United States
Environmental Protection
Agency
Office of Water &
Waste Management
Washington DC 20460
SW-178C
September 1979
Solid Waste
&EPA
Financial Responsibility
for Transporters
of Hazardous Waste
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Prepublication issue for EPA libraries
and State Solid Waste Management Agencies
FINANCIAL RESPONSIBILITY FOR TRANSPORTERS
OF HAZARDOUS WASTES
This report (SW-178c) describes work performed
for the Office of Solid Waste under contract no. 68-01-4850
and is reproduced as received from the contractor.
The findings should be attributed to the contractor
and not to the Office of Solid Waste.
Copies will be available from the
National Technical Information Service
U.S. Department of Commerce
Springfield, VA 22161
U.S. ENVIRONMENTAL PROTECTION AGENCY
1979
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This report was prepared by Moshman Associates, Inc., Washington, D.C.,
under contract no. 68-01-4850.
Publication does not signify that the contents necessarily reflect
the views and policies of the U.S. Environmental Protection Agency, nor
does mention of commercial products constitute endorsement by the
U.S. Government.
An environmental protection publication (SW-178c) in the solid
waste series.
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CONTENTS
. Page
Appendices vii
Figures viii
Tables ix
Acknowledgements x
I. INTRODUCTION 1
A. Objectives 1
B. Limits of Analysis 2
1. Transporters' Insurance Practices 2
2. Cost of Spill Clean-up 3
3. Adequacy of Present Financial Responsibility
Practices 3
II. SUMMARY OF RESEARCH PERFORMED, FINDINGS, AND
RECOMMENDATIONS 5
A. Existing Regulations 5
B. Current Insurance Practices 6
C. Cost of Spill Clean-Up 8
D. Adequacy of Existing Coverage ~ . . . . 10
E. Need for Standards, Control Options 11
F. Recommendations . 12
Til. FEDERAL AND STATE REGULATIONS ON FINANCIAL
RESPONSIBILITY OF TRANSPORTERS OF HAZARDOUS WASTE . 14
A. Overview 14
B. Railroads 14
C. Carriers by Water 16
1. Federal Regulations 16
2. State Regulations 21
111
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CONTENTS (cont.)
Page
D. Motor Carriers of Property 21
1. Federal Regulations 21
2. State Regulations 23
IV. CURRENT INSURANCE PRACTICES OF TRANSPORTERS OF
HAZARDOUS WASTE 3'5
A. Overview 35
B. Current Financial Responsibility Practices .... 36
1. Railroads in General 36
a. Small Railroads 38
b. Large Railroads (Class I railroads) ... 43
2. Water Carriers in General 48
a. The Water Quality Insurance Syndicate . . 50
b. Protection and Indemnity Coverage (Marine) 54
c. Survey of Water Carriers 55
3. Motor Carriers in General 58
a. Survey of Motor Carriers 62
i. hazardous waste transporters .... 63
ii. non-waste transporters 66
V. COST OF SPILL CLEAN-UP AND MITIGATION OF DAMAGE ... 68
A. Overview 68
B. Types of Costs 69
C. Magnitude of Costs 72
D. Analysis of Data 74
1. Railroads 75
2. Water Carriers 77
3. Motor Carriers 77
4. Summary of All Modes . . . . 85
5. Responsibility for Costs 85
IV
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CONTENTS (cont.)
VI. ADEQUACY OF EXISTING INSURANCE COVERAGE AND NON-
INSURED FINANCIAL RESPONSIBILITY OF TRANSPORTERS 88
A. Approach to this Topic 91
B. Modal Analysis ..." 91
1. Railroads 91
a. General 91
b. Large Railroads 92
c. Short-Line Railroads 92
d. Adequacy Conclusion 93
2. Water Carriers 99
a. General 96
b. Protection and Indemnity Coverage (Marine) 96
c. Coverage for Injury and Death 97
d. Adequacy Conclusion 98
3. Motor Carriers 99
a. General 99
b. Hazardous Waste Haulers 100
c. Other Hazardous Materials Motor Carriers . 103
d. Adequacy Conclusion 104
C. Summation, Overview 106
1. Summation in Brief 106
2. 'Overview 109
VII. FINANCIAL RESPONSIBILITY STANDARDS, CONTROL OPTIONS
AND THEIR IMPLICATIONS 110
A. Are Standards Necessary? 110
B. Inadequacy of Present Standards 113
1. Railroads 113
2. Water Carriers 115
3. Motor Carriers 117
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CONTENTS (cont.)
C. Standards for Hazardous Wastes or Hazardous
Materials 120
D. Standards for Transporters, Shippers or
Consignees 121
E. Other Policy Issues Related to Standards 123
1. Limiting Liability 123
2. Economic Effects of Increased Standards ... 128
3. Mechanisms for Impact Equalization and Full
Public Protection 129
4. Role for Federal-Insurance Industry
Cooperation 131
F. Summing Up 134
vi
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APPENDICES
A - Excerpt from Title 46 - Shipping - Chapter IV - Federal
Maritime Commission - Part 543 - FINANCIAL RESPONSIBILITY
FOR OIL POLLUTION ALASKA PIPELINE
B - Excerpt from Title 46 - Shipping - Chapter IV - Federal
Maritime Commission - Part 542 - FINANCIAL RESPONSIBILITY
FOR WATER POLLUTION
C - Excerpt from General Order No. 40 - Federal Maritime
Commission - August 28, 1978
D - Specimen - Railroad Comprehensive Liability - Policy
E - Unit Costs Employed for Calculations of Spill "Clean-Up"
Costs
A - Major Hazardous Substances "Clean-Up"
B - Other "Clean-Up" Costs
F - Highlights of Proposed Legislation and Rules to Create
a "Superfund" and Establish Minimum Amounts of.Financial
Responsibility
G - Partial List of Persons and Organizations Contacted
VII
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FIGURES
FIGURES
1 - State Regulations, Financial Responsibility
of Motor Carriers 24
2 - Water Quality Insurance Syndicate (WQIS) Prdmia
for Indicated Coverages 53"
3 - Summary of'Survey of Insurance Practices for
Water Carriers 59
4 - Conversion for Split Limits to Combined Single
Limit 61
5 - Relationship of Insurance Costs to Measures
of Company Operation 64
6 - Summary of Insurance Coverage for Hazardous
Waste Motor Carriers and Motor Carriers of
Other Hazardous Materials , . . . . 67
viii
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TABLES
TABLES Pag
1 - Distribution of Hazardous Commodity Spills
by RAILROAD Arrayed by Hazardous Material ..... 76
2 - Estimated Costs of Spil}. "Clean-Up" in Excess of
$1 Million Per Accident, For a Sample of
Accidental Spills by RAILROAD and Hazardous
Commodities Spilled- ............... 78
3 - Deaths and Injuries Resulting From Hazardous
Commodity Spills of All Modes of Transportation . . 79
4 - Distribution of Hazardous Commodity Spills
by WATER CARRIER Arrayed by Hazardous Material . . 80
5 - Estimated Costs of Spill "Clean-Up" in Excess
of $1 Million Per Accident, For a Sample of
Accidental Spills by WATER CARRIER and Hazardous
Commodities Spilled ................
6 - Distribution of Hazardous Commodity Spills by
MOTOR CARRIER Arrayed by Hazardous Material .... 83
7 - Estimated Costs of Spill "Clean-Up" in Excess of
$1 Million Per Accident, For a Sample of Accidental
Spills by MOTOR CARRIERS and Hazardous Commodities
Spilled ...................... 84
8 - Distribution of Hazardous Commodity Spills by
RAIL, MOTOR and WATER TRANSPORTATION Arrayed
by Hazardous Material ............... 86
9 - Operating Income and Shareholders Equity of
Short-Line Railroads ............... 94
10 - 1976 and 1977 Operating Income and Shareholders
Equity for Motor Carriers Hauling Hazardous
Wastes ................. ' ..... 101
11 - SUMMARY/ HIGHLIGHTS Relative Adequacy of Financial
Responsibility Coverage All Modes of Hazardous
Waste Transport .................. 107
ix
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ACKNOWLEDGEMENTS
Numerous persons and organizations have generously contributed
to this study of transporters' financial responsibility standards
and practices. A partial list of these contributors is contained
in the appendix section of this report. To them and those whose
names were omitted at their request, we express our gratitude.
A special note of thanks is due to the EPA OSW project officers,
Arnold M. Edelman and Carolyn Barley, also to Harry W. Trask of
the Hazardous Waste Management Division for their advice and counsel.
The Moshman Associates' study team members were D. E. Pollitt,
Maureen Lindsey, John C. Pertino, and Robert L. Fogle; the JLS
Group, New York City, contributed to the study of insurance carriers.
Claudia Gittleman managed the project secretariat and all typing
chores. The principal investigator and Project Director was David G.
Abraham.
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I. INTRODUCTION
A. Objectives
Pursuant to Section 3003 of the Resource Conservation and
Recovery Act (RCRA) of 1976 (P.L. 93-580), EPA is required to
promulgate rules to establish standards for transporters of
hazardous wastes. Such standards may reasonably include minimum
coverages for financial responsibility of carriers to defray the
costs of accidental spills "clean-up" 'and the damages inflicted
upon the environment.
To permit EPA an objective examination of the regulatory needs,
if any, in the area of transporters' financial responsibility,
this study was undertaken with the following principal objectives:
Identify current financial responsibility requirements
of the Federal and State governments for transporters of
hazardous materials and hazardous wastes; also, identify,
analyze and reflect major legislative and regulatory pro-
posals introduced or pending as of the time this study was
being completed;
Determine current insurance availability, coverage and costs
for transporters of hazardous materials and wastes by mode
and by size of carrier;
I/ "Clean-up" in this report is defined to mean any' and all damages,
removal, repair or mitigation thereof, including compensation
payable to persons for injury or wrongful death, caused by an
accidental spill of a hazardpus substance while such substance is
in the custody of a private or common carrier by water, railroad,
or highway.
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Determine typical "clean-up" costs for mitigation of
damages to human health (including third party claims)
and the environment caused by transporters' accidental
spills for each mode;
Identify the adequacy, or inadequacy, of current financial
responsibility practices of carriers, both in terms of
self-insurance and purchased insurance to cover costs of
spill "clean-up";
Examine alternatives for adequate levels of financial
responsibility to be required of each mode transporting
hazardous wastes if current insurance practices and/or
requirements are not sufficient to cover the cost of
spill "clean-up/" and analyze the economic impacts on
the carrier of requiring such levels of financial
responsibility.
B. Limits of Analysis
1. Transporters' Insurance Practices
Some difficulties were encountered in obtaining infor-
mation on the insurance practices of transporters of hazardous
materials and wastes. Railroads' financial responsibility re-
quirements are not regulated by the ICC; hence, railroad
personnel consider their insurance practices as confidential
and were largely unwilling to release any information. Rail-
roads' reports in the public domain do not reveal any useful
information on insurance practices. However, reliable
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information was obtained from the casualty insurance industry,
leading brokers and agents. Also, some useful information
was furnished by a senior official of the Association of
American Railroads.
2. Cost of Spill Clean-Up
Cost estimates were partially derived by abstracting data
from the Hazardous Materials Incidents (HMI) reports required
to be filed by carriers with DOT'S Office of Hazardous Ma-
terials Operations. Even though the HMI reports are the best
information source for cost data, they do present some limi-
tations. First, they include little information on specific
damages caused; second, personal injuries and deaths are hot
cost quantified; third, costs sustained by public agencies
are not included; and finally, and just as important, the HMI
cost estimates include only short-term injuries occurring at
the time of the spill and shortly thereafter; long term
damages to the environment or to persons which may surface
after a passage of time are not reported.
To the extent feasible, the HMI data were supplemented by
information contained in the U. S. Coast Guard's Pollution
Incidents In and Around U. S. Waters System (PIRS). Further,
costs of spill "clean-up" were developed by use of standard
cost factors reported in another recently completed study.
3. Adequacy of Present Financial Responsibility Practices
Not withstanding the constraints referred to in 1. above,
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it is believed that information representing a cross-section
of transporters' current insurance practices was assembled
and analyzed. However, it is also likely that some excep-
tions to these representative practices exist. Hence, it
should not be assumed that virtually all transporters of
hazardous wastes are in fact insured for liability limits
in excess of those required by regulation. Some of the
"non-representative" practices were specifically noted in
Chapters IV and VI; others are bound to prevail in the rail-
road and water carrier industries. These could not be
identified within the framework of this study.
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II. SUMMARY OF RESEARCH PERFORMED. FINDINGS AND RECOMMENDATIONS
A. Existing Regulations
Regulations for financial responsibility of transporters of
hazardous wastes, as distinct from hazardous materials or sub-
stances generally, do not presently exist at either the Federal
or state level. Closest in meaning to such regulations are
those contained in Title 46, Shipping, of the Code of Federal
Regulations, promulgated and administered by the Federal Mari-
time Commission (FMC) and which are applicable to carriers by
water. These regulations, authorized by the Federal Water
Pollution Control Act, the Clean Water Act, and the Trans-Alaska
Pipeline Authorization Act, require carriers subject to FMC
regulations to obtain Certificates of Financial Responsibility
based on acceptable surety to compensate or pay for damages
caused to the public health or welfare including fish and wild-
life, and shorelines and beaches.
Insurance requirements for carriers by railroad do not pre-
sently exist. Motor carriers operating in interstate commerce
pursuant to grants of authority issued by the Interstate
Commerce Commission are required to meet the surety standards
set by that agency. No differentiation for carriers of hazardous
materials is contained in the ICC's regulations and the maximum
surety required is only $300,000. -'
I./ For passenger carriers the insurance requirement is $500,000.
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Most of the states have promulgated regulations for water
carriers. These regulations either dwarf those of the ICC or
contain even lesser requirements. There are some exceptions
with a few states requiring surety at somewhat higher limits.
Self-insurance is permitted by the Federal and state agencies
so long as carriers subject to their regulations have adequate
financial resources to meet self-insurance requirements.
Some contradictory decisions in ICC proceedings have raised
doubts on the applicability of the agency's regulations to
waste transporters. While transportation of nuclear waste is
clearly exempt from ICC regulations but controlled by the NEC's
regulations, the view is held that all other hazardous wastes
transportation in interstate commerce is required to comply
with prevailing ICC insurance standards.
3. Current Insurance Practices
The stratified sample surveys conducted by the Contractor
of transporters by motor vehicles and vessels have revealed
that practically all of the larger enterprises are able to and
do in fact obtain commercial insurance coverage for comprehensive
third party liability at limits far in excess of those pre-
scribed by regulations. In terms of public protection for damages
caused by accidental spills, the voluntary practices of carriers
are greatly more meaningful than regulatory compliance. Corporate
risk managers are keenly aware of their potentially large ex-
posures and in spite of the considerable insurance premium costs
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have mostly elected to safeguard their firms' viability in
the event of costly accidents through purchased insurance.
Risk sharing through self-insurance or retained portions of
their potential liabilities for costs of "clean-up" is a common
practice; the size of the retained portion is typically in
proportion to the commercial insurance coverage. Ratios of one
to ten have been observed, for the- self-insurance or deductible
relative to the commercial coverage purchased.
Smaller motor carrier entities revealed their inability to
purchase excess liability coverages at levels similar to those
of the larger firms. Such inability is reportedly due to some
non-availability of insurance and/or non-affordability of the
high premiums demanded by underwriters. Low levels of commercial
coverage were observed in particular as common practice of special
hazardous waste haulers, usually small family-owned operators.
Railroads' practices are also distinctly different for the
large Class I segment and the smaller short-line 'roads. The
large carriers, mindful of their very large risk exposure and
able to obtain, in spite of it, very high excess coverage, are
insuring for up to $50 million in damages, with about one tenth
thereof self-retained. Short-lines are mainly limited to a
$2 million comprehensive liability package with deductibles in
the $25,000 to $200,000 range. While a few of the lesser known
insurance companies, specifically the so called non-admitted
issuers, are providing the noted coverage for the small railroads,
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most of the coverages for the Class I carriers are written in
the London insurance market.
The common view among railroad risk managers is that given
the availability, of additional coverage at affordable rates
they would prefer to layer their existing insurance with addi-
tional protection.
A unique vehicle for water carriers was established by a
syndicate of twenty-eight domestic insurance companies special-
izing in marine insurance. Their Water Quality Insurance
Syndicate (WQIS) underwrites specifically the cost of spill
"clean-up" at the limits prescribed* in FMC regulations. However,
no indemnity is provided for bodily injury. That type of cover-
age continues to be purchased by water carriers under their
traditional marine protection and indemnity insurances.
Overall, extensive contacts with insurance company represen-
tatives revealed the liability insurance of transporters to be
an unprofitable line. In spite of sharply increased premium rates,
it was reported that virtually all participating underwriters
are incurring underwriting losses, causing some of the industry
members to withdraw from this market. Domestic cpmpanies'
withdrawal from insurance of large railroads was attribute(
mainly to that industry's poor plant physical condition.
