STATEMENT OF EVERETT S. CHECKET ON BEHALF OF AMERICAN PETROLEUM INSTITUTE Mr. CHECKET. Thank you, Mr. Chairman, members of the committee, and particularly for providing this opportunity for the American Petroleum Institute to testify once more before this committee. My name is Everett S. Checket. I am general manager of the marine transportation department of the Mobil Oil Corp., as well as a member of the American Petroleum Institute's general committee, division of transportation, and it is in the latter capacity that I am appearing here today. At the outset, Mr. Chairman, I wish to assure you that we deeply appreciate your making this further opportunity available for us to make what we hope will be some meaningful and helpful comments in light of the insurance industry's testimony before you on May 23. We also hope that our testimony will be responsive to the two basic issues posed in your telegram of May 27. Moreover, I would again like to state that we, in the oil industry, share your interest in strengthening our laws to more effectively protect the U.S. harbors, rivers, and coastlines and it is in that spirit that our comments are offered here today. TWO BASIC QUESTIONS As to the nature of the liability to be imposed for Governmentincurred oil removal cost, it appears to us that in light of all the testimony that has been given, the problem facing your committee resolves itself down to two basic questions. First, should a vessel owner's liability to reimburse the Government for its cost in removing a discharge of oil, into or upon the waters of the United States be predicated on negligence with a burden on the shipowner to establish lack of negligence, or whether that liability should be incurred irrespective as to negligence, that is, absolute liability. Second, whether that liability, based on either negligence or irrespective of negligence, should be subject to some reasonable statutory dollar limit. Limited liability recommended At the outset I should like to state that our recommendations remain unchanged from that included in our testimony before your committee in February 1969, namely, that the liability in question should be predicated on negligence with the burden on the shipowner to establish lack of negligence and further that the liability should be limited to a level which can be commercially insured on a continuous basis at a reasonable cost. The limits we recommend that meet the foregoing criteria and which are in accord with the testimonay of insurance representatives, are $100 per gross registered ton or $10 million, whichever is the lesser. In making this recommendation we have taken into consideration the fact that the proposed legislation would cover all types of vessels including freighters, passenger vessels, bulk carriers, tankers, barges, tugs, and so forth. In support of this recommendation, we would suggest that there are, in fact, very few marine disasters resulting in a discharge of oil in which there would be a complete absence of fault of negligence on the part of anyone. However, such fault need not necessarily lie with the vessel from which the oil is discharged. Examples of the type of incident which might occur in which no fault on the part of the ship discharging the oil would be involved are: 1. Acts of sabotage over which the shipowner has no control; 2. Pollution resulting from an action taken to save or rescue life; 3. An act of God such as an earthquake and tidal wave in an area without any prerecorded history of such an event; 4. Striking a completely unmarked and uncharted underwater obstruction; and 5. Grounding due to a normal aid to navigation having been removed by some external force. In these latter two cases, it is even conceivable that the party or parties responsible for giving notice to mariners might be held to be at fault, and in the United States that would be the U.S. Coast Guard. In reviewing the hearings before the committee we note the point being made that the innocent party from whose vessel oil was discharged, and who under the concept of absolute liability would be liable to the Government for its removal costs, would still have the right of recovery from the other party who caused the spillage. Innocent party The outstanding example of this is, of course, the case of the properly moored tanker which is rammed by another vessel. We should like to offer two comments to this. First, while the innocent party may have the right of recovery against the other party, he will be faced with proving the fault of the other party under our normal conditions of law without the benefit of the reversal of burden of proof. Such litigation can certainly be expected to be protracted and expensive and the innocent party could well be faced with being out of pocket for the amount paid to the Government for the considerable period of time between payment to the Government and ultimate recovery from the party at fault. However, of even greater importance to the innocent shipowner is the fact that in the assumed situation, the party at fault, even when proven so, would have the right to limit his liability in accordance with present statutory law which today in the United States is equal to the value of the vessel after the accident plus any pending freight. Thus, the innocent party could be faced with a substantial loss represented by the difference between his obligation to the Government under the proposed legislation and what he might recover from the other party based on a different statute. Reversal of burden of proof Therefore, we believe that even though the instances wherein vessels discharging the oil into the waters will be innocent are in the minority, they should in all fairness not be unduly punished in even these infrequent instances. However, in further protection to the Government and in order to provide incentive to the shipowner to take prompt action for oil spill removal, we support the concept in the proposed legislation of a reversal of the burden of proof so that the shipowner is required to prove absence of fault. We are aware of your concern as to the value to the Government of this concept of the reversal of the burden of proof and whether the Government might still not have to resort to a court of law to establish the fact of negligence on the part of a shipowner. I believe the answer to this lies in the fact that in the case of any maritime accident within U.S. waters, the U.S. Coast Guard immediately conducts hearings to determine the facts and to establish where the fault lies. The results of these hearings are public knowledge and would be available to any Government agency. If such investigation brings out evidence of negligence on the part of the shipowner from whose vessel oil has been discharged he would have great difficulty in disputing his liability to the Government for oil removal costs. Senator MUSKIE. May I ask you a question at this point? Why are not innocent shipowners as reassured by this procedure of the U.S. Coast Guard as you say the Government ought to be? On the top of page 4 of your statement, you discuss the difficulties faced by the innocent shipowner who is rammed by another ship, and you say such litigation can certainly be expected to be protracted and expensive, and the innocent party could well be faced with being out of pocket the amount paid, and so on. Protection by Coast Guard Why is he not as much protected by the procedure of the U.S. Coast Guard which you have described as would be others damaged