Senator BAKER. The point I make is, would it be analogous to your stairway situation, where the staircase was repaired at the owner's expense, if we considered this on the basis of requiring an absolute responsibility by the owner for cleanup cost before the oil reaches the shore? Mr. GILES. To prevent the loss? Senator BAKER. To prevent the loss, and then imposed an absolute liability on the owner vis-a-vis the insurance company after it touched the shore. Would that produce a cheaper insurance policy? Mr. GILES. No, sir. It would produce less of a market once you start imposing absolute liability on something we now insure, which is now insured on a common law basis. Senator BAKER. I am talking about absolute liability without this intervening step. Mr. GILES. It is probably going to get to absolute liability for third party. I think what you are going to do is now make this difficult to also insure we now have it insured. Say we have it insured for $75 million. You are saying it we force the insured or the oil company to take the steps or you take the steps, theoretically you have reduced the potential loss to the shore. To that extent, if you can buy this insurance for a reasonable amount, and be able to do this, I would say it would make it more appealing, yes. Senator MUSKIE. It strikes me, and I am again speaking as a layman, that before the oil hits the shore, from a technological point of view, positive control measures are more likely, easier to develop and less costly, once the industry focuses on them, than it would be to cleanup after it hits the shore. Mr. GILES. Yes, sir. That is the burden of the oil company, or whoever has caused this, to make every effort to clean this up. Senator MUSKIE. The point I am making is that since the potential cost that is involved is less than it would be onshore, why should the insurance be less available than it would be with respect to the onshore damage? I can understand your argument that the onshore insurance does not cover cleanup before the oil gets there. I am talking about the insurability of the risk. Mr. GILES. The point you are talking about, I would say that it would be insurable more on the basis of negligence, in which we are talking about the uninsured than if we are talking about absolute liability. Negligence Senator MUSKIE. Suppose negligence were the presumption, what would be the availability of insurance? Mr. GILES. If negligence were the presumption, it is a little bit more than negligence which we cover under the present policy. Negligence we cover under our present policy is basically common law legal liability. The third party must prove the damages. Senator MUSKIE. If you have the same negligence standard—— Mr. GILES. I beg your pardon. Senator MUSKIE. If the same negligence standard were applied, what would be the availability of insurance? Mr. GILES. I could not say, at this point. It is a unique type of insurance. We don't cover-for example, the policies I have on my desk right now at the office exclude pollution if it is not accidentally caused. If it is not accidentally caused, or it is caused by gradual seepage, even London excludes this today. If you are talking about that type of exposure, it is not insured unless there is an accident, a fortuitous, sudden event, unexpected, unintended. Senator MUSKIE. Any questions? Senator BAKER. I have one question. Promulgation by the Interior Department After the Department of the Interior promulgated the absolute liability rule in connection with offshore beyond the 3-mile-limit situation, was there any adjustment in the insurance relationship between the companies and the insurance companies? Do you know what I am speaking of? Mr. GILES. Yes, I am aware of it. Senator BAKER. Where by Department order there is absolute liability, do you know whether the insurance industry has responded with coverage or not? Mr. GILES. They have not responded with any additional coverage. They have only maintained the existing coverage, to my knowledge. Senator BAKER. Is it your view that they are covered? Mr. GILES. There you have me, because I am not a lawyer. I would say if it is legal liability for damage, I would say it could very well be possible. For example, your aviation industry is an example of this type of thing. If this continues as such, I am sure that there will be a lot of thinking about it. For example, we know for a fact, large insurance companies in this country today are proposing endorsements, and some have presented us with endorsements to our policy which amend the policy and restrict it, excluding all pollution of land, sea, and air in the transportation of oil, drilling, and producing of oil. They are proposing to put these endorsements on their policies. They are reacting somewhat in a panic, but they are reacting. We are, in the interest of the oil companies, trying to avoid this. We are in the process of negotiating, right now. Senator BAKER. You are trying to stop the run of the insurance companies against restrictive endorsements? Mr. GILES. We are trying to eliminate this, or limit the restriction, perhaps to intentionally caused, and that type of thing. Senator MUSKIE. Thank you very much, gentlemen. Mr. GILES. Thank you. Senator MUSKIE. We have not fixed a day and time for hearing the other two witnesses, but we will do so. The committee will be in recess until then. We may, with your agreement, submit additional questions that occur to us, after we review the record. Mr. KREUZKAMP. Very good. (Whereupon, at 3:55 p.m., the committee recessed, to reconvene at the call of the chair.) WATER POLLUTION-1969 WEDNESDAY, JUNE 4, 1969 U.S. SENATE, SUBCOMMITTEE ON AIR AND WATER POLLUTION Washington, D.C. The subcommittee met at 10:30 a.m., pursuant to call, in room 4200, New Senate Office Building, Senator Edmund S. Muskie (chairman of the subcommittee) presiding. Present: Senators Muskie, Randolph, Bayh, Eagleton, Cooper, Baker, and Dole. Staff present: Richard B. Royce, chief clerk and staff director; M. Barry Meyer, counsel; Bailey Guard, assistant chief clerk, minority; Leon Billings, and Richard Grundy, professional staff members; and Tom Jorling, minority counsel. Senator MUSKIE. The committee will be in order. We have three witnesses this morning whom we hope will wind up the hearings before we complete our work on S. 7. Our first witness this morning, Mr. Alexander B. Hawes of the American Waterways Operators, Inc. Mr. Hawes, it is a pleasure to welcome you this morning. STATEMENT OF ALEXANDER B. HAWES, ON BEHALF OF THE AMERICAN WATERWAYS OPERATORS, INC. Mr. HAWES. Mr. Chairman, Senator Randolph, I