7. What is the present capacity of the World maritime insurance market? What amount of that capacity is presently consumed for other types of insurance? What are those types? What are the limits if any? What is the nature of the liability, i.e., absolute, strict, or negligence? 8. What is the basis for the statement that the capacity of the maritime insurance market is limited? 9. To what extent could that capacity be expanded by higher rates for insurance? 10. Would insurance relating to on- and off-shore facilities be drawn from the maritime insurance market? If yes, what would their impact be; if no, answer questions 7, 8, and 9 in terms of the insurance for on- and off-shore facilities. 11. In any of your answers to the preceding questions, has any increment for third party damages been included? (The legislation presently pending before the Committee is in no way intended to affect third party liability). 12. If an International Convention were adopted which encompassed all liability for discharges including clean-up costs as well as third party damages, what impact would this have on the availability and costs of the various kinds of insurance discussed? RESPONSES AMERICAN INSTITUTE OF MERCHANT SHIPPING, May 19, 1969. Hon. EDMUND S. MUSKIE, Chairman, Subcommittee on Air and Water Pollution, Committee on Public Works, U.S. Senate, Washington, D.C. My DEAR MR. CHAIRMAN: In your telegram of May 8, 1969, you posed 12 questions relating to the insurance aspects of the current Oil Pollution legislation. Upon reviewing these questions, it is our conclusion that they can only be answered by those having expertise in the field of marine insurance. There is one exception to this-Question 6-to which I will address myself later. The Institute has indicated, throughout its testimony on Oil Pollution legislation, that it is prepared to support a measure which will provide for the reasonable imposition of liability, coupled with reasonable limits of that liability. Naturally, we are vitally concerned that under any bill which will require a vessel owner to establish his financial responsibility to meet the liabilities imposed by the legislation as a prerequisite to clearing his vessel from a United States port, insurance can be obtained and can be obtained at reasonable cost. To that end, we have followed with interest the testimony of recognized experts in the field of marine insurance, and will be intensely interested in the answers which they give to the questions you have posed. While obviously, the thrust of the legislation is directed at major oil companies operating large fleets of tankers, it is important that concern be given also for the impact of the legislation upon small vessel owners, both dry cargo and tankers. As you probably know, many of the vessels operating under the American flag constitute a marginal operation at best. Any substantial new liabilities imposed upon these vessels, where a considerably higher insurance cost is involved, could well drive a number of them out of business. In Question 6, you ask for information on the actual cost of cleanup in discharges over the past 10 years. The only information this organization has on that subject was contained in Mr. Casey's testimony before the Committee on February 4, 1969. In your telegram of May 17, 1969, you have invited me to appear on May 20 to discuss the questions contained in your telegram of May 8. Further, you state that the testimony should be confined to those questions. Under the circumstances, I am very much afraid that I could not make a contribution at this time. However, I would very much appreciate an opportunity either to appear before your Committee or to submit a statement after we have had a chance to hear and analyze the testimony of the witnesses from the marine insurance field. I hope you will appreciate that my reluctance to testify is motivated solely by the nature of the questions posed and not in the slightest degree by an unwillingness to cooperate fully and completely with you and the Committee in it work on the Oil Pollution legislation. Sincerely, JAMES J. REYNOLDS, President. LONDON GROUP OF PROTECTION AND Re Oil Pollution Legislation. Chairman, Subcommittee on Air and Water Pollution, Senate Committee on Public Works, Senate Office Building, Washington, D.C. DEAR SENATOR MUSKIE: This letter is written in response to your recent telegram. We wish to make certain preliminary qualifications to our answers to the questionnaire annexed to your telegram. First of all, the questionnaire touches only on part of the problem, and therefore the following answers should be read in conjunction with the full evidence given by us before your Committee on February 4th, and with Mr. Miller's telex message of April 26th to Mr. Paulsen, a copy of which was previously furnished to your staff. An additional copy of that message is attached hereto for your convenience. Secondly, as insurers of shipowners' legal liabilities, our principals do not cover legal liabilities of on shore or off shore facilities, and we are therefore not attempting to answer your questions relating to these. Thirdly, our answers relate to the maximum insurable limits, and are not intended to indicate what we consider to be reasonable limits, in relation to insurance costs and previous oil pollution experience. Finally, in answering your questions which concern insurability and rates. we are of course referring to the owners and operators of approximately 70% of the world's tonnage who are insured with the Associations constituting the "London Group." We obviously cannot speak for the owners or operators of the remaining 30%. Question 1. To what extent would the various standards of liability be insurable for vessels per gross ton? Per off shore platform? Per barrel capacity of an on shore storage facility? Answer. (a) If absolute liability were imposed, the maximum insurable limit for vessels would be $67 per gross ton or $5,000,000, whichever