[Federal Register Volume 67, Number 211 (Thursday, October 31, 2002)]
[Proposed Rules]
[Pages 66352-66376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27642]


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FEDERAL MARITIME COMMISSION

46 CFR Part 540

[Docket No. 02-15]


Passenger Vessel Financial Responsibility

AGENCY: Federal Maritime Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Maritime Commission proposes to amend its rules 
regarding the establishment of passenger vessel financial 
responsibility under sections 2 (Casualty) and 3 (Performance) of Pub. 
L. 89-777. The amendments would: eliminate the current ceiling on 
required Performance coverage; adjust the amount of coverage required 
by providing for consideration of the obligations of credit card 
issuers; provide for the use of Alternative Dispute Resolution 
(``ADR''), including the Commission's ADR program, in resolving 
passenger performance claims; revise the application form; and make a 
number of technical adjustments to the Performance and Casualty rules.

DATES: Submit an original and 15 copies of comments (paper), or e-mail 
comments as an attachment in WordPerfect 8, Microsoft Word 97, or 
earlier versions of these applications, no later than January 8, 2003. 
As the Commission continues to experience some difficulty with mail 
delivery, commenters are encouraged to use e-mail, courier or express 
delivery services.

ADDRESSES: Address all comments concerning this proposed rule to: 
Bryant L. VanBrakle, Secretary, Federal Maritime Commission, 800 North 
Capitol Street, NW., Room 1046, Washington, DC 20573-0001. E-mail: 
[email protected].

FOR FURTHER INFORMATION CONTACT:
Sandra L. Kusumoto, Director, Bureau of Consumer Complaints and 
Licensing; 202-523-5787; E-mail: [email protected]; or
Ronald D. Murphy, Commission Dispute Resolution Specialist and Deputy 
Director, Bureau of Consumer Complaints and Licensing; 202-523-5787; E-
mail: [email protected]; or
David R. Miles, Acting General Counsel, 202-523-5740; E-mail: 
[email protected]; Federal Maritime Commission, 800 North Capitol Street, 
NW., Washington, DC 20573-0001.

SUPPLEMENTARY INFORMATION: Section 3 of Public Law 89-777 (``section 
3'') \1\, 46 U.S.C. app. 817e, requires passenger vessel operators 
(``PVOs'') \2\ to establish their financial responsibility to indemnify 
passengers for nonperformance of transportation. Section 2 of Public 
Law 89-777 (``section 2''), 46 U.S.C. app. 817d, requires owners and 
charterers of vessels with berth or stateroom accommodations for fifty 
or more passengers, and embarking passengers at U.S. ports, to 
establish financial responsibility to meet liability for death or 
injury to passengers or other persons on voyages to and from U.S. 
ports.
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    \1\ Section 3 provides, in pertinent part:
    (a) No person in the United States shall arrange, offer, 
advertise, or provide passage on a vessel having berth or stateroom 
accommodations for fifty or more passengers and which is to embark 
passengers at United States ports without there first having been 
filed with the Federal Maritime Commission such information as the 
Commission may deem necessary to establish the financial 
responsibility of the person arranging, offering, advertising, or 
providing such transportation, or, in lieu thereof, a copy of a bond 
or other security, in such form as the Commission, by rule or 
regulation, may require and accept, for indemnification of 
passengers for nonperformance of the transportation.
    \2\ For the purposes of section 3, a PVO is considered to be any 
person in the United States that arranges, offers, advertises or 
provides passage on a vessel having berth or stateroom 
accommodations for fifty or more passengers and which embarks 
passengers at U.S. ports.
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    Effective August 5, 2002, the Commission amended its section 3 
implementing regulations at 46 CFR part 540, subpart A, to eliminate 
self-insurance as a means of evidencing financial responsibility, to 
limit those entities acceptable as a guarantor, and to eliminate 
certain sliding scale provisions as to the amount of coverage required, 
67 FR 44774 (July 5, 2002). A number of comments received in that 
rulemaking proceeding addressed concerns outside the scope of the 
proceeding. In particular, several commenters suggested that the 
current $15 million ceiling on the amount of the unearned passenger 
revenue (``UPR'') \3\ required to be covered be substantially raised or 
eliminated completely. Some who advocated lifting the ceiling were 
concerned about an apparent competitive advantage to larger vessel 
operators required to cover only a fraction of their total UPR, while 
smaller operators with less than $15 million UPR must cover all of 
their UPR. One of the larger operators suggested that coverage 
requirements adjust upwards as UPR increases, in order to remedy the 
increasing shortfall in coverage as the larger fleets continue to 
increase in size. Partially in response to those comments, and in light 
of industry circumstances more fully described herein, the Commission 
has reviewed its rules and has determined that a number of changes 
should be made, including eliminating the ceiling.
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    \3\ As currently defined, UPR means ``passenger revenue received 
for water transportation and all other accommodations, services, and 
facilities relating thereto not yet performed.'' 46 CFR 540.2(i).
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    The Commission also proposes minor amendments to its section 2 
implementing regulations for casualty coverage, 46 CFR part 540, 
subpart B. Those changes would eliminate references to escrow 
agreements and make other technical changes.

State of the Industry

    The current $15 million ceiling set forth at 46 CFR 540.9(j) has 
been in existence since 1991, when it was raised from $10 million.\4\ 
In 1994, the Commission proposed to remove the $15 million ceiling, but 
following receipt of comments, the Commission opted to revise its 
proposal by imposing a sliding scale requirement that would increase 
the amount of coverage required for those cruise lines exceeding $15 
million in unearned passenger revenues, without requiring coverage of 
the total amount of UPR. Docket No. 94-06, Financial Responsibility 
Requirements for Nonperformance of Transportation; Proposed Rule, 59 FR 
15149 (March 31, 1994); Further Proposed Rule, 61 FR 33059 (June 26, 
1996). That proceeding was discontinued earlier this year, without 
producing changes to the ceiling. Id., Proceeding Discontinued, 67 FR 
19535 (April 22, 2002).
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    \4\ The UPR coverage ceiling initially was set in 1967 at $5 
million (Docket No. 66-67, Final Rule, 67 FR 2723 (March 10, 1967)), 
rose in 1981 to $10 million (Docket No. 79-93, 45 FR 234328, (April 
1, 1980)), and rose again in 1990 to $15 million (Docket No. 90-1, 
Final Rule, 55 FR 34564 (August 23, 1990); Correction, 55 FR 35983 
(September 4, 1990)).
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    Part of the reason the Commission stepped back from its prior 
efforts to require total coverage protection was the

[[Page 66353]]

