As is the case with accepting membership in a P&I Club as asset, an the Clubs could invoke policy defenses with the result being that the OSLTF is left footing the bill. This : uld no most likely be the case = f the responsible party has little or without direct action, there is no assurance attachable assets. that the polluter pays principle would be guarantied, as required by CPA 90. It is uncertain if vessel owners would incur any additional costs under the membership-as-an-asset or loss payee approaches. The P&I Clubs have not indicated whether shipowners would be assessed a surcharge assuming the Clubs were willing to agree to the OSLTF becoming a "loss payee". In addition to providing no assurance or even a promise that the polluter will pay pollution claims, the "loss payee" variation may increase costs for oil consumers through higher payouts by the OSLTF and Superfund should a P&I Club deny claims and the responsible party, for whatever reason, does not pay. Thus, it may necessitate the continuation of the collection of oil taxes. Also, additional costs would be incurred by the OSLTF because the Federal Government would first have to adjudicate claims that would otherwise be processed by the responsible party's insurer. the case with using P&I Club membership as an asset, this option As in 113Under similar trust funds, such as CERCLA, Congress expects the Environmental Protection Agency, the manager of the trust fund, to recover cleanup costs from the responsible parties. See House Subcomm. on Investigations and Oversight of the Comm. on Public Works and Transportation, 103d Cong. 1st Sess. Administration of the Superfund Program 27 (Comm. Print 1993). distinguishes between P&I Clubs and traditional Insurers, end could be contested by either shipowners insured by traditional insurers cr their insurers Cr both. The interim rule permits a vessel operator with a specified level of attachabis, United States assets to self-insure in order to establish financial responsibility. To self-insure, the applicant must establish, by an audit of an independent certified public accountant, that it maintains, in the United States, working capital and net worth in amounts at least equal to the total amount of financial responsibility required under OPA 90 and CERCLA." Another method to demonstrate financial responsibility is through a financial guaranty. This allows a vessel operator to meet the financial responsibility requirement by having any other firm, usually an affiliated company, comply with the self-insurance method on behalf of the vessel operator. Both these methods are currently available under the present financial responsibility regulations. As of Fall 1993, only two percent of all COFRS issued by the Coast Guard were backed by self-insurance or a financial 11'Net worth, as defined in the rule, is the amount of all assets located in the United States, minus worldwide liabilities. Working capital is defined as the amount of current assets located in the United States, less all current worldwide liabilities. The working capital test is routinely waived for financially stable operators who meet the net worth test, if a waiver is requested. 1993, and open for public con.net refined the issues and elicite : several an.rebing comments All issues now have been aired, and the Coast Guard has decided to adopt the essence of the NPRM, subiect to technical chances adopting many of the commenters suggestions and hopefully, alleviating the comments that Fal Clubs and other guarantors could somehow become subject to unlimited hability These changes are identified a the discussion that follows. The Coast Guard has decided on this course of acton because it believes that the central objections of the commenters to the rule are obiections to OPA 90 .tse!! (for example, potential unlimited Lability of vessel owners and operators). and. if necessary, should be dealt with by the Congress and not the Coast Guard. The central issue germane to this rulemaking is whether owners and operators will be able to obtain financial responsibility guaranties if the P&I Clubs, as they have declared, do not provide guaranties of insurance. From the letters submitted to the regulatory docket, the Coast Guard concludes that even if the Pad Clubs do not provide these guaranties, alternative financial responsibility sources will be available. These include commercial insurance entities and surety bond companies, as well as the potential greater use of selfinsurance and financial guaranties. These alternatives are described more fully in the final regulatory impact analysis (RIA) that accompanies this rule, a summary of which appears under the heading "Regulatory Impact Analysis" in this preamble The Coast