the ships at sea." How can we do that if you take away the one lever that we have?

Mr. BRYANT. Congressman, I wonder if I could add a slightly different perspective on that.

Mr. LAUGHLIN. Yes, sir.

Mr. BRYANT. Because you may be asking yourself why, if the P&I Clubs have this strong and sincere belief that they can't rely on the provisions of OPA 90 and the terms of the rule and the wording of the guarantees to protect themselves against unlimited guarantor's liability, why do the Shoreline people actually say they are happy to give the guarantees and happy to rely on those provisions? It does seem to me that at least for the record I should explain what the Shoreline people feel about this.

We would observe that direct action has been the worldwide standard for oil pollution liability since the early 1970's. The international convention regime requires certificates of financial responsibility and direct action. The P&I Clubs have been giving those certificates, those guarantees and responding to direct action, as Mr. Coghlin said this morning, very successfully for 20 years.

Under the Clean Water Act, I think since 1974, the P&I Clubs have actually been giving COFR guarantees, albeit in different form, for lower amounts than those required under OPA. As far as I know, there has not been a single case in 20 years. where the COFR guarantee amount has actually been exceeded in the United States. There hasn't been a case where a court has actually broken the guarantor's right to limitation.

The Shoreline managers take at face value what the Coast Guard has said here and what the law has on its face. We don't have any difficulty with it. It seems to us that the question of policy defenses and the question of maintenance of standards is a different question.

There are two contracts involved here. One is the contract for a guarantee to the Coast Guard. And the other is the contract of insurance between the P&I Club and its member.

The contract for insurance between the P&I Club and its member contains policy defenses. And actually Shoreline, just as with the International Group, has the power if, in fact, a shipowner has cheated it or has misrepresented in getting cover or something like that, to recover from that shipowner any amounts that it pays under its direct action. That has been the case in the P&I world forever and a day and it works extremely well.

I have to say with the greatest respect to Mr. Coghlin that I just don't agree that having a direct action standard in oil pollution has any effect on the ability of the P&I Club to maintain standards.

Mr. LAUGHLIN. Well, with your great respect, I do note in the Registrar of Companies' letter to Mr. Tauzin that your company has been incorporated since February the 18th, 19th;, is that correct, the letter?

Mr. BRYANT. That is correct.

Mr. LAUGHLIN. I want to ask you a more direct question that Chairman Tauzin gave me and that was earlier today you testified that your company was more than willing to provide insurance oil spill pollution to the barge traffic and that is one that I had specifically in mind. And Mr. Tauzin also indicated that in your testi

mony your company would bill on a per trip basis. Am I phrasing what he whispered to me generally?

Mr. BRYANT. I am grateful to have the opportunity because we had the green, yellow and red regime in existence, and I didn't quite manage to get through my speech fast enough this morning. Mr. LAUGHLIN. As you finish, I want you to also address that if you are going to bill on a per trip basis, shouldn't it be a concern to the barge owner or barge operator that you will change your rate or have the ability or the right to change your rate on a daily basis, depending on many factors, over which a particular barge owner will have no control? Now, I am ready to listen to your completion, if you will address that, also.

Mr. BRYANT. Thank you. Shoreline intends to charge its members rates according to tariffs and those tariffs will differ depending on whether the ship or barge or whatever involved is a tanker or not a tanker. In both cases, cover will be provided on an annual basis. from the date of the inception of the cover for a year thereafter.

If it is a nontanker, the tariff will provide for an annual rate and that rate will range between $3,000 and $5,000 a year, based on the size of the ship involved. If it is a tanker, the tariff is more complicated and is intended to fix the cost of the coverage to the parcel of oil actually being carried, so that the shipowner concerned can actually pass this additional cost down to the charterer and the cargo owner so that the cost of this insurance doesn't stick with that shipowner and prove an insupportable burden.

Now, the tariff for tankers provides that the annual coverage is actually paid for on a per voyage basis. The member makes a declaration regularly of the number of voyages he has actually accomplished within United States waters. And if he is trading continuously in U.S. waters, then a period of 30 days is taken to represent one voyage.

Mr. LAUGHLIN. Say that again.