C. Cost of Spill Clean-Up
Extensive efforts were undertaken to obtain a representative
sample of spill "clean-up" costs. As noted in Chapter I, the body
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of available data is not believed to be reliable or sufficiently
comprehensive to serve the purposes and objectives of this study,
Department of Transportation reports contain merely the infor-
mation furnished by the spill-causing transporter without supple-
mentation by costs borne by public agencies which bear costs
for such services as evacuation, fire fighting and prevention,
emergency medical services, and the mobilization of clean-up or
damage mitigating forces.
To provide as valid a set of estimates as practicable, cohort
measures were developed and quantified. HMI and Coast Guard re-
ports for an 18-month period were assembled and analyzed. Em-
pirical data developed were summarized by frequency distribution
in cost brackets ranging from under $1,000 per incident to over
$1 million. Costs identified included, as applicable, expen-
ditures and compensation related to bodily injury and death,
property and environmental damage, removal containment and dis-
posal of hazardous substances, and evacuation of endangered
persons. A total of 648 spills caused by the three modes of
transport were included in this study. These caused a total of
70 deaths and 1,364 injuries.
The developed cost estimates, covering short-term damages
only, indicated that in 85% of all sampled incidents costs were
less than $100,000 per incident, in 11.6% of the cases costs
ranged from $100,000 to $1 million, and in 22 cases or 3.4%
of the sample, costs exceeded $1 million per spill.
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D. Adequacy of Existing Coverage
Empirical and judgmental evaluations were developed for
each mode and size components within each. The large railroads
were judged to be adequately insured for practically all
eventualities; for the smaller railroads a mainly contrary view
was expressed. In respect of railroads1 self-retained risks,
a generally cautious note was expressed due to financial fail-
ures of some carriers in the recent past and the shaky financial
condition of others.
The practices espoused by maritime carriers, combining in-
surance coverage made available by WQIS and the Property & In-
demnity (P & I) Marine policies routinely purchased are entirely
adequate public protection even for the most severe catastrophic
incidents quantified.
Specialized hazardous waste motor carriers were found to be
significantly underinsured and not possessing internal financial
measures to assure a hold harmless condition even in the event
of minor spills. A direct correspondence between carrier size
and financial responsibility was found to exist. Smaller carriers
generally are often limited to purchased insurance at the pre-
scribed inadequate limits while the large entities' voluntary
practices are, if anything, excessive for all but the cata-
strophic incidents of proportions experienced in the past only
by railroads and water carriers.
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E. Need for Standards. Control Options
The conclusion was reached that significantly higher than
existing surety requirements are required for adequate public
protection for railroads and motor carriers. To minimize reg-
ulatory overlap, excesses and costly enforcement procedures,
our recommendations include for EPA to confer its authority,
if at all possible, upon DOT regulators sothat essentially
the same prc .ection would be available for the perils resulting
from hazardous waste and other hazardous materials transpor-
tation. DOT's declaration of hazardous wastes to be hazardous
materials, by definition, corroborates this approach.
Further, the view was expressed that while transporters should
properly be held responsible for spill "clean-up" costs, reg-
ulations should not preclude generators or disposers from assum-
ing the liability through the mechanism of hold harmless agree-
ments. Such transfer holds the promise of increasing insurance
availability and reducing costs for the smaller transporter
entities.
Other issues addressed include the possibility of limiting
liability for "clean-up" costs to some finite sum, similar to
the provisions in the Price Anderson Act. Economic impacts of
recommended standards coupled with limits on carriers' lia-
bilities were judged, on average, to be mostly insignificant.
Increased premium costs which might be incurred by transporters
as a result of higher insurance requirements, would be a rel-
atively small additional operating cost. Further, such "would-be"
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additional premium costs might be more than offset by insurance
rate reductions made available to insureds with adequate or
superior accident prevention programs. It was also observed that
opportunities exist for increased Federal government and in-
surance industry cooperation with a probable effect of retaining
more of the insurance coverages and premia within the domestic
economy/ while reducing costs to assureds, and in turn, the
general public.
Finally: various prior and current legislative and regulatory
initiatives were documented, analyzed and commented on. Of most
direct interest and broadest applicability is EPA's legislative
proposal for a "Superfund" to assure the availability of finan-
cial resources to implement spill "clean-up" for practically all
eventualities.
F. Recommendations
Standards for financial responsibility of transporters of
hazardous wastes in particular and hazardous substances in
general should be established for those transport modes for
which standards do not now exist, the railroads, and increased
for motor carriers.
Innovation in the area of standards for financial respon-
sibility of transporters should be integrated with and included
in any novel legislation contemplated to establish a Federal
fund for "clean-up" expenses not available from other sources.
While existing legislation under several Acts, including RCRA,
provide EPA with considerable latitude for promulgation of
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financial responsibility standards, these would have to be
restricted to transporters of hazardous wastes. Because
of the largely common needs for public protection for the
effects of transportation accidents of any and all hazardous
substances, whether wastes or not, it is recommended to seek
novel legislation to encompass all transport modes, all
hazardous substances, and a single financial mechanism for
the compensation of damaged parties, private and public, to
the extent adequate compensation is not available otherwise.
Finally, it is recommended to assure the future uniformity
of regulatory administration and enforcement by selecting one
lead agency for that purpose, rather than permitting segmentation
of these functions for the different modes and the different
hazardous products. The legislation contemplated for the
establishment of a "Superfund" should also encompass the
delegation of existing and necessary new authorities to a single
Federal agency.
The benefits to be derived from uniform rules and regulations
can be expected to include greater availability of insurance
coverage by domestic insurers of all transport modes, with lower
premium costs, on average, and greater premium retention in
the domestic insurance markets. Previous EPA initiatives for
single agency regulation in the hazardous materials transportation
field are recommended to be expanded to include the various
facets of financial responsibility dealt with in this report.
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III. FEDERAL and STATE REGULATIONS on FINANCIAL RESPONSIBILITY
of TRANSPORTERS of HAZARDOUS WASTE.
A. Overview
In this phase of the project the contractor was required
to identify and analyze existing Federal and state regulations
on financial responsibility requirements for transporters of
hazardous wastes. The purpose of this investigation is to es-
tablish the basis of the existing requirements so that eventually
these might be compared with what will be determined as reasonable
requirements consistent with the sums at risk.
As will be noted from the information contained in this
chapter of this report, there are no existing minimum financial
responsibility requirements specifically for transporters of
hazardous wastes. Moreover, only a few regulations are in force
at the Federal and state levels with specific application to
transporters of hazardous materials. Except for these instances,
the transporters of hazardous wastes are governed by the regula-
tions applying to transporters of general commodities. Thus,
any minimum insurance requirements specified in this chapter
apply to hazardous waste haulers.
B. Railroads
There are no Federal or state regulations applicable to
common carriers by railroad. Specific inquiries with Federal
agencies which are the most likely agencies to be considered
with the lack of regulations in this area and which would also
be the logical promulgators of regulations for railroads, have
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confirmed the validity of this statement. Further, the ICC
holds the view that railroads, due to their size and financial
capabilities do not require regulations in this area, as do,
for example, motor carriers. In addition, the fact that rail-
roads operate on their own tracks, as distinct from a motor
carrier operating on public highways, has in the ICC's view
obviated the need for financial responsibility regulations.
The Federal Railroad Administration, U.S. Department of
Transportation, to which all railroad safety regulations were
assigned upon the establishment of this agency, concurs with
the view expressed by the ICC.
The National Transportation Safety Board, the independent
agency required to investigate all railroad accidents causing
third party damage and/or injury, has only limited rule making
authority. Prescription of financial responsibility require-
ments is not within NTSB's purview.
The states generally do not regulate the activities of
railroads. There are some exceptions, however, these do not
embrace the financial responsibility of railroads. The public
service or commerce commissions in the various states con-
tacted expressed views which parallel those expressed by the
ICC.
It is appropriate to comment here that the view that the
nation's railroads are all so large as to possess assets far
in excess of any reasonable financial responsibility require-
ments is patently wrong. First, just during the last several
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years many large railroads, the so called Class I carriers,
have declared bankruptcy. That is to say, their liabilities
>
have exceeded their assets. Second, there is a growing num-
ber of smaller common carriers by railroad, the so called
Shortline or Class II railroads, some of which have smaller
asset bases than major motor carriers. It follows that the
absence of regulations in reliance on the financial capacity
of railroads is at least in part inappropriate. At this
point we have not determined if Federal and/or state regula-
tions are essential to protect the public interest. We shall
address this topic in a later chapter of this report.
C. Carriers by Water
1. Federal Regulations
The ICC regulates domestic commerce by water and the
Federal Maritime Commission (FMC) regulates foreign com-
merce by water. Most carriage by water in domestic com-
merce is exempt from economic regulations, similar to the
movement of raw agricultural products in bulk by highway.
The ICC's regulations of common carriers by water do not
include any regulations establishing minimum insurance or
surety requirements.
The FMC, however, has promulgated quite extensive regu-
lations for carriers by water subject to this agency's
surveillance. These regulations are contained in Title 46,
Shipping, Subchapter B - Regulations Affecting Maritime
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Carriers, Part 542. These regulations were first promul-
gated pursuant to section 311 of the Federal Water Pollu-
tion Control Act. With the amendment of this Act by the
Clean Water Act of 1977, P.L. 95-217, FMC's regulations
have been similarly amended (FMC Docket No. 78-9). In
addition, financial responsibility regulations for mari-
time carriers were published in Part 543 of Title 46 in com-
pliance with subsection (c) of section 204 of the Trans-
Alaska Pipeline Authorization Act (P.L. 93-153, 87 Stat.
584, et. seq.).
The new Part 543 regulations which became effective by
final rule on July 26, 1977, apply to all operators of
vessels carrying oil transported through the Trans-Alaska
pipeline. The Part 542 regulations apply to all vessels
using any port or place in the United States or the navi-
gable waters of the United States except (1) vessels which
are 300 gross tons or less, (2) non-self propelled barges
which do not carry oil or hazardous substances as cargo or
fuel, and (3) public vessels.' It is evident that the
Part 542 applicability criterion applies also to vessels
whose operations are in other respects not subject to FMC's
economic regulations, i.e., vessels engaged in domestic
commerce.
iy Public vessels are vessels not engaged in commerce, the operator
of which is the U. S. Government or the government of a foreign
nation.
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The provisions under the two Parts have both common
and diverse elements. Both require all vessel operators
to obtain Certificates of Financial Responsibility; both
permit self-insurance. The methods for establishing evi-
dence of financial responsibility can be anyone or a combi-
nation of the following: a. insurance (by filing a pre-
scribed form executed by an insurance company acceptable
to the agency), b. surety bond (issued by a surety company
approved by the Department of the Treasury), c. qualifica-
tion as a self-insurer, d. guarantee, e. any other method
specially justified and acceptable to the Commission.
The before cited subsection of the Trans-Alaska Pipeline
Act requires that financial responsibility for $14 million
be demonstrated before oil may be loaded aboard a vessel.
Thus, FMC's regulations merely stated the statutory minimum
requirement in its §543.5 and went on to define the require-
ments for self-insurers in §543.6 (a)(3).
In the Part 542 regulations it is first pointed out that
they are in addition to those contained in Part 543 (see
§542.8) and then determines a minimum requirement of'$150
per gross ton of the vessel or $250,000, whichever is greater.
Importantly, these regulations define "hazardous substances"
as those designated by EPA pursuant to Section 311(b) of
the Federal Water Pollution Control Act. Any hazardous
"wastes" appearing on the EPA lists would be included. FMC
explains in its definitions item that these are substances,
18
-------
other than oil, which generally, when discharged, may pre-
sent an imminent and substantial danger to the public health
or welfare including, but not limited to, fish, shell fish,
wildlife, shorelines and beaches.
EPA's final rules, under Title 40, Chapter 1, Sub-chapter
D (Water Programs), Parts 117 and 118, as published in the
Federal Register of March 13, 1978, Part II, Vol. 43, No. 40,
have been suspended by Federal Court Action (Manufacturing
Chemists Association V. Douglas M. Costle. CA No. 78-0578,
WD La. August 4, 1978). This action effectively halts, at
least temporarily, Federal regulation of clean-up of water
carrier spills of hazardous materials other than oil. Con-
sequently, the FMC has withdrawn its financial responsibility
requirement for water carriers of EPA designated hazardous
substances. The FMC's General Order to this effect is con-
tained in Appendix C.
During the 95th Congress, a proposal was made to amend
the Federal Water Pollution Control Act mandating higher
levels of financial responsibility for water carriers of
oil and hazardous substances. The Senate bill, which did
not pass, also would have established carriers' liability
compensation to third parties for property damages. It set
maximum liability for spill clean-up and third party damages
of $300 per gross ton of vessel and carriers would be re-
quired to demonstrate financial responsibility in that amount.
19
-------
Thus, for a typical tank barge the financial responsibility
requirement would be about $450,000 and for a Great Lakes
tanker of 15,000 GWT, the requirement would be $4.5 million.
The proposed legislation specified that transporters are
responsible for clean-up of spilled substances, to compensate
for damages to personal property, loss of natural resources,
loss of income, profits or impairment of earning capacity,
and loss of taxes, royalty, rental or revenue by governments.
This legislative proposal also would establish an Oil
Spill Liability Fund, to be derived from a 3-cents per barrel
fee on oil. At a later date, a fee on hazardous substances
would be collected for a Hazardous Substances Liability Fund.
Monies from these funds would be used to compensate for spill
claims not settled by the spiller, either because the carrier
has reached the statutory $300 per ton liability limit or
asserts a defense. Only spills caused solely by an act of
God, an act of war, third party negligence, or negligence
on the part of the U. S. Government would relieve the spiller
of liability.
Although this measure was not enacted, it illustrates
the approach of some policymakers to the problem of pollution
damage caused by hazardous substances. It is significant for
EPA purposes that damage to human health was not included
in the expanded liability proposal.
20
-------
2. State Regulations
Several states have had some related regulations for
some time. These include Florida, Louisiana, Maryland
and New York. None of these, however, have any signifi-
cance for their requirements are materially less than
those prescribed by FMC. The latter, due to their broad
statutory basis, are applicable in all states.
It is paradoxical to note that Maryland, for example,
requires posting of a bond in the amount of $100 per gross
ton of vessel, but if such financial responsibility was
already demonstrated to the Federal agency, then this re-
quirement was waived.
Another example worthy of mention is a provision in
New York's statute establishing that state's Department
of Transportation. The authority to promulgate and pub-
lish regulations for financial responsibility of carriers
by water is conferred to the Commissioner of Transportation
who "has the power to promote.safety in the transportation
of hazardous materials by issuing regulations." The Commis-
sioner has not availed himself of his vested powers to estab-
lish financial responsibility regulations.
D. Motor Carriers of Property
1. Federal Regulations
The ICC regulates financial responsibility requirements
of motor carriers of property and wastes engaged in inter-
state commerce. Applicable regulations are contained in
21
-------
Title 49, Part 1043 - Surety Bonds and Policies of In-
surance. These regulations cover public liability and
cargo liability; only the former will be discussed in
this section while noting that the ICG's requirements
for the latter coverage are limited to $5,000 for cargo
carried on any one motor vehicle and $10,000 on the total
loss or damage of or to property occurring at one time and
in one place.
The minimum amounts of insurance prescribed in §1043.2
are:
a. bodily injury to or death of one person $100,000
b. bodily injury to or death of all persons
injured or killed in one accident $300,000
c. loss or damage to property of others
(excluding cargo) in any one accident $ 50,000
As acceptable proof of financial responsibility, the
ICC accepts:
a. as a self-insurer, if the carrier furnishes an
acceptable statement of its financial condition
and any other evidence that will establish the
ability of such carrier to satisfy its obligations
without affecting the stability or permanency of
the business of such motor carrier,
b. as an insured, certificates of insurance issued
by a corporation or company approved by the Commis-
sion,
22
-------
c. as a guaranteed party, surety bonds issued by an
approved surety issuer,
d. other, security or agreements satisfactory to the
Commission.
The Commission reserves its rights under §1043.9 to
revoke or refuse to accept at any time the surety bond,
certificate of insurance, evidence of self-insureds, or
other securities and agreements, if in the Commission's
judgment such documents or their issuers fail to provide
satisfactory or adequate protection for the public.
2. State Regulations
All states, except Vermont ( require motor carriers
of property and wastes to file evidence of insurance with
their respectively designated state agencies. That is
where the similarities cease. As will be seen from the
detailed data contained in Figure 1, the minimum amounts
of coverage for bodily injury, death and property damage
vary quite substantially. In six states and the District
of Columbia, no minima are prescribed. The states in that
group are Delaware, Massachusetts, New Hampshire, New Jersey,
South Dakota, and Vermont. The remaining 44 states have re-
quired minima averaging $37,000 for injury or death to one
person and $113,000 for all injuries and deaths in one acci-
dent. The minimum average for property damage coverage is
$15,000.
The District of Columbia also has no filing requirements
23
-------
Figure 1
STATE REGULATIONS, FINANCIAL RESPONSIBILITY OF MOTOR CARRIERS
page 1 of 9
to
Insurance Self
Certificate Insurance
State Required Allowed
ALABAMA yes no
ALASKA yea yea
ARIZONA yes no
ARKANSAS yes yea
CALIFORNIA yea yes
COLORADO yea no
mnirnin UUVEKAUB KIHJUIIU.U
Injury or All injuries
death - or deaths - Property Cargo
1 person. £ 1 accident, $ Damage, § Damage. $
25,000 100,000 10,000 2,000
I/ 2/
lOO.OOfli' 300,000 10,000 5,000='
per
vehicle
10,000
at any 1
tine or
place
5,000 , 10,000 .
