relating to onshore and offshore facilities. This is why we are proceeding with him in order to finish the one area in which he is competent to testify and that is vessel liability, or at least insurability of vessel liability.

Mr. Miller, thank you very much for being with us again today to testify.

You may proceed.

STATEMENT OF PETER N. MILLER, THOMAS R. MILLER & SON, INSURANCE, LTD., MANAGERS OF THE UNITED KINGDOM MUTUAL STEAMSHIP ASSURANCE ASSOCIATION, LTD., LONDON, E.C. 3, ENGLAND

Mr. MILLER. Thank you, sir, and Senators.

Before we turn to my prepared statement I wonder if you would allow me just to make one or two preliminary remarks.

When I heard you, sir, open the session this morning I was deeply worried by two remarks you made, and with the utmost respect I would like to deal with those two remarks.

Senator MUSKIE. You can even deal with them without respect if you like.

Mr. MILLER. Sir, if I may just tell you briefly what is said in an English court of law. When a barrister says to the judge "with the utmost respect," he means he is about to be frightfully rude.

Senator MUSKIE. Recalling my own years at the bar, I responded as I did.

Mr. MILLER. Thank you very much, sir. I will not be rude.

Two points, and the most important one is this feeling in your committee's mind, which is obviously there, of inconsistency. In particular I was very surprised to learn that there was some feeling that the British Government's statements at IMCO were based upon evidence inconsistent with that given both the House of Representatives and this committee. I say I am surprised for this reason:

I have with me, by pure chance, today the advice which was given to Her Majesty's Government. I know that it is not inconsistent with the advice given to you, because I gave it, and it is almost exactly the same, though termed in different language, with the advice that my colleague, Mr. John Shearer, and myself, have given both to your own committee, to the House of Representatives Public Works Committee, to the Canadian Senate, and to any others; and there are many interested governments.

As to the other point I wish to mention and that will be dealt with very briefly, I do hope that you Senators do not feel that we would refuse at any time to give you or your committee staff help by way of insurance advice on this very, very difficult problem that you have before you, for solutions with which we are in very great sympathy. Sir, if I may briefly remind the Senator who kindly introduced me, whom I represent and that is the London Group of Protection and Indemnity Associations. Now the word London appears. You might say I am British. I personally am, but I am representing here a far wider circle of shipowners and their insurers. Indeed, it can truly be claimed to be worldwide. I have forgotten the percentage of British

ships insured by us. It is relatively small. I know well the percentage of reinsurance underwriters who reinsure those shipowners for their legal liability. But again, it is on a worldwide basis that their reinsurance cover is based. So it is not the British market talking to you but with respect to the worldwide shipowners liability market.

Sir, if I may quickly turn to the evidence of Mr. Pell this morning. He raised a most important point. He said, and he said correctly, that there are three places where one can look for insurance capacity. Firstly, the traditional insurers of the world. Secondly, a self-insurance scheme operated by those who seek insurance. Thirdly, when those two have failed one must turn to the governments as the only existing party to provide whatever further insurance may be necessary.

May I say this? The airlines are precisely, although not quite precisely, a little more than 100 years behind shipowners, in operating selfinsurance. This is the whole essence of what is known as a mutual club. It is a mutual insurance organization owned by the shipowners, run by the shipping industry; and it is the shipping industry that has to bear the losses.

Now when I talk to you I talk to you on behalf of not only those mutual insurance associations but also the shipowner who must himself bear the costs of insurance of their own legal liability, an enormous part of the risk. To give you an idea of how large a part they bear, in the group I represent, the shipowners bore costs for their own legal liabilities in 1968 of an amount approaching between $100 million and $125 million, which is no small sum. It is for this reason that I have said that that part of the market is already assuming a very heavy part of the necessary burden of the insurance of shipowners liabilities.

Now sir, it was said this morning quite correctly by Mr. Kreuzkamp and by Mr. Handley, the American insurance adivsers who are both friends and colleagues of mine, that the only way to be able to correctly advise you on market capacity is to make a placing. I have referred to this before in front of the House of Representatives, some 2 months ago, and if I may use the same Anglo Saxon colloquialism as I used there, it is this: "We can't tell you what the market can absorb; it is a question of suck it and see."

