[Federal Register Volume 61, Number 46 (Thursday, March 7, 1996)]
[Rules and Regulations]
[Pages 9264-9307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5238]
[[Page 9263]]
_______________________________________________________________________
Part IV
Department of Transportation
_______________________________________________________________________
Coast Guard
_______________________________________________________________________
33 CFR Part 4, et al.
Financial Responsibility for Water Pollution (Vessels); Final Rule
Federal Register / Vol. 61, No. 46 / Thursday, March 7, 1996 / Rules
and Regulations
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[[Page 9264]]
DEPARTMENT OF TRANSPORTATION
Coast Guard
33 CFR Parts 4, 130, 131, 132, 137, and 138
[CGD 91-005]
RIN 2115-AD76
Financial Responsibility for Water Pollution (Vessels)
AGENCY: Coast Guard, DOT.
ACTION: Final rule.
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SUMMARY: The Coast Guard is finalizing its interim regulations
implementing the provisions concerning financial responsibility for
vessels under the Oil Pollution Act of 1990 and the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended
(Acts). These provisions require owners and operators of vessels (with
certain exceptions) to establish and maintain evidence of insurance or
other evidence of financial responsibility sufficient to meet their
potential liability under the Acts for discharges or threatened
discharges of oil or hazardous substances. The regulations are
administrative in nature and concern procedures for evidencing
financial responsibility. In addition, the Coast Guard is removing
obsolete provisions, which duplicate provisions in the rule.
EFFECTIVE DATE: March 7, 1996.
ADDRESSES: Unless otherwise indicated, documents referred to in this
preamble are available for inspection or copying at the office of the
Executive Secretary, Marine Safety Council (G-LRA/3406), U.S. Coast
Guard Headquarters, 2100 Second Street SW., room 3406, Washington, DC
20593-0001, between 8 a.m. and 3 p.m., Monday through Friday, except
Federal holidays. The telephone number is (202) 267-1477.
FOR FURTHER INFORMATION CONTACT:
Mr. Richard A. Catellano, (703) 235-4810, Chief, Vessel Certification,
National Pollution Funds Center.
SUPPLEMENTARY INFORMATION:
Regulatory Information
This final rule is being made effective on the date of publication
because the requirements contained herein were made effective by an
interim rule published July 1, 1994. This final rule makes minor
technical amendments and clarifications to the interim rule. No new
requirements are being imposed, and the technical amendments and
clarifications result in a reduced regulatory burden. Therefore, the
Coast Guard for good cause finds, under 5 U.S.C. 553(d)(3), that this
rule should be made effective in less than 30 days after publication.
Regulatory History
On September 26, 1991, the Coast Guard published a notice of
proposed rulemaking (NPRM) titled ``Financial Responsibility for Water
Pollution (Vessels)'' in the Federal Register (56 FR 49006). The Coast
Guard received over 300 letters commenting on this proposal. On July
21, 1993, the Coast Guard published a notice of availability of a
Preliminary Regulatory Impact Analysis (PRIA) in the Federal Register
(58 FR 38994). Over 60 comments were received. On July 1, 1994, the
Coast Guard published in the Federal Register (59 FR 34210) an interim
rule with request for comments and a notice of availability of the
Final Regulatory Impact Analysis (FRIA). Seventy-eight comments were
received on the interim rule. One commenter requested a public hearing
on the interim rule, but it was determined that a public hearing would
not further illuminate the comments provided to the docket or otherwise
facilitate development of the final rule. On July 21, 1994, a
congressional subcommittee, however, held a hearing on the interim
rule. Vessel Certificates of Financial Responsibility: Hearing Before
the Subcommittee on Coast Guard and Navigation of the House Committee
on Merchant Marine and Fisheries, 103d Cong., 2d Sess. (1994).
Accordingly, a public hearing was not held by the Coast Guard.
Background and Purpose
This rulemaking implements the vessel financial responsibility
provisions of the Oil Pollution Act of 1990 (Pub. L. 101-380; 33 U.S.C.
2701 et seq.) (OPA 90) and the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended (42 U.S.C. 9601 et seq.)
(CERCLA or Superfund). The history of vessel financial responsibility
in the United States and the reasons for this rulemaking are documented
in detail in the NPRM, the interim rule, the PRIA, and the FRIA and,
therefore, are not repeated in this preamble.
Discussion of Comments and Changes
General Issues
The preamble to the interim rule (59 FR 34210) requested that
commenters not resubmit or restate comments already filed to the docket
in this rulemaking. Rather, commenters were asked to focus on the
changes made to the NPRM. It is the comments on these changes that are
discussed in this preamble. Comments concerning the fundamental issues
raised during the NPRM and PRIA stages of this proceeding already have
been addressed in the preamble to the interim rule and in the FRIA.
They will not be repeated in this preamble, except to note that one of
the international shipping community's primary concerns with OPA 90
(i.e., potential liability under some circumstances for total costs and
damages) is unrelated to Certificates of Financial Responsibility.
Moreover, that concern goes to a statutory rather than administrative
issue and is, therefore, beyond the scope of this rulemaking. Other
comments are discussed below. Some corrections of a typographical or
grammatical nature have been made and are not discussed in this
preamble.
Shipyards
Some commenter stated that shipyards should remain subject to 33
CFR part 130, with its attendant lesser financial responsibility
regime, because the potential pollution in shipyards is far less than
at sea. Title 33 CFR part 138 does not apply to shipyards unless they
are responsible for vessels. In setting liability limits and financial
responsibility levels, Congress did not distinguish between vessels at
sea and vessels in shipyards. Accordingly, the Coast Guard has no
discretion to exempt shipyards from the requirements of the law.
The Coast Guard's financial responsibility regulations have always
recognized the special circumstances associated with vessels in
shipyards and will continue to do so. For example, the Coast Guard does
not require a shipyard to obtain separate Certificates of Financial
Responsibility (COFR's) for vessels being built, repaired, or scrapped.
Nor are separate COFR's required for vessels held for sale or lease.
This approach constitutes a substantial relaxation from the burden and
cost of obtaining and maintaining separate COFR's, records, reports,
and insurance or other coverage each time a vessel is added to or
removed from the builder's, repairer's, scrapper's, seller's, or
lessor's responsibility.
In this connection, it should be noted that, in practice, the Coast
Guard's COFR regulations always have considered persons who hold
vessels for sale to be the same as persons who hold vessels for lease
in that both are eligible for the blanket coverage provided by a Master
Certificate. This is because neither physically operates the vessels in
the traditional sense and because, after these persons sell or lease a
vessel, the new operator must obtain a new COFR. To give a more
official status to
[[Page 9265]]
this Coast Guard interpretation and practice, Sec. 138.110 (a) and (c),
the appendices to part 138, and the definition of ``operator'' in
Sec. 138.20(b) have been amended to include the word ``lessor'' or
``lease,'' as appropriate.
One commenter recommended that a shipyard constructing a vessel
under contract to the U.S. Navy or Coast Guard not be required to
demonstrate financial responsibility for that vessel while it is under
construction. This already is the case, because only a ``vessel'' is
required to hold a COFR. Until a vessel under construction actually
becomes a ``vessel,'' (i.e., an artificial contrivance used or capable
of being used as a means of transportation on water) no COFR is
required. When a vessel under construction reaches the stage of taking
on the attributes of a ``vessel,'' a COFR is not required if the vessel
is a public vessel. Thus, a shipyard would not have to cover a vessel
being built for the Navy or Coast Guard if the vessel is a public
vessel. This is necessarily a fact-based determination, dependent upon
who has title to and responsibility for the vessel. If title has not
passed and if the shipyard is responsible for the vessel (until
delivery), then the shipyard is required to cover the vessel under its
Master Certificate (or obtain a separate, individual COFR). On the
other hand, if under the contract the Government holds title to the
vessel before delivery, which is a common situation for Navy and Coast
Guard vessels, then no COFR is required for this public vessel.
This commenter also recommended that the shipyard not be required
to maintain the COFR for the Navy or Coast Guard vessel under repair in
the shipyard. Again,this already is the case so long as the vessel is a
public vessel--a vessel owned or operated by the United States and not
engaged in commercial service. A shipyard/repair yard would not have to
cover the vessel with a COFR in that circumstance.
Some commenters asserted that shipyards should not have to
demonstrate CERCLA financial responsibility when no hazardous
substances are present on vessels under the shipyard's control. As
noted in the preambles to the NPRM and the interim rule, Congress
declared that all self-propelled vessels over 300 gross tons, whether
or not carrying hazardous substances, must demonstrate financial
responsibility under CERCLA. Therefore, the Coast Guard has no
discretion to adopt this suggestion.