15,000^' 30,000^' 5,000
25,000 50k 000 50,000 1,000^
100,000 300,000 50,000 5,000
(house-
hold
A/ A/ fi/ goods)
200, 000^' 600,000s' 100, OOO2'
25,000 50,000 5,000 500?7
1,000^'
Interst. Exempt
Appli- Carriers from Legal
cabllity Excluded Regs. References
c.r no 4,5,9, Code, Title
10 48, Sec 301.
Ala. P.S.C.
Notice,
12/27/71
c.r no 3.4,6 Statutes, 42.10
et seq.
3 ACC, 64.310-
64.380
c.r no - Stats:, 40-611
Gen. Order
NOS. MU-7.
MU-13,
Ariz. Corp.
Coom.
c.r no 7 Stats:, 73-1759
Regs. Rule 13.1,
13.2
c,r partial- 4,5 Public Utili-
ties Code, Sec.
3632
of
c,r,p no 4,6,7 Stats:, Sees.
40-10-110. 40-
For legends and footnotes, see page 9 of figure.
12,106, and 40-
12-109
-------
Figure 1 (continued)
STATE REGULATIONS, FINANCIAL RESPONSIBILITY OF MOTOR CARRIERS
page 2 of 9
Insurance Self
. Certificate Insurance
State Required Allowed
CONNECTICUT yes yes
DELAWARE yes no
DISTRICT OF
COLUMBIA no
FLORIDA yes no
to
Wi
GEORGIA yes no
12/
HAWAII yes yea
IDAHO yes no
nininun UUVKKAUB KEVJUIKCU
Injury or All injuries
death - or deaths - Property Cargo
1 person,. $ 1 accident. $ Damage, $ Damage, $
25,000 100,000 10,000
none -
- -
100,000 300,000 50,000 2,500
(1 vehicle)
5,000
(all losses
25,000... 100,000 10,000 1,000
10,000^' 20,000 5,000 (1 vehicle)
2,000.
(all losses:
25,000 100,000 10,000 up to
1,500
(1 vehicle)
3,000
(all losses
100,000 300,000 50,000 1,000
(1 vehicle)
2,000
(all losses!
Interst. Exempt
Appli- Carriers from Legal
cability Excluded Regs. References
c,r no 4.5,6 Stats:, § 14-29
Regs. 8 16-
304-05
c no - Del. code
annotated
- - -
c,r^ partial-' ' - Stats. 1 323.06
et seq
Regs. Rule
25-5.31
q/
Is partial- 4.6.7, Code, 1 68-509,
(Intra- 8 68-612
state c, .Rega. Rule 25(g)
r,p need
cargo
Ins . only)
c.r no 2,4 Stats. 1 271-17
HCB 2. Rules
9.00 - 9.11
c.r.p no 4,9,10 Code i 61-804
G.O. No. 126
For legends and footnotes, see page 9 of figure.
-------
Figure 1 (continued)
STATE REGULATIONS, FINANCIAL RESPONSIBILITY OF MOTOR CARRIERS
page 3 of 9
Insurance Self
Certificate Insurance
State Required Allowed
ILLINOIS yes yes
INDIANA yes no
IOWA yes no
to
O\
KANSAS yes no
KENTUCKY yes no
LOUISIANA yes yes
(IS only)
MINIMUM lAJVfcKAUE KEIJIUKEU
Injury or All injuries
death - or deaths -
1 person. $ 1 accident^
20,000 40,000
25,000 100,000
25,000 50,000
100,000^ 100,000^
25,000 50,000
10,000 20,000
30,000
(18,000 Ibs
or more)
3/
30,000^'
10,000 10,000
Property Cargo
Damage. $ Damage. $
5,000 1,000^
10,000 2,500
(1 vehicle)
5,000
(all losses
10,000 10,000
loo.ooo^7 j°000
(0
5,000
(semi-trai-
ler and
tractor)
5,000 1,000
5,000 5,000
(1 vehicle)
10,000
(all losses
3/
25,000^'
1,000 6,000
(c only)
3,000
Interst. Exempt
Appli- Carriers from Legal
cability Excluded Regs. References
c,r no 4,7 Rev. Stats:'
Chap. 95 1/2,
18-701 (a)
9/
c,r no 4,5,6, Regs. Rule 1
12
c,r no 1,4,7, Code, 1 325.26,
13 327A.5, 327.15
01
c,r,p partial 2,4 Stats. 66-1,
128
c,r,p - 1,3,4,
5 Rev. Stat.
281,655(1)
c,r no 4,6,7 Rev. Stats. 45:
9 163,
45:173
For legends and footnotes, see page 9 of figure.
-------
Figure 1 (continued)
STATE REGULATIONS, FINANCIAL RESPONSIBILITY OF MOTOR CARRIERS
page 4 of 9
10
Insurance Self
Certificate Insurance
State Required Allowed
MAINE yes no
MARYLAND yes yes
MASSACHUSETTS yes yes
MICHIGAN yes no
MINNESOTA yes no
MISSISSIPPI yes no
MINIMUM COVERAGE
Injury or All
death - or
REQUIRED
injuries
deaths -
1 person. $ 1 accident. $
20,000
15,000
Fleet Rates
No. of Vehicles
1 to 5
6 to 10
11 to 25
26 to 50
51 - 100
100 +
NONE
100,000
50,000
100,000
10,000^
40,000
30,000
Minimum
Coverage
75,000
90,000
100,000
120,000
150,000
180,000
300,000
200,000
300,000
20,000^'
Property Cargo
Damage,. $ Damage. $
10,000 2,000^
4/
5,000-
5,000
1,000
50,000 sufficient
to protect
4/ 21
cargo-' -'
15,000 2,000 -
5,000^'
20,000 5,000 -
10,000^ 10,000^'
Interst. Exempt
Appli- Carriers from Legal
cablllty Excluded Regs. References
c,r no 2,4,5 Rev. Stats.
9 35-1560
c,r,p no 4 Code, Act.
66 1/2,
Sees.
116-149
c yes - Order, D.P.U.
No. 10415(2),
Letter from
D.P.U.
10/3/62
c,r,p no 2,4,5. Comp. Laws
6 § 479.9
c,r no 4,5,9 Stats.
8 221.141
c,r partial 4,5,8, Code 21-27-
9 133, 77-7-81
et seq
Regs. Rules
13-18
For legends and footnotes, see page 9 of figure.
-------
Figure 1 (continued)
STATE REGULATIONS, FINANCIAL RESPONSIBILITY OF MOTOR CARRIERS
page 5 of 9
Insurance Self
Certificate Insurance
State Required Allowed
MISSOURI yea yea
MONTANA yea no
NEBRASKA yea yea
to
00
NEVADA yea no
NEW yea no
HAMPSHIRE
NEW yea yes
JERSEY
NEW yea no
MEXICO
HI.NJ.HUn VUVEKAUB KtljUlKEU
Injury or All Injuries
death - or deaths - Property
1 person. $ 1 accident. $ Damage. $
50,000 100,000 10,000
25,000 100.000 10,000
25,000 50,000 10.000
25,000^' 100.0006-' 10,000*-'
25,000 100,000 10.000
none
limits for household
movers only
10,000 20,000 5,000
Cargo
Damage. $
2,000 -
7/
12,000^'
1,000
10,000*-'
1,000
(1 vehicle)
2,000
(all losses
1,000 -
5,000?.' */
1,000
(1 vehicle)
2,000
(all losses
Interst. Exempt
Appll- Carriers from
cablll ty Excluded Regs.
c,r no 4,5,6,
7
c.r.p partial 4,5,7,
8,9.10
c,r yea 4,5,7
c,r no 4,10
c.r no 4,5,6,
8.9
c,r,p no «,6
c,r,p no 4,5
Legal
References
Stats. '8 390.
126
Rule 24
Code § 8-113
Regs. Rules
8 and 11-14,
Endorsement
MV-2
State. B 75-
307
Regs. Chapt.
3. Art. 5,
Sec. 1
Stats. 1 706.
291
Regs. Rule
410
Rev. Stats:
§ 375.376
Stats;
§ 48:4-40
Stats:
8 64-27-49
For legends and footnotea, see page 9 of figure.
-------
ro
Figure 1 (continued)
STATE REGULATIONS, FINANCIAL RESPONSIBILITY OF MOTOR CARRIERS
page 6 of 9
Insurance
Certificate
State Required
NEW YORK yes
NORTH yes
CAROLINA
t
NORTH DAKOTA yes
OHIO yes
OKLAHOMA yes
OREGON yea
Self
Insurance
Allowed
yes
yes
no
IS
only
no
IS
cooaon
carriers
only
niMinun UUVK.KAUB K&VJUJLHJUJ
Injury or All Injuries
death - or deaths -
1 personr $ 1 accident. $
25,000 100,000
10,000 50,000
Basic no fault 20,000
benefit: maximum**
$15,000. $150 per
week for work loss.
$1.000 for burial
expenses.
25,000 100,000
10,000^ 25,000
10,000 20,000
l.OOO^'
Property Cargo
Damage, $_ Damage. $
10,000 1,000^-
(1 vehicle)
5.000 1.000^'
5,000 1,000
10.000 2,000^
5,000 2,500
10,000 sum
fixed by
Commission
Inter at. Exempt
Appll- Carriers from
cabiltty Excluded Regs.
c.r no 4,5.6,
8
c.r no 4,5,6,
7.B.9,
12
c.r no 4,5
c.r yes 1,4.5.
7.8.12
c.r no 4
c.r partial-' 4,5.8.
9
Legal
References
Transp. Law
8 170. Regs.
i 750.1,
855.1 -
855.3
Stats:
S 62-261.
62-263.
62-268
Code: a 49-18-
02, Regs.
Rules 22-32,
88
Code: i 4921.02,
4823.02. 4919.
81 - 4919.83
Stats: 4705.176
Regs. Rule
18.20(a)
Stata: 767.215.
767.195,
767.200,
767.025(1)
For legends and footnotes, see page 9 of figure.
-------
Figure 1 (continued)
STATE REGULATIONS, FINANCIAL RESPONSIBILITY OF MOTOR CARRIERS
page 7 of 9
Insurance Self
Certificate Insurance
State Required Allowed
PENNSYLVANIA yes yes*-'
RHODE ISLAND yes no
SOUTH CAROLINA yes IS
only
CJ
0
SOUTH DAKOTA yes no
TENNESSEE yes no
TEXAS yes yes
UTAH yes IS
only
VERMONT _
Hl.Nl.HUn UUVCKAUB KtlfUlKCU
Injury or All injuries
death - or deaths -
1 person,. $ 1 accident. $
25,000 100.000
25,000 100,000
10,000 20,000
NONE
25,000 100,000
25,000 100,000
20,000 40,000
1ft/ Ifl/
50,000^' 100,000^'
BUSES ONLY
Property Cargo
Damage. $ Damage. $
10,000 10.0002-'-
10,000 2,000
5,000 1,000
(1 vehicle)
2,000*'*'
(all losses
1,000
10,000 2,000^'-
12,000
10,000 1,000*-'
10,000 Sin fixed
' Coonisslor
-
Interst.
Appll- Carriers
cabllity Excluded
1
c,r no
q/
c,r partial-'
c,r no
c,r partial
c,r no
9/
c,r partial
91
. c.r.p, partial-
c,r
-
Exempt
from
Regs.
2,4,8.
9
2.4,6
4,5,7,
9
4,5
1.5
1,4.8
4,7,9.
14
-
Legal
References
Stats: Title
66 8 1308,
1355, Code:
52, 1 29. 104 (d)
52, i 31.6(c)
Stats: § 8 39-
12-27; 39-13-8
Code: i 58-23 -
910, 930,
58-23-50
Stats: i 49-28-2
Code: 65 8 1512,
1513
Motor Trans-
portation Regs.
051.03,12.003,
051.03.13.017
Code § 54-6
-
For legends and footnotes, see page 9 of figure.
-------
Figure 1 (continued)
STATE REGULATIONS, FINANCIAL RESPONSIBILITY OF MOTOR CARRIERS
page 8 of 9
Insurance Self
Certificate Insurance
State Required Allowed
VIRGINIA yes no
WASHINGTON yes . no
WEST yes yes
VIRGINIA
WISCONSIN , yea yes
WYOMING yes no
nininun uuvttuu.ii HBIJUIKEU
Injury or All injuries
death - or deaths - Property Cargo
1 person,. $ 1 accident, $ Damage. $ Danage. $
100,000 500,000 50,000 10,000^
25,000 100,000 10,000
10,000 20,000 5,000 2,000
(1 vehicle)
4,000
(all losses
100,000 300,000 50,000 sum
fixed
by
Commission
25,000 50,000 5,000 2,000^
(1 vehicle)
4,000
(all losses
Interst. Exempt
Appli- Carriers from Legal .
cabllity Excluded Regs. References
c.r.p no 1,2,4, Code: I 56-
9 304.6:2
c,r, no 2,4,5, Wash. Admin.
6,7 Code § 480-
12-127(3)
c,r,p no 1,4,6, Regs: Motor
10 Carriers Gen.
Order No. 49
c,r no 4,6,7 Stats: I 194.41
Regs: MUD 2,
Rules of che
Dept. of Transn.
Wisconsin Admin
Code
I1Y 30 - Rules of
the Dept. of
Transportation
c,r yes 4,5,8 Stats: i 37-137,
37-138
Regs: Chape I
§ 26.27, Chapt.
II § 1-17
For legend and footnotes, see page 9 of figure.
-------
Figure 1 (continued)
page 9 of 9
STATE REGULATIONS, FINANCIAL RESPONSIBILITY OF MOTOR CARRIERS
LEGEND
FOOTNOTES
Ol
(O
IS interstate carriers
c common carriers
r contract carriers
p private carriers
EXEMPTIONS - carriers transporting exclusively the below
enumerated commodities are exempt from state financial
responsibility regulations.
1. petroleum
2. garbage, waste
3. commodities exempt under ICC
4. farm or dairy products
5. freight, operating wholly within city limits
6. the Government
7. weekend autos
8. construction materials
9. forest products
10. mine products
11. junk
12. fertilizer
13. liquid products in 2,'000 Ibs. tanks or less
14. commodities for which Insurance is unobtainable
1. admin, agency has discretion In prescribing coverage
2. exemption available for material of low value
3. minlmums for carriers of explosives or Inflammables
4. common carriers only
5. ICC exempt carriers must file Insurance
6. limits for petroleum products
7. depending on weight of carrier
8. cargo Insurance of $2,500
9. no cargo insurance
10. ICC exempt carriers excluded
11. uninsured motorist coverage
12. cargo Insurance only
13. liquid transport carriers
14. self-insurers under ICC
IS. intercity vehicles with a municipal permit
16. freight forwarders
17. IS common carriers exempt from cargo Insurance
18. vehicles with a special transportation permit
19. transporters of commodities in bulk are exempt
-------
The Commonwealth of Virginia has the highest insurance
requirements; the coverage required for all injuries and
deaths in one accident is $500,000 and exceeds the Federal
standard by $200,000. Other limits parallel the ICG's re-
quirements. Next highest with minimum requirements equalling
those prescribed by the ICC are California, Florida, Idaho,
Michigan, and Wisconsin.
In ten states the minimum coverage required is so low as
to result in total liability coverage of $50,000 or less.
In New Mexico, for example, the limits are $10,000, $20,000,
and $5,000, respectively.
In five states, higher minima apply to carriers of
hazardous materials. In Arizona, for example, carriers of
explosives and flammables are required to increase their
insurance for injury or death to one person from $5,000 to
$15,000, and for all injuries and deaths from $10,000 to
$30,000. Iowa has special requirements for transporters by
highway of liquids; that state's limits are increased to
$100,000 compared with $25,000, $50,000, and $10,000,
respectively.
The methods employed to establish financial responsibility
are largely the same as required under the Federal regulations.
Some states do not permit seLf-insurance. Others exclude
interstate carriers from state requirements. Utah has one
of the most peculiar provisions exempting from financial
responsibility carriers of commodities for which insurance
is not obtainable.
33
-------
It will be noted that we also included in the Figure 1
data the financial responsibility requirements for cargo
damage. Generally, the state prescribed limits for cargo
damage are lower than for the public liability coverage.
Overall, these dats. serve to document the relatively lax
state regulations in this area.
As of the time the underlying research was completed,
July 1978, not a single state has passed legislation or
published regulations with specific reference to environmental
damage. It is noteworthy that several of the snowbelt states
have considered and some have in fact prohibited the use of
road salt for de-icing due to the alledged environmental
damage caused by salt. Yet none of these states have felt
it necessary to require motor carriers authorized to operate
in and through their states to provide evidence 01'- financial
responsibility for the cost of mitigating or repairing environ-
mental damage caused by these carriers' operations within the
respective states.
