Fortunately there are few sea disasters which result in loss of life or injury to all or a major portion of the persons on board, particularly with respect to the larger passenger vessels operated by the substantial regular liner operators.

To require a company operating one of the current large passenger vessels to demonstrate financial responsibility based on $20,000 for all accommodations on such a vessel would probably require those carriers to obtain additional insurance substantially higher than any they

now carry.

Since it is recognized that it is not the purpose of this legislation to burden the regular liner passenger operators, a sliding scale formula decreases the amount of financial responsibility required at the higher levels of passenger accommodations.

For example, in the case of a vessel with 1,800 passenger accommodations the amount of financial responsibility required would be $20,000 times the passenger accommodations, or an amount of $36 million. Under the sliding scale formula, the amount for such a vessel would be $24 million.

I might interject, this may not seem to be a significant difference, but talks with the insurance industry have indicated it is.

We believe this sliding scale formula gives a more realistic basis for financial responsibility of the large substantial passenger operators. while at the same time maintaining sufficient financial responsibility for the smaller, less substantial vessel operators.

As an example, in the case of the Yarmouth Castle, which has accommodations for 450 passengers, the amount would have been $9 million, based upon the full $20,000 times the number of passenger accommodations.

While we have no idea at this time what the amount of damages may finally be in terms of court awards, an amount of $9 million would in all likelihood have been adequate even in a disaster of the magnitude of the Yarmouth Castle.

The administration bill recommends that 46 U.S.C. 183 be amended to eliminate any limitation of liability with respect to injury or loss of life of passengers or other persons.

As between the two interested parties the person profiting from the enterprise and the traveling public-it is our opinion that the financial loss should fall upon the steamship operator who is better able than the passenger to ascertain the risks and to provide for them through insurance and through upgrading of the vessel's safety

standards.

As this committee knows, the liability for vessel operators is presently limited by statute (46 U.S.C. 183 (b)) to $60 per gross ton of the vessel's tonnage for the payment of losses in respect to loss of life or bodily injury or to the value of the vessel plus pending revenue, whichever is greater.

In the case of the Yarmouth Castle, where claims, from information we have been able to gather, the claims, not the awards, will apparently exceed $10 million, it is our understanding that the owners have asked that their liability be limited to about $33,000 (the amount of passenger fares plus the value of the vessel after the disaster). Under the $60 per ton limitation the total liability would be about $333,000.

We take the position that limitation of liability should be eliminated, unless insurance companies or passenger ship representatives offer compelling proof-these will of course testify before you-and I would like to emphasize, one, a complete absence of limitations on liability is not needed to provide proper safeguards to the public, and, two, elimination of limitations on liability would not be feasible from a cost or insurance placement viewpoint. Even if this should be the case, we would strongly urge that liability limits be substantially raised.

I might interject and say even if they were raised to $207 a ton, which is the Brussels Convention requirement, there still would not be enough to meet the $20,000 sliding scale formula which the administration bill proposes.

Under section 2, the Commission would be empowered to promulgate such rules and regulations as would be necessary to insure that no passenger sails aboard certain vessels whose owners or charterers do not possess sufficient assets or other evidence of financial responsibility in the amounts required by statute to cover claims arising from death or injury.

No such vessel could be cleared by the collector of customs at the place of departure without notification by the Federal Maritime Commission that the provisions of section 2 have been complied with.

In addition, under the proposed bill a vessel is liable for a penalty of up to $5,000 plus $200 per passenger for failing to comply with section 2, with authority in the Commission to remit or mitigate the penalty in its discretion.

Section 3 of the bill is directed toward indemnification of passengers when the owner or charterer fails to provide the transportation purchased.

It prohibits any person from arranging, offering, advertising, or providing passage on vessels having berth or accommodations for 50 or more passengers and embarking passengers at U.S. ports unless there has been established, to the satisfaction of the Federal Maritime Commission, that sufficient funds are available, by bond or otherwise, to indemnify passengers for nonperformance.

If a bond or other security is used it must equal the estimated total revenue for the particular transportation.

With the few exceptions noted below, section 3 is similar to H.R. 10327, passed by the House (the warranty of seaworthiness and safety provision in section 2(4) of H.R. 10327 has not been included in the administration bill because of the other proposals which deal with the matter of safety), and S. 2417.

Both H.R. 10327 and S. 2417 resulted from the stranding of passengers in the past few years by vessel operators unable or unwilling to perform the transportation. Both embody, with exceptions noted below, the legislative proposals of the Federal Maritime Commission to deal with the problem of defaulting passenger operators.

S. 2417 applies only to chartered vessels, while H.R. 10327 and the administration bill apply to any vessel. Also, since defaults have occurred primarily in connection with cruise vessels, H.R. 10327 and S. 2417 are limited to "ocean cruises."

The administration bill, however, applies to any vessel, cruise or otherwise, embarking passengers at a U.S. port because there appears

to be no valid reason why passengers should not be protected against possible default by any passenger operator.

There is also the practical problem of defining a "cruise" in a manner which would preclude evasion of the law.