Mobile Offshore Drilling Units (MODU's)
Some commenters sought clarification of the rule's implementation
date applicable to a non-self-propelled MODU (most MODU's are non-self-
propelled). When actually operating on site as an offshore facility, a
MODU is exposed to tank vessel liability with respect to discharges of
oil on or above the surface of the water (see the discussion at 59 FR
34213-34214). Accordingly, a non-self-propelled MODU is considered by
the Coast Guard to be a non-self-propelled tank vessel when operating
as an offshore facility. The financial responsibility implementation
date under 33 CFR part 138 with respect to non-self-propelled tank
vessels was July 1, 1995. If a MODU is tied up at a shoreside dock or
otherwise not operating as an offshore facility, the Coast Guard does
not require that MODU to demonstrate tank-vessel financial
responsibility during that period. However, on and after July 1, 1995,
before that MODU may operate as an offshore facility, it must
demonstrate financial responsibility under 33 CFR part 138 because it
is subject to tank-vessel limits. If a MODU remains out of work and it
holds an unexpired pre-OPA 90/CERCLA COFR, the MODU would not be
required to comply with this final rule until December 28, 1997, or at
the time its pre-OPA 90/CERCLA COFR expires, whichever is earlier. See
33 CFR 138.15(b).
Some commenters suggested that MODU's be covered by a leaseholder
because a leaseholder is required to demonstrate financial
responsibility for all offshore facilities operating on its lease.
Nothing in this final rule precludes a leaseholder from becoming a
financial guarantor to a MODU owner/operator. In that case, the
leaseholder would have to qualify as a financial guarantor under
Sec. 138.80(b)(4) of this final rule. But, a leaseholder's satisfaction
of the financial responsibility requirements for leaseholders under the
Department of Interior's forthcoming regulations for offshore
facilities, alone, would not fulfill a MODU operator's vessel-related
obligations under 33 CFR part 138. The ability to grant this suggested
change lies with Congress. However, MODU operators are remind that OPA
90 does not preclude indemnification agreements between parties.
Therefore, a MODU owner/operator could seek to have the leaseholder
indemnify the MODU owner/operator for its tank vessel liabilities.
Two commenters who were concerned primarily with MODU's commented
that, during the transition period to new part 138, a vessel owner/
operator demonstrating financial responsibility under part 138 should
be deemed to have satisfied the financial responsibility requirements
of part 132. The thrust of this comment is not clear because the
interim and final rules provide that a vessel operator demonstrating
financial responsibility under part 138 no longer is required to
maintain financial responsibility under part 132. This is specified in
paragraphs (a)(1) and (a)(4) of Sec. 138.15. In any event, as explained
later in this preamble, part 132 is being removed from the Code of
Federal Regulations.
Some commenters asserted that the Coast Guard should delay
implementation of the rule for MODU's until the Minerals Management
Service (MMS) of the Department of the Interior completes its
contemplated rulemaking under 33 U.S.C. 2716, concerning establishment
of financial responsibility for offshore leaseholders. These commenters
assert that, since a MODU has potential tank-vessel liability when
operating as an ``offshore facility'', MMS's interpretation of
``offshore facility'' will be pertinent when deciding under what
circumstance the MODU is operating as an ``offshore facility.''
Although MMS's rulemaking may be pertinent to deciding when a MODU is
operating as a offshore facility, that rulemaking has no bearing on the
MODU operator's obligation to obtain a COFR under 33 CFR part 138.
Under 33 U.S.C. 2701(18), a MODU in the navigable waters of the United
States or using a place subject to the jurisdiction of the United
States is a vessel, whether or not it is operating as an offshore
facility, and, therefore, must have a COFR. The Coast Guard issues a
``one-size-fits-all'' COFR. A commercial guarantor executes a one-size-
fits-all guaranty that covers the vessel under the law or laws (OPA 90
and CERCLA) that may apply at any time, and for whatever removal cost
and damage liability (up to statutory limits) the vessel incurs under
OPA 90 and CERCLA. Accordingly, the necessity for a vessel COFR is not
dependent upon the promulgation by MMS of its regulation governing
financial responsibility for offshore leaseholders. The Coast Guard,
therefore, has not adopted this suggestion.
Some commenters believe that MODU's should not have to demonstrate
financial responsibility at tank vessel limits, even under the limited
circumstances required by OPA 90. This matter is fixed by statute (33
U.S.C. 2704(b)), and, accordingly, beyond the scope of this rulemaking.
Finally these commenters recommended that all MODU's (both self-
propelled and non-self-propelled) have the same compliance date, with
[[Page 9266]]
that date being July 1, 1995, the non-self-propelled tank vessel
compliance date. Given the date of this final rule, this issue is moot.
The compliance dates for self-propelled MODU's and non-self-propelled
MODU's operating as offshore facilities have passed.
Parts 130, 131, 132, and 137
Title 33 CFR parts 131, 132, and 137 are being removed since they
no longer govern vessel financial responsibility. Section 131.0
provides that Trans-Alaska Pipeline COFR's will not be issued on or
after July 1, 1995. Similarly, Sec. 137.300 provides that Deepwater
Port certifications of coverage of vessels will not be accepted on or
after July 1, 1995. Accordingly, on and after July 1, 1995, by their
terms, parts 131 and 137 are not operative and are being removed by
this final rule.
Section 132.0 provides that Outer-Continental Shelf Lands Act
COFR's for vessels will not be issued on or after December 28, 1997. At
the time of publication of the interim rule, the Coast Guard was
uncertain as to the number of non-tank vessels that carry Outer
Continental Shelf-produced oil and, therefore, are required to hold
part 132 COFR's. The Coast Guard has since determined that on or after
July 1, 1995, no vessel operator will, in fact, be required or eligible
to obtain or continue to hold a COFR under part 132. Accordingly, part
132 is also being removed.
Part 130, the remaining preexisting vessel financial responsibility
part, is being phased out and will be removed after December 27, 1997,
at the close of the transition schedule established by Sec. 138.15(b)
of the interim rule and, now, this final rule.
Section-by-Section Discussion
Section 138.12 Applicability
Paragraph (a)(2): Some commenters asked whether a vessel operating
between the 3 and 12 mile limits and not engaged in transshipping or
lightering oil is required to possess a COFR under 33 CFR part 138.
Apparently, the confusion arises from the use of the phrase,
``navigable waters of the United States or any port or place subject to
the jurisdiction of the United States,'' in 33 CFR 138.12(a)(2). The
navigable waters of the United States, with respect to waters seaward
of the coastline, are the territorial sea. OPA 90 defines ``territorial
seas'' as extending to the three mile limit. Hence, the waters between
the 3 and 12 mile limits are not part of the navigable waters of the
United States.
``Port or place subject to the jurisdiction of the United States''
also is used in the Ports and Waterways Safety Act (33 U.S.C. 1223) and
in 46 U.S.C. 2101(39) (definition of ``tank vessel''). The Coast Guard
has interpreted this phrase to mean a port or place in the navigable
waters of the United States, a deepwater port licensed by the United
States, and an Outer Continental Shelf structure permitted under the
Outer Continental Shelf Lands Act. It does not include, by itself, the
waters between the 3 and 12 mile limits.
Accordingly, a vessel operating between the 3 and 12 mile limits
and not engaged in lightering or transshipping oil to a place subject
to the jurisdiction of the United States is neither operating in
``navigable waters of the United States'' nor in or at a ``port or
place subject to the jurisdiction of the United States.'' That vessel
would not require a COFR but would incur liability for an incident
under OPA 90 and for a release or threatened release under CERCLA.
Likewise, a MODU that arrives from foreign waters to a location on the
U.S. Outer Continental Shelf, but that is not yet operating as an
offshore facility, would not have to demonstrate financial
responsibility under part 138. When the MODU is operating as an
offshore facility, a COFR under part 138 would be required, since the
offshore facility on the Outer Continental Shelf is a place subject to
the jurisdiction of the United States.
Paragraph (a)(2)(ii): This paragraph states that a non-self-
propelled barge that does not carry oil as cargo or fuel and does not
carry hazardous substances as cargo is excepted from 33 CFR part 138. A
commenter inquired as to whether a barge that carries only liquefied
petroleum gas (LPG) (primarily butane or propane) and carries no oil as
fuel or cargo and no hazardous substances as cargo is entitled to this
exception. The Coast Guard confirms that this barge is not required to
obtain a COFR under part 138, since propane and butane are not oil, and
not CERCLA hazardous substances (42 U.S.C. 9601(14)). Similarly,
liquefied natural gas (LNG) is neither a hazardous substance nor an
oil. However, condensate from natural gas is a naturally occurring oil.
One commenter, on behalf of the inland and coastal barge and towing
industry, referred to a situation involving dry cargo barges that from
time to time use small, portable pumps to pump water out of void
compartments or cargo boxes. These pumps carry not more than five
gallons of fuel and are neither integral to nor stored aboard the
barges in question. These small pumps are maintained aboard the towing
vessels (which, if over 300 gross tons, must carry COFR's) and are
hand-carried aboard certain dry cargo barges by deckhands for temporary
operation while the barges are either underway or in fleeting areas.
