(4) No estimate of premium cost can be given without sufficient facts, including who we are insuring, what we are insuring, where is the facility. Each risk would have to stand on its own merits and a premium be developed accordingly. At the present maximum world capacity should be somewhere in the vicinity of five to ten million dollars any one occurence for all interests involved. This will probably be over substantial deductibles.

(5) As in 4, it is impossible to determine premiums without information concerning who, what and where. We believe there should definitely be a distinction between onshore and offshore facilities. The offshore facilities will involve the major petroleum interests while the onshore facilities will, in addition, include independent small business and the economics of insurance could prove prohibitive.

(6) No available material at our disposal.
(7) Not answerable by our committee.
(8) Not answerable by our committee.

(9) Not answerable by our committee.

(10) Insurance relating to on and offshore facilities may be drawn from the maritime insurance market under certain circumstances. While the marine market has not expressed itself on this point it is our opinion that we would not be reducing the capacity available for vessels.

(11) No, as we have given no premium indications.

(12) We presume this question refers to the maritime field only. JOHN CROSBY AND CONRAD GILES, For the Insurance Broker's Association of the State of New York, Inc. (Casualty Committee).

TELEGRAM OF COMMITTEE OF AMERICAN
TANKER OWNERS, INC.

Hon. EDMUND S. MUSKIE,

U.S. Senate, Washington, D.C.:

The Committee of American Tanker Owners, Inc. which is composed of independent owners of American-flag tanker tonnage has no experties in marine insurance matters, therefore cannot respond of its own knowledge to the questions in your telegram of May 8, 1969, concerning insurance, under various standards of liability, for the cost of clean-up of oil discharged into the navigable waters or into the waters of the contiguous zone when such clean-up is undertaken in the name of the United States. Based on our discussions with leading marine insurance specialists, however, we are informed that if absolute liability were found to be insurable, insurance rates to tanker owners would be at least double the rates of insurance based on fault. We are further informed that even if absolute liability were found to be insurable and the rates for insurance for such liability were doubled, tanker owners would be covered only up to a relatively low ceiling, leaving unanswered how the small independent tanker tonnage could show financial responsibility, as required in certain legislative proposals, for higher ceiling limits.

While major oil companies resources are such that they could prove financial responsibility irrespective of the availability or cost of insurance, independent tanker owners could not so do, with the result that independently-owned American tankers could be eliminated and the required competition which they provide in the oil industry lost. As we believe it is in the public interest to preserve competitive independent American tanker tonnage in the commerce of the United States, we respectfully submit that the concept of tanker liability without fault should be rejected.

COLES & GOERTNER,

As counsel for the committee of
American Tanker Owners, Inc.

Senator MUSKIE. Senator Boggs, would you like to comment? Senator BOGGS. Mr. Chairman, I haven't any remarks to make at this time. I would like to say that I do agree with the statement you have just made, and I think the hearing this morning is essential, and very important to the work of the committee.

Senator MUSKIE. Thank you, Senator.

Senator Eagleton?

Senator EAGLETON. I have no comments.

Senator MUSKIE. Well, then, let's get to work.

Our first witness this morning, Mr. Clarence Pell, director of Air Transport Insurance of New York. Mr. Pell, it is a pleasure to have you here, sir. We have had correspondence from you on this general question. Specifically, we have had a letter dated May 14 of this year, and without objection, that letter will be included in the record at this point.

(The letter referred to follows:)

Hon. EDMUND S. MUSKIE,

AIR TRANSPORT INSURANCE, S.A.,

500 Fifth Avenue, New York, N.Y., May 14, 1969.

U.S. Senate, Chairman, Subcommittee on Air and Water Pollution, Senate Office Building, Washington, D.C.

DEAR SENATOR MUSKIE: I refer to your telegram of May 8 relative to certain questions which have been raised relative to the Oil Pollution Section of the Water Quality Improvement Act of 1969, etc.

As the Director General of the Societe Preparatoire pour Air Transport Insurance, S.A., I have had a certain exposure to the insurance problems delineated in your telegram, but as an aviation insurance specialist there are many questions which you ask for which any answers of mine would be valueless.

We here are attempting to create a self-insurance scheme for the scheduled airlines of the world which will focus the capital of the participants within that industry directly to the intense hazards created by the nature of air transport. It is because of this novel concept of insurance that I made an appearance before some of the juniors of your Committee in Washington recently.