experience under the Commission's program at that time. The Commission 
was not aware of any instance in which passengers had lost funds as a 
result of cruise line bankruptcies or other failures to perform, and 
the economy and the cruise industry were thriving. The risk of 
nonperformance appeared minimal.
    The past two years have seen a dramatic shift in that scenario. 
Since September 2000, five cruise lines that participated in the 
Commission's program have ceased operations: Premier Cruise Operations 
Ltd. (``Premier''), New Commodore Cruise Lines Limited (``Commodore''), 
Cape Canaveral Cruise Lines, Inc. (``Cape Canaveral''), MP Ferrymar, 
Inc. and American Classic Voyages Company (``AMCV''). In addition, the 
Commission is aware of at least two other cruise lines that ceased 
operating. Even though they sold almost all passages to U.S. citizens 
within the United States, Renaissance Cruises, Inc. (``Renaissance'') 
and Great Lakes Cruises, Inc.\5\ did not participate in the 
Commission's program because they embarked passengers only from ports 
outside of the U.S. Of those cruise lines, Premier and Renaissance are 
in the process of being liquidated through bankruptcy proceedings in 
other countries, Commodore and AMCV filed for reorganization under the 
U.S. bankruptcy laws, and the remaining lines ceased operations without 
filing for bankruptcy. Financial coverage under the Commission's 
program was necessary to meet passenger claims for Premier, Commodore, 
and, to a small extent, Cape Canaveral.
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    \5\ Great Lakes Cruises, Inc. operated the vessel MTS ARCADIA 
and is not to be confused with the Great Lakes Cruise Company that 
markets the vessels COLUMBUS and LE LEVANT.
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    AMCV had evidenced its financial responsibility by means of self-
insurance and thus, most of its passengers received no reimbursement 
other than through credit cards. Self-insurance is a coverage option 
that no longer is permitted. See Docket No. 02-07, Financial 
Responsibility Requirements for Nonperformance of Transportation--
Discontinuance of Self-Insurance and the Sliding Scale, and Guarantor 
Limitations, 67 FR 44774 (July 5, 2002). Despite Commodore having a 
surety bond that covered its total UPR at the time it ceased 
operations, many of its passengers have yet to be reimbursed almost two 
years later. Premier's $15 million surety bond did not cover the entire 
amount of its UPR, estimated to have been approximately $22 million. 
Only by reliance on the obligation of credit card issuers to reimburse 
those passengers who had charged their purchases will Premier's surety 
bond be sufficient to satisfy all passenger claims.
    The bankruptcies we have seen are symptomatic of the economic 
circumstances of the past few years and the decline in tourism after 
the events of September 11, 2001. The environment has changed 
significantly from that of 1996 when the Commission decided to hold in 
abeyance its efforts to require coverage for all UPR. The industry 
continues to consolidate. Large industry conglomerates own a number of 
cruise lines.\6\ Carnival Corporation and Royal Caribbean Cruises 
Limited each are attempting to purchase P&O Princess Cruises Plc., 
which operates P&O Cruises and Princess Cruises. The size and number of 
vessels continue to increase, thus raising capacity. Recent reports 
indicate that six new vessels are anticipated to be launched in the 
remainder of 2002, another thirteen vessels in 2003, and still another 
seven in 2004.\7\ Most of those vessels will have a capacity 
significantly exceeding 2,000 passengers, and three will have a 
capacity of 3,000 passengers or more.
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    \6\ Carnival Corporation now owns Carnival Cruises, Holland 
America Line, Windstar Cruises, Cunard Line, Seabourn Cruise Line, 
and Costa Cruises. Royal Caribbean Cruises Limited owns Celebrity 
Cruises and Royal Caribbean International. Star Cruises Plc. owns 
Star Cruises, Norwegian Cruise Line, and Orient Lines.
    \7\ www.cruise-news.com/coming.html, ``Coming Attractions--Index 
of Future Liners Now Under Construction,'' August 28, 2002.
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    Another indicator of concern is the number of complaints received 
by the Commission. For much of the history of the Commission's 
administration of Pub. L. 89-777, the agency received few complaints 
from passengers. In recent years, however, the Commission has been 
receiving several hundred complaints per year. In addition, the 
Commission now receives an ever-increasing number of inquiries from 
members of Congress about problems experienced by their constituents.

The $15 Million Ceiling

    The Commission has examined its current $15 million ceiling in 
light of the above-described circumstances. Since 1967, when the 
ceiling was set at $5 million, the consumer price index has increased 
more than five-fold. Simply keeping pace with that index would indicate 
a ceiling of over $25 million. Yet the cruise industry itself and the 
amount of UPR outstanding at any one time has increased to a much 
greater degree. A coverage requirement capped at $25 million would be 
wholly inadequate for some cruise lines whose fleets consistently have 
outstanding UPR in the hundreds of millions of dollars. In addition, 
smaller operators may be at a competitive disadvantage vis-[agrave]-vis 
larger operators by having to cover all of their outstanding UPR, a 
requirement that is not imposed on larger operators under the present 
rule.
    Finally, recent experience has demonstrated that increased coverage 
requirements must be put in place before a PVO begins to experience 
financial difficulty. Once a PVO is in financial peril, any Commission 
action to increase coverage requirements could increase the risk of 
nonperformance to passengers.
    For all of these reasons, the Commission proposes to eliminate the 
ceiling on coverage requirements, and to require coverage based on the 
total amount of UPR for all PVOs. However, the Commission recognizes 
this could be costly to many in the industry. Accordingly, it is 
proposed that coverage of all passenger funds for voyages not yet 
performed be achieved in part by relying on the obligations of credit 
card issuers under the Fair Credit Billing Act (``FCBA''), 15 U.S.C. 
1666-1666j, thus reducing the amount of coverage that must be filed 
with the Commission. This combination of credit card responsibilities 
and the coverage filed with the Commission would protect all UPR within 
the scope of section 3. Section 540.5 of the rules would be modified to 
implement this new approach, and will utilize a newly defined term, 
``excepted passenger revenue,'' as defined in proposed section 
540.3(i)(2), which is described below. UPR would be redefined to 
exclude excepted passenger revenue (``EPR'').

Excepted Passenger Revenue

    The Commission is mindful of the tremendous cost and difficulty 
that may be faced by some PVOs in covering all UPR (as currently 
defined), and therefore proposes to exclude revenue received from 
credit card charges made within 60 days of sailing from the computation 
of UPR. Reliance on the current statutory obligations of credit card 
issuers to provide protections to their cardholders would substantially 
reduce coverage requirements for almost all PVOs, while not diminishing 
passenger protection. Performance bonds, guaranties, and escrow 
accounts established under the Commission's program will protect 
passengers not otherwise protected by their credit card issuers. The 
purpose of these bonds, guaranties, and escrow accounts is to provide 
passenger protection. They do not represent an asset of the cruise 
line, but a separate asset available to reimburse passengers.

[[Page 66354]]

    The proposal to exclude certain credit card charges from the 
computation of UPR is based upon construing Pub. L. 89-777 in a manner 
consistent with the FCBA. The FCBA requires credit card issuers to 
refund money for ``billing errors'' when a purchaser notifies the 
credit card issuer of the billing error in writing within 60 days after 
the credit card issuer transmits a statement containing the billing 
error. The term ``billing error'' is defined in such a way as to 
include ``goods or services * * * not delivered to the obligor or his 
designee in accordance with the agreement made at the time of a 
transaction.'' 15 U.S.C. 1666(b)(3). The nonperformance of a cruise 
appears to fit within this statutory definition of a failure to provide 
goods or services as agreed.
    The FCBA was enacted after the passage of Pub. L. 89-777. There is 
a general presumption in the law that a subsequent statute and a prior 
statute should be construed in a reasonable manner that ``makes 
sense.'' See, e.g., United States v. Fausto, 484 U.S. 439, 453 (1988) 
(``reconciling many laws enacted over time, and getting them to ``make 
sense'' in combination, necessarily assumes that the implications of a 
statute may be altered by the implications of a later statute.''). In 
Pub. L. 89-777, Congress intended to protect passengers from 
nonperformance of transportation by requiring the Commission to ensure 
that PVOs are able to reimburse passengers if voyages are not 
performed. In the FCBA, Congress intended to provide protection for 
consumers from a failure in the delivery of goods or services within 60 
days of the transmission of a bill. Both Pub. L. 89-777 and the FCBA 
are consumer protection statutes, and should be construed so as to 
maximize the protections available to consumers. Our proposed rule is 
premised on the notion that the best way to understand the relationship 
between the two complementary and overlapping statutes is for the 
Commission to require PVOs to provide proof of adequate financial 
responsibility for tickets that are purchased by credit card more than 
sixty days before a passenger is scheduled to embark, and for tickets 
that are purchased at any time by other means not covered by the FCBA. 
Passengers will be covered adequately by the FCBA for tickets purchased 
with a credit card less than 60 days before a cruise takes place, and 
will have an obligation to inform their credit card issuer in writing 
in the event of nonperformance of a cruise. It will be incumbent on 
affected passengers to comply with time or other requirements to obtain 
compensation from their credit card issuer.
    Based on this analysis, it also would appear that requiring PVOs to 
provide coverage for UPR from tickets purchased by credit card within 
60 days of embarkation, given the existence of the FCBA, would be 
redundant and would impose a needless financial burden. Therefore, 
pursuant to its statutory authority to determine what is ``necessary to 
establish the financial responsibility of'' PVOs, 46 U.S.C. app. 
817e(a), the Commission proposes that passenger revenues received 
within 60 days of embarkation and paid for by a credit card that is 
subject to the FCBA be excluded from the calculation of UPR. This 
proposal is located in the ``definitions'' section of the rule, in such 
a way that UPR will be defined as passenger revenues received except 
for revenues received by credit card for a voyage to take place within 
60 days.\8\
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    \8\ This proposed rule does not create any right of subrogation 
to the UPR covered by the Commission's program by credit card 
issuers that have reimbursed passengers for transactions involving 
excepted passenger revenue. Whatever means credit card issuers use 
to cover risks posed by excepted passenger revenue or the FCBA is 
beyond the scope of this proceeding.
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    The proposed rule, however, would not permit a PVO to rely 
exclusively on excepted passenger revenue and thereby avoid supplying 
any evidence of financial responsibility. All PVOs would be required to 
provide, as a minimum, an amount of financial responsibility equal to 
ten percent of the sum of the highest amount of UPR plus EPR within the 
two years immediately preceding the filing of the application. This 
amount would be in addition to the amount required to cover UPR.