The Coast Guard agrees that it is unnecessary to require dry cargo
barges, that do not otherwise carry oil or hazardous substances, to
obtain COFR's solely because hand-carried pumps are temporarily aboard.
Requiring COFR's in this circumstance would constitute an overly narrow
interpretation of OPA 90. Accordingly, the final rule makes it clear
that the temporary use of small, portable, non-integral pumps aboard
non-self-propelled vessels, which vessels do not otherwise require
COFR's, should not be regarded as triggering a COFR requirement. The
definition of ``fuel'' in Sec. 138.20(b) has been amended to exclude
from the term ``equipment'' the pumps discussed here, thereby
clarifying the exception in paragraph (a)(2)(ii).
Section 138.15 Implementation Schedule
Some dry-cargo vessel representatives requested that there be a
uniform implementation date of December 28, 1997, for all non-tank
vessels. They argue that the phased implementation period places some
vessels at a competitive disadvantage to others. The Coast Guard would
have preferred a uniform implementation date for all non-tank vessels,
but that date would have been one closer to July 1, 1995. Recognizing
the impracticalities of replacing all non-tank vessel COFR's (about
14,000) by one date, the Coast Guard opted for the least disruptive
approach (to the Coast Guard and to vessel owners and operators) of
replacement--the expiration date of the old COFR. Of course, an
operator, if it so chooses, may replace an old COFR at an earlier time.
There are other circumstances not germane to this discussion (such
as a change of operator) in which a new OPA 90/CERCLA COFR may have to
be obtained at an earlier date. In addition, compared to tank vessels,
the cost of obtaining a non-tank vessel COFR guaranty from a commercial
source is not likely to place one vessel operator at a significant
competitive disadvantage over another. At this time, to change the
implementation schedule would disadvantage those owners and operators
that already have complied with the new COFR regime and those that have
made business decisions respecting compliance. The Coast Guard believes
that this final rule already has
[[Page 9267]]
been delayed too long. Accordingly, it has been decided that the
implementation schedule in the interim rule is reasonable and should
not be amended.
Some non-tank vessel representatives also recommended that, when an
operator holding pre-OPA 90/CERCLA COFR's for vessels in its fleet
decides to add a new vessel to the fleet, that operator should be
allowed to obtain a pre-OPA 90/CERCLA COFR bearing the same expiration
date as the COFR's for the other vessels in the fleet. Under the
interim rule, the operator must obtain a new OPA 90/CERCLA COFR for
that vessel.
The Coast Guard is not adopting this suggestion. OPA 90 was enacted
five years ago, and it is desirable that all vessels be covered by new
OPA 90/CERCLA COFR's as soon as possible. Accordingly, any vessel for
which there is a new operator or that enters service after December 28,
1994, must be covered by a new OPA 90/CERCLA COFR. This process ensures
that the greatest number of vessels are covered by new COFR's at the
earliest possible time, without disturbing the principle that a vessel
lawfully operating with a pre-OPA 90/CERCLA COFR may continue to do so
until the conditions for obtaining a new COFR exist.
Section 138.20 Definitions
Exclusive Economic Zone (EEZ): Although this term is defined in
section 1001(8) of OPA 90, there apparently is some confusion as to
where the waters of the EEZ begin. For COFR purposes, the waters of the
EEZ begin immediately after the three-mile territorial sea, i.e.,
waters seaward of the three-mile territorial sea are waters of the EEZ.
Fuel: As discussed earlier, this definition has been amended to
exclude from the meaning of ``equipment'', portable water pumps holding
not more than five gallons of fuel, provided these pumps are not
permanently or continuously stored aboard the non-self-propelled
vessels in question. This amendment will have the effect of narrowing
the meaning of ``fuel'' and thus will preclude unintended and
unnecessarily burdensome interpretations of OPA 90's CFR requirements.
Hazardous substance: One commenter recommended that the distinction
between a ``hazardous substance'' and a ``hazardous material'' be
clarified. Each of these terms is defined either in CERCLA or in the
interim rule. The most important distinction is that ``hazardous
material'' is relevant only to the determination of whether a vessel is
a ``tank vessel'' under the rule. ``Hazardous substance'' is defined by
section 101 of CERCLA (42 U.S.C. 9601) and relates to the substances
for which CERCLA liability may attach with respect to a release or
threatened release. Not all hazardous materials are hazardous
substances. Butane and propane (liquefied petroleum gas (LPG)), for
example, are hazardous materials, but not hazardous substances. Thus,
under OPA 90, a self-propelled vessel carrying butane or propane is a
tank vessel and must demonstrate financial responsibility in accordance
with this rule. However, the escape of butane or propane alone (that
is, not also triggering, for example, a substantial threat of a
discharge of oil) would not result in either OPA 90 or CERCLA
liability. (Non-self-propelled vessels carrying only LPG are exempt
from these COFR requirements.) The Coast Guard has not further defined
these two terms because they already are defined in Sec. 138.20 and in
CERCLA.
Hazardous material: Some commenters are still concerned that a
vessel carrying non-liquid hazardous materials might be considered a
tank vessel. Inasmuch as the definition of ``hazardous material''
contained in the interim rule and this final rule uses the modifier,
``liquid,'' the definition need not be further amended (see 59 FR
34217-34218). The meaning of this modifier is that a vessel that
carries, or is constructed or adapted to carry, bulk liquid hazardous
materials would be a tank vessel, provided it met at least one of the
other criteria in 33 U.S.C. 2701(34). It also means that a vessel
carrying non-liquid hazardous materials or liquid hazardous substances
that are not hazardous materials, or both (and not constructed or
adapted to carry bulk liquid hazardous materials or oil) is not a tank
vessel.
Operator: One commenter observed that this definition should be
reworded to define more clearly the intended meaning. The primary
reason for this definition is to identify the operator entity who
should apply for a COFR. The definition is not intended to address the
issue of what other entities, because of their specific relationship to
a vessel, Congress may have intended to be considered responsible
parties under OPA 90 or CERCLA. The Coast Guard also designed this
definition of a COFR applicant (1) to provide flexibility to those
associated with the operation of vessels when deciding what constitutes
a fleet; (2) to encompass persons who have custody of or are
responsible for vessels held solely for building, repairing, sale,
lease, or scrapping and; (3) to exclude certain so-called ``operators''
such as traditional time or voyage charterers (see 59 FR 34217).
During the tank vessel implementation phase of the interim rule,
this definition accommodated persons who wished to become responsible
parties for a fleet of consolidated, subsidiary/affiliated company
vessels. These persons wished to become ``operators'' of fleets for
purposes of determining the amount of net worth required to satisfy the
self-insurance/financial guarantor criteria. This consolidation of
subsidiary/affiliated company vessels into one fleet also benefits
potential claimants in that the parent or other ``operator'' is clearly
the responsible party for all the vessels, thereby bypassing any
arguments associated with limiting the available assets to those of a
single vessel-owning and operating company.
The Coast Guard is not aware of a general problem with the current
definition, which seems to have struck a balance between the objectives
of the law and the far broader meaning of ``operator'' sometimes used
in the maritime industry. Therefore, this suggestion was not adopted.
Tank vessel: A few commenters continue to assert that liquefied
natural gas (LNG) and LPG carriers are not tank vessels. The Coast
Guard has reviewed this issue once more and concludes that its
interpretation, as stated in the interim rule preamble (59 FR 34218),
is correct. A vessel carrying LNG or LPG clearly meets one criterion in
33 U.S.C. 2701(34) (the definition of ``tank vessel'') as these
materials meet at least the combustibility criterion in the definition
of ``hazardous material.''
Alternatively, one commenter recommends that LNG be exempted from
the definition of ``hazardous material,'' citing as precedent another
Coast Guard rule published at 58 FR 67988 (December 22, 1993). This
regulation amended 33 CFR part 155, which concerns discharge removal
equipment for vessels carrying oil. The reason that the preamble to
part 155 states that LNG is not defined as oil or a hazardous material
is because the applicable definition of ``hazardous material'' for
purposes of 33 CFR part 155 is contained at 33 CFR 154.105, which
provides that Harzardous material means a liquid material or substance,
other than oil or liquefied gases, listed under 46 CFR 153.40 (a), (b),
(c), or (e).'' The statutory basis for this is 33 U.S.C. 1231, not OPA
90. Accordingly, part 155, having a different purpose and statutory
basis, does not serve as any precedent for 33 CFR part 138. Since
Congress has clearly expressed its intent in OPA 90 that bulk
[[Page 9268]]
liquid hazardous material carriers meeting the criteria in 33 U.S.C.
2701(34) be considered tank vessels, the Coast Guard does not have the
discretion to adopt this recommendation. It is worthy of mention again,
however, that LNG and LPG barges (that do not otherwise carry oil or
hazardous substances) are not required by OPA 90 or CERCLA to obtain
COFR's, not because LNG and LPG are not hazardous materials, but
because they are not hazardous substances as defined in CERCLA.
