insurance. The COFR guarantors provide coverage which, although meeting the terms of the new COFR requirements, appear to run very little risk of having to pay out on liabilities incurred. Because it now precludes traditional P&I support for COFRS, the existing regulatory interpretation of the OPA-90 COFR requirements produces what appears to be an inordinate windfall for COFR guarantors. They collect substantial premiums from a great number of vessels entering U.S. waters while, as a practical matter, the P&I Clubs continue to provide the financial support for the spill responses. In the responses I have managed since OPA-90, I have continued to look to and be supported by the P&I Clubs with no concern with or interest exhibited by any of the COFR guarantors. To the best of my knowledge, these guarantors have not played a part in financial support of any of the oil spills which have occurred since the creation of these entities. Because of the increased premiums imposed by existing COFR requirements, increased freight rates and, ultimately, increased costs to the consumer, must inevitably result from this situation. The consequences are that a substantial hemorrhaging of financial resources occurs with no realization of a corresponding improvement in environmental protection or support of spill responses. Such wasted resources would be much better directed toward something which actually provides protection for the environment or better supports response. I therefore urge that serious consideration be given to amendments to the present the COFR requirements to eliminate the needless and costly extra layer of insurance they have spawned. If this is properly done, the ability and dedication of vessel owners to mobilize the resources necessary to deal with spill response and damage reparation would be undiminished. At the same time an utterly useless and wasteful dissipation of financial resources would be eliminated. I sincerely appreciate this opportunity to make this presentation to the Committee and trust that my comments will be helpful in your deliberations. 26-763 97 - 2 |