Technical Changes

    A number of technical changes that are expected to have little, if 
any, impact also are proposed. They include the elimination of 
references to insurance as a means of performance coverage and escrow 
accounts as a means of casualty coverage. Insurance has never been used 
by any PVO to provide performance coverage, and it appears in any event 
to be inappropriate as a device for providing such coverage. Similarly, 
escrow accounts are designed to provide coverage for performance, and 
not casualty.
    The Commission's rules formally require the filing of an 
application with the Secretary of the Commission in order to obtain a 
performance or casualty certificate. In practice, however, applications 
have always been filed with the appropriate operating bureau. 
Accordingly, the proposed rule reflects this by requiring the filing of 
documents with the Bureau of Consumer Complaints and Licensing. The 
proposed rule also would effect changes with respect to the filing of 
information. Prior requirements to file certain information by 
certified or registered mail would be replaced with a requirement that 
service in certain situations be by certified mail or other methods 
that would provide actual notice. This change would make the 
requirements consistent with the Commission's requirements in 46 CFR 
part 515, concerning Ocean Transportation Intermediaries.
    Section 540.1 (b) would be modified to emphasize that failure to 
comply with subpart A may result not only in denial of an application, 
but also revocation of an existing certificate. The rule's language 
would be changed slightly to make it consistent with the statutory 
language. A similar provision applicable to subpart B would also be 
added to section 540.20.
    Section 540.2 would be modified by deleting definitions of 
``Insurer'' and ``Evidence of Insurance,'' for the reasons explained 
above. In addition, the definition of ``whole-ship'' charter would be 
expanded to include ``partial-ship'' charters. A definition for the 
term ``Principal(s)'' would be added. Previously, provisions of subpart 
A imposed requirements on ``Owners or Charterer(s).'' However, section 
3 of Pub. L. 89-777 imposes performance certificate requirements on 
``any person'' performing a number of functions. The Commission always 
has insisted on the coverage being in the name of the ticket or passage 
contract issuer at a minimum, even though that entity may not be the 
same as an owner or charterer. Accordingly, the term ``Principal'' will 
refer to all entities deemed necessary to be covered.

Reporting Requirements

    The Commission proposes to create new sections 540.8 and 540.26, 
consolidating reporting requirements for each subpart within a single 
section. Previously, reporting requirements have been interspersed 
within various sections. It is hoped that this consolidation will make 
it easier for affected entities to understand and comply with reporting 
requirements. This restructuring of the rules requires renumbering of 
all sections that follow the new sections in each subpart.
    Two other changes have been made with respect to reporting 
requirements. First, the description of a material change required to 
be reported within five days would be expanded to include

[[Page 66355]]

a change in Principal for performance coverage and owner or charterer 
for casualty coverage. Second, in order for the Commission to have 
better information on the adequacy of coverage, the frequency of 
reporting requirements has been increased from semiannually to 
quarterly in sections 540.8 and 540.26.
    Renumbered sections 540.9 and 540.27 have been reworded for 
clarification purposes. In addition, a new subsection (d) has been 
added to each section that would provide for automatic suspension or 
revocation of a certificate upon ten days' notice, for failure to 
comply in a timely manner with reporting requirements. On occasion, the 
Commission has experienced significant delays in obtaining information 
from some certificants. In such circumstances, it is hoped that this 
change will be more effective in obtaining required reports than the 
threat of Commission enforcement action.