Mr. BRYANT. If he is trading continuously, as say a barge owner trading inland would be, then he pays effectively per month. And unless he can say definitely I have done so many voyages and it is better for him, he pays whatever is best in terms of cost-effectiveness for him on a per voyage basis or a per 30 days basis. He has to pay always with one voyage in hand, which goes back to the point the Chairman is obviously very worried about-a situation where somebody has not paid their premium and, nevertheless, the insurer, the P&I club, is on the hook for payment under direct action and under a guarantee. In Shoreline we have taken steps to make sure that won't happen because you do not get a guarantee given to the Coast Guard unless you have paid in advance and you always have to pay one voyage in hand, as it were, to give a buffer of time. Thus, if the owner starts to default in payment, then Shoreline has time to give the requisite notice to the Coast Guard that they are pulling the guarantee. So, in fact, nonpayment isn't going to be a problem which would be a burden to the rest of the membership.

Mr. LAUGHLIN. And so your rate to-going back to my question, as I understand your answer, the rate is not subject to variation on a day-to-day trip from Houston to

Mr. BRYANT. No, it will be an annually revised tariff. And the tariff actually goes by a number of different factors. We have asked for the tariffs actually to be included in the record so you can study them.

But basically, they recognize, first of all, the size of the ship involved, in deadweight carrying capacity, the type of the ship-in other words, whether it has any of the proactive, ecologicallyfriendly features such as a double hull-and the type of oil carried, whether it is a crude oil or light oil product, and finally the age of the ship. It will encourage shipowners to have newer and more ecologically-friendly ships. It will give them an economic reason for doing so.

Mr. LAUGHLIN. Mr. Coghlin, in response to my question about policy defenses, you indicated that was not your only concern. Rather than get you to go through all the concern, if you have already done that earlier in the testimony, my question should be are you satisfied you have gone through your other concerns, other than the policy defense problem in your earlier testimony prior to my arrival or were there others that you felt that you should tell us about?

Mr. COGHLIN. I appreciate your question, sir. I think in our written testimony, both in 1991 and also prepared for this hearing, we have actually touched on each of those concerns. And there is an aggregation of them.

Thank you for the opportunity.

Mr. LAUGHLIN. Thank you very much. Thank you, Mr. Chairman. Mr. TAUZIN. Thank you, Mr. Laughlin, we have another vote on the Floor. I just want to wrap up this panel if we can. We will take a recess for the vote and come back with the third panel.

I very much appreciate the discussion you had with Mr. Laughlin, Mr. Coghlin, specifically on the concern that if the Coast Guard interprets the law to provide absolute coverage in all cases. This includes whether premiums are paid, whether maintenance is conducted on the vessel, whether the equipment is kept up-to-date and whether class is maintained. They want to make sure that there is always the availability of this coverage regardless. There is a great deal lost in terms of the leverage exercised against shipowners who could lose coverage if they don't properly maintain their vessels and keep their equipment up-to-date.

The reason I wanted to point that out is that one of the findings we made when we examined oil spill problems across this country was that in many cases the problems were not only related to human error, but also very much related to steerage problems and to equipment failures aboard vessels. In many cases, the lack of proper maintenance was directly attributed as a reason for the spill in the first place. That is unfortunate.

If we are to interpret what we have done in OPA 90 is to require such absolute guarantees of coverage by waiver of all policy defenses, that will take responsibility away from the operator of the vessel, we may have made an awful step backwards in the prevention of oil spills. I should hope that that is not the direction these rules take us. But I very much suspect, perhaps, they have.

We will submit some written questions. Mr. Bryant, I particularly want to know a little bit more about the policies of Shoreline

on reinstatement, and about the liability requirement is unlimited for a member to contribute to the funds of the association. We will get into that with written questions.

Mr. BRYANT. It means, Mr. Chairman, exactly what it means in the International Group. It is the same rule that the International Group has.

Mr. TAUZIN. Then, if you have losses, everybody has to chip in to cover the losses. So, a per voyage assessment could be exceeded by the requirements of a contribution if there is a loss.

Mr. BRYANT. But those supplementary calls would be referred back to each voyage.

Mr. TAUZIN. Mr. Youell, we will have a few other questions for you. I particularly wanted to tie down a couple of your comments on the Lloyds of London's testimony. We have about seven minutes left on the vote. We will take a break for the vote, and with my great thanks and appreciation from all the committee for your attendance and patience with us this afternoon. We apologize for the interruptions. We will thank this panel and call the next panel on our reconvening in about 10 minutes. The committee stands recessed.