With reference to your question No. 4, the mechanism which we use to focus airlines risk capital directly at the hazard involved would seem to me to be immensely successful in the petroleum industry, where a consortium of the giants in the petro-chemical field would be able to raise sufficient capital with little or no effort to handle that part of the pollution risk which could not be placed in the normal liability and marine insurance market.

With reference to your question No. 7, we feel strongly here that dilution of airlines' risk capital by sharing in other types of aviation insurance is a mistake and that it would be detrimental to our interests to make our facilities available to manufacturers, airports, or other purchasers of aviation insurance. Similarly, the insurance market to which you must turn for pollution risks is the world marine insurance market and its facilities are sorely strained by requirements for hull insurance, cargo insurance and liability insurance in general.

I regret that I am unable to assist you in the other questions in your telegram and I should like to suggest that the remaining questions would best be answered by John B. Ricker, Esq., Chairman of M.O.A.C., 123 William Street, New York, N.Y. 10038.

Please be assured of my sincere desire to cooperate with you further if you feel I may be of service.

Sincerely,

C. C. PELL.

STATEMENT OF CLARENCE PELL, DIRECTOR, AIR TRANSPORT

INSURANCE, S.A.

Senator MUSKIE. May I invite you to make any opening comments you might like to make, sir.

Mr. PELL. I am afraid that I am not going to answer all the problems that you have put to us, Mr. Muskie, as a fairly new employee of Air Transport Insurance, S.A. The airlines of the world, in an effort to build their own insurance company, to implement the capacity to

meet problems which the airlines of the world foresee, as a result of the Boeing 747 with 490 people on board: The airlines are directing their own capital and their own resources, in an effort to patch up the gap that they assume may result from the insurance market's inability to take the risks of the jumbo airliner.

Senator MUSKIE. May I at this point interject for the benefit of the press and others who are interested that there may be some question as to why we have someone concerned with the problem of the airlines testifying on an oil pollution problem. It seemed to us that there are similar problems, in that there are risks involved in the coming developments in the air travel business, risks involving great liabilities, as to which the insurance market may not be in a position to respond. And so the questions involved in that field: one, what the limits of liability ought to be; and two, how to cover those risks with some form of insurance or self-insurance. It seemed to us that it might be helpful to know something about the thinking that is going on in connection with that problem, as we consider this other similar problem.

Mr. PELL. The airlines, like the oil companies, are afraid that there isn't going to be enough capacity in the world to pick up the risk, so somebody has got to do something. You can't have Pan American unable to operate its Boeing 747 because it can't get it insured. It has got to take a firm position.

The reason I am here, I believe, is the similarity in aviation and in pollution of the problem of running through the limits of the insurance market.

CONCEPTS OF LIABILITY

Senator MUSKIE. Now, what concepts of liability are involved in your consideration of the problem? Absolute liability; liability based upon negligence; and so on?

Mr. PELL. We operate under the normal-the airlines operate under the normal law of the United States of America, that when a man is killed, whether he is killed by a train or a bus, or an airplane, or whatever, he recovers what he is presumed to be worth; there is no protection for the airline operator, by the way of a limit in the United States.

Self-insurance

Senator MUSKIE. So it is an absolute liability?

Mr. PELL. Yes, it can be anything. Some judgments have been awarded of $700,000, $800,000 a person, and then you may have 400 of these people in one plane.

Senator MUSKIE. So you are developing a concept of self-insurance. Would you describe that?

Mr. PELL. That is exactly what we are working toward now, a concept where the airlines put up a certain amount of cash, and then they put up certain bank guarantees, in addition, to meet the frightful disaster, such as when a Boeing 747 flies into the Louvre Museum, which is the continental underwriter's normal measure of the worst thing that could happen.

Senator MUSKIE. Well, how would this liability be imposed? Or how will the self-insurance scheme be organized?

Mr. PELL. The self-insurance scheme is going to be organized in conjunction with the normal insurance market. The normal insurance market is going to do 60 percent of the business, and the Air Transport Insurance, my group, is going to do 40 percent. It is going to use the same rates the insurance market uses. The airlines are going to put up stock to support the company, and then if there are profits, in the 40-percent share which the airlines take for themselves, then those profits will be shared amongst the participating airlines.