Resolution of Passenger Claims in the Event of Nonperformance

    In order to encourage PVOs to settle claims for nonperformance and 
to provide protection to passengers who are otherwise unable to obtain 
relief, the proposed rule would allow passengers to seek arbitration 
through a private arbitrator or the Commission's Alternative Dispute 
Resolution (``ADR'') program, 46 CFR part 502, subpart U, if after six 
months their section 3 claims have not been settled by the PVO. In 
addition, passengers may utilize other means of ADR at any time. The 
Commission would offer ADR services in such cases since its ADR program 
is designed to resolve issues which are ``material to a decision 
concerning a program of the Commission and with which there is a 
disagreement, between,'' inter alia, ``the persons who would be 
substantially affected by the decision.'' 46 CFR 502.402(f).
    ADR provides a variety of means to resolve disputes, some more 
formal than others. Arbitration, the most formal of the choices, may be 
used when all parties consent. 46 CFR 502.406(a)(1). ``Consent may be 
obtained either before or after an issue in controversy has arisen.'' 
Id. Arbitration awards are binding. ``It is an adjudicatory process, 
the scope of which in a particular controversy is defined in an 
arbitration agreement. Awards in such proceedings are enforceable in 
federal District Court pursuant to title 9 of the U.S. Code.'' Notice 
of Proposed Rulemaking, 46 CFR part 502, 66 FR 27922 (May 21, 2001).
    The Commission generally would prefer that parties utilize other, 
less formal means than arbitration. They include conciliation, 
facilitation, mediation, fact-finding, and the use of ombudsmen.\9\ 46 
CFR 502.402(a). These proceedings are not inherently binding; even 
though the parties may agree to be bound by a determination in one of 
these proceedings. Participation in any of these processes is also 
voluntary. 46 CFR 502.403(c).
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    \9\ These procedures were more thoroughly explained in the 
Notice of Proposed Rulemaking, 66 FR 27922 (May 21, 2001), for the 
ADR rule as follows:
    (1) Mediation ``is a process in which a mediator facilitates 
communication and negotiation between or among parties to a 
controversy and assists them in reaching a mutually acceptable 
resolution of the controversy * * *. [T]he key aspect of [mediation] 
is that the parties control the terms of any agreement to resolve 
the dispute.''
    (2) ``Conciliation is similar [to mediation], but is relatively 
informal and unstructured.''
    (3) Facilitation ``is a group process that is usually goal-
oriented.''
    (4) Fact-finding ``involves the use of a neutral third party to 
investigate and determine a disputed fact. It is usually used for 
technical issues or significant factual issues which are part of a 
larger dispute. Sometimes, fact-finding is used in conjunction with 
mediation to resolve a fact which may be important to resolution of 
the controversy.''
    (5) The use of ombuds ``involves the use of an employee or 
organization component to whom complaints or problems can be brought 
with the hopes of quick, informal resolution.''
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    Most passenger claims presumably would be resolved through 
mediation or the Commission's ombuds services, with arbitration 
reserved for those instances where an agreement resolving the dispute 
cannot be reached between the parties. Should passengers seek to 
utilize the Commission's ADR services, the Commission's Dispute 
Resolution Specialist, 46 CFR 501.5(h)(1), will determine the means 
most useful for each situation, but arbitration would be available only 
with respect to claims not paid within six months.
    The proposed rule would effectuate the availability of ADR by 
adding provisions consenting to arbitration to the bond, guaranty, and 
escrow agreement forms in the rule. See 46 CFR part 540, subpart A. As 
proof of financial responsibility PVOs must present to the Commission a 
bond, guaranty, or escrow agreement.\10\ This mechanism to ensure 
financial responsibility is set in place to protect and reimburse 
passengers in the event that the PVO does not perform the voyage for 
which the passenger paid.
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    \10\ Self-insurance was eliminated in Docket No. 02-07, 
Financial Responsibility Requirements for Nonperformance of 
Transportation--Discontinuance of Self-Insurance and the Sliding 
Scale, and Guarantor Limitations, 67 FR 44774 (July 5, 2002). 
Insurance would be eliminated by this proposed rule.
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    The language of Pub. L. 89-777 stipulates that PVOs must supply ``a 
copy of a bond or other security, in such form as the Commission, by 
rule or regulation, may require and accept, for indemnification of 
passengers for nonperformance.'' 46 U.S.C. app. 817e(a). Currently the 
guaranty and escrow agreement forms contain language requiring the 
financial responsibility provider to make indemnification payments to 
the aggrieved passenger if, within 21 days after such passenger has 
obtained a ``final judgment (after appeal, if any) against [the PVO] 
from a United States Federal or State Court of competent 
jurisdiction,''\11\ the PVO has not paid the claim. However, obtaining 
such a court judgment is time-consuming and can cost more than the 
monetary value of the underlying claim. Therefore, the proposed rule 
would require that payment will also be due if the passenger has 
received an arbitration award through a private arbitrator or the 
Commission's ADR program. Moreover, consent to such a proceeding would 
be provided as part of the PVO's proof of financial responsibility. 
Thus, if a passenger elects to initiate a request for resolution of its 
claim, the PVO would be obligated to participate. Passengers who elect 
to use the Commission's services may request such action directly from 
the Commission's Dispute Resolution Specialist, who may appoint a third 
party neutral. Although the third party neutral may be a Commission 
employee, it is very likely that a neutral from the private sector 
would be appointed. In such case, fees and expenses would be borne by 
the parties as they agree, in accordance with 46 CFR 502.404(d).
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    \11\ This language, and any new language added in this 
rulemaking, will also be added to the bond form so that all forms of 
financial responsibility would be consistent.
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    The proposed rule would enact this requirement by adding a new 
section 540.10(f). In addition, in the bond (Form FMC-132A) and 
guaranty (Form-133A) forms and sample escrow agreement in Appendix A, 
language would be added to obligate the financial responsibility 
provider to honor arbitration awards, and to provide for consent by the 
passenger vessel operator to the use of arbitration under the 
Commission's ADR program.

Forms

    The Commission's application form would be revised by the proposed 
rule to comport more closely with the information needed in an 
application. Although our rules require submission of the application 
form, the current version is not very useful to filers or staff 
reviewing the filing. The new

[[Page 66356]]

application form would be shorter, but include a separate Vessel 
Schedule (Form FMC-131-VS) for each vessel.
    The Commission would add a new form to subpart B, Form FMC-140, 
Uniform Endorsement. Such a Uniform Endorsement has been in use for a 
number of years to protect passengers from the application of high 
deductibles and exclusions that may otherwise exist in insurance 
policies.

Other Matters

    To thoroughly evaluate the impact of this proposed rule, the 
Commission encourages those commenting to provide cost data reflecting 
any changes in cost, whether an increase or decrease, to those 
affected. Any such cost data will be provided confidential treatment to 
the full extent allowable by law.
    The reporting requirements in sections 540.8 and 540.26 and the 
revised application form FMC-131 with accompanying vessel schedules 
(Form FMC-131-VS) are being submitted to the Office of Management and 
Budget for review under the Paperwork Reduction Act, 44 U.S.C. 3501 et 
seq. Public burden of this collection of information for 42 respondents 
is estimated to be 684 hours annually (180 hours for Forms FMC-131 and 
131-VS and 504 hours for sections 540.8 and 540.26). Send comments 
regarding the burden estimate to the Office of Information and 
Regulatory Affairs, Office of Management and Budget, Attention Desk 
Officer for the Federal Maritime Commission, New Executive Office 
Building, 725 17th Street, NW., Washington, DC 20503 within 30 days of 
publication of this Notice of Proposed Rulemaking in the Federal 
Register.
    The Chairman certifies, pursuant to 5 U.S.C. 605, that the proposed 
rule would not have a significant impact on a substantial number of 
small entities.

List of Subjects in 46 CFR part 540

    Insurance, Maritime carriers, Penalties, Reporting and record 
keeping requirements, Surety bonds, Transportation.

    Therefore, pursuant to 5 U.S.C. 553; section 3 Pub. L. 89-777, 80 
Stat. 1356-1358 (46 U.S.C. app. 817e); and section 17(a) of the 
Shipping Act of 1984, as amended (46 U.S.C. app. 1716(a)), and for the 
reasons stated above, the Federal Maritime Commission proposes to amend 
46 CFR part 540 to read as follows:

PART 540--PASSENGER VESSEL FINANCIAL RESPONSIBILITY

Subpart A--Proof of Financial Responsibility, Bonding and Certification 
of Financial Responsibility for Indemnification of Passengers for 
Nonperformance of Transportation
Sec.
540.1 Scope.
540.2 Definitions.
540.3 Proof of financial responsibility, when required.
540.4 Procedure for establishing financial responsibility.
540.5 Guaranties and escrow accounts.
540.6 Surety bonds.
540.7 Evidence of financial responsibility.
540.8 Reporting requirements.
540.9 Denial, revocation, suspension, or modification.
540.10 Miscellaneous.
Form FMC-131
Form FMC-132A
Form FMC-133A
Appendix A--Example of Escrow Agreement for use under 46 CFR 
540.5(b)
Subpart B--Proof of Financial Responsibility, Bonding and Certification 
of Financial Responsibility To Meet Liability Incurred for Death or 
Injury to Passengers or Other Persons on Voyages
540.20 Scope.
540.21 Definitions.
540.22 Proof of financial responsibility, when required.
540.23 Procedure for establishing financial responsibility.
540.24 Insurance, surety bonds, self-insurance, and guaranties.
540.25 Evidence of financial responsibility.
560.26 Reporting requirements.
540.27 Denial, revocation, suspension, or modification.
540.28 Miscellaneous.
Form FMC-132B
Form FMC-133B
Form FMC-140

    Authority: 5 U.S.C. 552, 553; 31 U.S.C. 9701; secs. 2 and 3, 
Pub. L. 89-777, 80 Stat. 1356--1358, 46 U.S.C. app. 817e, 817d; 46 
U.S.C. 1716.

Subpart A--Proof of Financial Responsibility, Bonding and 
Certification of Financial Responsibility for Indemnification of 
Passengers for Nonperformance of Transportation


Sec.  540.1  Scope.