Sir, I am able to tell you, as I put in my written statement, that such an attempt has been made, such a placing has been made, so that I can tell you definitely, not hypothetically, but definitely, the sort of capacity which the world market is able to absorb on oil pollution in respect of Government cleanup costs.

It may not be enough for your purpose, sir. That is not a question for me to answer. I will not try to do so. But, sir, after those preliminary remarks, I will proceed in any way you wish, run through my answers and expand them or answer detailed questions entirely as you wish. Which method would you prefer, sir?

Senator MUSKIE. Unless my colleagues have some questions which occur to them as a result of your informal remarks, I think it would be more orderly if you will proceed with your prepared statement, and then we will address ourselves to questions.

Without objection from my colleagues, we will proceed that way. Do you have copies of your prepared statement? Mr. MILLER. I hope so.

My statement, such as it is, is contained in the answers which we gave to the letter which you sent.

Senator MUSKIE. Yes; that is your letter of May 16?

Mr. MILLER. Yes, sir.

Senator MUSKIE. I think it would be helpful if you would proceed with that.

Mr. MILLER. Yes, sir.

MARKET CAPACITY

I think, sir, looking at the first three or four questions what they are all concerned with is this question of market capacity.

Now the placing to which I just referred was a placing made at the request of several interested parties and several interested governments, including Her Majesty's Government of the United Kingdom, and as a result of that placing, I have said one can come to some fairly definite conclusions. It proved an extremely difficult risk to place. Underwriters are scared about the possibilities of oil pollution, and so are you. I can't, neither can anybody else, force them to write business that they don't want to write or to assume more than the amount they wish to assume.

At the end of that placing I knew that a policy for $10 million based on a $100 per gross ton limit per vessel, could be placed; but from the difficulties which I had with underwriters all over the world, I knew also that that was virtually the limit of the available market. As I said in my letter to you and as I have said in previous testimony both to the House of Representatives and to your own committee, there might be a little bit more but it is only a little bit more.

Now you may answer as you have indeed this morning, why it is that an underwriter will only give this relatively limited liability. I have one or two observations on that. The first is this: It looks on the surface perhaps relatively limited liability but, remember, this is a policy for $10 million, each accident, each vessel.

Now you have only to multiply that out, assuming it will be accepted on worldwide basis which when you have legislated will be the case, when you multiply that out on the gross tonnage of the tanker tonnage of the world you will see what an enormous additional liability you as legislators are asking the underwriters of the world to assume in total. It may be somewhere in the region of $7 billion of extra liability per annum. That is no mean sum, sir.

Let me quickly describe to you an underwriter's mental processes when I go to him and I say, "Please, will you write this risk." Mr. Handley this morning quite rightly said that liability underwriters and hull underwriters are sometimes distinct. But the converse is also true and it is this: The underwriters who write liability risks universally, I think, also underwrite cargo risks and the risks of the other shipowner's interests such as the hull and, their liability. These are the underwriters' mental processes:

"This morning, Mr. Miller, I see you are presenting me with a new risk, it is oil pollution. Now then let us see how much I as an underwriter have got on any one venture:" and then they take a ship, any tanker that looks to them as representative.

They will then open their books and find that already on the hull and machinery insurance they have, for example, a hundred thousand

dollars. Then they will look at another book. They will find a hundred thousand dollars on the cargo. They will then open their liability insurance books, and they will see through my firm already they are writing liability insurances for the other liabilities for which a shipowner and a master insure. I have outlined in my letter such liabilities as loss of life, personal injury, damage to cargo, damage to properties of third parties, all very, very important liabilities.

Now before any underwriter writes an extra line, which is what this is, they add up all those three things and say to themselves, "Goodness me, if that ship were to sink in circumstances which involved my commitment on all those parts of the marine venture, how much money would I lose?" You then get a Lloyds underwriter, look behind them to see how many supporting underwriters they have who deposited money with them to underwrite on their behalf. If they are an insurance company they look at their funds and see how much money there is there. Then they say as a prudent underwriter, "I can commit those resources I have to such and such an extent on any given risk, and no more."

