[Federal Register Volume 67, Number 29 (Tuesday, February 12, 2002)]
[Notices]
[Pages 6574-6575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3370]


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DEPARTMENT OF TRANSPORTATION

Maritime Administration

[Docket No: MARAD-2001-10903]


Commercial War Risk Hull and Protection and Indemnity Insurance 
on Title XI Mortgaged Vessels Operated Exclusively on the Inland Rivers 
and Intercoastal Waterways of the United States and on the Great Lakes

AGENCY: Maritime Administration, Transportation.

ACTION: Final policy review.

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FOR FURTHER INFORMATION CONTACT: Edmond J. Fitzgerald, U.S. Department 
of Transportation, Maritime Administration, Director, Office of 
Insurance and Shipping Analysis, Telephone (202) 366-2400, Room 8117, 
400 Seventh Street, SW., Washington, DC 20590.

SUMMARY: The Maritime Administration (MARAD) has for the time being 
determined that it will continue to follow its current long-standing 
policy that waives the Security Agreement requirement for commercial 
war risk hull and protection and indemnity insurance on Title XI 
mortgaged vessels which operate exclusively on the inland rivers and 
intercoastal waterways of the United States and on the Great Lakes. 
MARAD, however, retains the option to rescind or revise the current 
waiver policy and to impose the full war risk cover on all Title XI 
vessels in the future, if MARAD determines that circumstances warrant.

SUPPLEMENTARY INFORMATION: MARAD published a Notice in the Federal 
Register on October 30, 2001, (66 FR 54799) Docket No. MARAD 2001-
10903, with respect to the waivers of commercial war risk insurance 
granted operators of Title XI mortgaged vessels operated exclusively on 
the U.S. inland waters/Great Lakes, requesting comments by November 13, 
2001. The Notice stated that some experts were predicting a possible 
marine threat, either as a means or as a target or both, if another 
terrorist attack were to occur against the United States. In light of 
this and the September 11th events, the Notice stated that MARAD 
believed it should revisit the existing inland/Great Lakes war risk 
insurance waiver policy and request public comment on whether MARAD 
should change its current waiver policy. It was noted that MARAD has 
the authority to rescind or revise the existing waiver policy and to 
impose the full war risk cover on all Title XI vessels, if MARAD 
determines that it is now necessary.
    The Notice indicated that MARAD currently waives the Security 
Agreement requirement for commercial war risk hull and protection and 
indemnity insurance on Title XI mortgaged vessels, which are operated 
exclusively on the inland rivers and intercoastal waterways of the 
United States and on the Great Lakes. This policy was approved by the 
Assistant Secretary of Commerce for Maritime Affairs on June 30, 1971, 
and has remained in effect ever since. Most Title XI companies 
operating exclusively inland or on the Great Lakes have taken advantage 
of this waiver. MARAD estimates that approximately 20 companies with 
over 500 vessels (including a large number of inland barges) are not 
insured for war risk.
    The Notice stated that the standard war risk insurance policy 
covers a number of non-marine peril risks, including warlike 
operations, strikes, civil unrest and acts of terrorism. The Notice 
pointed out that the basic underlying assumption for the war risk 
waiver for inland water/Great Lakes was that the threat of attack 
within the continental 48 states or Great Lakes was very slight. The 
Notice stated that the events of September 11, 2001, called this basic 
assumption into question.
    The Notice concluded that as a consequence, MARAD may begin to 
require that some or all of the inland Title XI vessels have war risk 
cover, although MARAD may not require war risk cover for all inland 
Title XI vessels because significant groups or fleets of inland barges 
are widely dispersed on the inland waters at any point in time. The 
Notice stated that this wide distribution limits our inland/Great Lakes 
Title XI exposure; therefore, the risk of significant loss from any one 
event or target may be relatively small.
    Timely comments to the Notice of October 30, 2001, were received by 
November 13, 2001, from American Steamship Company; Lake Carriers' 
Association; and Canal Barge Company, Inc. By letter dated December 13, 
2001, Alter Barge Line, Inc. also submitted comments. All commenters 
were opposed to any change in MARAD's current waiver policy for 
commercial war risk insurance on Title XI mortgaged vessels operated on 
the inland waterways/Great Lakes. These comments are summarized below:

[[Page 6575]]

American Steamship Company (ASC)

    ASC recommends that the current waiver policy continue without any 
modification or changes. Although ASC recognizes that the events of 
September 11th would cause prudent underwriters to review policies, it 
believes there is no appreciable increase in the risk to Great Lakes 
shipping to warrant the cancellation or modification of the current 
waiver policy. Great Lakes vessels are relatively slower moving 
vessels, dispersed throughout the Great Lakes region, carrying 
relatively low value non-strategic cargoes such as iron ore and 
aggregate to U.S. and Canadian ports. ASC states that it has carefully 
considered the current risks to vessels operating on the Great Lakes, 
that there has been no significant change to these risks for the 
reasons cited above, and no change in the current waiver policy is 
necessary.