34
-------
IV. CURRENT INSURANCE PRACTICES OF TRANSPORTERS OF HAZARDOUS WASTE
A. Overview
The Contractor was required to assemble data for each mode
of hazardous waste carrier reflecting current insurance prac-
tices, their cost, and the extent of self-insurance. The methods
employed to meet these workscope requirements included the
collecting of pertinent information from a geographically strati-
fied sample of transporters, several major underwriters, and in-
surance companies, as well as carrier associations. This research
task was extended to include information about the coverage which
might be available to transporters of hazardous wastes, if broader
or specialized insurance coverage were to be desired by these
carriers or if it were required by law. It should be remembered,
the purpose of this investigation is to determine whether carriers
do, in fact, and can secure adequate insurance protection for the
potentially high costs of "clean-up" following an accidental
spill of hazardous materials or wastes.
Most insurance coverage for third party liability, i.e., the
transporters' responsibility to others for damage, injury or death
transporters may cause accidentally, is not peculiarly for trans-
porters of hazardous waste; rather the same type of coverage
offered by insurance underwriters to carriers of commodities is
purchased also by and applies to hazardous waste carriers. As
will be noted from the information in this chapter, the insurance
coverage afforded carriers by railroad and motor vehicle does not
contain specific provisions for cost of spill "clean-up".
35
-------
Only the water carriers can obtain insurance to specifically
defray to the Government the cost of cleaning-up spilled sub-
stances. Undoubtedly this is due to the stringent Federal
regulations applicable exclusively to carriers by water, as
explained in Chapter III, which regulations establish the
liability and levy penalties for such mishaps.
B. Current Financial Responsibility Practices
Consistent with the format employed in Chapter III., the
discussion in this chapter is also by mode.
1. Railroads in General
It is essential to observe two significant facts at the
beginning of this discussion on railroads' insurance practices.
First, because railroads' financial responsibility requirements
are not regulated or supervised by the ICC, and possibly for
other reasons, railroads generally consider any information
on this subject as highly confidential matter- Not only were
numerous railroad officials we contacted reluctant to discuss
this subject, but their referral of our request for informa-
tion to the highest levels of management confirmed the in-
surance directors' attitude.to the effect that no information
would be made available. We might also note that railroads'
routine quarterly and annual reports required to be filed with
the ICC do not reveal any useful information on railroads'
insurance practices. The Information contained in these
reports commingles insurance costs for insurance of all types,
36
-------
so that it sheds' no light on whether a particular railroad
is in fact paying premia for third party liability insurance,
other than for cargo damage.
Some useful information though was obtained from a senior
executive of the Association of.American Railroads. This
cooperative individual chairs an industry committee specifi-
cally organized to deal with insurance problems affecting
the nation's large railroads. The information obtained from
this source is incorporated with that obtained from insurance
company and agency representatives.
The second matter to be noted at this juncture is the fact
that not all the nation's railroads follow a common path or
that they should be understood as one single homogenous in-
dustry, with most, if not all, industry members following the
same practices. It is proper to say, based on the informa-
tion obtained from the various sources contacted, that for
financial responsibility or third party insurance purposes,
the railroad industry consists of at least two classes. The
ICC designated Class I railroads are companies with annual
revenues in excess of $5 million. Class II railroads, those
with annual revenues less than $5 million, are generally short
line hauls, terminal and switch railroads. Another way of
classifying the railroad industry for purposes of this
analysis is to differentiate between the members of the
Association of American Railroads and those which belong to
the American Short Line Railroad Association.
37
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Information pertaining to the practices of the smaller
railroads was obtained mainly from insurance professionals
specializing in the particular areas of risk assessment and
insurance coverage for these transporters. Our summation of
the quite extensive body of information obtained follows
in the next subsection of this chapter.
a. Small Railroads (short line, terminal, and switch carriers)
For the past five to eight years, these carriers have
been able to purchase insurance coverage for their entire
third party liabilities mainly from two domestic insurers.
These two insurers, Midland Insurance Company and Califor-
nia Union have developed similar comprehensive liability
policies, tailored specifically to the needs of smaller
railroads. A sample Midland policy, exclusive of the
cover pages, is contained in the enclosed Appendix D.
Particular attention is drawn to the following: item iv.
contains an excess clause; that means, only a net loss in
excess of a sum specified shall be paid by the insurer in
behalf of the assured. Also, the exclusion clause is of
special interest. It is presented as Form L6481 and Endorse-
ment, Exclusion (Contamination or Pollution). This ex-
clusion pertains specifically to bodily injury or property
damage arising out of the discharge, release, etc. of
hazardous materials, including wastes. However, this ex-
clusion is not applicable when such discharge is sudden
38
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or accidental. Put simply, this policy does not offer
indemnification for the cost of spill "clean-up" unless
such spill occurred suddenly or accidentally.
It has been the practice to write this type of policy
for a coverage limit of up to $2 million per occurrence
with a deductible of $25,000 or more. The contractor
found only a few short line companies with third party
liability insurance in excess of $2 million. In other words,
the smaller railroads have self-insured themselves for at
least the first $25,000 of damage for which.they are ulti-
mately held liable, and they have purchased insurance for
a total risk exposure of up to $2 million less the sum
retained. This coverage can also be extended if so
desired by the assured and if the insurer agrees to
include Federal Employer's Liability (FEL), and rolling
stock insurance. The latter coverage, though unrelated
to the matters pertinent to this study, reflects a "tailor
made" condition which is particularly important to these
smaller railroads because they handle mostly rolling
stock which is the property of others. Hence, these rail-
roads have a continuing and often large exposure to a
third party liability involving specifically the rolling
stock owned by shippers and other railroads.
More generally, the exposure to third party liability
by small railroads can be judged to be as great as that
of the large railroads. The difference is merely in terms
39
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of the size of the railroad system over which this
exposure occurs. On a per occurrence basis, though,
there is no significant difference. A small terminal or
branch-line railroad is likely to move entire trains,
possibly somewhat shorter trains than is typical in
line-haul, containing hazardous substances or any other
commodity. Moreover, two other factors are bound to
aggravate their exposure to risk. These are poor track
conditions which may lead to more frequent derailments,
and operations in populated and highly built-up areas,
such as the urban and industrial complexes within and
surrounding port cities. The City of Chicago is a per-
fect example for both of the named factors. Track con-
ditions of the terminal railroad are known to be in bad
repair, yet these tracks pass through parts of the City
which contain the most intensive industrialization and
populated tracts anywhere.
It is not to be assumed that the smaller railroads'
managements are unaware of their considerable exposure
to risks in excess of their current comprehensive lia-
bility coverage. The reasons stated for their relatively
small liability coverage, as noted, generally not more
than $2 million per occurrence, are (i) the significant
cost of this insurance, and (ii) the difficulty and even
larger cost in obtaining coverage in larger amounts.
40
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The two insurance companies specializing in this "line"
state that they have incurred net underwriting losses
in most of the years in which this coverage was written
by them. For that reason, they are not only reluctant
to increase the limits but are tending towards higher '
deductibles and increased premium rates.
The premium rating process is specific for each
assured. Unlike the practice commonly applied to third
party liability insurance for most conventional coverages
for which insurance companies establish standard rates
for classes of assureds, premia for this comprehensive
liability coverage for small railroads are established
on a case-by-case basis. Ultimate rating for each assured
is largely subjective although a large number of factors
are considered by the underwriter. Included among the
factors considered are the railroads location, the
terrain it's tracks transgress, number of grade crossings,
claims history, experience of employees, and also the
tonnages or carloads of hazardous articles transported.
The question: 'What would be the rate difference if a
railroad did not handle any hazardous articles?', could
not be answered specifically by underwriters. The
reason given is that the transportation of hazardous
materials is but one of the many factors taken into con-
sideration for rating purposes and that no specific weight
is attributed to that factor, as would be the case if a
rating formula existed.
41
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In general, as noted before, premia for this com-
prehensive coverage are high; premium expense accounts
for a notable part of carriers' revenue. The ultimately
determined rate is mostly expressed as a percentage of
gross revenue; in some cases, it is a percentage of
gross payrolls.
Rates believed to be typical range from around $3..75
per $100 of gross revenue (3.75%), to as mucli as $8.00
per $100 of gross revenue. While the latter is believed
to be rare and would apply only for transporters by rail
with an extremely poor claims record, the median of this
range, or about $5.75 to $6.00 per $100 of gross revenue
is believed to be the average premium cost.
As noted above, few cases have been observed with
excess coverage for more than $2 million of liability.
In these cases, the assured retained some sum, $50,000
to $100,000, above the first $2 million. Of course,
the first $2 million of coverage also had a retained or
deductible sum of at least $25,000 to $50,000. Short
line railroads with comprehensive coverage for more than
the usual $2 million are paying from $0.81 to $1.00 per
$100 of gross revenue per million dollars of that excess
coverage or $1.81 per $100 of gross revenue for the
additional $1.9 million of insurance coverage above the
base of $2.1 million of claims.
42
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On average, railroads purchasing the comprehensive
liability .coverage discussed above can be expected to
have pretax income of between 1% and 3% of gross revenue.
It follows that their insurance premia for third party
liability insurance equals some multiple of their pretax
earnings. Of- course, by definition, insurance premia are
an operating expense and as such are included in that
total operating cost which results in the noted pretax
operating income.
b. Large Railroads (Class I Railroads)
The nation's larger railroads have been purchasers
of comprehensive liability insurance for a long time.
Concommitant with the financial and operational problems
experienced by these carriers, their problems with lia-
bility insurance coverage have exacerbated. Until 1970
practically all of these railroads were able to obtain
the coverage best suited to their individual needs from
the Railroad Insurance Underwriters (RIU), an organization
of brokers and underwriters backed by treaties with a
cross section of the U. S. casualty insurance industry.
Due to continuing losses, RIU ceased operations but was
succeeded by a similar organization, Railroad Transit In-
surance (RTI). It too, however, sustained underwriting
losses and ceased operations in 1974.
-------
RIU and RTI issued comprehensive liability policies
which, as noted, were "tailor made" for each assured
but which followed a number of basic industry standards.
Significant among these were the assureds' self-retained
portion, ranging from a minimum of $i million to about
$5 million. The excess coverage, provided by the treaty
underwriters, was usually written in step-wise policies,
with the first of these assuming the risks for the first
$10 million of annual claims above the self-retained sum,
the second, the next $15 million, and the third, another
$15 million or so. ' In the aggregate, railroads were
thus able to obtain excess coverage in the order of $50
million, or even more, without difficulty and with the bulk
of that coverage retained on a pooled basis by the major
U. S. casualty companies. These companies were, for the
most part, the so called "admitted" insurers, i.e., in-
surance companies which are registered in practically all
states and which have agreed to comply with the laws and
regulations applicable to their scope of activities, in-
cluding rate regulations, in the respective states. These
insurers, it might be noted, comprise the twenty-odd com-
panies which underwrite about 95% of the $80 billion
casualty business in the U. S., of which about 45%, or an
annual premium volume in the area of $36 billion, is
I/ This practice is known in the industry as "policy layering".
44
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realized from commercial coverage (as distinct from
personal liability for privately owned automobiles,
homes, etc.).
Since the time of RTI's demise, the market for rail-
road's liability insurance has changed quite drastically.
While the major admitted companies have removed themselves
from the market, some of the non-admitted companies, or
so called "surplus lines", Lexington Insurance Company
and American International Group, among others, have en-
tered this market. Most importantly, however, these non-
admitted companies and the principal brokers have looked
increasingly to the London market, predominantly Lloyd's,
to either place this coverage directly or to reinsure it
there.
The effects of t'hese market changes are not reported
to be overly problematical. They are mostly affecting the
affordability factor and to a lesser extent the avail-
ability factor. These two factors, availability and
affordability are, of course, the sine qua non of the
matter- The American Insurance Association, one of the
two principal insurance industry associations believes
there is not presently, nor has there been, a capacity or
availability problem. However, as the result of substan-
tial underwriting losses, premia have been increased
substantially during the recent past to the point where
the premium payers contend absence of affordability-
45
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It would seem that two interrelated phenomena are
the culprits responsible for the described situation.
Basically, the decline of the railroad industry's pro-
fitability is the fundamental problem. Due to it,
railroads have increasingly deferred track maintenance
and to some lesser extent also equipment maintenance.
These deferrals, in turn, have resulted in less sa*e
operations, a claim mostly denied by industry spokesmen
but stressed by members of the insurance industry, and
significant increases in the frequency and magnitude of
railroad accidents. These interrelated phenomena, the
insurance industry asserts, are the causes for claims to
be equal to or even in excess of premia, or in industry
parlancef a premium-loss ratio of 100% or more.
Members of the U. S. casualty insurance industry
concede that if they were to rate railroads' comprehensive
liability risk properly, such that a projected premium-
loss ratio in the 60% to 70% range would result, premia
would have to be exorbitant, and non-affordable. It is
not quite clear whether the London underwriters fully
share this view and possibly have adopted similar practices,
i.e., to raise their direct and reinsurance rates to the
levels of the U. S. surplus lines carriers. It is evident,
however; that the London market too is generally reluctant
to increase its exposure and write coverage for more than
46
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$50 million to $60 million for anyone assured. -One re-
ported practice is to base excess coverage on a per
train basis with limits in the $5 million to $10 million
range.
A committee of members of the Association- of American
Railroads (AAR) has long wrestled with the problems of
availability and affordability. The committee's activities
have included a visit with London underwriters with no
apparent results. Basically, it appears that senior rail-
road officials are uneasy about the limits of coverage
afforded presently at rates they consider to be excessive
or, at least, not affordable. One must wonder though
whether a solution to the problem, as seemingly perceived
by the railroad industry, is bound to be evolved by the
insurance industry rather than the railroads themselves.
What apparently are needed are improved track and equip-
ment maintenance to reduce derailment incidence, better
signaling to reduce collision incidence, and possibly
improved overall risk management.
Generally, Class I railroads today are self insuring
for amounts ranging from $1 million to $5 million. They
will then purchase commercial insurance policies for limits
up to $50 million. As indicated above, some of the under-
writers assuming these risks apply it on a per train basis
with limits in the $5 million to $10 million range.
47
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Just how much greater insurance companies judge
railroad risk exposure with other routinely underwritten
risks can be gauged from a single comparison. While
large railroads are, as.noted before, mostly limited to
excess coverage of about $50 million, for which they
pay rates in the range of 1.5% to as much as 6% or 7%
of revenue, oil drilling rigs, on site in the volatile
North Sea are insured for up to $2 billion. An average
premium for the rigs' property and liability coverage
is in the order of $2.00 per $100 of value with relatively
small deductibles. It follows that underwriters consider
the potential risk for these enormously expensive oil rigs
to be a gieat deal less than that attending to the nation's
major railroads' operations.
2. Water Carriers in General.
As noted above, water carriers are the only transporters
with a ready market for insurance specifically to defray the
cost to the government of removing a spilled substance. This
insurance market is available to water carriers from a syn-
dicate of underwriters, as described below. This organization
also writes policies covering third party property damage re-
sulting from a spill of hazardous materials. It dbes not, how-
ever; insure against claims for bodily injury or death. This
protection though can be obtained through a regular protection
and indemnity policy (marine equivalent of third party lia-
bility), offered by the major underwriters.
48
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Typically, a water carrier may pay 2 1/2% of its gross
revenues for liability insurance premia. The actual cost
will vary from company to company depending upon size of
operation and the mix of commodities carried. Insurers will
not charge different premia for hazardous "waste" as opposed
to other dangerous materials. Carriers by water of hazardous
materials adjust their freight rates to account for insurance
costs, thus transferring these costs to the shipper. It
should be observed that hazardous wastes are transported by
water carriers in bulk, mainly tank and hopper barges; such
transportation in bulk is from the ICC's economic regulations.
To determine insurance practices for water carriers of
hazardous substances, including wastes, the contractor conduc-
ted interviews with marine insurance underwriters and brokers,
and surveyed a sample of barge companies which routinely handle
hazardous materials. Since only approximately one percent of
hazardous wastes are carried by water { our random sample,
not suprisingly, did not include such transporters. However,
since marine underwriters do not distinguish between waste
and commodities with economic value, the same insurance would
be available to a carrier by waterway transporting waste as
would be other barge lines.
I/ Characterization of Hazardous Waste Transportation and Economic
Impact Assessment of Hazardous Waste Transportation Regulations,
Arthur D. Little, Inc., U. S. Environmental Protection Agency,
pre-publication copy.
49
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a. The Water Quality Insurance Syndicate
Twenty-eight (virtually all) of the American com-
panies specializing in marine insurance have formed a
pool, the Water Quality Insurance Syndicate (WQIS), to
provide coverage to vessels for liability incurred pur-
suant to the Federal Water Pollution Control Act (Public
Law 92-500). This is the only organization in America
indemnifying water carriers for the costs of "clean-up"
of spills.
The WQIS provides two basic types of coverage for
vessels: Section A indemnifies the carriers for any
sums they must pay to the U. S. or any political sub-
division for costs of cleaning up a hazardous material
spill, including restoration of natural resources damaged.
