Although any enlightenment we get on that point, we would appreciate getting.

Senator Randolph.

Senator RANDOLPH. Not at this moment, Mr. Chairman.

Senator MUSKIE. Senator Spong.

Senator SPONG. Thank you, Mr. Chairman.

I think that what Senator Cooper probably had in mind in asking the question, Mr. Pell, is that we had testimony 2 days ago from Mr. Frank, saying that under the Rome Convention, I believe, there was absolute liability for ground damage, and that in the Warsaw Convention, there was absolute liability without exception.

Now, I have the same concern as the chairman. I am really concerned about the attitude of the insurance industry. Now, when was the Rome Convention negotiated?

Mr. PELL. You have me on Rome. Warsaw was 1929.

Senator SPONG. 1929? Well, Rome is more recent, isn't it?

Mr. PELL. I don't know.

$75,000 per person liability

Senator SPONG. Now, which one imposes a liability of $75,000 per passenger?

Mr. PELL. This is Warsaw, and I believe the amendment was Montreal, the amendment that made that one. The CAB 18900-something like that.

Senator SPONG. Well, at the time of the amendment which placed a $75,000 per person liability, what was the attitude of the insurance industry at that time?

Mr. PELL. The insurance industry that was asked that question had one view, and the rest of us, who had been settling claims since 1929, in the United States, with no protection of any convention whatever, would have had another answer, had we been asked.

Senator SPONG. Those who were asked said it was uninsurable. Is that correct?

Mr. PELL. I believe they said that, yes.

Senator SPONG. That is what I thought. But those others had different views, but their testimony was not solicited?

Mr. PELL. Not solicited.

POTENTIAL LIABILITY FOR THE 747

Senator SPONG. In your opinion, what is the potential liability for the 747? I don't mean the two running into each other over Yankee Stadium. I just mean a crash in which all persons aboard are lost.

Mr. PELL. This is a very difficult exercise. I am not using that as an excuse, but the U.S. courts assign different values to different people. An unmarried girl, who is dependent on her family, has a certain value. The 40-year old sales manager of a very good company, with two or three small children, who is going to be president and chairman of the board, he has a different problem, and you have got to estimate the mix of passengers that go into a particular accident.

If you had nothing but young, very expensive sales managers on an airplane, you might use an average of $250,000 per person times 400 passengers. I can't do that in my head, but I think it is a hundred million dollars.

If you had an airplane full of deadheading stewardesses being flown from New York to Miami, they have got to be single girls, they are earning a relatively low salary, and they have no dependents, so that type of passenger has an entirely different value than the sales manager.

Future value

Senator RANDOLPH. Yes, but they have a future value.

Mr. PELL. They have a future value, but we don't pay for that, Senator, this is not a function of the airline industry. This is true if you are insuring railroads, or Greyhound buses. You have this problem of what is the mix of passengers involved in the fatal accident. If the average death claims can be worked out in the United States, where there is no protection therefor, the average death claim in non-United States, or Warsaw, should be able to be worked out in that it would be lower than that in the United States.

Senator SPONG. We had a figure of $30 million suggested to us in the testimony Tuesday as the potential liability.

Mr. PELL. Well, $30 million isn't enough, if you are going to include the airplane. Someone has got to pay for that airplane, and generally it is the same underwriter, so he has got a $20 million bite on the airplane that he has got to pay for the next day, and $10 million would not pay for the 400 passengers on top of that, and you are assuming in the accident where he just flies into a mountain or into the water without doing any other damage. That $30 million is not enough.

Senator SPONG. Thank you.

Thank you very much.

Senator MUSKIE. Senator Baker. Mr. Chairman, I have no questions at this point.

Senator RANDOLPH. Mr. Chairman.

Senator MUSKIE. Yes, Senator Randolph.

WASHINGTON CRASH

Senator RANDOLPH. Mr. Pell, do you recall the accident of many years ago when the pilot of a military aircraft of another country collided here, over Washington National Airport, with a commercial plane? Do you remember?

Mr. PELL. I remember, I insured Eastern in that one. We call it the Helen Hokinson crash.

Senator RANDOLPH. What?

Mr. PELL. Helen Hokinson. She was a lady cartoonist and she was killed in that accident.