Lakes Carriers' Association (LCA)

    LCA represents 12 American corporations operating 56 U.S.-flag 
vessels exclusively on the Great Lakes. LCA urges MARAD to not require 
war risk insurance for U.S.-flag lakers with Title XI mortgages. LCA 
states that while the concept of war risk insurance is certainly valid 
for vessels that sail in harm's way, the Great Lakes are the sole 
jurisdiction of two great democracies, the United States and Canada, 
and are well protected by each nation's Coast Guard. With only one 
entrance from the oceans, the U.S. and Canadian Coast Guards can 
inspect all third-flag vessels, so no attacker disguised as a freighter 
could sneak about the Lakes.
    LCA states that the events of September 11th and the attack on the 
USS COLE have made us aware that the unthinkable is not always so 
unthinkable, but again, given that lakers carry dry-bulk cargoes, even 
a suicide attack from a small boat or airplane would not produce a 
catastrophic explosion and total loss of the vessel. According to LCA, 
the likelihood of a successful attack is slight, but the current 
economic plight of America's steel industry has extended to U.S.-flag 
operators on the Great Lakes. The industry is in a life and death 
struggle and cannot bear one unnecessary expense. LCA concludes its 
comments by urging MARAD to continue to waive the requirement for war 
risk insurance on U.S.-flag Title XI lakers.

Canal Barge Company, Inc. (Canal Barge)

    Canal Barge strongly requests that MARAD make no changes in its 
waiver policy for war risk insurance. Canal Barge states that the risks 
from non-marine perils such as terrorism or civil unrest remains slight 
today in view of the significantly increased law enforcement and 
security precautions that have been taken by federal, state, and local 
agencies and the maritime industry itself. The wide dispersion of 
barges and other Title XI mortgaged vessels on the inland/Great Lakes 
waterways limits the risk of significant loss from any one terrorist or 
similar event. Canal Barge believes that with little or no change in 
the risk facing Title XI mortgaged vessels on the inland/Great Lakes 
waterways, there is no demonstrated need to amend the current waiver 
policy for Title XI mortgaged vessels operated on the inland/Great 
Lakes waterways.

Alter Barge Line, Inc. (Alter Barge)

    Alter Barge strongly urges MARAD not to change its policy regarding 
war risk insurance. Alter Barge views are based on the following 
factors. First, as was discussed in the Federal Register, barges are 
widely dispersed. Alter Barges states that it rarely has more than five 
barges in the same location. Consequently, the loss from any specific 
terrorist act would not be significant to MARAD or Alter Barges. 
Second, Alter Barges believes that inland barges do not present an 
especially attractive target for terrorists. Such vessels are unmanned, 
relatively small and inexpensive and carry basic, low cost materials. 
Third, given the current state of the barge market, the imposition of 
an additional charge for high-cost, war risk insurance would be an 
unwanted and unnecessary expense. Lastly, the cost of insurance would 
erode the attractiveness of Title XI financing versus private financing 
which does not require this type of insurance.

Conclusion

    A possible marine threat, either as a means to carry out an attack 
or a target or both, is a realistic concern in planning for defense 
against terrorist activity. Recognizing this, there has definitely been 
a concerted effort to increase security precautions in the maritime 
area, particularly with respect to port security and inspection of 
foreign-flag vessels using U.S. ports with special emphasis on 
ascertaining the types of cargoes transported.
    Several commenters note that the dispersion of barges and other 
Title XI mortgaged vessels on the inland/Great Lakes waterways limits 
the risk of significant loss from one terrorist attack. Commenters also 
note that vessels operating on the inland/Great Lakes waters are not 
particularly rewarding targets considering the ships and low-valued 
bulk cargoes carried.
    Based on the comments received, the types of vessels and fleets of 
vessels involved in the Title XI programs on the Great Lakes and inland 
waters, and the security effort already undertaken, MARAD has 
determined that it will continue to follow the current long-standing 
policy that waives the Security Agreement requirement for commercial 
war risk hull and protection and indemnity insurance on Title XI 
mortgaged vessels which operate exclusively on the inland rivers and 
intercoastal waterways of the United States and the Great Lakes for the 
time being. MARAD, however, retains the option to rescind or revise the 
current waiver policy and to impose the full war risk cover on all 
Title XI vessels in the future, if MARAD determines that circumstances 
warrant.

    Dated: February 7, 2002.

    By Order of the Maritime Administrator.
Joel C. Richard,
Secretary, Maritime Administration.
[FR Doc. 02-3370 Filed 2-11-02; 8:45 am]
BILLING CODE 4910-81-P