The limit of the vessel liability to the U. S. government
for clean-up costs is $125 per gross ton of an inland
oil barge, or $125,000, whichever is greater, and for
crafts other than inland oil barges, $150 per gross ton
of such vessel. If a vessel carries oil or a hazardous
substance as cargo, then its maximum liability is $250,000,
provided that this sum is greater than $150 per gross ton
of the ship. (These limits are contained in Section
311(f)(l) of the Federal Water Pollution Control Act
(FWPC, 33 U.S.C. 1321). Section A coverage extends to
these statutory maximums. In the case of liability to
50
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a State or municipality for clean-up, WQIS will not re-
imburse the carrier for' amounts in excess of the Federal
maximums.
The FMC, which promulgated financial responsibility
regulations for the water carriers, does not recognize
any deductibles for clean-up insurance. Thus, WQIS pro-
vides total indemnification for its Section A coverage,
with the carrier paying no part of the claim.
In addition to money that the carrier would pay to
the government following a spill, the WQIS also pays any
costs the carrier incurs for clean-up, provided, prior
WQIS consent is obtained to the incurrence of that cost
by the assured.
Carriers may purchase insurance against liability for
pollution damage to property with Section B coverage.
This policy covers any amounts carriers must pay as a
"consequence of the sudden and accidental discharge,
emission, spillage, or leakage upon or into the seas,
waters, land or air, of oil, petroleum products,, chemicals,
or other substances of any kind or nature whatsoever." It
does not indemnify the carrier for damages resulting from
a spill caused by willful misconduct. This insurance
does not apply to damage to the vessel's cargo or other
ship property, or to personal injuries or deaths.
Carriers who wish protection against liability for .per-
sonal injuries resulting from pollution must obtain it
51
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in their regular protection and indemnity coverage.
WQIS decided not to underwrite liability for personal
injuries because spills frequently result from a vessel's
collision. In that situation, it is often difficult to
determine whether bodily harm to a crew member or other
individuals has resulted from the collision or from the
spill of the hazardous substances. The injured employee
would have to claim from two different insurance companies:
the general liability underwriter and the pollution in-
surer, to have the causation issue resolved. Rather than
create this possibility, the WQIS decided to leave personal
injury insurance with the traditional liability under-
writers. Cargo insurance also poses such a problem, as
frequently the owners of the property have their own
coverage. Thus, WQIS does not insure cargo.
In addition, this policy does not cover fines, penalties,
punitive or exemplary damages. Section B coverage is sub-
ject to a minimum deductible of $2,500 for each accident
or occurrence, and higher deductibles are available.
For Section A coverage, WQIS premiums range from
$.25 per gross registered ton of the insured vessel to
$.96 per gross registered ton. Figure 2, specifies the
premium for the various categories of vessels.
Figure 2 data are not firm rates, and WQIS will vary
the premium depending upon such factors as where the vessel
operates, its spill experience, etc.
52
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Figure 2
Water Quality Insurance Syndicate (WQIS) Premia
for indicated coverages
Vessels
Premium, in £ per gross
registered ton
Barges, not carrying oil
(insurance covers them in
case they cause a spill
from another vessel)
Barges carrying oil as fuel,
less than 10,000 gallons
Barges carrying oil as fuel,
more than 10,000 gallons
Tugs and Twoboats carrying
oil as fuel
Self-propelled vessels carrying
oil as fuel
Tank barges, inland water only
Tank barges, other than inland
water only
Vessels carrying hazardous
substances other than oil
25
30
45
56 1/4
45
82 1/2
90
96
53
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WQIS does not disclose its formula for rate deter-
mination for Section B coverage. Generally, the premium
will vary by type of vessel, the limit of liability
the carrier wants for the particular craft, commodities
carried, geographic considerations and spill experience.
The maximum aggregate liability (total insurance) that
WQIS will underwrite on any one vessel is currently $5 mil-
lion for Section B coverage.
b. Protection and Indemnity Coverage (Marine)
Water carriers can obtain coverage for bodily injury
or deaths of crew members and others resulting from a spill
in their regular Protection and Indemnity (P & I) policy.
Included in the definition of "bodily injury" would be the
long-term, latent damage suffered by an employee exposed
continuously to hazardous substances. P & I policies
containing specific provision for this long term exposure
can be obtained to include risk exposure affecting the
general public. However, the potential for such risk, the
long-term exposure of the public to a hazardous substance
is regarded to be remote by the insurance industry. This
judgment is based on the fact that most spills occur in
moving waters with their flushing action. When such in-
juries do occur to non-crew members, it woald most likely
be because a chemical seeped into the water intake system.
Since the intake system is normally closed when a spill
occurs, this risk is considered to be insignificant.
-------
In addition to this coverage, operators can pur-
chase protection for property damage due to a spill as
part of a P & I policy. This policy can be instead of,
or in addition to as an excess policy to the WQIS Section
B coverage. P & I coverage can be obtained for up to
$20 million per vessel; for amounts in excess, American
underwriters would probably defer to the London market.
Marine carrier officials believe the U. S. insurance
industry could not assume a risk as high as $50 million
per vessel for spill damages. It is similarly believed
by the transporters that the insurance companies would
not form a syndicate to provide such coverage, as they
have done for spill "clean-up", because WQIS has not
proved to be profitable.
The premium rates for P & I marine insurance are
expressed as a percentage of dollar coverage,' i.e.,
cents per dollar of coverage. In setting P & I rates,
the following factors would be considered: type of vessel,
age of vessel, competence of employees, commodities
carried, loss history, and geographic area of operation.
The Gulf of Mexico and the Inter Coastal Waterway are
considered to be very high risk areas.
Survey of Water Carriers
The Contractor discussed insurance practices with
executives of water carriers transporting such commodities
as styrene, petroleum, bilge, caustic soda, agricultural
55
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products, fertilizer, limestone, anhydrous ammonia,
sulfuric acid, coal tar, molten sulphur, acetone, ketone,
and alcohol. These transporters included private com-
panies hauling their own products and barge companies
chartering their vessels to others. The companies were
selected at random, but an effort was made to obtain
geographic diversity and to include carriers of different
sizes. Responses to our specific questions regarding in-
surance coverage are summarized in Figure 3. All'but one
of the transporters have WQIS Section A coverage. One
medium-sized carrier believed the cost of this coverage
to be too high and prefers to self-assume the risk. All
of the water carriers surveyed have secured Section B
coverage. In addition, some companies secured other
commercial insurance to supplement WQIS's third party
coverage. Only five (5) of the surveyed companies reported
to have had accidental spills of hazardous articles within
the past decade. All had paid for clean-up with approxi-
mate costs ranging from less than $1,000 to $125,000 in
one case.
All of these carriers expressed serious concern about
the high premiums they were paying for coverage. One con-
cerned barge company official believed the insurance
companies, through the WQIS, had reached the uppermost
limit of what they were willing to underwrite. Another
56
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Figure 3
SUMMARY OF SURVEY OF INSURANCE PRACTICES FOR WATER CARRIERS
WQIS
clean-up
insurance
Small Carriers
all carriers
Medium Carriers
75% of sample
yes
25% of sample
no
Large Carriers
all carriers
Private Carriers
hauling own products
all carriers
01
Third Party
Pollution Damage,
$ Amount of
Coverage
2-10 million
5-10 million
5-20 million
5 million
Annual Premium
Range, $
not available
50,000 - 100,000
approx. 50,000
1 million
(includes coverage
on equipment)
Range of
number of
spills reported
in last ten
years by
different carriers
none
0-1
0-3
minor spills only
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corporate officer predicted that his organization would
cease carrying hazardous materials or would have the
shipper assume liability if the law were to require
additional coverage, for, as he stated, premium costs
were past the carriers' absorption ability. Thus, for
the carriers by water of hazardous materials including
wastes, the problem of availability is practically non-
existent, but similar to the railroads, affordability
is a serious concern.
3. Motor Carriers in General
In addition to the results of our survey of motor carriers,
which are described later in this section, some general obser-
vations about insurance practices for this mode are in order.
These observations emanate from interviews with insurance
underwriters and motor carrier executives who have respon-
sibility for the carriers' risk management.
The ICC and nearly every state require motor carriers,
including hazardous waste haulers, to demonstrate a minimum
amount of financial responsibility as a condition precedent
to obtaining an operating permit. (See Chapter III) The
carrier can satisfy the ICC requirements, and that of many
states, by carrying insurance, posting a bond guaranteeing
the payment of all judgments up to the prescribed limits,
or by obtaining permission to be a self-insurer. The over-
whelming majority of trucking firms meet their legal
58
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requirements by purchasing commercial insurance. Indeed,
the ICC is very conservative in approving self-insurance
plans. According to one estimate, only about 10 motor
carriers have been certified for self-insurance by the ICC.
Despite this attitude toward total self-insurance, the ICC
does not prohibit or restrict any plans of insurance which
include large deductibles. The use of deductibles does not
negate the insurance company's obligations in the event the
carrier becomes insolvent or otherwise unable to pay claims
against it. For example, a carrier may have a policy with a
$250,000 deductible. If that carrier becomes financially
unable to pay claims against it, its insurance company must
pay each valid claim up to the limits of the ICC endorsement.'
The ICC makes the liability of.the insurance company
absolute as regards claimants regardless of any truckers' in-
dividual policy provisions. If a carrier were found liable
for damage to a roadside fruit stand, for example, the in-
surance company would have to pay the claim, even if the amount
of damage was within the deductible of its policy. The trans-
21
porter would then reimburse the insurer.
The third party liability insurance carried by most truck-
ing firms includes three separate limits: A total for bodily
injury or death for any one person, a maximum for bodily
j1. C. & S. Bulletins, 1978, Casualty & Surety Section, an Insurance
Industry Advisory Publication.
Ibid.
59
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injuries to or death of all persons injured or killed in
any one* accident, and a limit for loss or damage in any one
accident to the property of others, (excluding cargo). Aetna
Insurance Company introduced on July 1, 1978, a new "Truckers'
Policy", designed especially for commercial motor carriers.
This coverage abandons this split limit of liability and uses
a "combined single" limit of liability. The company claims
that this "one limit" method is easier for the insured to
understand and affords the insured a better limit of pro-
tection. Figure 4 following shows how a carrier would convert
its present limits into Aetna's combined single limit.
The Combined Single Liability (CSL) means that regardless
of the number of covered trucks, insureds, claims made or
trucks involved in an accident, the maximum for which an
insurer is liable for all damages resulting from one accident
is the limit shown in the CSL declaration.
A distinction has to be made between owner-operator motor
carriers and larger organizations transporting property or
wastes for hire. The owner-operator, by definition a single
person with his own truck, would ordinarily be covered for
liability by the insurance policy of the truckers for whom
he hauls. Indeed, from the results of the contractor's
survey, it appears that the premium paid by most carriers
would be prohibitive for the owner-operator.
60
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Figure 4
Conversion for Split Limits to Combined Single Limit
in thousands of dollars
Present Split Limits Combined Single Limits
100/300/50 350
100/300/100 400
250/500/50 500*
250/500/100 750
250/500/250 750
500/1,000/100 1,000
500/1,000/250 1,500
* This is the minimum required underlying limit
for Umbrella Coverage.
61
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In determining what premiums to charge a motor carrier,
the insurance companies generally use a "rating plan".
Rating factors considered include vehicle size, intensity of
usage, commodities carried, radius of operation, loss ex-
perience, and competence of employees. Long distance truckers
will be subjected to zone ratings, if they operate outside
a 200 mile radius of their principal garaging. Underwriters
employ 37 metropolitan zones and 11 regional zones.
Another important premium consideration will be whether
the truck insured is part of a "fleet". Generally, a fleet
is considered to be 10 trucks or more. The insurance industry,
based on claim experience, contends that fleets suffer larger
and more frequent losses than non-fleets, and hence, fleet
coverage is now subject to a surcharge.
Transporters of hazardous waste would most likely pay
premia similar to those paid by other carriers of hazardous
materials. The physical characteristics of the commodities
hauled are considered in insurance rate making. However,
I/
the economic value of the cargo is not a significant factor.
a. Survey of Motor Carriers
The Contractor selected geographic and size strati-
fied sample of motor carriers of hazardous materials, in-
cluding common, contract, and private transporters. Also
among the firms surveyed were waste disposal facilities
I/ Insurance Associates of America and others.
62
-------
operating their own trucks and carriers hauling wastes
exclusively. The companies ranged in size from very
small family-owned businesses to large corporations.
Materials carried included liquid waste, chemicals,
petroleum products, acids, oil sludges, waste oil,
drummed cyanide, corrosive lacquer, and battery electro-
lite. Executives from these organizations were inter-
viewed concerning their insurance coverage and premiums.
Without exception, sample included companies have
chosen to carry significantly larger coverage than the
minimum required by regulation. Premia paid vary greatly
by size of carrier and limits of insurance. Figure 5,
indicates the relationship of insurance costs to -certain
measures of company operation.
i. Hazardous Waste Transporters - The survey included
21 carriers of hazardous waste. The particular sub-
stances hauled were liquid industrial wastes, spent
acids, paint sludges, waste oil, solvents, chemical
waste from water treatment facilities, pickling
liquor, chemical residues, and oil sludges. The trans-
porters were contract, common, and private carriers.
The amount of third party liability insurance carried
ranged from $75,000 to $30 million. Eight of the
waste carriers exposed the assets of their companies
to possible claims by self-insuring in amounts ranging
63
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Figure 5
Relationship of Insurance Costs to
Measures of Company Operation
Dollar Amount
of General
Liability
Insurance
(millions)
Insurance
Cost to
Total Oper. Rev.
(percent)
Insurance
Cos't to
Power Unit Veh. Mile
(cents/mile)
Insurance
Cost per
Tons Carried
(cents/ton)
O)
1 and under
> 1 < 10
10 - 50
3.3
2.5
2.1
3.5
2.9
2.3
89.2
74.3
60.9
Source: Contractor's Survey of Selected Motor Carriers
-------
from $500,000 to $2 million. Annual insurance
premiums were reported to range from as little as'
$600 to as much as $137,000, reflecting from 1.5%
to about 3% of carriers' gross revenues. Approxi-
mately half of these carriers believed that the
maximum amount of liability insurance which they could
obtain from a commercial underwriter was $2 million.
All but two of the companies asserted they would have
to raise their transportation rates if they were re-
quired to purchase additional insurance. Of the re-
maining two, one carrier, currently paying only $600
annually for insurance, would absorb the increased
cost. The other company said it would cease handling
hazardous materials. Four waste haulers reported
difficulties obtaining insurance, but had solved
their problem either by paying a higher premium or
by changing insurance companies. Several carrier
spokesmen voiced the opinion that insurance costs were
driving the small waste hauler out of business. Another
frequent comment was that Federal regulatory agencies
should have industry representatives on their staffs
or in advisory capacities. One executive complained
that the insurance industry was inexperienced in writ-
ing coverage for waste hauling.
65
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ii. Non-Waste Transporters - The non-waste haulers
carried such materials as vegetable oils, caustic
soda, petroleum distillates, plasticizers, toluene
acids, alcohols, plastic articles, corrugated boxes,
ammonia compounds, poisons, lacquers, resins, and
other hazardous substances. These companies also
consisted of contract, common, and private carriers.
The amount of third party liability insurance carried
ranged from $1 million to $50 million. These trans-
porters, on the average, have more coverage than
waste haulers. The difference can be attributed mostly
to size, waste carriers tending to be smaller firms.
Fewer of the non-waste carriers were self-insured for
any significant amount. Annual premiums ranged from
$12,400 to $650,000 and represented from as little as
0.5% to about 2.5% of annual revenue.
Several non-waste haulers, like some water carriers,
expressed concern about their potentially unlimited
liability accruing from hazardous materials spills.
Also, truckers expressed the view that rising insurance
costs are a threat to the future viability of small
carriers.
Insurance coverage and premium costs for hazardous
waste haulers as compared to those of non-waste haulers
are summarized in Figure 6.
66
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Figure 6
Summary of Insurance Coverage for Hazardous Waste
Motor Carriers and Motor Carriers of Other Hazardous Materials
Range of Third
Party Insurance
Coverage, $
2 Range of
Self-Insurance, $
Range of
Annual Premiums, $
Hazardous Waste Haulers
$75,000 to $30 million
$500,000 to $2 million
$600 to $137,000
Other Hazardous Materials Haulers
$1 million to $50 million
$500,000 to $5 million
$12,400 to $650,000
Source: Contractor's Survey of Selected Motor Carriers
-------
V. COST OF SPILL CLEAN-UP AND MITIGATION OF DAMAGE
A. Overview
In this segment of this study, the. Contractor undertook
the task of estimating the dollar costs associated with
"clean-up" of spills of hazardous substances. The term
"clean-up" in the context of this text means any and all costs
associated with or pertaining to the mitigation and/or recti-
fication of damage to property, the environment and bodily
harm to humans. -
This multi-step task involved first the identification
of possible financial outlays resulting from any accident, and
then the assignment of costs to each of the expenditure types
entailed in the mitigation or rectification process. Exhaustive
searches of presently existing data revealed that similarly
comprehensive "clean-up" costs have not been collected, analyzed,
and reported to date. Accordingly, it was necessary to rely on
a variety of data sources, since no new original research could
be performed within this limited study -framework.