S. 1351 would prohibit foreign vessels from engaging in cruises from U.S. ports without a license to be issued by the Department of Commerce.

Issuance of the license would be contingent upon

(1) The operator establishing that he is financially responsible, that the vessel substantially complies with American safety standards, and that his rates and practices would not prejudice American vessels; and

(2) A finding by the Secretary of Commerce that the grant of this license would not be detrimental to our commerce, to our balance of payments, to the safety and comfort of passengers, or to American vessels, and that the grant of a license would meet the needs of our commerce.

S. 1351 is identical to H.R. 2836 which the Commission opposed when it was being considered by the House because, even though we are in agreement with its purposes, the bill contained provisions which were too broad and general and which, in our opinion, would be difficult to adbinister in a reasonable manner.

The Commission is opposed to S. 1351 for the same reasons.

It is our considered judgment that the administration bills would more effectively accomplish the objectives sought by the other bills for the reasons discussed above.

The Federal Maritime Commission strongly urges enactment of the administration bills, S. 3250 and S. 3251.

(The full text of Admiral Harllee's statement follows:)

I appreciate the opportunity to appear before this Committee to testify on the very timely and extremely important subject of preventing loss of life and limb at sea and of ensuring that the traveling public is protected from financially irresponsible operator. The urgent need for legislation concerning these matters is highlighted by the tragic loss of life caused by the burning and sinking of the S.S. Yarmouth Castle last November and the burning of the S.S. Viking Princess this month.

The Federal Maritime Commission was established by Reorganization Plar. No. 7, effective August 12, 1961. The present Commissioners are Vice Chairmas John S. Patterson of Illinois, Ashton C. Barrett of Mississippi, James V. Day of Maine, George H. Hearn of New York and myself.

I will not repeat the previous testimony you have heard concerning the enforce ment of our safety requirements by the Coast Guard; the negotiations being con ducted by the State Department, Coast Guard and other agencies to up-grade international safety standards; or with the technical details of the Yarmout Castle and Viking Princess incidents. Rather I will confine my statement to the responsibilities and authority which would be vested in the Federal Maritim Commission under the Administration's proposed bill.' In doing so, I will als cover the other bills before this Committee (S. 1351, S. 2417 and H.R. 10327 dealing with safety and financial responsibility of ocean passenger carriers.

This bill is the result of a careful and detailed examination by the Depart ment of Commerce, Maritime Administration, State Department, Treasury Ipartment, Coast Guard, Federal Maritime Commission, and others, of the saferr and financial problems which exist in our passenger trade. Before discussing detail those provisions which directly affect the Federal Maritime Commissio I would like to outline the present authority of the Commission.

1 For convenience I will refer to them as "the Administration bill."

1

Basically, the authority and responsibilities of the Commission are derived from the Shipping Act, 1916, covering foreign commerce, and the Intercoastal Shipping Act, 1933, covering offshore domestic commerce, which includes waterborne commerce to Alaska, Hawaii, Guam, Virgin Islands, and Puerto Rico. The Interstate Commerce Commission handles other domestic water travel.

One of the primary purposes of the Shipping Act, 1916, is to grant exemption from the antitrust laws to ocean carriers and other persons subject to the Act. In return for antitrust exemption, carriers are required to file for approval all rate fixing and other anticompetitive agreements with the Commission. These agreements are reviewed by the Commission prior to effectuation in order to ensure that they are not unjustly discriminatory, detrimental to the commerce of the United States, contrary to the public interest, or otherwise in violation of the Shipping Act.

It is clear from the legislative history of the Shipping Act and subsequent amendments thereto that Congress was primarily interested in the practices of common carriers and other persons as they relate to the carriage of cargo rather than passengers. However, Congress did consider the passenger problem and, in addition to Section 15, the sections which relate to passengers are Section 14, 14(a), 16 First, and Section 17. These sections have to do with discrimination, prejudice and unfair practices; but do not include authority to disapprove a fare unless discriminatory. The Commission has had no occasion to invoke these sections with regard to passengers.

Because we do have a statutory responsibility under the above sections for some aspects of passenger travel, the Commission has kept informed generally on passenger trade. Since its establishment in 1961, the Commission has received thirty-one complaints of various types regarding the treatment of passengers (of which eight related to safety).

I will now comment on the proposed bill. Section 2 would require that each owner or charterer of a vessel having berth or stateroom accommodations for 50 or more passengers and embarking passengers at United States ports, satisfy the Federal Maritime Commission as to his financial responsibility for liability he may incur for death or injury to any person (including passenger or crew member). The bill is limited to vessels having berth or stateroom accommodations for 50 or more passengers because there appears to be no present need for regulating such vessels as overnight fishing boats, ferry-boats and day cruisers. The vessel classification is identical to that contained in the so-called "Sprinkler Act" (46 U.S.C. 464) requiring sprinklers on certain vessels.

Financial responsibility could be established by policies of insurance, surety bonds, qualifications as a self-insurer, or other evidence of financial responsibility, or a combination thereof.