One commenter suggested that the types of fishing vessels that are
considered tank vessels should be clarified. If there is ambiguity in
this regard, it stems from the language of section 5209 of Public Law
102-587, which provides that a fishing or fish tender vessel of 750
gross tons or less, that transfers fuel without charge to a fishing
vessel owned by the same person, is not a tank vessel. Nevertheless, it
is clear that any other fish tender or fishing vessel that transfers
fuel to another vessel and that otherwise meets the criteria of the
definition must be considered a tank vessel. A fish tender or fishing
vessel that is also a tank vessel, as defined in this rule, must
demonstrate financial responsibility in accordance with this rule. Part
138 needs no further clarification on this point.
Section 138.30 General
Paragraphs (c), (d), and (e) (gross tons): One commenter asserted
that the sentence specifying use of gross tons as measured under the
International Convention on Tonnage Measurement of Ships, 1969, for
purposes of determining the limit of liability under section 1004(a) of
OPA 90 and under section 107(a) of CERCLA was not properly adopted
under 46 U.S.C. 14302. The Coast Guard disagrees. Title 46 U.S.C. 14302
clearly authorizes the Secretary (the Secretary delegated this
authority to the Commandant of the Coast Guard) to specify the statutes
for which tonnage as measured under the Tonnage Convention is to be
used to determine the application and effect of those statutes. The
Coast Guard has properly exercised this authority, and the authority
citation to 33 CFR part 138 identifies 46 U.S.C. 14302 as the authority
for paragraphs (c) through (e).
Section 138.80 Financial Responsibility, How Established
A commenter recommended that the Coast Guard adopt a particular
State's method of financial responsibility in fulfillment of OPA 90's
requirements, if the State scheme is at least as stringent as the
Federal scheme. One State suggested that the Coast Guard not implement
the Federal law because the resulting regulations would conflict with
and cause disruption to the implementation of that State's own
regulations, which did not require direct action and which allowed an
unlimited number of defenses and exclusions.
OPA 90 does not preempt State law, and therefore, each State may
design its own version of a financial responsibility regime. On the
other hand, the Coast Guard believes that a uniform financial
responsibility regime in the United States is desirable and, rather
than adopt a particular State regime, the Coast Guard believes that its
regime should serve as the model. In any event, State financial
responsibility regimes may address issues not covered by the Federal
system or may lack some of the elements in the Federal system. The
Coast Guard, therefore, has not adopted this recommendation.
One commenter stated that the Coast Guard should promulgate
acceptability standards for guarantors, including insurance guarantors.
This issue was discussed in the preamble to the interim rule at 59 FR
34219, wherein the Coast Guard indicated it was evaluating the
possibility of a future rulemaking on this subject. No rulemaking on
this matter is mandated by statute or other principle of law. Rather,
this would be a purely discretionary regulation. In the time period
since publication of the interim rule, there has been much debate about
regulations in general, with the primary focus being to eliminate all
but the most necessary rules. Consequently, the Coast Guard has decided
not to proceed with a discretionary rulemaking on this subject, but
rather to continue to make its 25-year old acceptability policy
available to any interested person upon request.
Also, this section has been amended in response to the passage of
the Edible Oil Regulatory Reform Act (Pub. L. 104-55), which was signed
by the President on November 20, 1995. This law requires that, in
issuing a regulation, the head of any Federal agency shall
differentiate between fats, oils, and greases of animal, marine, or
vegetable origin and other oils and greases. It also lowers the
liability limit of certain tank vessels carrying fats, oils, and
greases of animal, marine, or vegetable origin.
Paragraph (b)(1) (Insurance): Two commenters stated that the Coast
Guard has failed to address ``bad faith'' issues respecting an
insurance guarantor. The concern is that if an insurer is found by a
court to have acted in bad faith with respect to the insured party or a
third party claimant, a court might hold a guarantor liable in excess
of the amount of the part 138 insurance guaranty. ``Bad faith'' is an
insurance concept that has existed for many years. In some situations,
an insurer against whom a bad faith claim has been successfully
prosecuted (by an insured) may have to pay a penalty which results in a
total payment exceeding policy limits. This is because the bad faith
action often may be pursued as a tort, which is an action separate from
enforcement of the insurance contract.
The chance of success of a bad faith claim asserted by a claimant
other than the insured against a COFR guarantor, for some act or
omission by the guarantor, is unknown. COFR guaranties have been
required in this country since 1971 and in other countries since the
mid seventies. The Coast Guard is unaware of any case in which bad
faith has been asserted successfully by a third party claimant against
an insurer in the capacity of a COFR guarantor, i.e., financial
responsibility provider.
The Coast Guard nevertheless reads the law to mean that the costs
and damages for which a person, as a guarantor, may be liable under OPA
90 or CERCLA are strictly limited to the amount of the guaranty. If a
bad faith action were to be pursued successfully in court by a third
party claimant against an insurance guarantor, any awarded amount
exceeding the guaranty amount would not be considered as compensation
under OPA 90 or CERCLA. Such a court award would be considered
liability for an amount outside the scope of OPA 90 or CERCLA. Even
CERCLA section 108(d)(2) (42 U.S.C. 9608(d)(2)), referenced by one of
the commenters, acknowledges the possibility of bad faith actions under
laws other than CERCLA. CERCLA, however, does not generally provide
third parties with a cause of action for damages. The well known
concept of bad faith pertaining to the insurance industry is beyond the
scope of this rule, and the Coast Guard has no intent or authority to
expand or restrict causes of action related to bad faith.
The Coast Guard does not intend anything in this discussion of bad
faith to detract from the central, underlying principle of
guarantorship under OPA 90/CERCLA and this rule (as well as predecessor
laws and rules). This principle is that, in return for the statutorily
guarantied right to limit liability and right to the defenses specified
in a guaranty form, a guarantor agrees to waive all other defenses,
including nonpayment of premium, non-United States venue, and lack of
[[Page 9269]]
personal jurisdiction by United States courts.
Paragraph (b)(2) (Surety bond): A few commenters objected to the
reinstatement provision of the surety bond guaranty form, which
provides that for any monies paid by a surety guarantor, the amount of
the surety bond guaranty automatically is reinstated to an applicable
amount not exceeding its original penal amount, until the bond is
cancelled. These commenters asserted that no surety company would
undertake this obligation. In fact, over 140 vessels are covered by
surety bond guaranties that contain the reinstatement clause, and the
surety bond guaranty form published in 33 CFR part 130 for many years
has contained a clause of similar impact. Accordingly, the Coast Guard
does not see a reason to delete this clause from the surety bond
guaranty form.
In the interim rule, the Coast Guard limited joint participation by
co-guarantors to a system in which up to four signatory guarantors
could appoint a lead guarantor and execute a guaranty form. One
commenter involved in arranging surety bond guaranties recommended that
up to 10 guarantors be allowed to participate in a surety bond
guaranty. This would expand the availability of high-dollar limit
surety bond guaranties, due to the United States Treasury-imposed
underwriting limits on individual surety companies. The Coast Guard
will accede to this request and has increased to 10 the number of co-
guarantors allowed on a single surety bond guaranty. The Coast Guard
has not adopted this number for the other types of guaranties, as no
commenter requested an increase in the number of guarantors for other
forms of guaranty, and no independent justification was apparent.
Although the Coast Guard will allow up to 10 sureties to sign a
single surety bond guaranty, co-guarantors are reminded that
Sec. 138.80(c) provides that, if one or more guarantors do not specify
percentages of participation, then, as between or among them, they
share joint and several liability for the total of the unspecified
portion. Those guarantors specifying percentages will be liable only up
to their respective specified limits.
Minor technical improvements to the surety bond guaranty form were
suggested. These are: changing the signature page to provide only one,
generic signature area for a principal without unnecessarily
distinguishing the type of principal signing; requiring that the State
of incorporation be shown with the principal's name (rather than
elsewhere on the bond); and allowing notice of termination to be sent
by means other than only certified mail. The latter suggestion is being
adopted, and an amendment is being made to the prescribed surety bond
guaranty form itself. The other suggested minor changes are not
objectionable, but will not be made to the prescribed form. Rather,
these other minor changes regarding the signature page will be
acceptable to the Coast Guard if individual sureties choose to make the
changes themselves on particular forms filed with the Coast Guard.
Paragraph (b)(3) (Self-insurance): One commenter stated that the
amount of net worth required by the interim rule is insufficient in
that there may not be sufficient funds available should more than one
vessel within a self-insured fleet suffer incidents. This commenter
also recommended that quarterly reports be filed and that only equity
assets be counted in the net worth and working capital computations.
The Coast Guard sympathizes with this comment and has stated before
that self-insurance is far from an ideal method of demonstrating
financial responsibility. Nevertheless, self-insurance has been allowed
for the past 25 years because it has been a method specifically
intended by Congress.