For a number of spills, both local and state government
agencies responsible for public safety, environmental protection,
and community affairs in general were contacted to obtain as
much specific information as practicable for spills which occurred
within their respective jurisidictions. While not in all cases
specifically researched the information.sought was available,
it was possible to "construct" estimates for the costs of such
items as evacuation of potentially affected persons, extra law
68
-------
enforcement efforts, and mitigation of environmental damage
by action of public agencies.
Spill incidents selected for analysis and the derivation
of cost estimates were chosen from the Hazardous Materials
Incidents (HMI) reports required to be filed by transporters
with DOT'S Office of Hazardous Materials Operations (OHMO).
These reports contain useful information on date and place of
spill, the carrier and materials involved, but only scant infor-
mation is given on the damages caused. Personal injuries and
deaths are not quantified in cost terms. Also, typically ex-
cluded from the information .contained in HMI reports are costs
i
sustained by public agencies although these agencies may
eventually claim reimbursement from the negligent carrier.
Finally, it should be noted here that the data developed are
not to be interpreted to represent anything other than an over-
view of typical spill "clean-up" costs. As such, these data
serve the objectives persued in this study, namely, the identi-
fication of costs for which transporters of hazardous wastes
are bound to be held responsible. It is unlikely, however,
that these data can be or that they should be used for other
not herein intended purposes,
B. Types of Cost
When a spill of hazardous substance occurs, the most obvious
cost is the loss of the material itself. In the case of
hazardous waste, by definition, material of low or without com-
mercial value, these costs can be ignored. Although in this
69
-------
study we examined spills of substances other than wastes,.
since the purpose is to extrapolate data and apply it to waste,
product values were not calculated or included in the reported
costs.
Hazardous substances often damage a carrier's truck, vessel,
tracks, or other property. However; since this study focuses
on damage to the environment, human health, and other third
party property, extensive consideration was not given to damage
to transportation.property.
As noted before, transporters of hazardous substances are
required to file a Hazardous Material Incident (HMI) report
with the Office of Hazardous Materials Operations, U. S. Depart-
ment of Transportation, every time a spill occurs. In analyzing
these reports for 1977 and the first half of 1978, it was noted
that 70 deaths and 1,364 injuries were caused by the accidental
discharge of a hazardous material during transport. Not
surprisingly, most of the casualites involved carriers' employees.
Others frequently injured included fire fighters and other rescue
personnel. These statistics suffer from an important limitation,
they generally include only short-term injuries occurring at
the instance of the spill and shortly thereafter. They do not
report long-term damage sustained due to a chemical burn or
latent effects which may surface only after the passage of months
or years. Empirical data developed by the Contractor in this
area of long-term health costs may be regarded as minimal or,
at best, as the usual amounts associated with the type of spill.
70
-------
The elements comprising the costs of injuries and deaths in-
clude expenditures for medical treatment, lost time from
employment, and judgments in personal injury lawsuits.
Not infrequently, a spilled substance can damage property
other than that of the carrier's. This is an important cost
for which all modes of transporters can purchase insurance.
However, insurance covering damage to the environment is* not
as easily obtainable and such harm does occur. For instance,
a derailment of several railroad cars containing epichlorohydrin
occurred January 23, 1978, in Point Pleasant, West Virginia.
The substance seeped into the town's water wells, which will have
to be replaced. At the time of this report, the West Virginia
Public Service Commission estimated that the replacement costs
will be between $750,000 and $1,000,000. Hydrologists have not
yet located a suitable supply source. The carrier will be
required to pay for the eventual alternative water supply.
Public funds are frequently expended to clean up a spill,
such as gasoline and other flammable materials, after the city
fire department has extinguised a fire. The Coast Guard may
clean up oil or other substances from the water when the spiller
cannot or will not. Another not uncommon cost is evacuation,
which is generally conducted by the state or local police force
with the assistance of other public agencies. While evacuated
families often stay with relatives, sometimes they are accom-
modated in public buildings or nearby hotels, motels, or other
commercial facilities. All of these types of costs, though
71
-------
never reported in HMI reports, were quantified in the spill
"clean-up" cost estimates developed by the Contractor during
the course of this study. In addition, figures were developed
representing the cost to the carrier when it hires a contractor
to remove a spilled substance.
To summarize, the types of costs identified and included
in "clean-up" expenditures are:
bodily injuries and deaths;
third party property damage;
mitigation or repair of environmental damage;
removal, containment, and disposal of the substance; and
evacuations.
C. Magnitude of Costs
To assign a dollar figure to personal injuries or deaths, a
determination of the extent of the injury and some of the socio-
economic characteristics of the person(s) killed or injured had
to be made. The HMI reports usually provide a brief narrative
description of the accident, including the nature of any personal
injuries and treatment administered. From this information, an
estimate of out-of-pocket medical expenses could be assigned
to each accident in the sample. Since most of the persons
killed were either carrier employees or rescue personnel, esti-
mates about their age and socio-economic characteristics could
also be made. We then developed estimates for a composite
figure representing typical recoveries for accidental deaths of
persons similar to the hazardous spill victims postulated.
72
-------
These estimates were based on the informal judgment of a pro-
ject team member who has had extensive experience in this field
as an expert witness in wrongful death and injury cases.
Third party property damages and cost of repair to environ-
mental damage, where such occurred, were reported by the carriers
in their HMI reports. While these figures are not readily
verifiable, they do represent an acceptable approximation; due
to the large number of incidents analyzed, the margin of error
was reduced to what are believed to be acceptable estimates.
Costs for evacuation and temporary shelter were estimated for
each applicable case on the basis of generalized data furnished
by selected public agencies at state and local levels.
Empirical data for costs of removal, containment, and disposal
of the spilled substances, were most difficult to obtain. The
carriers' reporting of these costs as shown in their HMI reports
proved to be too unreliable to accept. State and local agencies
involved in the clean-up generally do not record such figures,
except in the case of catastrophic incidents, and these are
relatively rare. The Coast Guard could only provide data on
what it expends in responding to spills, but it only cleans up
when (a) the spiller is unknown; (.b) the spiller's clean-up is
inadequate; or (c) the spiller is unable or incapable to effect
an acceptable clean-up.
An EPA study entitled "Estimation of the Frequency and Costs
Associated with the Clean-Up of Hazardous Material Spills"'
-'Arthur D. Little, Inc. report to EPA under Contract No.
81099-30, draft, August, 1978.
73
-------
provided a methodology for estimating these "clean-up" costs.
Basically, the authors of this study divided spills into
several categories based on the chemical properties of the
.substance involved. They surveyed various contractors and
State agencies which had participated in spill clean-up and
developed a rough dollar per pound/gallon figure for each
substance category. Based on consultations with EPA chemists,
specifically for the purpose of assigning spill categories to
the spilled materials reflected in our sample, the necessary
calculations were performed to develop a substance "clean-up"
cost figure for each incident.
Finally, an attempt was made to associate each type of "clean-
up" cost with one or more specific payer of these costs. Though
in most cases examined in detail it was observed that the party
first incurring the cost, such as a local police or fire de-
partment, intended to seek reimbursement of its expenditures from
the responsible transporter, such action is not always implemented,
even months after these costs were incurred.
Appendix E contains a listing of unit costs employed for the
before mentioned calculations.
D. Analysis of Data
The sample of spills surveyed included 299 spills caused by
motor carriers, 147 caused by railroad operations, and 2 by
vessels operating in the inland waterways. Of these 448 spills,
400 represent all the spills reported to OHMO involving either
bodily injury, death, or both which have occurred during the
74
-------
18-month period from January 1977 through June 1978. Addi-
tionally, 200 spills were studied from the U. S. Coast Guard
PIRS System (Polluting Incidents In and Around U. S. Waters)
for the 18-month period of January through June 1976 and the
full year of 1977 - (1978 data were not yet available). January
through June 1976 was selected to have a comparable winter/
spring season similar to the January-June 1978 interval used
for the railroad and motor carriers in the HMI reports.
From this sample, spills were grouped by substance and a
subsample developed with the ten most frequently occurring sub-
stances spilled for each mode. For water carriers, the five
most frequently occurring substances spilled were identified.
Then the costs, ascertained as described above in subsection C,
were calculated for each substance in the subsample.
1. Railroads
Table 1 contains a frequency distribution of spills
caused by railroads, arranged by eleven substance groups
and five "clean-up" cost parameters. It is shown in this
table that one-third of the total number of railroad re-
lated spills resulting in death and/or injury involved
sulfuric acid; all but two (2) of these incidents had total
"clean-up" costs of less than $1,000. In fact, slightly
over three-fourths of all railroad related spills had total
"clean-up" costs of less than $1,000. Many of these
"small spills" were characterized in the HMI narratives as
being "leaks" or "splashes" resulting from either a faulty,
-------
Table 1
Distribution of Hazardous Commodity Spills
by RAILROAD ,.
Arrayed by Hazardous Material''
ON
1
2
3
4
5
.6
7
8
9
10
11
Hazardous Commodity
Spilled
Sulfuric Acid
Hydrocloric Acid
Chlorine
LPG
Anhydrous Ammonia
Caustic Soda
Phosphoric Acid
Hydrofloric Acid
Acrylonitrile
Sulfur Dioxide
Total
Other
Grand Total
Percent of Grand Total
Number of
Spills
49
8
7
7
6
5
4
3
3
_3
95
52
147
1 -
999
47
7
3
2
4
4
3
3
-
3
76
36
112
76.2
1,000 -
9,009
1
1
-
1
1
-
-
-
-
4
2
6
4.1
opj-ix VSJ.CH
10,000 -
99,000
1
2
1
-
-
-
-
-
-
4
7
11
7.5
III Up J.1I WJLJLt
100,000 -
999,999
-
-
1
-
-
1
-
3
-
5
5
10
6.8
1. million
and over.
1
1
3
1
-
=
-
-
-
6
2
8
5.4
Source: Hazardous Materials Incidents Reports (HMI), Materials Transportation
Bureau, U.S. Department of Transportation.
I/
Sample of 147 HMI Reports for period January 1977 to June 1978.
-------
worn or broken valve or gasket. Carelessness in securing
the dome lid(s) was also a frequent cause of a "leak" or
"splash". Three of the eight spills resulting in total
"clean-up" costs in excess of $1 million were spills of
liquified petroleum gas (LPG). Table 2 reflects "clean-
up" costs for each of the eight incidents with costs in
excess of $1 million, by type of cost and totals. Railroad
related spills accounted for 27 deaths and 622 injuries
during the 18-month period studied. Table 3 summarizes the
number of deaths and injuries resulting from hazardous
commodity spills for each and all modes of transport for
the sample studied; that table also contains averages per
spill by mode and for all modes.
2. Water Carriers
Data for spills involving water carriers are shown in
Table 4. Slightly over 80% of the sample spills involved
a petroleum product. Approximately 50% of the total number
of spills had total "clean-up" costs of between $10,000 and
$100,000. In water carrier related spills, no deaths and
only two minor injuries occurred. There were, however,
seven spills which incurred "clean-up" costs in excess of
$1 million; they are detailed in Table 5.
3. Motor Carriers
The greatest number of death and/or injury related
hazardous commodity spills were caused by motor carriers of
property. As with railroad related spills, a high percentage
77
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Table 2
Estimated Costs of Spill "Clean-Up" in Excess
of $1 Million Per Accident, For a Sample of
Accidental Spills by RAILROAD and Hazardous
Commodities Spilled
(1)
(2)
(3)
Cost of
(4)
(5) (6)
(2) * (4) (3) * (4)
Percent of Total Costs
-4 1
00
2
3
4
5
6
7
8
Hazardous Commodity
Spilled
LPG
Chlorine
LPG
LPG
Anhydrous Ammonia
Hydrocloric Acid
Ethylene Dichloride
Epichlorohydrin
Total
Average
Cost of
Death
and
Injuries
4
\
9,050.0
4,958.0
0.5
1,203.0
1,201.0
-
-
0.2
16,412.7
2,051.6
Evacuat ion
Property Damage
and
Clean-up
Thousands of Dollars
176
1,134
3,897
2,081
1,025
1,888
1,696
1,303
13,200
1,650
Total
Cost
9,226
6,092
3,897
3,284
2,226
1,888
1,696
1.303
29,612.7
3,701.6
Death & Injury
98.1
81.4
.1
36.6
54.0
0.0
0.0
.1
55.4
Evacuation,
Property Damage
and
Clean-up
1.9
18.6
99.9
63.4
46.0
100.0
100.0
99.9
44.6
Source: Hazardous Materials Incidents Reports (HMI), Materials Transportation
Bureau, U.S. Department of Transportation.
-------
Table 3
Deaths and Injuries Resulting From
Hazardous Commodity Spills of AH
Modes of Transportation'
Rail
Water
Motor
Total
No. of9/
Spills-7
147
202
299
648
No. of
Deaths
27
None
43
70
No. of Deaths
Per Spill
.18
None
.14
.11
Injuries
622
2
740
1364
Injuries
Per Spill
4.23
.01
2.47
2.10
i/
Deaths and injuries occurring at the instance of the spill and
shortly thereafter.
18-month study period.
79
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Table
Distribution of Hazardous Commodity Spills
by WATER CARRIER .
Arrayed by Hazardous Material'
00
o
1
2
3
4
5
6
Hazardous Commodity
Spilled
Diesel Fuel
Fuel Oil
Crude Oil
Gasoline
Waste Oil
Total
Other
Grand Total
Number of
Spills
54
47
42
14
8
165
37
202
1 -
999
1
-
1
1
_
3
1
4
uosc or £
1,000 -
9,999
25
13
10
2
3
53
3
56
jpiij. uiean-u
10,000 -
99,999
25
21
27
9
5
87
20
107
P J-II JJUJ.J.U.1
100,000 -
999,999
3
8
3
2
_
16
12
28
1 million
and over
.
5
1
6
1
7
Percent of Grand Total
2.0
27.7
53.0
13.9
3.5
Source: Data extracted from U. S. Coast Guard PIRS System
(Polluting Incidents In And Around U.S. Waters) and
Hazardous Materials Incidents Reports (HMI), Materials
Transportation Bureau, U.S. Department of Transportation.
iy Sample of 200 spills taken from U. S. Coast Guard PIRS System for the periods January
1976 to June 1976 and Full Year 1977, and 2 spills from HMI Reports for Period January
1977 to June 1978.
-------
Table
Estimated Costs of Spill "Clean-Up" in Excess
of $1 Million Per Accident, For a Sample of
Accidental Spills by WATER CARRIERS and Hazardous
Commodities Spilled
CD (2)
Cost of Evacuation,
Property Damage and
Hazardous Commodity Clean-upi/
Spilled Millions of Dollars
1 Crude Oil 80.0
2 Fuel Oil 9.5
3 Fuel Oil 3.5
4 Fuel Oil 2.1
5 Jet Fuel 1.8
6 Fuel Oil 1.4
7 Fuel Oil 1.1
Total 99.4
Average 14.2
Average excluding entry No. 1 3.23
Source: Data extracted from U.S. Coast Guard PIRS System
(Polluting Incidents In and Around U.S. Waters)
' Equals total costs.
Note: The seven incidents reflected in this table did not cause any injuries or death.
Incident no. 1 pertains to a spill of 9.6 million gallons of crude oil, "clean-up"
costs are believed to be greatly overstated due to application of a standard cost
per gallon of oil spilled which standard does not properly reflect the "economics
of scale" applicable to this type of incident. Accordingly an average excluding
this incident was developed and is shown as the last line.
-------
68%, had total "clean-up" costs of less than $1,000 each.
Many of these smaller spills caused by leaks or splashes,
occurred due to faulty packaging or improper loading of
the hazardous commodity. Table 6, to give proper re-
flection to the l^rge number of incidents, contains a
larger number of cost brackets; also this permits analysis
as to the cost relationship of "clean-up" with existing
ICC financial responsiblity standards. 80% of the total
number of spills cost less than $50,000 to "clean-up".
85% cost less than $100,000 and 89% cost less than $300,000.
Seven incidents or 2.3% of the 299 motor carrier related
spills had total "clean-up" costs in excess of $1 million.
Gasoline and sulfuric acid spills occurred with the greatest
frequency. As was seen in railroad related spills, a large,
percentage of sulfuric acid spills (88%) required less than
$1,000 to totally "clean-up". Gasoline spills, however, cost
considerably more. Approximately three-fourths of the 51
gasoline spills required in excess of $50,000 to "clean-up".
Four (.4) of the seven (7) motor carrier related hazardous
commodity spills costing in excess of $1 million to "clean-
up" involved spillage of gasoline. Table 7 summarizes
those motor carrier related spills costing in excess of
$1 million to "clean-up". Motor carrier related spills
accounted for 43 deaths and 740 injuries during the 18-month
study period.
82
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Table 6
Distribution of Hazardous Commodity Spills
by MOTOR CARRIER ,.