Guard has determined that the approach in the NPRM best fulfills the intent of Congress to assure prompt and certain compensation by the polluter to victims of oil spills and hazardous substance releases. Other suggested alternatives do not satisfy that intent. Among these alternatives are: treating P&I Club membership as an asset for selfinsurance purposes; treating P&I Club membership, with a provision making the Oil Spill Liability Trust Fund a "loss-payee," as a form of selfinsurance; and adoption through legislation of a "Mandatory Excess Insurance Facility." These alternatives are discussed in detail in the final RIA accompanying this rule. The alternatives have not been adopted. That was the main issue in this proceeding. The other issues primarily concern specific echnical aspects of each section of the rules. Part and Section Numbers The NPRM proposed that preexisting par 130 be replaced by a completely Frey, July 1, 194 how part 11 that parts 131 and 132 be removed, and that subpart D of part 137 be removed and reserved. In order to hase in the new rules with the least disruption al: cost to the maritime industry, an order compliance schedule is being adopted. This subedule allows existing Certificates for not-tank vess: is to be used until their mgulariv scheduled expiration Cates, us described in the section of this preamb.e labeled, "ms.mentation Schedule." because of this phased approach. preexisting parts 130, 131, and 132, and subpart D of part 137, must temporarily remain effective after the effective date of this rule. Accordingly, a new part 138 has been designated for the rule that wall replace preexisting parts 130, 131. and 132, and subpart D of part 137. Conforming amendments have been made to 33 CFR parts 130, 131, and 132, and subpart D of part 137. The following table shows the location in the new part 138 of the corresponding sections of the NPRM: Implementation Schedule Section 1016(b) of OPA 90 (33 U.S.C. 2716(h)) states that financial responsibility regulations under acts repealed or superseded by OPA 90.. remain in effect until superseded by new regulations issued under OPA 90. Therefore, the financial responsibility requirements in 33 CFR part 130 (FWPCA), 33 CFR part 131 (TAPAA), 33 CFR part 132 (OCSLAA), and 33 CFR part 137, subpart D (DPA) will remain in effect with respect to individual vessels in the manner prescribed by section 138.15 of this rule. The intent of the implementation, schedule (which could also be termed a compliance Schedule) is to allow for an orderly transition to par 13 by dowing as < me commenters recommended. COFRS issued under the preexisting regulations to remas.d until their expiration dates The Coast Guard is adopting ta' comment, but only with respect to non-tank vessels. As explained below, tank vessels will be required to demonstrate financial responsibility under the new part 138 on a more expedited schedule.) This phased-in transition will also enable the Coast Guard to issue new Certificates in an orderly manner utilizing existing resources. Rather than attempting to Issue approximately 23,000 new COFRS by a single, mandatory date, the Coast Guard expects the future Certificate renewal cycle, applicable to Certificates issued under this rule, to result in the renewal of about one-third that number each year. No new Coast Guard resources would be required for that routine renewal cycle. The existing operators of non-tank vessels which presently are subject to the regulations issued under one or more of the preexisting CFR parts may continue to comply with those preexisting regulations for, in some cases, three and one half years after publication of this rule in the Federal Register, depending upon the expiration dates of their preexisting COFRs. These operators also have the option of choosing to comply with this rule soon after its initial implementation date, which is 180 days after the publication date, i.e., "effective date". On the other hand, self-propelled tank vessels, followed by non-self-propelled tank vessels, will be required to comply with this rule sooner than non-tank vessels because of the generally greater danger of large and possibly catastrophic spills from tank vessels. Self-propelled tank vessels will be required to submit, not later than 180 days after publication of this rule in the Federal Register, at least the evidence of financial responsibility required by this rule (new application forms will be required later). Non-self-propelled tank vessels (i.e., tank barges) will be required to submit, not later than oneyear after publication of this rule in the Federal Register, application forms as well as evidence of financial responsibility required by this rule. Although this phased