want to thank the committee for the opportunity to appear again for AWO, to comment on S. 7 and the proposals for this legislation. With your permission, what I would like to do is to file the statement that I have already submitted to you, and then give you a brief oral statement, in which I will refer to that statement, and elaborate or supplement it. Senator MUSKIE. That will be done. Bear in mind that I don't think many members of the committee have had an opportunity to read your statement, so don't overlook anything of significance that you want to be sure will come to our attention. Mr. HAWES. I will try to hit the highlights. Mr. HAWES. First, I would like to repeat what I didn't put in the statement, but I want to make sure the committee understands that American Waterways Operators warmly supports this legislation, only urging that reasonable limitations of liability be included in it. Senator MUSKIE. First, would you identify the kinds of groups and interests and persons who are members of your organization? Mr. HAWES. I will be glad to, Senator. (1397) Makeup of organization American Waterways Operators is the national trade association which represents the interests of the shallow draft water carrier industry, particularly the towboat and barge lines operating in domestic service, and we include, as well, certain other interested parties, such as repair yards and ports, but the principal part of our membership is the towboat and barge operating industry. Senator MUSKIE. What proportion of the industry does your organization represent? Mr. HAWES Well, I would say that it is probably a small portion, although it includes all kinds, from the smallest to the larger operators. That is to say, I should say that we include in number of vessels probably a larger proportion than in the number of members. Our members, I think, run to around 300, out of a total possible membership of 1,700, I believe. These are just rough estimates. Senator MUSKIE. But you represent a substantial portion of the industry. Mr. HAWES. That is correct. We are the only trade association, I believe, that includes in its membership all of the different kinds of water carriers: dry cargo carriers, tank barge operators, both regulated and unregulated carriers. In fact, carriers operating under the exemption from the Interstate Commerce Act, as well as those that are regulated by the Interstate Commerce Act. Waterways serviced Senator MUSKIE. What waterways do your members service? Mr. HAWES. Principally the Mississippi system, but also the Gulf Intercoastal Canal, and also, to a certain extent, the west and east coasts. Recently, I believe I am correct in stating that our membership has been opened up to Great Lakes operators, also. Consultation Senator MUSKIE. And to what extent have your members been consulted on their views regarding this legislation? Mr. HAWES. My consultation has been with the staff of the organization. I understand that the staff has been in consultation with the board of directors and certain other important members of the association, particularly those that are engaged in oil carriage. Senator MUSKIE. All right. Any questions along this line that you would like to ask? Senator MUSKIE. I thought it would be well for the record to have this information. Proceed in your own way with your testimony, then, Mr. Hawes. SELF-INSURANCE Mr. HAWES. Mr. Chairman, your most recent telegram raised the question of self-insurance, the possibility of self-insurance by oil carriers against liabilities over and above the insurance that might be available from regular underwriters. Senator MUSKIE. Let me make clear what we had in mind here. We don't have in mind necessarily a formal insurance scheme, but we have in mind something like what obtains in the case of automobile liability insurance. The liability of any automobile owner for injuries caused by him is unlimited in any formal way by any statutory limitations of which I am aware. But nevertheless, he can buy insurance up to whatever limit he thinks may cover any practical liabilities to which he may be subjected, and so although his liability limits are theoretically unlimited, he, himself, limits the insurance which he buys to cover his liabilities. So anything above his insurance coverage, in a sense, is or is not covered by whatever resources or assets he may have. Mr. HAWES. I think we understood your question as raising that point. Limits The difference, I would say, Mr. Chairman, is that as a practical matter, it is pretty clear from the testimony that you have already received that there are definite, or there will be definite limits to which insurance can be obtained from underwriters. It seems to be indicated that the limits will be something like a hundred dollars per gross registered ton on the basis of negligence liability, or $67 per gross registered ton, if insurance is available, to cover absolute liability. I say "if," in this case, because since writing my statement, which I have asked to be filed, I have explored this problem even further. We have to rely on other people to get our information as to what may be available in the way of insurance. We have no direct information ourselves. I have relied principally on Mr. Kreuzkamp, and I am glad to say that he has been very helpful and cooperative, and has authorized me to make certain statements as to what is available and what is not available. In my statement, I indicate that he has not been able to find any underwriter who will assure him that there can be any coverage against either type of liability, so far as towboats and barges are concerned. However, he has most recently, and this is not in my statement, indicated to me that he believes, and I think we can rely on this, he believes as an expert in the field that he will be able to obtain insurance for towboats and barge lines, against liability based on negligence, subject to a limitation of $100 per gross registered ton. He does not know whether he will be able to obtain insurance covering absolute liability, even subject to a limitation of $67 per ton. Since we have no other source of information on this subject, this is the only basis that we can proceed on. Now I wanted to make clear that so far as we are concerned AWO would support a bill which imposed liability based on negligence, if the liability was under a limit of $100 per gross ton. Liability above the limits Now going back for a moment to the question of liability above the limits to which insurance is available in the insurance market, attached to my statement there is a breakdown of the members of AWO, |