Tanker Escorts, COFRs Fill OPA 90 Agenda

Port State Control Initiative In April 1994, the U.S. Coast Guard (USCG) instituted what is deemed by many to be the most rigorous program in the world for eliminating substandard vessels from U.S. waters.

The program, called the Port State Control Initiative, will have a sweeping effect on many types of vessels, but perhaps none moreso than tankers—whose perceived greater power to harm the environment often makes them subject to proportionally greater scrutiny by regulators.

Under the new system, a vessel will be targeted based on past violations of the its owner, flag state or classification society. Also, the names of those organizations the USCG deems to be endangering U.S. waters through the lack of safety controls on their vessels will be posted and made common knowledge. This practice has already led to protests by certain "posted" bodies. For a complete review of the Port State Control Initiative, see Maritime Reporter's June 1994 edition.

Trust Fund Replenishment & Access The five-cent-per-barrel oil spill excise tax, which is used to replenish the Oil Spill Liability Trust Fund, was reapplied on July 1,1994.

The tax was discontinued when the fund had reached its $1 billion limit, but recent major spills have depleted the fund significantly.

Some have estimated the cost of the San Juan oil spill alone at $100 million or more, and the insurance coverage for the barge Morris J.

Berman which leaked the oil was inadequate to pay for damages. The USCG also currently has underway a study to examine costs incurred by federal agencies in cleanup and damage assessment and what access those agencies will have to the Oil Spill Liability Trust Fund. The study was due for completion in August 1994.

The COFR Conundrum Just as one major spill provided the impetus for the passage of OPA 90, more recent major spills such as the one off San Juan earlier this year seem to have given extra urgency to the issue of Certificates of Financial Responsibility (COFRs). The San Juan spill underlined the importance of financial responsibility when it was discovered the owner of the barge reportedly had resources wholly insufficient to pay spill-related costs and damages.

On July 1, 1994, the USCG published an interim rule on financial responsibility for water pollution from vessels (59 FR 34210), which specifies what type of evidence vessel owners and operators must submit to the USCG to demonstrate ability to pay damages and removal costs in the event of oil or hazardous substance spills. The new rule implements portions of the Oil Pollution Act of 1990 (OPA 90) and the Comprehensive Environmental Response, Compensation and Liability Act (Superfund), both of which require vessel owners and operators to present "evidence of financial responsibility" of their ability to pay up to the limits specified in each law.

The rule is designed to implement Congress' intent that a responsible party (rather than U.S. consumers and taxpayers) pays promptly and with assurance for removal costs and damages from an oil or hazardous substance spill. Superfund deals with releases of hazardous substances other than oil.

The new financial responsibility requirements draw heavily from the original September 1991 rulemaking proposal, but the USCG has made technical and implementation schedule changes in response to industry com- ments. Some of the more significant changes are: the guaranty forms have been amended to state clearly the defenses that will be allowed guarantors; a defense that the guaranty provided to the USCG does not serve as a guaranty under state law, without the guarantor's permission, has been created; and a co-subscribing guarantor may choose to subscribe to a limited participation in a guaranty, altering the guarantors' joint and several liability in preexiting financial responsibility undertakings.

Several shipowners proposed the creation of a Mandatory Excess Insurance Facility (MEIF), a government- funded plan which would provide high levels of liability coverage as well as serve as a guarantor for the purpose of providing COFR coverage.

The MEIF cannot be considered as a prompt solution in the COFR rulemaking, according to the USCG, because legislative action would be required to effect it.

The MEIF is principally designed to alleviate shipowners' concerns about unlimited liability, not COFRs. The USCG concluded that the MEIF could not be adopted in the context of the COFR rule, but that it should be considered to address unlimited liability concerns.

Insurers and other providers of financial responsibility will be subject to direct action from claimants, as provided in OPA 90. However, OPA 90 strictly limits a guarantor's liability to the amount of the guaranty provided. The COFR rule restates and reinforces the OPA 90 provision that a guarantor is not subject to unlimited liability.

The USCG also prepared a final Regulatory Impact Analysis (RIA).

The RIA concludes that the rule will not cause a severe economic disruption.

(This conclusion has been contested hotly in the industry.) Even if shipowners continue to prohibit their associations, the P&I clubs, from providing the financial responsibility guaranties, commercial sources say they will make guaranties available. The two cover facilities the USCG has cited so far are Shoreline and First Line, but at press time neither of these had USCGapproved means of covering vessels so as to allow them to obtain a COFR.

Both the American Waterways Operators, a U.S. trade association for the U.S. inland and coastal barge and towing industry, and INTERTANKO, the international association of tanker owners, have testified before the House Subcommittee on Coast Guard and Navigation as to the problems they believe the COFR rule will cause.

An implementation schedule that allows a non-disruptive transition to compliance with the new rule is available from the USCG. Self-propelled tank vessels will generally be the first category of vessel required to comply with the new rule, by December 28, 1994. Non-tank vessels must comply when their existing COFRs expire, beginning December 28, 1994.

The effective date of the COFR rule is July 1, 1994. The USCG allowed 90 days for technical comments, which must be received before September 29,1994 and mailed to the Executive Secretary, Marine Safety Council (G-LRA/3406) (CGD 91-005), U.S. Coast Guard Headquarters, 2100 Second Street SW, Washington, D.C. 20593-0001.