Senator RANDOLPH. What was the final disposition of that case? I read many stories, and very high figures were avowed to in the press, but I don't recall them. What would they be, sir?

Mr. PELL. I wish we could settle claims at that rate now; it was far lower than they are now. There was a conflict as to whether that airplane fell in the District of Columbia or in the State of Virginia. Senator RANDOLPH. That is right.

Mr. PELL. And because of this conflict-the State of Virginia had a limit for wrongful death-there was some impact on the awards. But the awards were nothing fantastic. It was expensive, in its day.

Senator RANDOLPH. Yes.

Mr. PELL. But relatively, nowadays, it would be a bagatelle. Senator RANDOLPH. I remember there was controversy about it. Mr. PELL. Oh, yes.

Senator RANDOLPH. And I thought you might, as you have already

Mr. PELL. I felt that our claims department did not handle that claim with the brilliancy it might have. When we did it, I felt it was not well done. Some of the excessive claim award was the fault of underwriter.

Senator RANDOLPH. Mr. Chairman, if Mr. Pell is available, I might ask him to remain to answer two or three questions just a little later. Senator MUSKIE. Will you be here this morning, Mr. Pell? Mr. PELL. I can make myself available, yes.

Senator RANDOLPH. In a few minutes, there are one or two matters I might ask you about.

QUESTION OF LIABILITY

Senator MUSKIE. Just one question, on the question of proving liability on the part of those injured or those representing those killed, you said that the airlines must be proven wrong. Well, what kinds of proof, what burden of proof must be sustained? To what extent do the insurance companies quarrel with liability and the question of liability?

Mr. PELL. I think I made it clear, the only one that I can think of, that any underwriter has gotten away with at all recently is the sabotage case, and if there is sabotage, the airline could not, in the state of the art, have done anything to keep that nut off the airplane with his bomb, there was nothing the airline omitted to do that caused this accident, but in most every other accident, the airline is responsible. If a pilot flies into a turbulent area, he has supposedly been told, and is supposed to have known better, and underwriters just pay those claims automatically.

But you don't pay them automatically because the liability is automatic; you pay it because you know you can't win.

Senator MUSKIE. So for all practical purposes, there is the assumption of absolute liability, except for sabotage. I am not seeking an absolute parallel here, but I just want to get

Mr. PELL. The lawyer well knows that he hasn't got a chance of fighting many of them, and when he goes to court, the only thing he is going to try and do is to say that part of this accident was the fault of the manufacturer of the airplane, who forgot to put a bolt in the engine, or something.

You are trying to put some of the liability off the airline onto the manufacturer for the sake of the airline's own experience and he, most of the time, he is going to court to have an assessment made of what the damages are. What is this man worth? And if the value that the estate puts on a dead person is reasonable, it is paid immediately. It doesn't go to the court. They write a check right now. It is a question of agreeing on value, that is why the court is involved.

Senator MUSKIE. But in any case, as you are putting together your proposal, you are putting it together on the basis that there is going to be absolute liability in the sense that there is not going to be any serious effort made to question the responsibility for the damage.

Mr. PELL. Well, I must say that by the design of our company, where we are following in the market, which is doing 60 percent of the business, we must follow that market in claims, and the insurance market, the regular aviation insurance market, is still the deciding agency that decides whether the guy is to be paid or not, and we are only following that market.

Partly because we only have a 40 percent interest, and they have a 60 percent interest, we can't control claim settlements or claim techniques with our 40 percent interest.

Senator MUSKIE. So that really to get the answer to the kinds of questions I have put and Senator Cooper has put, we ought to ask representatives of the insurance market?

Mr. PELL. The current aviation insurance market, that is correct. Senator MUSKIE. All right, thank you, Mr. Pell.

Senator Baker.

Senator BAKER. Mr. Chairman, I have no questions for Mr. Pell, but I would like to point out that in my judgment, at least, while there is some parallel between the situation that Mr. Pell describes and the situation we are essentially considering in this legislation, there is not an exact parallel.

As I understand the general thrust of our hearings so far, our debate and our consideration of absolute liability, with the limitation as to amount, has dealt primarily, if not entirely, with absolute liability for cleanup damages, as distinguished from third-party claims.