Arrayed by Hazardous Material'
00
1
2
3
4
5
6
7
8
9
10
11
Hazardous Commodity
Spilled
Gasoline
Sulfuric Acid
Anhydrous Ammonia
Caustic Soda
LPG
Hydrochloric Acid
Fuel Oil
Chlorine
Organic Phosphate
Nitrobenzol
Total
Other
Number -of
Spills
51
32
15
13
13
11
6
5
5
5
156
143
1-
999
5
28
3
13
10
10
5
4
4
5
87
116
1,000- 10,000- 50,000- 100,000-
9,999 49,999 99,999 299,999
2 7 10 9
4
6
1 1
1
1
1
15 8 10 10
11 3 5 2
300,000- 1 million
999,999 and over
14 4
5 1
1
1
21 5
4 2
Grand Total
299
203
26
11
15
12
25
Percent of Grand Total
67.9
8.7
3.7 5.0
4.0
8.4
2.3
Source: Hazardous Materials Incidents Reports (HMI), Materials Transportation Bureau,
U.S. Department of Transportation.
y Sample of 299 HMI Reports for period January 1977 to June 1978,
-------
Table 7
Estimated Costs of Spill "Clean-Up'1 in Excess
of $1 Million Per Accident, For a Sample of
Accidental Spills by MOTOR CARRIERS and Hazardous
Commodities Spilled
(1)
(2)
(3)
(4)
00
Hazardous Commodity
Spilled
1 Sodium Sulfhydrate
2 Lacaquer, Paint
and Thinner
3 Gasoline
4 Gasoline
5 Gasoline
6 Gasoline
7 Anhydrous Ammonia
Total
Average
Cost of
Death
and
Injuries
/
4,803
-
.3
1,200
1,200
1,200
600
9,003.3
1,286
Cost of
Evacuation,
Property Damage
and
Clean-up
,-u, *T*Vi f\ i o o n /I o f\ "P ₯"^<"i 1 1 Q T» o
' J. IJOUocLIlUo UJ LHJJL A H -To
2 , 000
1,358
126
108
101
656
4,349
621
Total
Cost
4,803
2,000
1,358
1,326
1,308
1,301
1 , 256
13,352
1,907
(5) (6)
(2) T (4) (3) T (4)
Percent of Total Costs
Death & Injury
100.0
0.0
.1
90.5
91.8
92.3
47.8
Evacuation,
Property Damage
and
Clean-up
0.0
100.0
99.9
9.5
8.2
7.7
52.2
67.4
32.6
Source: Hazardous Materials Incidents Reports (HMI), Materials Transportation
Bureau, U.S. Department of Transportaiton.
-------
4. Summary of All Modes
Table 8 consolidates data from the 648 incidents
occurring during the 18-month study periods. Sulfuric
acid and petroleum products accounted for slightly less
than 50% of all hazardous commodity spills. Also, just
under one-half of all spills required expenditures of less
than $1,000 per incident for "clean-up". Land spills of
gaseous substances such as Anhydrous Ammonia, Liquified
Petroleum Gas (LPG) and Chlorine tend to cause greater
"clean-up" costs due to evacuations and bodily injuries
caused by inhalation of the substances. Generally, fire,
explosion, and evacuation cause spills of such substances
as petroleum products to incur larger expenses for "clean-
up".
As shown in Table 3, railroad related hazardous commodity
spills accounted for almost twice as many injuries per spill
as was the case in motor carrier caused spills. In total,
there were slightly over two injuries per spill for all
modes of transportation.
5. Responsibility for Costs
The Contractor interviewed several State officials with
responsibilities for clean-up of hazardous materials. They
indicated that the carrier (or his insurer) generally pays
for clean-up costs, except that fire and police departments
are not generally reimbursed. This finding corresponds with
85
-------
Table
8
Distribution of Hazardous Commodity Spills
by RAIL, MOTOR and WATER TRANSPORTATION
Arrayed by Hazardous Material!/
CO
1
2
3
4
5
6
7
8
9
10
11
Hazardous Commodity
Spilled
Sulfuric Acid
Gasoline
Diesel Fuel
Fuel Oil
Crude Oil
Anhydrous Ammonia
LPG
Hydrocloric Acid
Caustic Soda
Chlorine
Total
Other
Grand Total
Percent of Grand Total
Number of
Spills
81
65
57
53
42
22
21
20
18
12
391
257
648
_
1 -
999
75
6
2
5
1
7
12
17
17
7
149
170
319
49.2
cost 01 c
1,000 -
9,999
5
4
25
13
10
7
1
1
1
1
68
20
88
13.6
spin "»Jiean-u|
10,000 -
99,999
1
26
26
21
27
1
2
1
-
3
108
36
144
22.2
) 111 UUlJ.il IS
100,000 -
999.999
25
4
9
3
5
3
-
-
_
49
26
75
11.6
1 million
and over
.
4
-
5
1
2
3
1
-
1
17
5
22
3.4
Sources: Consolidated data from tables 1, 3 and 5.
iy Sample of 448 HMI Reports for period January 1977 to June 1978 and 200 spills from U. S. Coast
Guard PIRS System for periods January 1976 to June 1976 and Full Year 1977.
-------
the conclusion of another EPA report, "Survey of States
in Response to Environmental Emergencies"/ that report
noted that an eleven State survey revealed that industry
was cleaning up most spills resulting from transportation
incidents. When States do have to clean up, only Florida,
Indiana, Maine (oil only), Mississippi, Nebraska, New
Jersey, Tennessee, Texas, and Washington (oil only), have
contingency funds specifically set up for such purposes.
'Arthur D, Little, report to EPA, under Contract
No. 68-01-3857, July, 1978.
87
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ADEQUACY OF EXISTING INSURANCE COVERAGE AND NON-INSURED
FINANCIAL RESPONSIBILITY OF TRANSPORTERS
; f
Approach to this Topic
What is being dealt with in this chapter of this report
is the question of adequacy of present practices, not regu-
lations, of transporters, in relation to their exposures to
claims for costs of hazardous articles spills "clean-up". The
subject of regulations for financial responsibility will be
dealt with in the next chapter.
At this point, it is imperative to first define what can
be construed as being a carrier's financial responsibility
coverage. Fundamentally, two factors are relevant, namely:
a. the carriers' purchased insurance, and
b. the carriers' self-insurance or retained insurance.
The former is, in the financial sense, some finite quantity.
An insurance policy is, of course, a contract pursuant to which
the issuer of that contract is obliged to pay, in behalf of the
assured, up to a specified sum if and when events described in
the policy have occurred. Thus a comprehensive third party
liability policy without exclusions for a maximum sum of $10
million, is a contract by the issuer, the insurance carrier, to
pay up to that sum to anyone entitled to payment by the assured.
The latter factor, self-insurance or that part of the carriers'
potential exposure to payment for damages caused by the carrier
and which part is excluded from the purchased insurance coverage,
is not some finite quantity, readily lending itself to empirical
88
-------
analysis. This reality is embodied in several interacting
principles. The significant ones can be described as (i) the
infinite responsibility of any person or business entity to
compensate others for damages caused, (ii) the finite financial
capability of any person or business entity to provide compen-
sation for damages caused by them.
Taken together, the finite or clearly defined scope of
financial capability to pay as contracted for between insurer
and assured, and the indefinite magnitude of the sums for which
transporters can be held responsible, deserve evaluation in a
framework of reasonable expectation. That is to say, the
determination or judgement about the adequacy of transporters'
present practices must be made with reference to the best
available guide of what could reasonably be the magnitude of the
carriers' liability. The estimates contained in Chapter V rep-
resent what is believed to be an adequate guide.
It will be recalled that data presented in Chapter V reflect
wide ranges of spill "clean-up" costs. Further, it should also
be remembered that these figures are limited to costs which
became known within relatively short time periods after the
occurrence of an accidental spill. Hence, these figures do not
incorporate costs which may be incurred after the lapse of years,
during which in all likelihood the statute of limitation will
have expired, when it is determined that before unnoticed environ-
mental damage was caused by the spill of a hazardous substance.
In sum then,it is evident that the framework of reasonable
expectation for each segment of the transport industry must be
89
-------
viewed, in comparison with carriers' insurance practices and
surety capability, at some point of the exposure range, and the
excluded long-term exposure potential. This logic begs the
question: 'Which-point in the exposure range is the proper
one? Is it the average, the upper limit, or possibly some point
in between?' Inevitably, to this question there is no correct
or incorrect answer. Rather, the answer must of necessity be a
well reasoned judgement, reflecting the practical realities of
carriers' economic considerations and those of a society in
which both enterpreneurs and their beneficiaries, i.e., the
consumers of their products and services, have grown accustomed
to some risk taking.
Based on our many interviews with carrier risk managers and
insurance companies' officials we are mindful of a well reasoned,
though empirically imprecise viewpoint. Essentially, what these
informed persons are saying is: we are aware of what is our
probable exposure to third party claims for damages caused by our
operations; we are agreeable to retain that part of this risk
which, if called upon to make good, would not jeopardize our
viability, and to insure against that part of the risk for which
purchased coverage is available to us at an affordable cost.
That latter caveat coupled with the rising and declining fortunes
of transporters could be reasoned as providing less than adequate
comfort from the public's viewpoint. What, however, defuses the
public's potential concern is the before noted reality, namely
the general public's acceptance of its exposure to risk.
90
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Noting these theories and rationale as the backdrop, the
process of comparative modal adequacy analysis will proceed
with the following as the framework for reasonable expecta-
tions:
a. "Clean-up costs not discerned or known of within a
relatively short time period after the spill occurred
will not be considered at this time.
b. "Clean-up" costs in excess of those estimated for the
18-month sample shall not be considered as costs within
a probable range, even though catastrophic accidents
causing virtually hundreds of millions of dollars in
damages can occur. These extreme eventualities also
are more appropriately dealt with in a later chapter.
c. An arbitrary sum is set as the benchmark separating
between catastrophic and other spills; the latter shall
be those incurring "clean-up" costs of less than one
million dollars, and the former those with cost of one
million and more.
B. Modal Analyses
1. Railroads
a. General. Both small and large carriers were shown to
pursue a common set of practices. Both retain some
portion of their perceived risks and insure the remainder
That is also where their practices cease to be common,
probably involuntarily so because availability of
commercial insurance varies widely for different sizes
of railroads.
91
-------
b. Large Railroads, Commercial insurance coverage is at
liberal levels to compensate for the damages caused as
quantified for all sample accidents including those de-
fined as catastrophic spills. Carriers' self-retained
portion of their exposure, ranging from $1 million to
$10 million, is also adequately covered by their net
assets. However, though a typical Class I railroad has
stockholders equity in the tens of millions, it would be
incorrect to ignore the several recent bankruptcies. Put
simply, railroads in bankruptcy continuing to operate
under the protection of the bankruptcy laws, are bound
to have negative equity positions. Further, it is
questionable whether a liability claim would take preference
over the claims of other creditors so that for a bankrupt
railroad the ability to pay the self-retained portion of
a third party liability claim is, to say the least,
questionable.
c. Short-Line Railroads. Commercial insurance coverage is
ample for all but catastrophic incidents. The $2 million
coverage is far in excess of the cost of spill "clean-up"
of 14 out of 17 spills caused by short-line railroads
during the sample period. The average cost for these 14
spills was less than $2,500. However, the three (3) cata-
strophic incidents were estimated to have incurred costs
averaging $3.7 million, almost twice the amount of com-
mercial insurance available to these railroads.
92
-------
The self-retained risk ranging from $25,000 to $100,000
is generally well covered by these railroads' equity and
operating income positions. As a sample of nine (9) such
carriers, depicted in Table 9, reveals their 1977 average
equity was $14.4 million and excluding the largest of
these railroads, the E. J. & E., the average stockholders
equity was $7 million ($7.2 million in 1976) and operating
income averaged $5.75 million and $3 million with and
without the E. J. & E. respectively ($5.76 million and $3.1
million in 1976).
Here too though there are some dark clouds. Some of
these short-line railroads operate at a loss and have
negative equity positions. In sum, reliance upon carriers'
ability to pay their share of spill "clean-up" costs cannot
be deemed as a certainty. The difference between a rail-
road declared to be bankrupt and.one with a negative equity
position is merely in the fact that carrier management in the
latter situation have somewhat great flexibility in de-
ciding which invoice to pay and which to defer. Ultimately
though, a large liability claim not covered by insurance
could well cause any marginal carrier to seek the pro-
tection of the bankruptcy statutes.
d. Adequacy Conclusion. Within the described framework of
analysis, railroads' commercial coverage is found to be
adequate. Similarly, railroads' self-insured retention
is also mostly well covered by their equity (net worth)
positions and net revenues.
93
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Table 9
Operating Income and Shareholders Equity of Short-Line Railroads
(Dollars in Thousands)
Name of Carrier
1. Elgin, Joliet and Eastern
2. Indiana Harbor Belt
3. Terminal RR Assoc. of
St. Louis
4. Alton and Southern
5. Atlanta & West Point
(O 6. Colorado & Wyoming
7. Atlanta & St. Andrews
8. Kentucky & Indiana Term.
9. Oregon Pacific & Eastern
TOTALS
AVERAGES
AVERAGES, Excluding
E.J.& E.
Total
1977
107,544
44,987
44,384
23,040
9,466
8,569
7,344
1,284
453
247,071
27,452
17,441
Revenue
1976
101,931
43,201
41,594
21,741
8,309
8,019
6.632
862
424
232,715
25,857
16,348
Total
1977
80,334
39,990
37,966
16,208
7,180
5,115
4,481
3,224
824
195,322
21,702
14,374
Expenses
1976
75,279
37,418
34,113
15,272
6,374
4,788
4,045
2,969
645
180,903
20,100
13,203
Operating
Income
1977
27,210
4,997
6,418
6,832
2,286
.3,454
2,863
(1,940)
(371)
51,749
5,750
3,067
1976
26,651
5,783
7,481
6,469
1,935
3,231
2,589
(2,107)
(221)
51,811
5,757
3,145
Shareholders
Equity
1977
73,555
12,228
(1.651)
20,528
7,793
5,555
9,731
487
1,292
129,518
14,391
6,995
1976
69,931
14,411
(1,529)
20,512
7,616
5,558
9,117
452
1,143
127,211
14.135
7,160
Percent Operating
Income to Tot. Rev.
1977
25.30
11.11
14.46
29.65
24.15
40.31
38.98
(151.09)
(81.90)
20.94
17.59
1976
26.15
13.39
17.99
29.75
23.29
40.29
39.03
(244.43)
(52.12)
22.26
19.24
Source: Railroads' Annual Reports.
-------
Concern must be voiced, however, because of the de-
teriorating financial condition of the railroad industry
in general, and a number of railroads specifically. It
is possible that an increasingly large number of both
Class I and short-line railroads at some future point will
no longer possess unencumbered assets to indemnify injured
parties by payment of the self-insured portion of "clean-
up" costs. While in the context of this study this
possibility is a critical conclusion, akin to a finding
of inadequacy, it must be viewed in a broader context to
avoid painting of an otherwise alarming picture. The
broader context referred to is the public's concern with
and the imperativeness of a viable railroad industry. The
national reliance on this mode of transport is of such
proportion that its demise is unthinkable. Federal
actions to rescue that segment of the railroad industry
which without such action would no longer exist as a pro-
vider of public transport services is well documented.
In sum, while it is surely not impossible that some
carrier(s) could, at least temporarily; default on its
self-retained "clean-up" liabilities, for such an event
to occur and continue unrectified is unlikely because of
the need for the carriers' continued services. Hence,
our conclusion of adequacy of railroads' financial re-
sponsibility.
95
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2. Water Carriers
a. General. There are two basic differences between the
practices of water carriers and those of the other two
modes. These differences are (i) the extensive financial
responsibility regulations promulgated by the Federal
Maritime Commission (FMC), as described in Chapter III,
C., 1, of this report, and (ii) the specific pollution
insurance provided by the Water Quality Insurance Syndi-
cate (WQIS), as described in Chapter IV, B., 2., a.
The third party liability insurance provided for car-
riers by water through the auspices of WQIS is the U. S.
insurance industry's direct response to the requirements
specified in the FMC regulations. That response fully
covers the prescribed insurance limits. As such, this
situation is analogous to one where first standards were
set by a Federal agency, and then the private sector com-
plied via a newly developed insurance vehicle, the WQIS~
Fundamentally, the question of financial responsibility
adequacy is answered by the foregoing statement, except
that one may express reservation about the prescribed
standards. A discussion of this subject will be found,
as before noted, in the report's next chapter.
b. Protection and Indemnity Coverage (Marine). As the name
of this insurance coverage implies, it is the marine
equivalent of the comprehensive third party liability
insurance purchased by the other transport modes. Even
96>
-------
though water carriers are not required by regulation to
t
purchase P&I coverage, all do even when they have obtained
the insurance offered by WQIS in its part A.and B coverage.
The combined limits range from $10 million to as much as
$20 million per vessel with relatively small self-retained
amounts, generally less than $100,000 and in larger sums
only in the case of large ocean-going vessels of the types
which are most unlikely to transport hazardous wastes.
Comparing this industry segment's insurance protection
with its recent spill "clean-up" cost experience, a
rather comfortable posture evolves. Of the smaller vessel
spills, 94% caused "clean-up" costs of less than $900,000
for each incident, while 71% of the observed spills costs
were less than $100,000. Contrary to logical expectation
cost of spill "clean-up" caused by larger vessels averaged
less than for their smaller counterparts. Of the spills
caused by large tankers, defined as self-propelled vessels
with 15,000 ton or larger load capacity, 95% caused
"clean-up" costs of less than $100,000 per incident. The
single largest cost incident observed amounted to $700,000
or less than one-third the pollution damage insurance pro-
vided to the spill causing vessel by WQIS, and a small
fraction of the $20 million in P&I coverage voluntarily
purchased by the vessel's operator.
c. Coverage for Injury and Death. It will be remembered
that WQIS does not underwrite coverage for compensation
97
-------
resulting from accidental personal injury or death.
