MEIF enjoying a favorable claims record, it is estimated that the initial debt would be retired within a period of ten years. C. Practical Solution to Insurance and Certification Problems Because we have been unable to find viable commercial solutions to these two problems and because the Coast Guard, as an agency of the Executive branch of the U.S. Government, lacks the authority to resolve them, we conclude that it is necessary to turn to the legislative branch for assistance. Recognizing the practical difficulties in enacting legislation to make such changes, we have embraced the following precepts in order to make the proposal workable: The MEIF proposal would not amend OPA or diminish its protection in any way. It would not involve any federal outlays or taxes. It could not be construed as a new federal program because it would be privately managed. It would be self supporting and not reliant on federal funding. Since the scheme would be independently capitalized, it would not conflict with or displace capacity for existing pollution coverage. The MEIF would be structured so that it could reinstate itself if it sustained a catastrophic loss. The MEIF would issue guaranties for COFRS meeting all requirements of OPA, including direct action. The MEIF would benefit claimants, would protect the Trust Fund against unrecoverable claims resulting from inadequately insured shipowners and would protect shipowners from ruinous liability not based on fault. The MEIF and Coast Guard Rule The Coast Guard issued the COFR Interim Final Rule on July 1, despite widespread industry concern that the required guaranties will not be available except on a very limited and selective basis. While we believe that the Coast Guard had very little flexibility in the issuance of these regulations, we have grave reservations about whether the rule can be successfully implemented so as to avoid catastrophic disruptions to the maritime trade of the United States. We are advised that the Coast Guard's assurances to the effect that OPA protects guarantors from liability beyond their guaranty limits may be insufficient to allay the apprehensions of potential guarantors. While the Coast Guard may issue an interpretation of the effect of OPA section 1016 (g), (limitation on a guarantor's liability), we are advised that there is no basis for insulating guarantors from liabilities arising under other laws as a consequence of being a direct action guarantor. Our advice is that such exposures may exist not only for pollution claims, but also for collateral claims and punitive damage awards, such as bad faith refusal to settle. The fact is that the exposure remains and shipowners (and their P & I Clubs) are not prepared to risk their capital for such a large and unpredictable exposure. We are less confident than the Coast Guard that the proposed commercial alternatives cited in the preamble to the Interim Final Rule and in the Regulatory Impact Analysis will work. Our organizations have worked for several years to develop a fiscally sound proposal for COFRS and excess insurance for tankers trading to the United States. We attest to the great difficulty in finding capital for such a facility, in finding reinsurance capacity without displacing capacity relied upon by existing pollution insurers, and in arranging for reinstatement of the facility in the event of a full limit loss. These were all questions which were faced and resolved in the developments of the MEIF proposal. We urge this subcommittee to insist that the financial integrity of any insurance product (including the MEIF), which shipowners may be forced to purchase in order to comply with the financial responsibility requirements under OPA, be scrutinised rigorously. This would include examination of capital structure and loss reserves, the ability to meet and service claims, and the capacity to reinstate the cover in the event of the occurrence of a full limit loss. As previously stated, our primary interest in developing the MEIF proposal was and is to address the issue of uninsured liability exposure, and we note that the Coast Guard's Regulatory Impact Analysis' views the MEIF as meriting further study for dealing with this issue. We offer the MEIF, however, to the U.S. Government and public as an immediate solution to the two related problems lack of adequate, affordable excess insurance and lack of a proven means of meeting COFR requirements. Although the Coast Guard discarded the MEIF as a solution to the latter problem because it was considered to be principally focused on the former and also because of the need to enact legislation, we strongly believe that any solution to the COFR issue which does not also address the excess liability issue will only survive until the next serious pollution incident. Moreover, we believe that, if Congress does not act now to address both issues, it may well be called upon to revisit the situation later when the proposed alternative solutions to the COFR problem do not succeed. The complete MEIF proposal, together with proforma financial statements and a draft legislative proposal, is attached hereto to be made part of the record. The MEIF is a proposal which meets the demanding requirements of fiscal soundness, commercial feasibility and consistency with the objectives of OPA. It is a fair, effective and durable solution to the twin problems of COFRS and underinsured shipowners. The proponents of the MEIF, the Greek Shipping Co-operation Committee, Union of Greek Shipowners, Norwegian Shipowners' Association and Swedish Shipowners' Association urge the United States Congress to consider this proposal on an accelerated basis and to enact legislation providing for a mandatory excess insurance facility. 1 The RIA at page 107 refers to an earlier version of the MEIF which proposed that the Oil Spill Liability Trust Fund and importers of petroleum participate in the capitalization of the facility. Those provisions have been deleted and it is currently proposed that capitalization of the facility come entirely from a public debt offering and initial deposit premia paid by the shipowner users of the MEIF. |