    (a) The regulations contained in this subpart set forth the 
procedures whereby persons in the United States who arrange, offer, 
advertise or provide passage on a vessel having berth or stateroom 
accommodations for 50 or more passengers and embarking passengers at 
U.S. ports shall establish their financial responsibility or, in lieu 
thereof, file a bond or other security for obligations under the terms 
of ticket contracts to indemnify passengers for nonperformance of 
transportation to which they would be entitled. Included also are the 
qualifications required by the Commission for issuance of a Certificate 
(Performance) and the basis for the denial, revocation, modification, 
or suspension of such Certificates.
    (b) Failure to comply with this subpart may result in denial of an 
application for a certificate or revocation of an existing certificate. 
Vessels operating without the proper certificate may be denied 
clearance. In addition, any person who shall violate this part shall be 
subject to a civil penalty of not more than $6,000 in addition to a 
civil penalty of $220 for each passage sold, such penalties to be 
assessed by the Federal Maritime Commission (46 U.S.C. app. 91, 817e).


Sec.  540.2  Definitions.

    As used in this subpart, the following terms shall have the 
following meanings:
    (a) Person includes individuals, corporations, partnerships, 
associations, and other legal entities existing under or authorized by 
the laws of the United States or any State thereof or the District of 
Columbia, the Commonwealth of Puerto Rico, the Virgin Islands or any 
territory or possession of the United States, or the laws of any 
foreign country.
    (b) Vessel means any commercial vessel having berth or stateroom 
accommodations for 50 or more passengers and embarking passengers at 
U.S. ports.
    (c) Commission means the Federal Maritime Commission.
    (d) United States includes the Commonwealth of Puerto Rico, the 
Virgin Islands or any territory or possession of the United States.
    (e) Berth or stateroom accommodation or passenger accommodations 
includes all temporary and all permanent passenger sleeping facilities.
    (f) Certificate (Performance) means a Certificate of Financial 
Responsibility for Indemnification of Passengers for Nonperformance of 
Transportation issued pursuant to this subpart.
    (g) Passenger means any person who is to embark on a vessel at any 
U.S. port and who has paid any amount for a ticket contract entitling 
him to water transportation.
    (h) Passenger revenue means those monies wherever paid by 
passengers who are to embark at any U.S. port for water transportation 
and all other accommodations, services and facilities relating thereto.
    (i) (1) Unearned passenger revenue means that passenger revenue 
received for water transportation and all other

[[Page 66357]]

accommodations, services, and facilities relating thereto not yet 
performed, but does not include excepted passenger revenue.
    (2) Excepted passenger revenue means that passenger revenue 
received for transportation and all other accommodations, services, and 
facilities relating thereto not yet performed, when payment is tendered 
by the passenger within 60 days of the date the passenger is scheduled 
to embark through the use of a credit card that is subject to the 
provisions governing the correction of billing errors at 15 U.S.C. 
1666. An extension of credit by the person arranging, offering, 
advertising or providing passage shall not be considered excepted 
passenger revenue.
    (j) Whole-ship or partial-ship charter means an arrangement between 
a passenger vessel operator and a corporate or institutional entity:
    (i) Which provides for the purchase of all, or a significant part 
of, the passenger accommodations on a vessel for a particular voyage or 
series of voyages; and
    (ii) Whereby the involved corporate or institutional entity 
provides such accommodations to the ultimate passengers free of charge 
and such accommodations are not resold to the public.
    (k) Principal(s) include the ticket or passage contract issuer(s) 
and all other persons arranging, offering, advertising, or providing 
passage on a vessel subject to this subpart.


Sec.  540.3  Proof of financial responsibility, when required.

    No person in the United States may arrange, offer, advertise, or 
provide passage on a vessel unless a Certificate (Performance) has been 
issued to or covers such person.


Sec.  540.4  Procedure for establishing financial responsibility.

    (a) In order to comply with section 3 of Pub. L. 89-777 (80 Stat. 
1357, 1358) enacted November 6, 1966, there must be filed an 
application on Form FMC-131, Application for Passenger Vessel 
Certificate, with accompanying Vessel Schedule(s) on Form FMC-131-VS. 
Copies of Forms FMC-131 and FMC-131-VS may be obtained from the Bureau 
of Consumer Complaints and Licensing, Federal Maritime Commission, 
Washington, DC 20573, or the Commission Web site, http://www.fmc.gov.
    (b) An application for a Certificate (Performance) shall be filed 
in duplicate with the Bureau of Consumer Complaints and Licensing, 
Federal Maritime Commission, by the Principal(s) at least 60 days in 
advance of the arranging, offering, advertising, or providing of any 
water transportation or tickets in connection therewith. Late filing of 
the application will be permitted only for good cause shown. All 
applications and evidence required to be filed with the Commission 
shall be in English, and any monetary terms shall be expressed in terms 
of U.S. currency. The Commission shall have the privilege of verifying 
any statements made or any evidence submitted under the rules of this 
subpart. An application for a Certificate (Performance), excluding an 
application for the addition or substitution of a vessel to the 
applicant's fleet, shall be accompanied by a filing fee remittance of 
$2,549. An application for a Certificate (Performance) for the addition 
or substitution of a vessel to the applicant's fleet shall be 
accompanied by a filing fee remittance of $1,276.
    (c) The application shall be signed by a duly authorized officer or 
representative of the applicant with a copy of evidence of his or her 
authority. Notice of the application for issuance, denial, revocation, 
suspension, or modification of any such Certificate shall be published 
in the Federal Register.


Sec.  540.5  Guaranties and escrow accounts.

    The amount of coverage required under this section and Sec.  
540.6(b) shall be in an amount determined by the Commission to be no 
less than 100 percent of the unearned passenger revenue of the 
applicant on the date within the 2 fiscal years immediately prior to 
the filing of the application which reflects the greatest amount of 
unearned passenger revenue, plus an additional fixed amount of ten 
percent of the sum of the unearned passenger revenue and the excepted 
passenger revenue on the date within the two fiscal years immediately 
prior to the filing of the application which reflects the greatest 
amount of unearned passenger revenue plus excepted passenger revenue. 
The Commission, for good cause shown, may consider a time period other 
than the previous two-fiscal-year requirement in this section or other 
methods acceptable to the Commission to determine the amount of 
coverage required. Evidence of adequate financial responsibility for 
the purposes of this subpart may be established by one or a combination 
(including Sec.  540.6 Surety Bonds) of the following methods:
    (a) Filing with the Commission a guaranty on Form FMC-133A, by a 
shipowners' Protection and Indemnity Association acceptable to the 
Commission, for indemnification of passengers in the event of 
nonperformance of water transportation. The requirements of Form FMC-
133A, however, may be amended by the Commission in a particular case 
for good cause.
    (1) Termination or cancellation of a guaranty, whether by the 
assured or by the guarantor, and whether for nonpayment of fees, 
assessments, or for other cause, shall not be effected:
    (i) Until notice in writing has been given to the assured or to the 
guarantor and to the Bureau of Consumer Complaints and Licensing at its 
office, in Washington, DC 20573, by certified U.S. mail or other method 
reasonably calculated to provide actual notice, and
    (ii) until after 30 days expire from the date notice is actually 
received by the Commission, or until after the Commission revokes the 
Certificate (Performance), whichever occurs first. Notice of 
termination or cancellation to the assured or guarantor shall be 
simultaneous to such notice given to the Commission. The guarantor 
shall remain liable for claims covered by said guaranty arising by 
virtue of an event which had occurred prior to the effective date of 
said termination or cancellation. No such termination or cancellation 
shall become effective while a voyage is in progress.
    (2) The insolvency or bankruptcy of the assured shall not 
constitute a defense to the guarantor as to claims included in said 
guaranty and in the event of said insolvency or bankruptcy, the 
guarantor agrees to pay any unsatisfied final judgments obtained on 
such claims.
    (3) No guaranty shall be acceptable under these rules which 
restricts the liability of the guarantor where privity of the 
Principal(s) has been shown to exist.
    (4) In the case of a guaranty which is to cover an individual 
voyage, such guaranty shall be in an amount determined by the 
Commission to equal the passenger revenue for that voyage.
    (b) Filing with the Commission evidence of an escrow account, 
acceptable to the Commission, for indemnification of passengers in the 
event of nonperformance of water transportation. Parties filing escrow 
agreements for Commission approval may execute such agreements in the 
form set forth in Appendix A of Subpart A of this Part.
    (c) Revenues derived from whole-ship or partial-ship charters, as 
defined in section 540.2(1), may be exempted from consideration as 
unearned passenger revenues, on condition that, in the case of a new 
operator or within 30 days of