Until December 27, 1994, self-insurance and financial guaranties
(the latter being based on self-insurance criteria) had formed a very
small component of the body of ``evidence of financial responsibility''
related to vessels operating in U.S. waters. Since December 27, 1994,
however, a far greater number of vessels have obtained COFR's based on
these two methods. While this tends to support the commenter's point,
rather than escalating the self-insurance criteria at this time, the
Coast Guard intends to watch very carefully the performance of self-
insurers and financial guarantors. Should one or the other of these
methods prove to be inadequate, the Coast Guard will initiate a
rulemaking to revise the criteria underlying these methods.
One commenter asked that the rule allow for a waiver of the U.S.-
based asset requirement. The interim rule and the FRIA explain the
principle underlying the use of only U.S. assets. A waiver of the U.S.
asset test would be inconsistent with this principle. Accordingly, this
suggestion has not been adopted.
A commenter on behalf of the American Institute of Certified Public
Accountants recommended minor technical amendments to accord with
standard accounting terminology and practice. Most of these
recommendations have been adopted and incorporated in
Sec. 138.80(b)(3)(i). These changes are not substantive.
Paragraph (b)(4) (Financial Guaranty): One commenter asserted that
no acceptability criteria were specified for financial guarantors. In
fact, financial guarantors must meet the self-insurance requirements
specified in Sec. 138.80(b)(3), which provide very specific
acceptability criteria.
Some commenters recommended that, when a parent company serves as
financial guarantor for one or more subsidiary companies, the
subsidiaries should be treated as one, collective ``fleet'' for
purposes of determining the required amount of net worth and working
capital. Section 138.80(b)(4) of the interim rule provides that ``* * *
a person that is a financial guarantor for more than one applicant or
certificant shall have working capital and net worth no less than the
aggregate total applicable amounts of financial responsibility provided
as a guarantor for each applicant or certificant * * *.'' Title 33 CFR
130.80(b)(4) contained a similar restriction. Since each subsidiary is
considered a separate applicant, the aggregation requirement pertains.
On the other hand, if the parent company bareboat charters all of the
subsidiary companies' vessels, or organizes itself so that it meets the
rule's definition of ``operator'' and serves as the responsible party
(operator) of all of those vessels (that is, all of the subsidiaries'
vessels are ``operated'' by the ``responsible party'' parent), then the
parent may self-insure and thus avoid the aggregation requirement.
The commenters assert that in some situations, labor relations or
other considerations may preclude a parent from serving as ``operator''
(and thus as a self-insurer) for all the subsidiaries' vessels. These
commenters argue that the aggregation requirement is unfair in not
recognizing that the source of funds is the same, the collective
company. These commenters assert, therefore, that there is no rational
basis for requiring the parent to demonstrate aggregate amounts of net
worth where the parent wishes to be a financial guarantor for all the
vessels in the subsidiaries' fleets, rather than a self-insurer with
responsible party status for those vessels. A specific amendment was
proposed, namely, that the rule allow the parent to serve as financial
guarantor without the aggregation requirement in cases where the
subsidiaries are wholly owned by the parent, or where the parent owns
at least 80 percent of the total combined voting power of all classes
of stock
[[Page 9270]]
entitled to vote and at least 80 percent of the total number of shares
of all other classes of stock of the subsidiary corporations.
The Coast Guard has decided not to adopt this recommendation. From
claimants' and taxpayers' standpoints, the Coast Guard does not
consider self-insurance and financial guaranties to be ironclad methods
of evidencing financial responsibility. Assets can be dissipated
without the Coast Guard's knowledge, and continuous monitoring of a
self-insured entity's asset base is not feasible. Despite the fact that
most of the companies that self-insure or use financial guaranties are
large, solvent companies that are not expected to ``walk away'' from a
spill, insurance and surety bond guaranty methods (as well as the
``other evidence'' method) provide per vessel, per incident protection
backed by reserves and independent reinsurance. The larger the insured
or bonded fleet, the larger the amounts of applicable reserves and
reinsurance. This generally is not true in the case of self-insurance
and financial guaranty.
Accordingly, the Coast Guard believes that any amendment to the
financial guarantor provision that reduces the protections afforded by
that provision is inconsistent with the concept of financial
responsibility. Although there may be a perceived anomaly in the rule,
the Coast Guard believes the benefits of the aggregation principle far
outweigh any possible anomalies or inequities. For these reasons, the
Coast Guard has not adopted this suggestion.
Paragraph (b)(5) (Other evidence): Some commenters felt that
before an ``other evidence'' method is accepted by the Coast Guard,
public notice of the proposed method should be published in the Federal
Register, so that interested organizations might comment on the
proposal. The concern is that by accepting an innocent looking ``other
evidence'' method, the Coast Guard might allow a guarantor to avoid
direct action or other provisions designed to ensure the availability
of funds for claimants.
The Coast Guard has repeatedly stated its position that any ``other
evidence'' provider is a statutory ``guarantor'' subject to all the
rights and obligations of a guarantor. The interim rule at 33 CFR
138.80(b)(5) explicitly requires an ``other evidence'' provider to
include in the guaranty form all the elements described in paragraphs
(c) and (d) of Sec. 138.80. These are the paragraphs that preclude loss
of the protections afforded claimants, no matter what novel approach a
new ``other evidence'' method may take. Because of these built-in
constraints, the Coast Guard does not believe the concerns expressed
are warranted or justify the delays necessarily inherent in affording
the public an opportunity to comment on proposed ``other evidence''
schemes. Also, the public already has commented, twice, on the
parameters and substance of the ``other evidence'' method.
Paragraph (c): This paragraph is being amended to specify that not
more than 10 guarantors, rather than four as contained in the interim
rule, may execute a surety bond guaranty. The reasons for this change
are explained under paragraph (b)(2) of this section.
Paragraph (d) (Direct action): One commenter recommended that fraud
or intentional misdeclaration be allowed as an insurance guarantor's
defense to a direct action. The Coast Guard is not adopting this
recommendation because to do so would be inconsistent with the purpose
of the guaranty--to ensure that the polluter pays for removal costs and
damages resulting from an incident or a release or threatened release.
The key here is that the Coast Guard cannot accept insurance policies
alone in the financial responsibility program because only insurance
guarantors are able to provide the assurance mandated by OPA 90 and
CERCLA. Not even the international COFR regime, prescribed by
international treaty, accepts a standard insurance policy as evidence
of financial responsibility--direct action without policy defenses is
required by the international regime, and no standard marine liability
insurance policy of which the Coast Guard is aware meets that
requirement.
One commenter observed that the third enumerated defense does not
provide for concursus of claims. ``Concursus'' is a procedure
associated with a limitation action under the 1851 Limitation of
Liability Act (1851 Act). Concursus technically is a ``procedure''
rather than a ``defense,'' and was not provided for under OPA 90 or
CERCLA. The third defense was not intended to serve as a concursus
mechanism, but, in view of the unavailability of the 1851 Act in court
actions under OPA 90 or CERCLA, was intended to reinforce OPA 90 and
CERCLA's limitation of a guarantor's liability with respect to an
incident, release, or threatened release. In addition, its purpose was
to ensure that, by becoming a guarantor under this regulation, the
guarantor has not thereby also agreed to be a guarantor under State or
local law, or other Federal law, solely by virtue of being an OPA 90/
CERCLA guarantor. As stated at 59 FR 34223, ``Right or defense number
three confirms that a guarantor shall have the right to limit its OPA
90/CERCLA liability under its guaranty to the amount of that guaranty,
despite the number of claimants and venues in which claims are brought
against the guarantor for the same incident, release or threatened
release.'' The Coast Guard has no authority by regulation to create, or
to impose on claimants and the courts, a concursus mechanism.
Paragraph (f) (Total applicable amount): Some commenters pointed
out that an oil carrying barge that does not carry hazardous substances
as cargo is exempt from CERCLA's COFR requirements and, therefore,
should not be required to demonstrate evidence of financial
responsibility for CERCLA liabilities. The Coast Guard agrees. It
appears that the discussion in the preamble to the interim rule on a
closely related point may have created confusion, but the fact remains
that the interim rule does not require the above described barge to
demonstrate evidence of financial responsibility under CERCLA. Indeed,
the rule cannot contain such a requirement since section 108(a) of
CERCLA (42 U.S.C. 9608(a)) excepts from the CERCLA financial
responsibility requirement a non-self-propelled barge that does not
carry hazardous substances as cargo.
The preamble to the interim rule (in particular, the discussion at
59 FR 34215) did not discuss every possible fact situation involving
the requirement to comply with CERCLA's financial responsibility
requirements. It focussed instead on self-propelled vessels (which
always must comply) and on barges that sometimes must comply with the
CERCLA requirement, that is, that sometimes carry oil and sometimes
carry hazardous substances, but not both at the same time. The preamble
discussion did not discuss the oil barge operator that intends never to
carry hazardous substances as cargo, which is the type of barge
referred to by this commenter.