Much of Mr. Pell's testimony, of course, has probably dealt with the claims of third parties. I think there is a considerable distinction between the back equities that would impose requirements for cleanup of the public domain versus compensation of claims by third parties, and I think we ought to at least I intend to try to keep that distinction clear in my mind as we proceed.

Mr. PELL. Senator, my whole reason to be here is to describe our vehicle and our method of extending current insurance capacity, which is your problem.

Senator BAKER. Yes.

Mr. PELL. And purely and simply that.

Senator BAKER. And I appreciate your testimony, Mr. Pell, and what I just said is in no way criticism of your testimony. It was simply for the purpose of this record, to point out that while your testimony is most helpful, and we appreciate it, that it is not an exact parallel to the situation that we are considering.

Mr. PELL. No question about that.

Senator MUSKIE. Well, I would agree with the gentleman. There are distinctions, as I said earlier. The principal point in asking Mr. Pell to testify was the question of assembling the necessary insurance resources, of one kind or another, to back up whatever standard of liability was imposed.

I guess it is not necessary to belabor the point.

Thank you very much, Mr. Pell.

Our next witness this morning, Mr. Paul J. Kreuzkamp, vice president of Alexander & Alexander, Inc., accompanied, I understand, by Mr. George W. Handley, vice president of Marsh & McLennan, Inc.; Mr. Conrad W. Giles, Alexander & Alexander, Inc.; and Mr. John Crosby of Marsh & McLennan, Inc.

Mr. Kreuzkamp is from New York. They are all from New York.

STATEMENT OF PAUL J. KREUZKAMP, VICE PRESIDENT, ALEXANDER & ALEXANDER, INC., NEW YORK; ACCOMPANIED BY GEORGE W. HANDLEY, VICE PRESIDENT, MARSH & MCLENNAN, INC., NEW YORK; CONRAD W. GILES, ALEXANDER & ALEXANDER, INC., NEW YORK; AND JOHN CROSBY, MARSH & MCLENNAN, INC., NEW YORK

Mr. KREUZKAMP. Mr. Chairman, I am wondering if you would give us the privilege of making a very preliminary statement? Senator MUSKIE. Oh, by all means.

Mr. KREUZKAMP. Thank you.

Mr. Chairman and committee members, I am Paul J. Kreuzkamp, vice president of the international insurance brokerage firm of Alexander & Alexander, Inc. I appear here today together with Mr. George W. Handley, vice president of the international insurance brokerage firm of Marsh & McLennan, Inc., as spokesmen for the Marine Insurance Committee of the Insurance Brokers Association of the State of New York, Inc., comprised of the leading insurance brokers in the United States. Mr. Conrad W. Giles and Mr. John Crosby, who follow us, will speak to the onshore and offshore facilities portion of your current investigation.

OBSERVATIONS RELATING TO THE AMERICAN MERCHANT MARINE

Mr. Chairman, on behalf of our committee, and I am referring now to the Marine Insurance Committee, we would like to offer the following observations as they relate to the American Merchant Marine which is today comprised of the following vessel units:

1. Oceangoing dry cargo vessels and tankers-802 vessels (over 1,000 gross registered tons).

2. Great Lakes fleet vessels over 1,000 gross registered tons398 vessels.

3. Self-propelled vessels-vessels in excess of 1,000 gross registered tons-308 in number, trading in the Mississippi River. 4. Tugs and towboats-vessels in the number of 4,395-operating in the Great Lakes, Mississippi River and on the Atlantic, Pacific, and Gulf coasts.

5. Non-self-propelled barges these number 18,850.

The U.S. shipowner and operator is faced with not being able to purchase sufficient liability insurance to cover his existing exposure for loss of life and personal injury to seamen, passengers, and other persons, together with damage to cargo and other property. Five years ago the average U.S. shipowner could purchase at a reasonable cost approximately $30 million total coverage for marine liabilities. Today this capacity has been reduced to approximately $17,500,000, with the premium cost at the present time being substantially

increased.

We would also like to invite your attention to two points which we feel are most important and to which your committee should give serious consideration; namely, the additional burden on the American Merchant Marine inherent in any legislation you may pass and the effect such legislation might have on our most critical balance of payments.