[[Page 66358]]

the execution of the charter if the operator has a Certificate 
(Performance) for the vessel in question: (1) A certified true copy of 
the contract or charter is furnished with the application;
    (2) the chartering party attests that it will redistribute the 
vessel's passenger accommodations without charge; and
    (3) a document executed by the chartering party's Chief Executive 
Officer or other responsible corporate officer is submitted by which 
the chartering party specifically acknowledges that its rights to 
indemnification under section 3 of Public Law 89-777 are waived by the 
reduction in section 3, Public Law 89-777, financial responsibility 
coverage attributable to the exclusion of such funds from the 
operator's unearned passenger revenue.


Sec.  540.6  Surety bonds.

    (a) Where financial responsibility is not established under Sec.  
540.5, a surety bond shall be filed on Form FMC-132A. Such surety bond 
shall be issued by a bonding company authorized to do business in the 
United States and acceptable to the Commission for indemnification of 
passengers in the event of nonperformance of water transportation. The 
requirements of Form-132A, however, may be amended by the Commission in 
a particular case for good cause.
    (b) In the case of a surety bond which is to cover all passenger 
operations of the applicant subject to these rules, such bond shall be 
in an amount calculated as in the introductory text of Sec.  540.5.
    (c) In the case of a surety bond which is to cover an individual 
voyage, such bond shall be in an amount determined by the Commission to 
equal the passenger revenue for that voyage.
    (d) The liability of the surety under the rules of this subpart to 
any passenger shall not exceed the amount paid by any such passenger, 
except that, no such bond shall be terminated while a voyage is in 
progress.


Sec.  540.7  Evidence of financial responsibility.

    Where satisfactory proof of financial responsibility has been 
given, a Certificate (Performance) covering specified vessels shall be 
issued evidencing the Commission's finding of adequate financial 
responsibility to indemnify passengers for nonperformance of water 
transportation. The period covered by the Certificate (Performance) 
shall be indeterminate, unless a termination date has been specified 
thereon.


Sec.  540.8  Reporting requirements.

    (a) In the event of any material change in the facts as reflected 
in the application, an amendment to the application shall be filed no 
later than five (5) days following such change. For the purpose of this 
subpart, a material change shall be one which: (1) Results in a 
decrease in the amount submitted to establish financial responsibility 
to a level below that required to be maintained under the rules of this 
subpart, (2) requires that the amount to be maintained be increased 
above the amount submitted to establish financial responsibility, or 
(3) includes a change in Principal(s).
    (b) In addition, every person who has been issued a Certificate 
(Performance) must submit to the Commission a quarterly statement of 
any changes that have taken place with respect to the information 
contained in the application or documents submitted in support thereof. 
Negative statements are required to indicate no change. The quarterly 
statements must cover each month of the quarter and include a statement 
of the highest unearned passenger vessel revenue and the highest 
excepted passenger revenue accrued for each month in the reporting 
period. In addition, the statements will be due within 30 days after 
the close of every quarter.
    (c) Each applicant, escrow agent, and guarantor shall furnish a 
written designation of a person in the United States as legal agent for 
service of process for the purposes of the rules of this subpart. Such 
designation must be acknowledged, in writing, by the designee. In any 
instance in which the designated agent cannot be served because of its 
death, disability, or unavailability, the Secretary of the Federal 
Maritime Commission, will be deemed to be the agent for service of 
process. A party serving the Secretary in accordance with the above 
provision must also serve the Certificant, escrow agent, or guarantor, 
as the case may be, by certified U.S. mail or other method reasonably 
calculated to provide actual notice at its last known address on file 
with the Commission.
    (d) Any financial evidence submitted to the Commission under the 
rules of this subpart shall be written in the full and correct name of 
the person(s) to whom the Certificate (Performance) is to be issued, 
and in case of a partnership, all partners shall be named.
    (e) Financial data filed in connection with the rules of this 
subpart shall be confidential except in instances where information 
becomes relevant in connection with hearings which may be requested by 
applicant pursuant to Sec.  540.8 (c).


Sec.  540.9  Denial, revocation, suspension, or modification.

    (a) A Certificate (Performance) shall become null and void upon 
cancellation or termination of the surety bond, guaranty, or escrow 
account.
    (b) A Certificate (Performance) may be denied, revoked, suspended, 
or modified for any of the following reasons:
    (1) Making any willfully false statement to the Commission in 
connection with an application for a Certificate (Performance);
    (2) Circumstances whereby the party does not qualify as financially 
responsible in accordance with the requirements of the Commission;
    (3) Failure to comply with or respond to lawful inquiries, rules, 
regulations, or orders of the Commission pursuant to the rules of this 
subpart.
    (c) Prior to the denial, revocation, suspension, or modification of 
a Certificate (Performance), the Commission shall advise the applicant 
of its intention to deny, revoke, suspend, or modify and shall state 
the reasons therefor. If the applicant, within 20 days after the 
receipt of such advice, requests a hearing to show that the evidence of 
financial responsibility filed with the Commission does meet the rules 
of this subpart, such hearing shall be granted by the Commission.
    (d) Notwithstanding the above provisions, failure to comply timely 
with the reporting requirements in this part may subject a certificant 
to automatic suspension or revocation of their Certificate 
(Performance) upon ten days' notice, without hearing. A certificant may 
avoid such suspension or revocation by filing within the ten days the 
required reports or proof that the reports had been timely filed.


Sec.  540.10  Miscellaneous.

    (a) If any evidence filed with the application does not comply with 
the requirements of this subpart, or for any reason fails to provide 
adequate or satisfactory protection to the public, the Commission will 
notify the applicant stating the deficiencies thereof.
    (b) The Commission's bond (Form FMC-132A), guaranty (Form FMC-
133A), and application (Form FMC-131) forms are hereby incorporated as 
a part of the rules of this subpart. Any such forms filed with the 
Commission under this subpart must be in duplicate.
    (c) Any securities or assets accepted by the Commission (from 
applicants, guarantors, escrow agents, or others), under the rules of 
this subpart must be physically located in the United States.

[[Page 66359]]

    (d) Every person in whose name a Certificate (Performance) has been 
issued shall be deemed to be responsible for any unearned passage money 
or deposits in the hands of its agents or of any other person or 
organization authorized by the certificant to sell the certificant's 
tickets. Certificants shall promptly notify the Commission of any 
arrangements, including charters and subcharters, made by it or its 
agent with any person pursuant to which the certificant does not assume 
responsibility for all passenger fares and deposits collected by such 
person or organization and held by such person or organization as 
deposits or payment for services to be performed by the certificant. If 
responsibility is not assumed by the certificant, the certificant also 
must inform such person or organization of the certification 
requirements of Pub. L. 89-777 and not permit use of its name or 
tickets in any manner unless and until such person or organization has 
obtained the requisite Certificate (Performance) from the Commission.
    (e) Passengers with claims for nonperformance under this subpart 
should file such claims with the appropriate Principal(s) and their 
providers of financial responsibility. In the event that such a 
passenger claim has not been resolved within six months after, but no 
more than three years after, filing with the Principal(s) and providers 
of financial responsibility, a passenger has the option to request 
arbitration under 46 CFR 502.406. This six month time requirement may 
be waived by the Dispute Resolution Specialist for good cause.