was the lesser amount. (b) If negligence were the basis of liability, it would be in the region of $100 per gross ton, or $10,000,000, whichever was the lesser amount. Question 2. Under any of these standards if there is a limit on the number of dollars per gross ton, what is the corresponding outside limit per vessel? What is the vessel tonnage which would be involved? Would there be a different limitation as between tankers and other types of vessels? Answer. Given these limits per gross ton, the overall limits per vessel, per accident, would be: (a) $5,000,000, if based on absolute liability. (b) Approximately $10,000,000, is based on negligence liability. (c) The vessel's gross registered tonnage could be used as the basis in computing the limit of liability, although in most legislation the tonnage upon which the limit of liability is calculated is the net tonnage plus the engine room space, which is roughly equivalent to the gross registered tonnage less 10%. (d) In our view, there is no reason for different limitations for tankers and for other types of vessels for this risk. Question 3. Under each of the possible liability standards what is the esti mated cost of insurance per gross ton of vessel if the limit were $100 per gross ton? $150 $200? Would the cost of insurance vary if the individual vessel or the entire fleet were the unit of insurance? Answer. Assuming liability based on negligence, and assuming unilateral legislation by the United States only, then the following are the estimated overall costs, based on present market conditions, for vessels trading to the United States: (a) On the basis of a limit of $100 per gross ton and $10,000,000 overall$0.20 per gross ton per annum. (b) We are uncertain whether insurance would be obtainable on the basis of a limit of $150 per gross ton, but if it were obtainable, and were allied to a limit of $10,000,000 overall, we would estimate the cost at $0.30 per gross ton per annum. (c) Liability with a limit of $200 per gross ton would be uninsurable. (d) The cost of insurance would not vary substantially whether the individual vessel or the entire fleet were the unit of insurance. (e) While there has not yet been enough experience to determine the full effect of reversal of burden of proof on cost of insurance, in our view, reversal of the burden of proof of negligence would, at the present time, not alter the cost very substantially. However, the cost of insurance against absolute liability, subject to a limit of $67 per ton and $5,000,000 overall, would be double the cost of insurance against negligence liability subject to a limit of $100 per gross ton and $10,000,000 overall. (f) It should be noted that the rates mentioned above are for ordinary oceangoing and lake vessels, and that barges and river craft would pay higher rates per gross ton because of their small size. With regard to dry cargo vessels, for estimated costing purposes one could assume that the cost would be 25 percent of the above rates. Questions 4 and 5 relate to on shore and off shore facilities, and not to vessels. Question 6. To the best of your information, what are the actual costs of cleanup that have been incurred in discharges which have taken place in the last decade? Where possible relate the costs to the actual amount of oil discharged. Where possible describe the circumstances and the areas where discharge had occurred. Answer. An up-to-date schedule of oil pollution claims paid by members of the London Group will be submitted as promptly as possible. Question 7. What is the present capacity of the world maritime insurance market? What amount of that capacity is presently consumed for other types of insurance? What are those types? What are the limits if any? What is the nature of the liability, i.e., absolute, strict, or negligence? Answer. (a) By the capacity of the world marine insurance market, we mean the amount of insurance which can be bought to cover any single maritime venture. (1) In this sense, the capacity of the market for hull and machinery insurance in respect of any one conventional non-passenger vessel is approximately $30,000,000. A few passenger ships are insured for more, e.g. the Queen Elizabeth II, the most valuable of all is insured for $60,000,000 for hull and machinery. (2) The capacity of the market in respect of cargo on any one ship is approximately $30,000,000. (3) For insurance against liabilities in respect of any one vessel, the capacity is a total of $35,000,000. The liabilities of which we speak cover the full range of shipowners' liabilities such as, for example, loss of life and personal injury, damage to cargo, liability to third parties for property damage, one-fourth of the shipowners' collision liability, and liability for removal of wreck. In most maritime countries the limit of liability in respect of property claims alone is the equivalent of $67 per net ton. (b) In almost no case, and certainly not in respect of oil pollution, is liability imposed on a shipowner on an absolute basis. (c) There is no such thing as a specified sum (e.g., $2,000,000,000) being available to cover marine risks, which, when exhausted, would leave the owners of new tonnage without coverage. There will always be insurance available to cover reputable assureds, but underwriters are unwilling to expose themselves excessively on any single venture. Question 8. What is the basis for the statement that the capacity of the maritime insurance market is limited? Answer. The basis for our statement that the capacity of the market in respect of oil pollution liability is limited is a trial placing which has been made, which is the only way on which definite advice on this point can be given. We can therefore be certain that in the present state of the market the limits we suggest are approximately correct, although as we previously advised in giving our evidence before the Committee, we believe a market might be found for oil cleanup costs with