transition to the new rule may appear complicated it is designed to impose the least burdensome requirements on the regulated community while balancing the need of potential claimants to be assured that the vessels posing the CONGRESSMAN TAUZIN QUESTIONS QUESTION. WHAT HAS BEEN THE ROLE OF INSURANCE COVERAGE BY P&I CLUBS WITH RESPECT TO REMOVAL COSTS AND DAMAGE LIABILITY PRIOR TO AND UNDER OPA-90? WHO WAS ELIGIBLE TO FILE CLAIMS AGAINST A RESPONSIBLE PARTY OR GUARANTOR PRIOR TO AND UNDER OPA-90? Answer. The P&I Clubs have provided in the past, currently provide, and have stated they will continue to provide, insurance coverage for oil spills under U.S. law. In addition, P&I Clubs provided evidence of financial responsibility under former section 311(p) of the Federal Water Pollution Control Act (FWPCA) and under the Trans Alaska Pipeline Authorization Act. Under the FWPCA, the financial responsibility provider was subject to direct action by the federal government. Under the TAPAA, direct action was available to any damaged party. The Clubs also provide guaranties under the international Civil Liability Convention (CLC), and consent to claims from all parties. Under both the TAPAA regulations and the CLC, a guarantor is precluded from invoking policy defenses. CONGRESSMAN TAUZIN QUESTIONS WITH COAST GUARD ANSWERS: 10 QUESTION. HAS THERE BEEN ANY TIME, TO THE COAST GUARD'S KNOWLEDGE, THAT P&I CLUBS HAVE NOT PROVIDED THE COVER TO ITS LIMIT FOR AN OIL SPILL? Answer. A few times over the past 24 years, the United States has had to litigate in order to secure payment, but those few cases involved novel issues and do not represent the reliability of P&I Clubs as guarantors. Overall, the Clubs record is outstanding. The Clubs, insofar as claimants are concerned, voluntarily acted like OPA 90 guarantors before there was an OPA 90, and they continue to do so today, despite what may be said technically for the record. The Coast Guard's perception of the Clubs is based on a long-standing relationship of trust and respect, but the explicit wording of OPA 90's guarantor provisions results in our current requirement of written guaranties. QUESTION. IF THIS RULE HAD BEEN IN EFFECT, WHAT PERCENTAGE OF THE ACTUAL REMOVAL COST AND DAMAGES WOULD IT HAVE COVERED IN THE EXXON VALDEZ INCIDENT AND THE MORRIS J. BERMAN INCIDENT? Answer. The rule would have required Exxon to have established $114 million worth of evidence of financial responsibility. The pre-OPA 90 rule (33 CFR 131) required evidence of financial responsibilty only in the amount of $14 million. In the MORRIS J. BERMAN spill, we estimate that this rule's requirement of evidence of financial responsibility of $10 million would have assured payment of just over 10% of the costs and damages. If, however, the guarantor was able to utilize a defense to liability, e.g., willful misconduct of the vessel operator, this rule would have had no effect. That, of course, is the reason why U.S. taxpayers and consumers contribute to the backup Oil Spill Liability Trust Fund. CONGRESSMAN TAUZIN QUESTIONS WITH COAST GUARD ANSWERS: 12 QUESTION. HAS THE COAST GUARD INVESTIGATED THE VARIOUS Answer. Yes. ETC.) The Coast Guard locked at these cptions, but concluded that OPA 90 does not provide the flexibility allowed by state laws. The discussion in the Regulatory Impact Analysis pages 88-91 (attached) amplifies our conclusion. QUESTION. WHAT HAPPENS IF AN INSURANCE ENTITY PAYS SEVERAL CLAIMS THAT CAUSES IT TO FALL OUT OF COMPLIANCE WITH THE STANDARDS REQUIRED TO MEET APPROVAL? WILL THE COAST GUARD SUSPEND OR REVOKE THE COFRS THAT THE ENTITY ISSUED? Answer. The Coast Guard's COFR guarantor approval standards are designed to make such an event highly unlikely. The Water Quality Insurance Syndicate, Lloyd's Underwriters and the member companies of the Institute of London Underwriters are examples of commercial guarantors who routinely pay numerous claims without causing their financial conditions to fall below an acceptable standard. Only once during the 24 year history of this program did claims payouts cause the solvency of an approved guarantor to fall below our standards. In 1984, a P&I Club lost the backing of its reinsurers because of the alleged failure of the Club to make a material disclosure to the reinsurers when the reinsurance was being purchased. The Club, therefore, had to pay claims out of its own reserves and soon became insolvent. The Coast Guard was forced to write to all of the involved vessel operators and instruct those operators to obtain acceptable, substitute guaranties by a certain date. Failure to do so would have resulted in the revocation of the operators' COFRS. Accordingly, the involved vessel operators changed guarantors. |