It is my duty to persuade them to extend those resources as far as possible and I spent a great deal of time with each underwriter to persuade them to write as big a line as possible.

After all those negotiations they say, "right, Mr. Miller, we will accept such and such a percentage of that risk."

This is something that is always done, not only in London, which is at the moment by far the largest liability market in the world; but I, as an international broker, not just a British, I must go everywhere. The British market takes a very, very big percentage of the risk but I do try all the other markets of the world.

Now it is in my own interest, as Mr. Kreuzkamp mentioned this morning, to place as much insurance as it is possible to place but there comes a moment when one runs out of underwriters. There aren't any underwriters left to persuade to accept the risk.

When I say one has run out, one has already tried the marine underwriters of the world, one has already tried the aviation underwriters, one has already tried the nonmarine underwriters and there just aren't any more.

I think that, sir, deals with capacity as I see it.

I am very pleased, of course, to answer any questions on that. That deals perhaps with the first three or four questions roughly, put together.

Senator MUSKIE. 1 think it might be helpful to include in the record the full text of your letter of May 16.1

Mr. MILLER. I would be very pleased. Thank you very much.

Senator MUSKIE. We will do that following your informal opening remarks and supply this amplification of your letter of May 16.

First of all, the placing of which you spoke, would it be helpful to us if you were to describe the terms of that placing so that we may know exactly what it was that was involved?

Mr. MILLER. I said, sir, that this placing was made at the request of certain parties. This was matter of several requests. I had been re

1 The letter appears previously at p. 1308.

quested by the British Government, by those advising the French Government and by some others and by insurers themselves the mutual associations whom I represent-to find out how much we could place.

I should, sir, at this point make clear that when I talk of this $10 million, I do stress to you that the shipowner through those mutual associations themselves are taking a large part of this risk, a very large part of this risk. They bear the first excess of well over a million dollars each accident, each vessel, which is a very substantial sum. Senator MUSKIE. On that point may I ask a question? I don't want to prevent you from responding to my question, but if I understood Mr. Pell's venture this morning it was to impose liability which in effect is limited only by the damages as the basis for the self-insurance, involved in the scheme.

That is, although he is not accepting here a liability without fault, he says that, with the exception of sabotage, the practical effect was absolute liability, although I do not think he would concede the use of that language specifically. But, nevertheless, the impression I got was that the practical technique was that in the event of a disaster the practical technique would be the acceptance of liability by the insurers and self-insurers so that there is no dollar limit or no limit as to the degree of liability under the assumptions of his scheme.

Comparison with self-insurance

How does that compare with the self-insurance that you described to us?

Mr. MILLER. May I answer that, sir? If an aircraft falls out of the sky it virtually is res ipsa loquitur, there is something wrong with it. Therefore, the defenses that an aircraft operator has following a suit by the widows or other relatives of the insured or killed parties bringing suit, the airline has very, very little defense against it. The aircraft fell out of the sky. That is, unless in fact the airline can prove some such other cause, such as sabotage. Now with ships it is a very different thing.

Difficulty of proof

Senator MUSKIE. There is another side to that. There is also the difficulty of proof in seeking to recover damage from the airlines. People are not in a position to prove whether there was fault or lack of fault. That element is involved.

Mr. MILLER. I don't think it is difficult to prove negligence. If an aircraft takes off, travels in the sky and then for some reason fails to arrive at its destination and is seen to crash, the immediate assumption is that there was something wrong with the aircraft, and if there is something wrong with the aircraft it is only reasonable to assume somebody's negligence in maintenance.

Senator MUSKIE. The presumption is so strong as to virtually eliminate the need for proof to support the presumption?

Mr. MILLER. Exactly, sir. That is the case with aircraft, but it is a very different case with ships.

Senator MUSKIE. With respect to oil spillage?

Mr. MILLER. This may well be so, sir, but we have in previous testimony outlined why it is that we consider absolute liability to be both