Financial Responsibility for Water Pollution (Vessels)

[[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

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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

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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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