[Recess.]

Mr. TAUZIN. The hearing will please come to order.

We have some folks who have to catch planes and we are going to have to hurry. We will enforce the light rule.

I know Mr. Law, you have a plane and others.

We welcome this panel and introduce first Mr. Bruce Law, Vice President of the Allied Towing Corporation, Norfolk, Virginia. And I will introduce the remaining panelists as we go forward.

STATEMENT OF BRUCE LAW, EXECUTIVE VICE PRESIDENT, ALLIED TOWING CORPORATION, NORFOLK, VIRGINIA, ON BEHALF OF AMERICAN WATERWAYS OPERATORS; LISA SPEER, SENIOR POLICY ANALYST, NATURAL RESOURCES DEFENSE COUNCIL; MILES KULUKUNDIS, CHAIRMAN, INTERTANKO; AND JERRY A. ASPLAND, PRESIDENT, ARCO MARINE, INCORPORATED, ON BEHALF OF AMERICAN PETROLEUM INSTITUTE

STATEMENT OF BRUCE LAW

Mr. LAW. Good afternoon, Chairman Tauzin and Members of the subcommittee. My name is Bruce Law, and I am Executive Vice President of Allied Towing Corporation, a Norfolk, Virginia, based transportation company operating 15 tank barges, five of which are dedicated to petroleum transportation, and seven tugboats. Allied Towing is a family owned business which has been in existence since 1956.

I appear here today on behalf of American Waterway Operators. We appreciate the opportunity to appear before you to identify for this committee the impact this rule has on the U.S. towing industry.

We have prepared and submitted more extensive testimony for the record. My remarks this afternoon will focus specifically on the impact of the interim final rule on independent coastal tank barge operators. These are companies like mine who stand to lose the

most if the Coast Guard's financial responsibility rule is implemented as currently drafted.

Mr. Chairman, the implementation of this rule threatens the very existence of the small- to medium-sized coastal companies, which have long played a critical role in the distribution of petroleum in the United States. Perhaps the most pronounced concern of the tank barge industry with respect to the interim final rule is this: We are facing these threatening impacts not because the existing system of providing pollution coverage in this country has failed, but rather because the Coast Guard has failed to find a way to incorporate in the financial responsibility regulations a mechanism which allows this time-tested system to continue to function. For years, many U.S. coastal tank barge operators, including Allied, have obtained protection and indemnification insurance, which includes pollution liability coverage, through the International Group of P&I Clubs. By all accounts, and in my own experience, this system has worked extremely well.

The P&I Clubs have a long history of prompt indemnification of pollution liability claims. Unfortunately, instead of adopting a rule which builds upon this time-tested pollution coverage regime, the Coast Guard would have vessel operators like Allied stake our companies' future on an entirely new system of coverage.

Perversely, what this interim rule does is encourage vessel operators to reduce the level of pollution coverage which they have historically carried, and instead obtain a guaranty of insurance only to meet the OPÁ-mandated limits, ironically, at much higher rates than vessel operators currently pay today.

This would effectively reduce the financial ability of companies to clean up spills. It would also expose the Oil Spill Liability Trust Fund to a greater financial drain than would occur under the existing regime today.

Let me give you a personal example of the dilemma which companies like mine face. Keep in mind that while self-insurance, provided that a waiver of working capital requirements can be obtained from the Coast Guard, may be an option for the very largest of companies, it is not an option for companies that are small- to medium-sized like ourselves.

For Allied Towing and companies like it, the only real alternative is to find an insurer willing to act as a guarantor for purposes of the financial responsibility requirements under OPA. However, because the insurers upon which we now rely for pollution coverage have said that they cannot act as guarantors, we are faced with a significant—and for some companies an insurmountable problem of added cost. I cannot accept that it was Congress' intent to drive small, responsible companies like ours out of the oil and chemical transportation business.

Allow me to illustrate one fact. For the 1994-1995 policy year, Allied anticipates paying just under $1 million for liability coverage for our international P&I Club. In addition to the standard protection and indemnification coverage that that policy provides, it also includes oil pollution liability coverage of up to $500 million per incident, plus $1 billion of coverage for any other type of incident, including hazardous chemical spills, and that covers our entire fleet of vessels. Under the interim final rule, however, this coverage can