Subpart B--Proof of Financial Responsibility, Bonding and 
Certification of Financial Responsibility to Meet Liability 
Incurred for Death or Injury to Passengers or Other Persons on 
Voyages


Sec.  540.20  Scope.

    (a) The regulations contained in this subpart set forth the 
procedures whereby Owners and Charterer(s) having berth or stateroom 
accommodations for 50 or more passengers and embarking passengers at 
U.S. ports shall establish their financial responsibility to meet any 
liability which may be incurred for death or injury to passengers or 
other persons on voyages to or from U.S. ports. Included also are the 
qualifications required by the Commission for issuance of a Certificate 
(Casualty) and the basis for the denial, revocation, suspension, or 
modification of such Certificates.
    (b) Failure to comply with this subpart may result in denial of an 
application for a certificate or revocation of an existing certificate. 
Vessels operating without the proper certificate may be denied 
clearance. In addition, any person who shall violate this part shall be 
subject to a civil penalty of not more than $6,000 in addition to a 
civil penalty of $220 for each passage sold, such penalties to be 
assessed by the Federal Maritime Commission (46 U.S.C. app. 91, 817d).


Sec.  540.21  Definitions.

    As used in this subpart, the following terms shall have the 
following meanings:
    (a) Person includes individuals, corporations, partnerships, 
associations, and other legal entities existing under or authorized by 
the laws of the United States or any state thereof or the District of 
Columbia, the Commonwealth of Puerto Rico, the Virgin Islands or any 
territory or possession of the United States, or the laws of any 
foreign country.
    (b) Vessel means any commercial vessel having berth or stateroom 
accommodations for 50 or more passengers and embarking passengers at 
U.S. ports.
    (c) Commission means the Federal Maritime Commission.
    (d) United States includes the Commonwealth of Puerto Rico, the 
Virgin Islands or any territory or possession of the United States.
    (e) Berth or stateroom accommodations or passenger accommodations 
includes all temporary and all permanent passenger sleeping facilities.
    (f) Certificate (Casualty) means a Certificate of Financial 
Responsibility to Meet Liability Incurred for Death or Injury to 
Passengers or Other Persons on Voyages issued pursuant to this subpart.
    (g) Voyage means voyage of a vessel to or from U.S. ports.
    (h) Insurer means any insurance company, underwriter, corporation 
or association of underwriters, ship owners' protection and indemnity 
association, or other insurer acceptable to the Commission.
    (i) Evidence of insurance means a policy, certificate of insurance, 
cover note, or other evidence of coverage acceptable to the Commission.
    (j) For the purpose of determining compliance with Sec.  540.22, 
``passengers embarking at United States ports'' means any persons, not 
necessary to the business, operation, or navigation of a vessel, 
whether holding a ticket or not, who board a vessel at a port or place 
in the United States and are carried by the vessel on a voyage from 
that port or place.


Sec.  540.22  Proof of financial responsibility, when required.

    No vessel shall embark passengers at U.S. ports unless a 
Certificate (Casualty) has been issued to or covers the Owners and 
Charterer(s) of such vessel.


Sec.  540.23  Procedure for establishing financial responsibility.

    (a) In order to comply with section 2 of Pub. L. 89-777 (80 Stat. 
1357, 1358) enacted November 6, 1966, there must be filed an 
Application on Form FMC-131, Application for Passenger Vessel 
Certificate, with accompanying Vessel Schedule(s) on Form FMC-131-VS. 
Copies of Form FMC-131 and Form FMC-131-VS may be obtained from the 
Bureau of Consumer Complaints and Licensing, Federal Maritime 
Commission, Washington, DC 20573.
    (b) An application for a Certificate (Casualty) shall be filed in 
duplicate with the Bureau of Consumer Complaints and Licensing, Federal 
Maritime Commission, at least 60 days in advance of the sailing. Late 
filing of the application will be permitted only for good cause shown. 
All applications and evidence required to be filed with the Commission 
shall be in English, and any monetary terms shall be expressed in terms 
of U.S. currency. The Commission shall have the privilege of verifying 
any statements made or any evidence submitted under the rules of this 
subpart. An application for a Certificate (Casualty), excluding an 
application for the addition or substitution of a vessel to the 
applicant's fleet, shall be accompanied by a filing fee remittance of 
$1,111. An application for a Certificate (Casualty) for the addition or 
substitution of a vessel to the applicant's fleet shall be accompanied 
by a filing fee remittance of $557.
    (c) The application shall be signed by a duly authorized officer or 
representative of the applicant with a copy of evidence of his 
authority.


Sec.  540.24  Insurance, surety bonds, self-insurance, and guaranties.

    Evidence of adequate financial responsibility for the purposes of 
this subpart may be established by one of the following methods:
    (a) Filing with the Commission evidence of insurance by means of a 
policy (accompanied by Form FMC-140), issued by an insurer providing 
coverage for liability which may be incurred for death or injury to 
passengers or other persons on voyages in an amount based upon the 
number of

[[Page 66360]]

passenger accommodations aboard the vessel, calculated as follows:

Twenty thousand dollars for each passenger accommodation up to and 
including 500; plus
Fifteen thousand dollars for each additional passenger accommodation 
between 501 and 1,000; plus
Ten thousand dollars for each additional passenger accommodation 
between 1,001 and 1,500; plus
Five thousand dollars for each passenger accommodation in excess of 
1,500;