The interim rule, 33 CFR 138.12(a)(2)(ii), exempts from part 138
only a barge that does not carry oil as cargo or fuel and does not
carry hazardous substances as cargo. If a barge, otherwise subject to
part 138, carries either of these commodities, the barge is subject to
the COFR requirements. Since an oil-carrying barge that is not carrying
hazardous substances as cargo is not subject to CERCLA's financial
responsibility requirement, and probably unable to incur liability
under CERCLA, its operator has been in the past able to obtain a
premium savings, all else being equal, when purchasing a commercial
[[Page 9271]]
COFR guaranty for its OPA 90 (and part 138) financial responsibility
obligation.
The Coast Guard did not under 33 CFR part 130 and does not now
provide COFR's or guaranty forms for the carriage of oil only or
hazardous substances only. This is because of the benefits, to both the
Coast Guard and the regulated community, of having a one-size-fits-all
COFR and guaranty. The paperwork, delays, personnel resources,
increased user fees and enforcement burden on industry simply could not
be justified. (As noted in the preamble to the interim rule (59 FR
34211), Congress intended that COFR's be one-size-fits-all.) Under this
one-size-fits-all scheme, in the event that a barge operator illegally
or otherwise carried a hazardous substance as cargo and experienced a
release, the commercial COFR guarantor ultimately might be responsible
under its guaranty for the costs and damages associated with the
release. However, so long as the barge does not carry hazardous
substances as cargo, the CERCLA reference on the COFR and in the
guaranty have no operative effect, and both the industry and Government
benefit. (See 59 FR 34215.)
An accidental but welcome benefit of the Coast Guard's one-size-
fits-all COFR policy is that operators who innocently carry hazardous
substances without realizing it are protected not only with respect to
OPA 90/CERCLA removal and damage liability, but from the rather
stringent penalty and vessel seizure sanctions as well. Instances of
mistaken identity of cargo are not unknown.
A self-insurer of a barge that carries only oil (as ``oil'' is
defined in OPA 90) also receives a one-size-fits-all COFR, but that
fact does not mean that the self-insurer in this case had to
demonstrate evidence of financial responsibility for CERCLA purposes.
Rather, this self-insurer, in order to qualify as such under the rule,
shows net worth in the flat amount of $5 million, plus the applicable
amount under part I of the applicable amount table. This is meant to
require all self-insurers to demonstrate that, even in the event of
some economic misfortune, they still may be able to satisfy a statutory
limit of liability. This $5 million minimum ``buffer'' in the self-
insurance standard is imposed by a simple cross reference (33 CFR
138.80(b)(3), introductory paragraph) to the CERCLA $5 million minimum
in the applicable amount table for a vessel carrying hazardous
substances as cargo. The Coast Guard could have chosen to fashion
additional regulatory formulae by which to compute a larger amount of
net worth. Instead, it settled on $5 million as a balance between its
(and at least one commenter's) desire for larger amounts of net worth
and the desires of those who advocate no minimum. The use of the cross-
reference to the CERCLA minimum in the applicable amount table is an
easily understood, no-calculation-required, convenient method of
determining a self-insurance net worth requirement. It is a method that
covers all types of cargo for all types of vessels. There is no need
for more complicated formulae.
This ``$5 million plus'' net worth requirement follows precedent
established for self-insurers demonstrating OPA 90-like evidence of
financial responsibility under the Trans-Alaska Pipeline Authorization
Act (43 U.S.C. 1653) (TAPAA) (see 33 CFR part 131). TAPAA, which
required evidence of financial responsibility for vessels, established
a limit of liability, per vessel per incident, of $14 million. A self-
insurer of one vessel under part 131 had to demonstrate a U.S.-based
net worth of at least $19 million. Thus, to increase the chance that
adequate funds would be available in the event of an oil spill, for
many years the Coast Guard required (with respect to self-insurance)
for these vessels a minimum of $5 million more in net worth than the
liability limit set by statute. This requirement was imposed on the
basis of the rulemaking authority granted by Congress to assure that
there would be sufficient resources available to meet the liability
imposed by the statute and is the approach retained in 33 CFR
138.80(b)(3) for all self-insurers, including a self-insurer of a barge
carrying only oil.
This $5 million buffer in the part 138 self-insurance standard is
far less stringent than in the part 131 self-insurance standard. For
example, a self-insured operator of two TAPAA oil barges under part 131
was required to demonstrate $24 million, which is a $10 million buffer.
Part 138 does not require multiple buffer amounts in the case of self-
insurance.
A financial guarantor under part 138 also must show net worth of at
least $5 million since a financial guarantor must satisfy the self-
insurance formula. The financial guarantor would also be required to
execute the one-size-fits-all financial guaranty, but, so long as a
barge was not carrying hazardous substances as cargo, the reference in
the financial guaranty to CERCLA would have no operative effect--the
same as for commercial guarantors.
If all that was required of a self-insurer or financial guarantor
was a single incident dollar limit, self-insurance and financial
guaranty could not be justified as a method of demonstrating financial
responsibility under OPA 90 or CERCLA. Accordingly, the Coast Guard is
not amending this paragraph.
Paragraphs (f)(1)(i) and (f)(1)(ii): These paragraphs are being
changed to conform this final rulemaking to the Edible Oil Regulatory
Reform Act (Pub. L. 104-55), which amends section 1016(a) of OPA 90 (33
U.S.C. 2716(a)) on financial responsibility. These changes in the final
rule reflect Congress's intent that tank vessels on which (1) no liquid
hazardous material in bulk is being carried as cargo or cargo residue
and (2) the only oil carried as cargo or cargo residue is oil defined
in section 2 of Public Law 104-55 have the same limits of liability as
non-tank vessels.
Section 138.90 Individual and Fleet Certificates
One commenter asserted that the Coast Guard's concept of a fleet
certificate is much too narrow. This commenter believes the Coast Guard
should allow for a fleet certificate in the form this commenter
believes is provided for in OPA 90 (33 U.S.C. 2716(a)), namely, one
Certificate (COFR) to cover any and all vessels in a fleet. The
commenter misconstrues this provision of the law to the extent the
commenter believes it creates a ``fleet certificate.'' What this
provision of law does is to allow a fleet operator to avoid having to
aggregate the gross tons of all the vessels of a fleet in order to
determine the amount of financial responsibility to be demonstrated.
The provision does not mean that only one COFR is required for the
entire fleet. Therefore even though an operator of a fleet is permitted
to demonstrate financial responsibility without regard to the
aggregated tonnage of the fleet, the operator generally must obtain a
COFR for each vessel in the fleet. As used in 33 CFR 138.90, ``fleet
certificate'' is an unrelated regulatory creation of the interim (and
final) rule for the benefit of a limited class of barges, that is, non-
tank barges that normally do not require COFR's. The commenter's
recommendation has not been adopted.
It appears, however, that there is some confusion as to exactly
what type of non-tank barges are eligible for coverage under this new
fleet certificate concept. In the preamble to the interim rule at 59 FR
34221, one example was a fleet of deck barges over 300 gross tons, most
of which might never carry oil or hazardous substances, but, one or two
of which possibly might have to carry a barrel of oil, or a hazardous
substance, or both on short notice in the future.
[[Page 9272]]
The fleet certificate concept has no applicability to barges that
normally require COFR's because of the routine carriage of oil as cargo
or fuel, or hazardous substances as cargo. A construction company's
barge, over 300 gross tons, that is used as a more or less permanent
platform for a gasoline or oil-powered crane, requires an individual
COFR that names the barge. If, however, that same barge had no crane or
other oil or gas-powered equipment on board, and carried no oil or
hazardous substances as cargo, that barge and its sister barges would
be candidates for a fleet certificate (i.e., sooner or later one or
more of the barges would be needed immediately to move a crane or other
equipment down river, a few barrels of gasoline from one place to
another, etc.). In the final analysis, except in the case of a self-
insurer, the eligible types of non-tank barges will be determined by
the guarantor willing to issue a guaranty for a fleet certificate. If
the reader notices in the fleet certificate concept a high degree of
flexibility, that is in fact that the Coast Guard has in mind for these
low risk, non-tank barges that might one day suddenly discover a need
to comply with OPA 90/CERCLA financial responsibility, but have no time
to accomplish the paperwork process attendant to individual COFR's.
Appendices B Through F
These appendices are, respectively, the insurance guaranty form,
the master insurance guaranty form, the surety bond guaranty form, the
financial guaranty form and the master financial guaranty form.