The required financial responsibility would be based upon the number of passenger accommodations aboard the largest vessel operated by a particular carrier in our passenger service. The amount of financial responsibility would be calculated on a sliding scale basis as follows: $20,000 for each passenger accommodation up to and including 500; plus $15,000 for each additional passenger accommodation between 501 and 1,000; plus $10,000 for each additional passenger accommodation between 1,001 and 1,500; plus $5,000 for each passenger accommodation in excess of 1,500.

The purpose of this financial responsibility requirement is to ensure that adequate assets or insurance are available to pay judgments for damages for death or injury to any person (including passenger or crew member). The amount would be available to pay any judgment, whether in an amount more or less than $20,000. For example, assuming 100 passenger accommodations on a particular vessel, the required amount of financial responsibility would be $2,000,000. If a fire or other disaster occurred on board resulting in the death of (or injury to) five passengers and the vessel owner or charterer was found liable in the amount of, let's assume, $200,000 for each death or injury, $1,000,000 in damages would be paid.

Fortunately, there are few sea disasters which result in loss of life or injury to all or a major portion of the persons on board, particularly with respect to the larger passenger vessels operated by the substantial regular liner operators. To require a company operating one of the current large passenger vessels to demonstrate financial responsibility based on $20,000 for all accommodations on such a vessel would probably require those carriers to obtain additional insurance substantially higher than any they now carry. Since it is recognized that it

is not the purpose of this legislation to burden the regular liner passenger operators, a sliding scale formula decreases the amount of financial responsibility required at the higher levels of passenger accommodations. For example, if a vessel with 1800 passenger accommodations the amount of financial responsibility required would be $20,000 times the passenger accommodations, the amount would be $36,000,000. Under the sliding scale formula, the amount for such a vessel would be $24,000,000. We believe this sliding scale formula gives a more realistic basis for financial responsibility of the large substantial liner passenger operators, while at the same time maintaining sufficient financial responsibility for the smaller, less substantial vessel operators. As an example, in the case of the Yarmouth Castle, which had accommodations for 450 passengers, the amount would have been $9,000,000-based upon the full $20,000 times the number of passenger accommodations. While we have no idea at this time what the amount of damages may finally be, an amount of $9,000,000 would in all likelihood have been adequate even in a disaster of the magnitude of the Yarmouth Castle.

The Administration bill recommends that 46 U.S.C. 183 be amended to eliminate any limitation of liability with respect to injury or loss of life of passengers or other person. As between the two interested parties—the person profiting from the enterprise and the traveling public-it is my opinion that the financial lose should fall upon the steamship operator, who is better able than the passenger to ascertain the risks and to provide for them through insurance and through upgrading of the vessel's safety standards. As this Committee knows, the liabil ity for vessel operators is presently limited by statute (46 U.S.C. 183(b)) to $60 per gross ton of the vessel's tonnage for the payment of losses in respect to loss of life or bodily injury or to the value of the vessel plus pending revenue, whichever is greater. In the case of the Yarmouth Castle, where claims will apprently exceed $10 million, it is our understanding that the owners have asked that their liability be limited to about $33,000 (the amount of passenger fares plus the value of the vessel after the disaster). Under the $60 per ton limitation the total liability would be about $333,000.

We take the position that limitation of liability should be eliminated, unless insurance companies or passenger ship representatives offer compelling proof that (1) a complete absence of limitations on liability is not needed to provide proper safeguards to the public and (2) elimination of limitations on liability would not be feasible from a cost or insurance placement viewpoint. Even if this should be the case, we would strongly urge that liability limits be substantially raised. Under Section 2 the Commission would be empowered to promulgate such rules and regulations as would be necessary to ensure that no passenger sails aboard certain vessels whose owners or charterers do not posses sufficient assets or other evidence of financial responsibility in the amounts required by statute to cover claims arising from death or injury. No such vessel could be cleared by the Collector of Customs at the place of departure without notification by the Federal Maritime Commission that the provisions of Section 2 have been complied with.

In addition, under the proposed bill a vessel is liable for a penalty of up to $5,000 plus $200 per passenger for failing to comply with Section 2, with authority in the Commission to remit or mitigate the penalty in its discretion.

Section 3 of the bill is directed toward indemnification of passengers when the owner or charterer fails to provide the transportation purchased. It prohibits any person from arranging, offering, advertising or providing passage on vessels having berth or stateroom accommodations for 50 or more passengers and embarking passengers at United States ports unless there has been established, to the satisfaction of the Federal Maritime Commission, that sufficient funds are available, by bond or otherwise, to indemnify passengers for nonperformance. If a bond or other security is used it must equal the estimated total revenue for the particular transportation. With the few exceptions noted below, Section 3 is similar to H.R. 10327, passed by the House, and to S. 2417.

Both H.R. 10327 and S. 2417 resulted from the stranding of passengers in the past few years by vessel operators unable or unwilling to perform the transportation. Both embody, with exceptions noted below, the legislative proposals

The warranty of seaworthiness and safety provision in section 2(4) of H.R. 10327 bes not been included in the Administration bill because of the other proposals which deal with the matter of safety.