Except that, if the applicant is operating more than one vessel subject 
to this subpart, the amount prescribed by this paragraph shall be based 
upon the number of passenger accommodations on the vessel being so 
operated which has the largest number of passenger accommodations.
    (1) Termination or cancellation of the evidence of insurance, 
whether by the assured or by the insurer, and whether for nonpayment of 
premiums, calls or assessments, or for other cause, shall not be 
effected: (i) Until notice in writing has been given to the assured or 
to the insurer and to the Bureau of Consumer Complaints and Licensing 
at its office in Washington, DC 20573, by certified U.S. mail or other 
method reasonably calculated to provide actual notice, and (ii) until 
after 30 days expire from the date notice is actually received by the 
Commission, or until after the Commission revokes the Certificate 
(Casualty), whichever occurs first. Notice of termination or 
cancellation to the assured or insurer shall be simultaneous to such 
notice given to the Commission. The insurer shall remain liable for 
claims covered by said evidence of insurance arising by virtue of an 
event which had occurred prior to the effective date of said 
termination or cancellation. No such termination or cancellation shall 
become effective while a voyage is in progress.
    (2) The insolvency or bankruptcy of the assured shall not 
constitute a defense to the insurer as to claims included in said 
evidence of insurance and in the event of said insolvency or 
bankruptcy, the insurer agrees to pay any unsatisfied final judgments 
obtained on such claims.
    (3) No insurance shall be acceptable under these rules which 
restricts the liability of the insurer where privity of the Owners or 
Charterer(s) has been shown to exist.
    (4) Paragraphs (a)(1) through (a)(3) of this section shall apply to 
the guaranty as specified in paragraph (d) of this section.
    (b) Filing with the Commission a surety bond on Form FMC-132B 
issued by a bonding company authorized to do business in the United 
States and acceptable to the Commission. Such surety bond shall 
evidence coverage for liability which may be incurred for death or 
injury to passengers or other persons on voyages in an amount 
calculated as in paragraph (a) of this section, and shall not be 
terminated while a voyage is in progress. The requirements of Form FMC-
132B, however, may be amended by the Commission in a particular case 
for good cause.
    (c) Filing with the Commission for qualification as a self-insurer 
such evidence acceptable to the Commission as will demonstrate 
continued and stable passenger operations over an extended period of 
time in the foreign or domestic trade of the United States. In 
addition, applicant must demonstrate financial responsibility by 
maintenance of working capital and net worth, each in an amount 
calculated as in paragraph (a) of this section. The Commission will 
take into consideration all current contractual requirements with 
respect to the maintenance of working capital and/or net worth to which 
the applicant is bound. Evidence must be submitted that the working 
capital and net worth required above are physically located in the 
United States. This evidence of financial responsibility shall be 
supported by and subject to the following which are to be submitted on 
a continuing basis for each year or portion thereof while the 
Certificate (Casualty) is in effect:
    (1) A current quarterly balance sheet, except that the Commission, 
for good cause shown, may require only an annual balance sheet;
    (2) A current quarterly statement of income and surplus except that 
the Commission, for good cause shown, may require only an annual 
statement of income and surplus;
    (3) An annual current balance sheet and an annual current statement 
of income and surplus to be certified by appropriate certified public 
accountants;
    (4) An annual current statement of the book value or current market 
value of any assets physically located within the United States 
together with a certification as to the existence and amount of any 
encumbrances thereon;
    (5) An annual current credit rating report by Dun and Bradstreet or 
any similar concern found acceptable to the Commission;
    (6) A list of all contractual requirements or other encumbrances 
(and to whom the applicant is bound in this regard) relating to the 
maintenance of working capital and net worth;
    (7) All financial statements required to be submitted under this 
section shall be due within a reasonable time after the close of each 
pertinent accounting period;
    (8) Such additional evidence of financial responsibility as the 
Commission may deem necessary in appropriate cases.
    (d) Filing with the Commission a guaranty on Form FMC-133B by a 
guarantor acceptable to the Commission. Any such guaranty shall be in 
an amount calculated as in paragraph (a) of this section. The 
requirements of Form FMC-133B, however, may be amended by the 
Commission in a particular case for good cause.
    (e) Filing with the Commission evidence of an escrow account, 
acceptable to the Commission, the amount of such account to be 
calculated as in paragraph (a) of this section.
    (f) The Commission will, for good cause shown, consider any 
combination of the alternatives described in paragraphs (a) through (e) 
of this section for the purpose of establishing financial 
responsibility.


Sec.  540.25  Evidence of financial responsibility.

    Where satisfactory proof of financial responsibility has been 
established, a Certificate (Casualty) covering specified vessels shall 
be issued evidencing the Commission's finding of adequate financial 
responsibility to meet any liability which may be incurred for death or 
injury to passengers or other persons on voyages. The period covered by 
the certificate shall be indeterminate unless a termination date has 
been specified therein.


Sec.  540.26  Reporting requirements.

    (a) In the event of any material change in the facts as reflected 
in the application, an amendment to the application shall be filed no 
later than five (5) days following such change. For the purpose of this 
subpart, a material change shall be one which: (1) Results in a 
decrease in the amount submitted to establish financial responsibility 
to a level below that required to be maintained under the rules of this 
subpart,
    (2) requires that the amount to be maintained be increased above 
the amount submitted to establish financial responsibility, or
    (3) involves a change in Owner(s) or Charterer(s). Notice of the 
application for, issuance, denial, revocation, suspension, or 
modification of any such Certificate shall be published in the Federal 
Register.
    (b) In addition to reports required under Sec.  540.23(d), every 
person who has

[[Page 66361]]

been issued a Certificate (Casualty) must submit to the Commission a 
quarterly statement of any changes that have taken place with respect 
to the information contained in the application or documents submitted 
in support thereof. Negative statements are required to indicate no 
change. The quarterly statements must cover each month of the quarter. 
In addition, the statements will be due within 30 days after the close 
of every quarter.
    (c) Each applicant, insurer, and guarantor shall furnish a written 
designation of a person in the United States as legal agent for service 
of process for the purposes of the rules of this subpart. Such 
designation must be acknowledged, in writing, by the designee. In any 
instance in which the designated agent cannot be served because of 
death, disability, or unavailability, the Secretary of the Federal 
Maritime Commission, will be deemed to be the agent for service of 
process. A party serving the Secretary of the Commission in accordance 
with the above provision must also serve the certificant, insurer, or 
guarantor, as the case may be, by certified U.S. mail or other method 
reasonably calculated to provide actual notice, at its last known 
address on file with the Commission.
    (d) Any financial evidence submitted to the Commission under the 
rules of this subpart shall be written in the full and correct name of 
the person to whom the Certificate (Casualty) is to be issued, and in 
case of a partnership, all partners shall be named.
    (e) Financial data filed in connection with the rules of this 
subpart shall be confidential except in instances where information 
becomes relevant in connection with hearings which may be requested by 
applicant pursuant to Sec.  540.26(a) or Sec.  540.26(b).


Sec.  540.27  Denial, revocation, suspension, or modification.

    (a) A Certificate (Casualty) shall become null and void upon 
cancellation or termination of the surety bond, evidence of insurance, 
or guaranty.
    (b) A Certificate (Casualty) may be denied, revoked, suspended, or 
modified for any of the following reasons:
    (1) Making any willfully false statement to the Commission in 
connection with an application for a Certificate (Casualty);
    (2) Circumstances whereby the party does not qualify as financially 
responsible in accordance with the requirements of the Commission;
    (3) Failure to comply with or respond to lawful inquiries, rules, 
regulations, or orders of the Commission pursuant to the rules of this 
subpart.
    (c) Prior to the denial, revocation, suspension, or modification of 
a Certificate (Casualty), the Commission shall advise the applicant of 
its intention to deny, revoke, suspend, or modify and shall state the 
reasons therefor. If the applicant, within 20 days after the receipt of 
such advice, requests a hearing to show that the evidence of financial 
responsibility filed with the Commission does meet the rules of this 
subpart, such hearing shall be granted by the Commission.
    (d) Notwithstanding the above provisions, failure to comply timely 
with the reporting requirements in this part may subject a certificant 
to automatic suspension or revocation of their Certificate (Casualty) 
upon ten days' notice, without hearing. A certificant may avoid such 
suspension or revocation by filing within the ten days the required 
reports or proof that the reports had been filed timely.


Sec.  540.28  Miscellaneous.

    (a) If any evidence filed with the application does not comply with 
the requirements of this subpart, or for any reason, fails to provide 
adequate or satisfactory protection to the public, the Commission will 
notify the applicant stating the deficiencies thereof.
    (b) The Commission's bond (Form FMC-132B), guaranty (Form FMC-
133B), and application (Form FMC-131 as set forth in Subpart A of this 
part) forms are hereby incorporated as a part of the rules of this 
subpart. Any such forms filed with the Commission under this subpart 
must be in duplicate.
    (c) Any securities or assets accepted by the Commission (from 
applicants, insurers, guarantors, or others) under the rules of this 
subpart must be physically located in the United States.
    (d) In the case of any charter arrangements involving a vessel 
subject to the regulations of this subpart, the vessel owner (in the 
event of a subcharter, the charterer shall file) must within 10 days 
file with the Bureau of Consumer Complaints and Licensing evidence of 
any such arrangement.

    By the Commission.
Bryant L. VanBrakle
Secretary.
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[FR Doc. 02-27642 Filed 10-30-02; 8:45 am]
BILLING CODE 6730-01-C