Several commenters recommended that each of the guaranty forms be
amended to reflect the Coast Guard's policy and intent under 33 CFR
part 138 that all payments for costs and damages made by or on behalf
of a responsible party under OPA 90 with respect to an incident or
under CERCLA with respect to a release or threatened release, reduce
the guarantor's obligation with respect to that incident or release or
threatened release by a corresponding amount. For example, assume that
a vessel operator has obtained an insurance guaranty containing OPA 90
coverage of $40 million (the amount of that operator's particular
statutory limit of liability under OPA 90) and that an oil spill occurs
resulting in OPA 90 removal costs and damages of $45 million. Assume
further that the operator's Protection and Indemnity Club (P&I Club)
(which is not the insurance guarantor) agrees to pay, under its
indemnity policy, only $40 million on behalf of its assured. In this
case, the guarantor has no further liability under its guaranty, with
respect to that incident, because the responsible party's limits under
OPA 90 have been paid--which under this rule is all any guarantor is
required to ensure. Had the Club paid only $39 million, the guarantor's
liability under its guaranty would have been reduced by $39 million.
The purpose of financial responsibility is to assure that the
responsible party can pay removal costs and damages up to its statutory
limit of liability. In the above hypothetical case, that purpose has
been served to the extent of the Club's payment.
Assume further in this example that there is a basis for breaking
the vessel operator's statutory limits and that the Club still decides
to pay, but still only $40 million. The $5 million balance would not be
owed by the guarantor solely based on the guaranty, but must be sought
from some other source, for example, the responsible party directly,
the Oil Spill Liability Trust Fund, or any party (including the
guarantor) based on a separate contractual obligation other than the
guaranty. This principle of a dollar for dollar reduction of a
guarantor's liability is an important one. It not only fulfills the
statutory pronouncement in 33 U.S.C. 2716(g) (i.e., the guarantor's
liability is limited to the amount of the guaranty), but it also
permits the Coast Guard to carry out another purpose of the rule--to
provide a continuing market for guarantors, which is an underpinning of
the law's ``polluter-pays'' philosophy. Once the guaranty obligation is
satisfied, the guarantor has no further liability, on the basis of the
guaranty, with respect to that incident. The Coast Guard agrees that
this is a necessary element of the guaranty obligation and that it
should be stated explicitly in the guaranty forms to avoid any
potential for ambiguity. Accordingly, each guaranty form has been
amended to clearly reflect this principle.
A few commenters were concerned about the inflexibility of the
termination clause in each of the forms. Each provides for a 30-day
notice of termination before a guarantor is relieved of responsibility
under the guaranty for incidents, releases, or threatened releases
occurring after the 30-day period elapses. One commenter felt the 30-
day period should be shortened to 10 days. Others felt that, to
facilitate the provision of guaranties by United States oil companies
to vessels engaged in the spot charter market, there should be a
mechanism for terminating the guaranty in less than 30 days.
Under the international regime, the termination period in most
cases is 90 days. Under the Coast Guard's predecessor rules, the
termination period in many cases was 60 days. The Coast Guard, in the
interim rule, shortened this to 30 days. This 30-day period balances
the guarantors' desire to have a shorter period with the Coast Guard's
need to allow sufficient time to determine that a vessel for which a
termination notice has been issued is not operating in United States
waters without a financial responsibility guaranty.
At the time the issue of a 30-day notice for spot charters was
raised, prospective new insurance guarantors were still negotiating
with the P&I Clubs and had not been firmly established. Many cargo
owners, therefore, were contemplating either surety bond guaranties or
contingency plans under which they might serve as financial guarantors
for ships carrying their cargoes. These potential financial guarantors
naturally wanted to terminate their obligations as soon as possible
after delivery of their cargoes, thereby reducing the chance their
guaranties would apply to the vessels while working for new charterers.
That is, they did not want to take a chance that, for a few days, they
might serve as financial guarantors for vessels that would then be
carrying other cargo owners' cargoes. While the likelihood of that
happening is extremely remote, theoretically it could happen.
The emergence of the commercial insurance guarantors (and existence
of surety bond guarantors) has, for the most part, eliminated the
concern underlying this suggestion because vessel operators now can
purchase their own guaranties. Adoption of the suggestion also would
impose undue administrative burdens on the Coast Guard. Since the
original underlying concern (lack of commercial insurance guarantors)
does not exist, the Coast Guard has decided to leave the already
shortened 30-day termination notice intact.
One commentor expressed concern that the Coast Guard's definition
of an owner or operator, as expressed in the interim rule's guaranty
forms (e.g., ``vessel owners, operators, and demise charterers'' in the
insurance guaranty), conflicts with the statutory definition in 33
U.S.C. 2701(26) which refers to any person owning, operating, or
chartering by demise. The commenter requests that the Coast Guard amend
its rule by changing ``and'' to ``or'' in order to reduce the number of
separate operators covered by a guaranty.
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The Coast Guard has not adopted this suggestion. First, routinely,
there are at most only two persons responsible for a vessel: an owner
and an operator. Often the operator is a demise charterer, but it can
be some other type of contractor who is responsible for a vessel.
Second, and more importantly, even if three or more persons (e.g., an
owner and two or more operators) could be liable for a discharge or
substantial threat of a discharge of oil from a vessel, the guarantor
of that vessel would not a reliable for more than one limit of
liability. See 59 FR 34218. Third, the Coast Guard used the word
``and'' to implement Congress' imposition of joint and several
liability on the constituent elements of a responsible party. See
34218. The Coast Guard's use of the word ``and'' should not be
considered an attempt to define the identity of those constituent
elements with respect to any particular guaranty. That identity
necessarily is dependent on the facts of a specific case.
The Applicable Amount Table in Appendices B, C, D, E, and F are
being amended to conform with the Edible Oil Regulatory Reform Act
(Pub. L. 104-55).
Appendix D--Surety Bond Guaranty Form
The surety bond guaranty form has been amended to allow up to 10
guarantors to participate in a single surety bond guaranty. The reason
for this change is explained in the discussion under Sec. 138.80(b)(2).
One non-guarantor commenter stated that a surety's actual dollar
limit of liability should be required to be stated on each executed
surety bond guaranty form so that the maximum aggregate amount of
liability for which a guarantor may be liable under each form is
clearly stated on the face of each form. That request might have
relevance to a traditional ``finite pot of money'' bond, but not to the
regulatory creation of a ``surety bond guaranty.'' That request,
moreover, cannot be granted with respect to the prescribed surety bond
guaranty for two reasons: First, the potential (but unlikely) effect of
the prescribed form's reinstatement clause and, second, the form's
clause that, if necessary, automatically changes a stated penal sum
calculated on the basis of a vessel not carrying hazardous substances
as cargo to the correct higher penal sum calculated on the basis of a
vessel that is carrying hazardous substances as cargo. Nevertheless, if
a surety bond guarantor wished to execute a surety bond guaranty for a
single tank vessel, with a penal sum calculated on the basis of the
vessel also carrying hazardous substances as cargo, and if the
guarantor intended to provide 30-days notice of termination as soon as
an incident, release, or threatened release occurred, the guarantor
could be more than reasonably assured that the panel sum of the surety
bond guaranty would reflect the guarantor's maximum, theoretical
aggregate amount of liability. Even then, since the vessel likely would
be entered in a P&I Club, the guarantor would enjoy the probable shield
provided by the P&I Club coverage.
This commenter also recommended that the surety bond guaranty
terminate automatically upon a covered vessel's departure from United
States' waters, or that the termination period be reduced to 10 days.
This suggestion also has been made with respect to other guaranty
forms, and the reasons this recommendation has been rejected are stated
in the introductory paragraphs to the appendices.
Another non-guarantor commenter recommended that an
``interpleader'' provision be adopted whereby a surety bond guarantor
could deposit, with the National Pollution Funds Center (NPFC) or with
a court, the amount of the guaranty, so that the surety does not become
involved in multiple disputes. This is similar to the suggestion that
the regulation provide for ``concursus.'' Each guaranty appended to
this rule was designed to allow claimants to seek compensation directly
from the responsible party or guarantor, not the courts or the Coast
Guard. The intent is to remove the Government from the process as much
as possible. Accordingly, the Coast Guard has not adopted this
suggestion.
Another commenter suggested technical improvements to the surety
bond guaranty form and signature page options, which already have been
discussed and, on the whole, adopted.
Assessment
This rule is a significant regulatory action under section 3(f) of
Executive Order 12866 and has been reviewed by the Office of Management
and Budget under that order. It requires an assessment of potential
costs and benefits under section 6(a)(3) of that order. It is
significant under the regulatory policies and procedures of the
Department of Transportation (44 FR 11040; February 26, 1979). A final
regulatory impact analysis (discussed in 59 FR 34224; July 1, 1994) is
available from the National Pollution Funds Center or may be copied
where indicated under ``ADDRESSES.''