The impact of cost reduction to the airlines is of less moment than the fact that there is going to be 40 percent more capacity which didn't exist before.

ATI ORGANIZATION

Senator MUSKIE. Now, Air Transport Insurance is the organization which can put this together?

Mr. PELL. ATI is in the process of putting it together; I wish I could say it is done, but it is not. It is in process.

Senator MUSKIE. Is this under agreement with the major airlines? Mr. PELL. The major airlines have been supporting this project for some 2 years now. These are the major airlines of the United States as well as the rest of the world.

Senator MUSKIE. Are they committed as yet to the concept of self-insurance?

Mr. PELL. They have committed themselves to the extent of organizing our company, which is to develop two Swiss companies, which are going to be the operating insurance vehicles at a later date. Hopefully, ATI will be in business January 1, 1970, when the 747 risks begin.

Senator MUSKIE. Now I say the major airlines have organized your company. So, you are the creature of the major airlines.

Mr. PELL. The airlines own us; we are their servants.

Senator MUSKIE. Are we speaking now about all of the major airlines? Are there any exceptions?

Mr. PELL. The airlines that support us are represented by their trade groups: In this country, Air Transport Association; and in the world, International Air Transport Association. Those two groups between them have put up the money that has gone into us to date.

We are now attempting to get approval from the Commissioner of Insurance in Switzerland that our concept will be a valid one in Switzerland, and then we have certain other problems in this city dealing with export of capital, and so forth.

Senator MUSKIE. Is there some written commitment here?

Mr. PELL. The trade groups, of the airlines, with the unanimous. support of their members, have gone ahead with the creation of this company. Until such time as we can tell the airlines exactly what the price is, in amount of capital required, they are not committed to participate in our operation.

We can't tell the airlines yet what the price in capital is going to be, because this price has not yet been approved by the Commissioner of Insurance of Switzerland.

International involvement

Senator MUSKIE. Now is there involved in this whole effort any participation by governments? Is there a diplomatic problem involved as well, or international?

Mr. PELL. There are some 85 countries involved, and in most of the airlines, with the exception of the U.S. carriers, and Swissair, the governments have a great deal to say. They have to permit the airlines to use this type of insurance. This is another one of our problems. Senator MUSKIE. Is the U.S. Government giving its approval to this concept?

Mr. PELL. After I leave you, I am going to be devoting myself for the rest of the day to just this problem, to try and get blessings from the various involved agencies in Washington.

The reason this is interesting to you is that where there is not going to be enough insurance, somebody has got to step in and make it; and if it isn't going to be the industry, itself, be it oil or be it airline, then it may easily become a Government problem, to cover the insurance gap; and this may be the last thing that anybody wants. I don't know. Senator MUSKIE. These are the three alternatives, aren't they? One, the insurance market, two, self-insurance, three, governmental support of some kind.

Mr. PELL. I frankly would a lot rather make this sort of a pool up out of the oil companies than out of the airlines, because the oil companies have plenty of money. The airlines are overextended, as far as capital is concerned. They have got new airplanes coming, they have got new hangars to build; they have a million new problems requiring capital.

Senator MUSKIE. Well, I have a point of view on that, which perhaps I ought not to inject in the hearings. But, I appreciate your interest in sharing this similar experience with us. It is in the state of development at this point. I gather from the correspondence and the contacts we have had that the prospects for its fruition are pretty good at this point.

Mr. PELL. Yes, I would say we are getting about a B plus. We are not all the way home, but we are on our way. We are getting tremendous support from Europe, and tremendous support from the airlines themselves; these are the heartwarming things. The difficulties are mostly with the various governments involved.

I would like to make one more statement, if I
Senator MUSKIE. Yes.

INSURANCE MARKET CAPACITY

may.

Mr. PELL. We talk a lot about capacity in the insurance market. You can put a stick in the crankcase of a car, and you can measure how much oil is in that crankcase. The oil people have a magic way of drilling a couple of holes and saying that they have proved 400 million barrels of oil, and this then becomes an adequate measure. But you can't measure the capacity of the insurance market, until you go into it with an order to insure so much in liability for a certain risk. And 50 million, a hundred million, pick any number you want, until you give the order, and try to place it with the underwriters of the world-you don't know whether you are going to fall short or not.