an overall upper limit of perhaps $12,500,000 per vessel, per accident, if the tonnage formula were restricted to something reasonable, such as $67 or $100 per gross ton and liability was based on negligence. The reason why underwriters will insure only up to these limits is that they already have a heavy financial commitment in the maritime venture by their insurance (or reinsurance) of the ship herself, its cargo and the shipowner's ordinary liabilities. Question 9. To what extent would that capacity be expanded by higher rates for insurance? Answer. In our opinion, higher rates would not expand the market for oil pollution liability insurance at all; regardless of the premiums they might earn, underwriters would be unwilling to risk any larger sums in respect to any one vessel. Question 10. Would insurance relating to on and off share facilities be drawn from the maritime insurance market? If yes, what would their impact be; if no, answer Questions 7, 8 and 9 in terms of the insurance for on and off shore facilities. Answer. Insurance relating to on shore and off shore facilities is partially drawn from the marine insurance market. However, since the market capacity is based on each venture, this has no effect on insurance of shipowners against oil pollution liability. Question 11. In any of your answers to the preceding questions, has any increment for third party damages been included? (The legislation presently pending before the Committee is in no way intended to affect third party liability.) Answer. Our answers, other than to Question 7, have related only to government cleanup costs. Question 12. If an international convention were adopted which encompassed all liability for discharges including cleanup costs as well as third party damages, what impact would this have on the availability and costs of the various kinds of insurance discussed? Answer. A shipowner's liability to third parties for oil pollution damage is already covered under normal shipowners' liability insurance. A convention which included liabilities not presently imposed and increased existing liabilities arising from oil pollution would therefore increase still further above the amounts given above, and would reduce the amount of coverage available for government cleanup costs alone. At the moment no firm costing can be made. At the recent C.M.I. Conference in Tokyo, where the United States was very well represented, an overall figure for all oil pollution of $67 per gross ton was accepted, which may be indicative of what is considered a reasonable limit. Mr. Miller will be happy to clarify any of these answers when he again testifies before your Committee on May 23rd. Yours faithfully, Mutuality Ldn. JOHN C. J. SHEARER, (On behalf of the London Group of Protection Urgent Attention of Mr. Gordon Paulsen. For your information I have very recently been making further detailed enquiries in the insurance market to enable me to advise various governments who have requested information on market capacity for oil pollution risks. Certain facts emerge from these enquiries which I think you should know and should bring to the attention of our friends on the Senate and House of Representatives Public Works Committees. 2. The market capacity limit for the separate and additional risk of government cleanup costs of oil spills is in the region, whichever is the lesser, of $100 per gross registered ton and $10 to $12 million overall, each accident, each vessel. 3. This capacity would be severely reduced if absolute liability were introduced. 4. An overall limit as indicated above is essential. I realize that in the U.S.A. it is not necessary since at the moment no vessel larger than approximately 65,000 gross registered tons can get into a U.S. port. However, that position will certainly change soon. Moreover, the U.S. Congress will be the first legislative body of consequence to pass new law on this subject and I hope therefore that a statesmanlike attitude will prevail and they feel they can include an overall limit as a precedent for other countries following in their legislative wake. The same consideration applies to a provision for sharing the limitation fund with other friendly neighboring countries and such a provision is from an insurance point of view, essential. 5. The reported settlement of Torrey Canyon for $7,200,000 includes all government claims from Britain and France and all private claims for pollution dam age. Therefore, a limit of $100 per gross registered ton would appear to have been sufficient to cover Government cleanup costs even in this expensively handled catastrophe. I have discussed this matter with Nick Healy in London and he feels as I do that this market position should be brought to your attention as soon as possible. SCHEDULE OF AMOUNTS PAID BY UNDERWRITERS FROM JANUARY 1, 1960 to MAY 14 1969 IN SETTLEMENT OF OIL POLLUTION CLAIMS RESULTING FROM MAJOR TANKER CASUALTIES [This schedule is not exhaustive, but is believed to cover the major incidents, i.e., those involving payments by Underwriters in excess of $14,000 on account of clean-up costs, made to both governmental authorities and private parties.] Name of ship and date of incident Mary Billner, May 21, Alkaid, July 1960.. Bideford Sept. 15, 1960.... Sister Katingo Dec. 17, 1960. Crinis Dec. 30, 1960. Esso Lyndhurst, Jan. 25, 1961. Marathon, Aug. 31, 1961... Viber, Oct. 13, 1961. . . . . . Eagle Courier, Feb. 14, 1962. Argea Prima, July 18, 1962. Olympic Falcon, June 27, 1962. Esso Libya, Nov. 21, 1962. Partula, Dec. 26, 1962..... World Mead, June 5, 1963. Brother George, Jan. 10, 1964. Lady Dorothy, February/ C. T. Cogstad, Dec. 1, Rice Queen, January, 1965. Esso Lincoln, February, Fremantle. Oil spillage due to opening of 10,381 22 Avocat Rock. Vessel grounded and about Esso Amsterdam, August, Fawley. During discharging operations, due to the overboard stripper valves not being See footnotes at end of table, p. 1312. 25-679-69-pt. 4-26 |