The changes to the interim rule are technical in nature and impose
no new requirements. This rule is promulgated under OPA 90 and CERCLA,
which require the ``establishment and maintenance'' of evidence of
financial responsibility for vessels. This rulemaking is intended to
implement that joint statutory mandate and, therefore, primarily is
limited to matters relating to ``establishment and maintenance'' of
financial responsibility, such as how to apply for a COFR and how to
establish evidence of financial responsibility.
This rule imposes no new paperwork burdens on vessel operators. The
methods for applying for a COFR and establishing evidence are similar
to those in the preexisting regulations under the Federal Water
Pollution Control Act (33 U.S.C. 1321) (FWPCA), the Trans-Alaska
Pipeline Authorization Act (42 U.S.C. 1653) (TAPAA), title III of the
Outer Continental Shelf Lands Act Amendments of 1978 (43 U.S.C. 1814)
(OCSLAA), and the Deepwater Port Act of 1974 (33 U.S.C. 1517) (DPA).
Vessel operators are required to complete and submit a prescribed
application form for a COFR and, if other than a self-insurer, a
prescribed form, completed by their guarantors, evidencing acceptable
financial responsibility. A similar requirement was imposed under
preexisting 33 CFR parts 130, 131, and 132, and subpart D of part 137.
This rule not only adopts these former application procedures but
actually reduces the paperwork burden by requiring that only one
application be submitted under OPA 90/CERCLA, rather than separate
applications under the FWPCA, TAPAA, and OCSLAA, which was the case.
Small Entities
This rule will have minimal direct economic impact on small
business. The rule retains procedures presently in effect and, through
consolidation, eliminates duplication of effort on the part of the
regulated industry. Therefore, the Coast Guard certifies under section
605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) that
this rule will not have a significant economic impact on a substantial
number of small entities.
Collection of Information
This rule contains collection-of-information requirements. The
Coast Guard has submitted these requirements to the Office of
Management and Budget (OMB) for review under section 3504(h) of the
Paperwork Reduction Act (44 U.S.C. 3501 et seq.), and OMB has approved
them. The information collection requirements under this rule continue
previous requirements. OMB Control Number 2115-0545 was assigned to 33
CFR parts 130, 131, 132,
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and 137. The collection-of-information requirements in these four parts
have been consolidated into part 138. Under this rule, the need to
apply for separate Certificates under separate laws is eliminated,
along with the associated paperwork. Because of the phase-in provisions
in this rule, the constantly decreasing information collection
requirements in 33 CFR part 130 remain in effect until December 27,
1997, when they will end entirely. The table in 33 CFR part 4 was
amended to show this approval number. Due to the removal of 33 CFR
parts 131, 132, and 137, the table in 33 CFR part 4 has been amended to
remove the approval number for these parts. Therefore, 33 CFR part 4
shows the approval number for 33 CFR parts 130 and 138.
Federalism
The Coast Guard has analyzed this rule under the principles and
criteria contained in Executive Order 12612. Section 1018 of OPA 90
specifically allows States to enact their own liability laws, and many
States have indeed established their own requirements. Therefore, the
Coast Guard has determined that this rule does not have sufficient
federalism implications to warrant the preparation of a Federalism
Assessment.
Environment
The Coast Guard considered the environmental impact of this rule
and concluded that, under section 2.B.2 of Commandant Instruction
M16475.1B, this rule is categorically excluded from further
environmental documentation. This rulemaking is administrative in
nature and has no environmental impact. This rule provides the
procedure by which a vessel operator establishes evidence of financial
responsibility.
A ``Categorical Exclusion Determination'' is available in the
docket for inspection or copying where indicated under ADDRESSES.
List of Subjects
33 CFR Part 4
Reporting and recordkeeping requirements.
33 CFR Part 130
Insurance, Maritime carriers, Reporting and recordkeeping
requirements, Water pollution control.
33 CFR Part 131
Alaska, Insurance, Maritime carriers, Oil pollution, Pipelines,
Reporting and recordkeeping requirements.
33 CFR Part 132
Continental shelf, Insurance, Maritime carriers, Oil pollution,
Reporting and recordkeeping requirements.
33 CFR Part 137
Claims, Harbors, Insurance, Oil pollution, Reporting and
recordkeeping requirements, Vessels.
33 CFR Part 138
Insurance, Maritime carriers, Reporting and recordkeeping
requirements, Water pollution control.
For the reasons set out in the preamble, the Coast Guard adopts, as
a final rule, the interim rule which was published at 59 FR 34210 on
July 1, 1994, and in addition, the Coast Guard is amending 33 CFR Parts
4, 130, 131, 132, 137 and 138 as follows:
Dated: February 29, 1996.
Robert E. Kramek,
Admiral, U.S. Coast Guard Commandant.
PART 4--OMB CONTROL NUMBERS ASSIGNED PURSUANT TO THE PAPERWORK
REDUCTION ACT
1. The authority citation for part 4 continues to read as follows:
Authority: 44 U.S.C. 3507; 49 CFR 1.45(a).
Sec. 4.02 [Amended]
2. In Sec. 4.02, remove the following entries from the table:
Part 131......................................................2115-0545
Part 132......................................................2115-0545
Part 137......................................................2115-0545
PART 131--[REMOVED]
3. Part 131 is removed.
PART 132--[REMOVED]
4. Part 132 is removed.
PART 137--[REMOVED]
5. Part 137 is removed.
PART 138--FINANCIAL RESPONSIBILITY FOR WATER POLLUTION (VESSELS)
6. The authority citation for part 138 continues to read as
follows:
Authority: 33 U.S.C. 2716; 42 U.S.C. 9608; sec. 7(b), E.O.
12580, 52 FR 2923, 3 CFR, 1987 Comp., p. 198; 49 CFR 1.46;
Sec. 138.30 also issued under the authority of 46 U.S.C. 2103; 46
U.S.C. 14302; 49 CFR 1.46.
Sec. 138.10 [Amended]
7. In Sec. 138.10(b), remove the word ``Senate'' and add, in its
place, the word ``Section''.
Sec. 138.12 [Amended]
8. In Sec. 138.12, in paragraph (c), remove the word ``For'' and
add, in its place, the words ``In addition to a non-self-propelled
barge over 300 gross tons that carries hazardous substances as cargo,
for''.
Sec. 138.20 [Amended]
9. In Sec. 138.20(b), at the end of definition for fuel, add the
new sentence ``A hand-carried pump with not more than five gallons of
fuel capacity, that is neither integral to nor regularly stored aboard
a non-self-propelled barge, is not equipment.''; in the definition for
operator, after the word ``scrapper,'' add the word ``lessor,''; and,
in the definition for tank vessel, after the word ``gross'', add the
word ``tons''.
10. In Sec. 138.80, in paragraph (b)(2), remove the word ``four''
and add, in its place, the number ``10''; in paragraph (b)(3)(i)
introductory text, remove the words ``with the associated notes,
certified'' and add, in their place, the words ``prepared in accordance
with Generally Accepted Accounting Principles, and audited''; in the
same paragraph, following the first sentence, add the sentence ``These
financial statements must be audited in accordance with Generally
Accepted Auditing Standards.''; in the same paragraph, remove the words
``certifying to'' and add, in their place, the word ``verifying''; in
paragraph (b)(3)(i)(B), remove the word ``certified'' and add, in its
place, the word ``verified''; in paragraph (c)(1) introductory text, in
the second sentence, remove the word ``Four'' and add, in its place,
the word ``Ten''; in paragraph (f)(1)(i) introductory text, after the
words ``tank vessel'', add the words ``(except a tank vessel on which
no liquid hazardous material in bulk is being carried as cargo or cargo
residue, and on which the only oil carried as cargo or cargo residue is
an animal fat or vegetable oil, as those terms are used in section 2 of
the Edible Oil Regulatory Reform Act (Pub. L. 104-55))''; and paragraph
(f)(1)(ii) is revised to read as follows:
Sec. 138.80 Financial Responsibility, how established.
* * * * *
(f) * * *
(1) * * *
(ii) For a vessel other than a tank vessel under paragraph
(f)(1)(i) of this section that is over 300 gross tons or that is 300
gross tons or less using the waters of the Exclusive Economic Zone of
the United States to transship or lighter oil destined for a place
subject to the jurisdiction of the United States, the
[[Page 9275]]
greater of $500,000 or $600 per gross ton.
* * * * *
Sec. 138.110 [Amended]
11. In Sec. 138.110, in paragraph (a), in the first sentence,
remove the words ``a scrapper'' and add, in their place, the words
``scrapper, lessor,''; in the same paragraph, in the second sentence,
after the word ``scrapping,'' add the word ``lease,''; in the same
paragraph, in the third sentence, after the word ``scrapping,'' add the
word ``leasing,''; and, in paragraph (c)(1), after the word
``scrapper,'' add the word ``lessor,''.
Appendices B, C, D, E, and F to Part 138 [Amended]
12. Appendices B, C, D, E, and F to part 138 are revised to read as
follows:
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[FR Doc. 96-5238 Filed 3-6-96; 8:45 am]
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