by oil spills? Mr. CHECKET. Well, I don't think he is. If we have liability based on negligence, the Government would immediately move against the negligent party, and part of it based possibly on the U.S. Coast Guard report, and they could collect promptly from that part, whereas under absolute liability the Government would collect in the first instance from the man who spilled the oil, even though innocent. Senator MUSKIE. No, that is the point I am making. You are arguing that we ought to establish liability based on negligence. We say the thing that troubles us here is the difficulty of proving negligence, and in response to that you say that the U.S. Coast Guard conducts hearings to determine the facts and establish where the fault lies, and that ought to be reassurance to us. All right. Accepting that argument, then I turn to your concern on the top of page 4, your concern that innocent shipowners who are involved in spills caused by another vessel ramming into them would have difficulty proving negligence, and could get involved in protracted litigation. Well, why should it be any more protracted for them than it would be in the case which you discuss on the top of page 5, as to which you try to reassure us? I just don't see why it is any easier in the case where the argument favors you than it is in the case of the argument which does not favor you. It is a proof of negligence in their case. Mr. CHECKET. I think that is quite true, Mr. Chairman. I think in the one instance, as to whether the Government moves against the man who spilled the oil, or the party, let us say, who rammed him, they could take into cognizance the U.S. Coast Guard report. It is my understanding the U.S. Coast Guard report is not in itself admissible as evidence in a court of law. While a witness can be questioned as to it, I understand it cannot be put into evidence, but what we are saying is, armed with this knowledge, in the event of a collison, the Government could promptly move against that party who more predominantly, it is evident that he was the guilty party. Senator MUSKIE. We are talking about cleanup, in any case. Mr. CHECKET. That is correct, in any case. Senator MUSKIE. But negligence has to be proven. All I am saying is that the proof of negligence is going to be as difficult or as easy with respect to obtaining the facts in the case of the innocent shipowner who is rammed as in the case of others who are damaged, so if you use negligence as a test, and you don't think that would be difficult, in the case of the Government, I don't know why it would be any more difficult in the case of an innocent shipowner, is my point. It just seems to me you are too facile with that argument, in the one case, where you would like to shape the legislation to your way of thinking, whereas you bear down on the difficulties of proving negligence in the other instance, where you would like to shape the legislation the other way. It is all right. I don't want to belabor the point. LIMITATION OF LIABILITY Now as to the limitation of liability, the insurance representatives have testified to the availability of insurance cover in the instances of both absolute liability and liability predicated on fault. At the expense of repetition, Mr. Miller did state that in the case. of absolute liability, maximum coverage would be $67 per gross registered ton to a limit of $5 million. In the case of liability predicated on fault, coverage is definitely available at limits of $100 per gross registered ton or $10 million, whichever is the lesser. As to cost, the insurance testimony shows the coverage based on absolute liability would be twice the cost of insurance based on fault. In other words, legislation based on absolute liability would increase a ship owner's insurance cost, while at the same time provide less monetary coverage. Senator MUSKIE. May I ask you a question on that? Liability based on negligence And you know, that puzzles me, also. It seems to me that it can be traceable, and I would like you to respond to this point, to the point that the insurance company would not expect liability to be imposed in as many instances, if liability is based on negligence as it would be if liability were based upon absolute liability. Now, you argue that in almost every instance a spill would be traceable to some fault. If that is the case, then it seems to me that the cost of the insurance, if it is related to costs at all, should be about the same, unless negligence is a way of escaping responsibility. Mr. CHECKET. Well, in responding to that, I cannot say what is in the underwriter's mind, which at times is as perplexing to us as it is to this committee. They have made the statements as to cost. I can only presume that they have taken into consideration what might happen on a worldwide basis in applying the principle of absolute liability in the very few instances where the man is innocent, or a concern as to whether they might have difficulty in proving reasonable cost the people might expenditures people might make in cleanup or other types of liabilities, because there is absolute liability if they just spend unreasonable sums of money. I don't know if that is the reason. We have tried to rationalize this ourselves, and have been unable to arrive at a definite conclusion in this regard. It is merely that as we cover any insurance liability, they say this is the rate, and this is what we finally have to accept if we want the insurance. Senator MUSKIE. But there has to be some relationship over the long haul, at least. Maybe if you are starting a new insurance program, as this one may be, your lack of experience may explain some of the illogic or irrationality of the relationship between experience and projected costs, but all of the experience that we have been told about here illustrates that if, in fact, companies are going to bear the cost of cleanup, premiums in the case of absolute liability ought not to be twice the cost of premiums in the case of negligence unless the requirement of proof of negligence is a way of escaping responsibility. Mr. CHECKET. Well, it can well be. I would think that probably the underwriters are concerned in absolute liability in more than just oil and cleanup, but absolute liability, as it then probably spread to other types of coverage, and perhaps this is a reason that they Senator MUSKIE. All we are talking about is oil cleanup. Mr. CHECKET. I understand that. I am trying to project to what an underwriter might say. Senator MUSKIE. Apparently just as we are. Mr. CHECKET. I don't think that in that regard we are any more knowledgeable than anyone else in this area, other than the underwriter himself. Senator MUSKIE. All right. Mr. CHECKET. We, as well as the insurance industry, have previously submitted statistics showing the number of oil spill instances, volume of oil involved, and cost of cleanup. I will not take the committee's time to review the list in detail, but do make the point that with the exception of the Torrey Canyon, cleanup costs have not been excessive, and in fact, with development of improved cleanup materials, techniques, and expertise in handling oil spills, it can be anticipated that this recurring problem can be more effectively handled at reasonable costs. Even including the high cost of the Torrey Canyon incident, every recorded incident of oil discharge from vessels would have been covered by insurance available under legislation providing for liability predicated on fault. |