Similarly, it is to be recalled that under the provisions
of FMC regulations, water carriers' liability for spill
"clean-up" costs is limited to the sums required to be
insured against. Moreover, such insurance, it was noted,
must be obtained from qualified insurers, as distinct
from carriers' self-insurance or retention of some por-
tion of the risk.
However, water carriers hauling hazardous articles are,
of course, susceptible to causing injury or death to humans,
While WQIS has its rationale for refusing to cover this
type of risk, water carriers have traditionally and con-
tinue to insure themselves for "damage" to humans through
the medium of P&I insurance. Carrier managements exhibit
a rather conservative attitude by purchasing coverage
limits far in excess of identified exposures. Further,
their retained risks are usually quite small, averaging
only $25,000 per vessel for the large vessels, and as
little as $2,500 for inland waterways barges. Notably,
some exceptions were documented involving self-insurance
for as much as $3 million. Even that latter practice,
in contrast with our framework of reasonableness, does
not seem out-of-line,
d. Adequacy Conclusion. The two types of insurance coverages
purchased by practically all hazardous materials carrying
transporters by water are uniquely adequate to meet all
98
-------
reasonably expectable "clean-up" costs. The consistency
of FMCrequired insurance on the one hand, and the
coverages provided by WQIS >on the other, afford the public
total assurance of financial responsibility to the maxi-
mum extent required by law.
Carriers' practices in respect to their purchase of
P&I marine insurance protect against the risks of personal
injury and wrongful death in addition to property damage
unrelated to those caused by spills of hazardous substances
3. Motor Carriers
a. General. Motor carriers are the predominant transporters
of hazardous commodities, including wastes. Carriers
participating in hazardous materials transportation range
from the largest national firms with hundreds of pieces
of equipment to very small, family owned local operations
with as few as a couple of trucks. These small operators
are not only so called speciality haulers, restricting
their scope to their specialized equipment's suitabilities,
i.e., the transportation of liquid hazardous wastes, but
also to small geographic areas, mainly within a single
state. That latter characteristic exempts these trans-
porters from compliance with ICC regulations, though they
are still responsible for compliance with the regulations
of the states in which they operate.
Interestingly, as the profiles in Chapter IV, B, 3,
have shown, hazardous materials carriers are quite well
insured. These transporters' practices reflect a keen
99
-------
awareness of their exposure to risks and liabilities.
That awareness and carriers' intent to avoid the lia-
bility potentials to render them financially vulnerable,
and possibly cause their operational demise, is best
demonstrated by the fact that with only rare exception
these transporters insure for sums substantially in ex-
cess of regulatory requirements.
b. Hazardous Waste Haulers. Table 10 contains a financial
profile of waste hauling motor carriers. From data in
that table, it is readily evident that indeed operators
of all sizes participate in this segment of the over-the-
road transportation business. Yet, it must be emphasized
that truckers at the lower end of the size spectrum are
not represented in this profile because these operators
are not required to file annual and quarterly reports
with a public agency./ The smallest of the carriers
included in the noted table has a 1977 net worth of over
$92,000, and operating income of more than half that sum.
One larger firm has a negative shareholders equity; how-
ever, its substantial 1977 operating income of $146,000
suggests this operator is overcoming the negative posture,
At the other end of the spectrum are such as C. W. Trans-
port and Ruan with equities of nearly $16 million and
over $12 million, respectively.
'Just a few state regulatory agencies, having jurisdiction over
motor carriers authorized to do business in those states, re-
quire filings of financial reports.
100
-------
Table 10
1976 and 1977 Operating Income and Shareholders Equity for
Motor Carriers Hauling Hazardous Wastes
Name of Carrier
Uillett Transports
C. W. Transport
Rogers Cartage Co.
Schneider Tank Lines
Slbi & Sons
Quality Carriers
Chemical Haulers, Inc.
Montgomery Tank Lines
Scrap Haulers
Coastal Tank Lines
liidianhead Truck Lines
Laney Tank Lines
Ruan Transport
Transport Company of Texas
Whit field Tank Lines
Liquid Transporters
Mr.Keown Transportation
Miller Transporters
C. I. Whitten Transfer
Edward M. Rude Carriers
Ashworth Transfer, Inc.
Kobluson Freight Lines
Hitchcock Transportation
Frank C. Klein & Co.
.Petroleum Transport Service
Brewer Petroleum Service
Average
Operating
Total
1977
701670
75423656
29281300
9337275
5495777
7621016
2207652
4414578
617374
68897120
28994125
5665765
58286301
921555
8262061
14342183
2968122
-
5993114
908994
1480731
197036
721980
592523
782313
-
Revenue
1976
564062
65257054
25561468
6432516
4873091
9837215
1813786
3521083
8)3122
56595748
26659504'
4871496
51067813
981723
6957580
11822648
2481743
25195072
3985504
715166
1146791
420438
676785
446205
683708
916057
Total Expenses
1977
610305
72024745
28058232
8593882
5282153
7274993
2061650
4188883
657836
65073832
28081228
4899235
55945681
872664
8683212
13218684
2611374
-
4862469
852113
1357812
243393
713311
570456
712272
-
1976
549876
62419691
24774372
5917711
4681896
10010479
1R58224
3342844
644392
53360144
26273522
4158420
48977092
918682
. 7149859
11117825
2244300
22983285
3393043
692135
1191493
369094
673536
461598
622319
896616
Income
1977
91365
3398911
1223068
743393
213624
346023
146002
225695
(39462)
3823288
912897
766530
2340620
48891
(421151)
1123499
356748
' -
1130645
56881
122919
(46357)
8669
220o7
70041
-
1976
12186
2837363
787096
514805
191195
(253264)
(44438)
178239
168730
3235604
305982
713076
2090721
63041
(192279)
704823
237443
2211787
592461
23031
(44702)
51344
3249
(15393)
61389
19441
Shareholders
Faulty
1977
141191
15712805
3474300
728974
602243
844222
(59717)
764424
173112
10503105
1752404
3240203
12003869
92159
1516842
7633797
2014230
-
3646403
209451
1 10900
360204
132748
360231
254523
-
1976
27311
-
3592912
402647
516240
728215
(27100)
609651
157669
8558532
1738279
-
10315355
63214
1815713
6737763
1803327
3446680
_
180623
95550
409190
124479
332367
189065
68928
Percent Operating
Income to Tot.
1977
13.
4.
4.
7.
3.
4.
6.
5.
(6.
5.
3.
13.
4.
5.
(5.
7.
12.
-
18.
6.
8.
(23.
1.
3.
8.
Rev.
1976
02
51
18
96
89
54
61
11
39)
55
15
53
02
31
10)
82
02
87
26
30
53)
20
72
95
2.
4.
3.
8.
3.
(2.
(2.
5.
20.
5.
1.
14.
4.
6.
(2.
5.
9.
8.
14.
3.
(3.
17
35
08
00
92
47)
45)
06
75
72
45
65
09
42
76)
96
57
78
87
22
90)
12.21
0.
3.
48
45
8.98
2.
12
694367 ,558959 275B859 1821157
4.99
4.62
Source: Motor Carriers' Annual Reports.
-------
While in 1977 the average operating income was just
under $700,000 and average net worth $2.76 million, it
is notable that some of the profile carriers incurred
operating losses both in that and the preceding year.
Overall though, their operating income to total revenue
was close to 5% in 1977 and 4.6% in 1976, indicating a
relatively healthy industry even though their profit
margins are believed to be unsatisfactory by carrier
managements, a view generally shared by the ICC.
Comparing these carriers1 current insurance practices
with the sample of spill "clean-up" costs contained in
Chapter V, D, 3, the picture is one reflecting rather
wide ranges. While third party liability insurance
coverages were shown to range from as little as $75,000
with practically no deductibles, the top of the scale is
$30 million and $2 million self-retained. Comparably,
more than three-quarters of the spill "clean-up" costs
attributable to accidents caused by hazardous waste
haulers amounted to less than $10,000 and almost 90%
amounted to less than $300,000. However, catastrophic
spills caused "clean-up" costs of up to $4.8 million
and averaged $1.9 million.
While there is an undeniable correspondence in carrier
size and amount of liability coverage purchased, such
correspondence does not exist with respect to single
incident exposure. Put differently, an operator with
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but a single truck is judged to have no less risk
exposure per unit of operating equipment than the very t
large carriers. If anything, due to lesser capability
in accident prevention and risk management, the small
carriers are far more vulnerable to the potential for
catastrophic spills than their large counterparts. For
such catastrophic events, the smaller carriers are both
inadequately insured and lack internal resources to
provide compensation for the damages they might cause
and be held responsible.
Other Hazardous Materials Motor Carriers. The non-waste
hauling truckers consist primarily of larger, well
established and insured firms. Among these are some of
the nation's largest transporters which have specialized
hazardous commodity divisions. These carriers have long
been subject to DOT's hazardous materials transport regu-
lations. They possess a well-developed sensitivity for
their risk exposure and vulnerability to third party
claims of significant proportion.
Accordingly, the average hazardous materials transporter
by highway is insured for sums far in excess of regulatory
requirements. As the before presented insurance practice
profile has revealed, the least amount of third party
coverage observed for any of the study carriers was $1
million with self-insurance of half that sum, to as much
as $50 million in underwritten comprehensive liability
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coverage, and self-retained portion of $5 million.
These carriers' practices and their internal finan-
cial resources reflect a very comfortable balance of a
reasonable exposure on the one hand, and the provision
of public protection, on the other. Of course, here
too some exceptions are evident; these, though, are
well within a normal public acceptance of risk exposure.
The exceptions referred to relate to too much self-
insurance, in some cases, and less than catastrophic
event covering insurance limits. Remembering, however,
that self-insurance for the first $300,000 of aggregate
financial responsibility is subject to ICC scrutiny
for interstate carriers, it follows that transporters
who have adopted self-insurance practices for that or
even large sums, do in fact possess internal resources
of sufficient size to guarantee their capability to
cope with risk exposures in that magnitude.
The observed shortcoming in these operators' practices
to cover themselves sufficiently in the event of a catas-
trophic spill is disconcerting. It may well be due' to
lacking insurance availability or affordability or both.
d. Adequacy Conclusion. It would appear that a distinction
between specialized hazardous waste haulers and other
transporters of hazardous materials is appropriate. Over-
all, the situation depicted for waste haulers, except
for the largest among them, is unsatisfactory. Both their
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purchased and internal financial capacity cannot be
judged to afford the partial protection even a reason-
able risk accepting public is bound to condone. The
smaller and medium sized transporters of waste in the
event of a catastrophic spill are bound not to be able
to make good on their liabilities. Should such major
accidents cause long-term environmental damage, the
type which is not discovered, rectified or mitigated
within a short period of the occurrence, the already
unsatisfactory situation would be further aggravated,
placing a potentially heavy burden on the public and
raising the specter for uncompensated damage to private
property and human life.
Contrarily, hazardous commodity haulers not special-
izing in the transportation of wastes are mostly well
insured for all short-term eventualities they are bound
to be exposed to. Both external and internal financial
resources available to these operators in the event of
accidental spills are on average far in excess of their
most common liabilities for damages caused. Moreover,
due to these transporters' sensitivities to the effects
of catastrophic accidents, their excess coverages are
in sums far beyond the bounds of this study's empirical
spill "clean-up" estimates for such catastrophic events.
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Summation, Overview
1. Summation in Brief
In Table 11, a summary of the comparative analysis
contained in this chapter is depicted. By review of the
figures in the center and right hand columns, it is readily
apparent that indeed, the first ranked water carriers are
perhaps more than adequately insured for damages attribut-
able to the spill of hazardous wastes and other ecologically
damaging articles. Most comforting is the fact that for
the Federally required "clean-up" coverages, no deductibles
or self-retained coverage is permitted.
Though not quite as adequate as for carriers by water,
the railroad industry is reasonably well insured. There are
some significant exceptions. These, pertain principally,
though not exclusively, to the smaller entities, the so-
called short-line railroads. Their purchased insurance is
limited for all intents and purposes to an excess coverage
of $2 million over a self-retained sum of $25,000 to $100,000
in most instances. The comparison reveals, however, cata-
strophic experiences attributable to these transporters
averaging in cost from $3.7 million to an observed incident
with short-term damages in an aggregate estimated cost of
$6.1 million. Obviously, there is a large uninsured gap;
it is troublesome because of the average low level financial
capacity of that segment of the railroad industry.
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Table 11
SUMMARY/HIGHLIGHTS
Relative Adequacy of Financial Responsibility Coverage
All Modes of Hazardous Waste Transport
(all financial data in thousands of dollars)
Rank,
Mode
Water, small
large
Range of Comprehensive
Liability Coverage
Self Insurance
2.5 - 10.0
none
100 - 1,000
none
Purchased Insurance
5,000-10,000^
greater of 0.125/gw
or 125!/-3-/
5,000-20,000^
,}
greater of 0.150/gwt.
or 150l/ J
Range of "Clean-up"
Cost for Indicated
Percent of Spills,
and Catastrophic Events
[94% < 900; aver. 3,200,
Lmax. 9,500
{
95% <100; aver, none,
max. 700
Railroads,
small
large
25 - 100
1,000-10,000
2,000
30,000-50,000 J-
-J82Z <2.5; i
Lmax. 6,100
-788% < 100; i
jjnax. 9,200
aver. 3,700,
aver. 3,700.
Motor, haz. waste
carriers
other haz. comm.
carriers
2.5 - 2,000
500-5,000
75 - 40,000
1,000-50,000
89% <300; aver. 1,900,
max. 4,800
- P&I (Marine).
21
Exclusively spill "clean-up" costs; coverage provided by WQIS.
3/
0.150 gwt. or 250 for oil or hazardous substances carrier.
Sources: Derived from carrier and insurance industry interviews, esti-
mates of "clean-up" costs as defined in ch. V of this report.
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The larger railroads, the Class I segment of this vital
industry, though displeased with the lack of coverage avail-
ability in excess of $50 million, seems quite well assured.
Surely, the frequency of their exposure and the size of the
damage potential could justify additional layers of excess
coverage. This justification would appear to be limited
to carriage of articles not anticipated to be included in
waste transportation.
The hazardous waste transporting motor carriers are, by
and large, underinsured and do not possess adequate internal
resources to provide a reasonable prospect for the public's
indemnification in cases with catastrophic consequences.
Only the larger carriers in this industry seem to elect, and
are able to obtain commercial insurance with limits in excess
of the catastrophic accidents "clean-up" costs. Contrarily,
that segment of the trucking industry which does not partici-
pate in hazardous waste transportation in any significant
degree, but which is the principal carrier of other hazardous
articles, is quite well insured for it comprises in the main
larger, more cautious and risk management oriented trans-
porters. It also follows that these motor carrier operators
have substantially larger equity positions so that their
risk retention of sums up to $5 million represents but a
fraction of their average net worth.
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2. Overview
It was documented earlier in this chapter, specifically
the data presented in Chapter III, that significant regu-
lations specifically aimed at protecting the public against
unpaid losses from spills of hazardous materials, exist only
at the Federal level and are exclusively applicable to
carriers by water. With only this exception to note, it
should be emphasized that the relatively high degree of
financial responsibility adequacy observed for transporters
of hazardous wastes has come about voluntarily and out of
managements' self-enlightenment.
Were it not for the high level of awareness among manage-
ments and owners of transportation enterprises of their ex-
posure to risks and liability for damage, insurance practices
would be totally inadequate. For that matter, it is also
likely that insurance availability would be far more limited
and affordability at best marginal. This is so because on
average the admitted segment of the American casualty
insurance industry, for its own good reasons, does not seek
to write coverage for hazardous articles transporters.
In sum, the risk consciousness of transportation firm
risk managers is the primary cause for the relatively
adequate financial responsibility posture attending to the
assets in these managers' trust. Though, as noted, some
troublesome deficiencies exist. These and related matters
are explored further in the concluding chapter of this report,
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VII. FINANCIAL RESPONSIBILITY STANDARDS, CONTROL OPTIONS and
THEIR IMPLICATIONS
A. Are Standards Necessary?
Without much debate a case can be made in support of the need
for new standards to assure the financial responsibility of
transporters of hazardous wastes. However, with not much greater
difficulty a case can be made for a contrary position. Funda-
mentally, the preceding report chapter identified only one critical
area of deficiency in transporters' present insurance practices.
That of the specialized and mainly small motor carriers, which
either due to limited availability or affordability, or a combi-
nation of both, do not purchase comprehensive liability insurance
with limits which are believed to be sufficient to provide public
protection in all but relatively minor spills.
The principal arguments in support of the need for new standards
for all but the water carriers are:
a. the complete absence of standards applicable to railroads(
and
b. the apparent insufficiency of existing standards for motor
carriers, at the state and Federal levels.
Possibly an even more potent issue relevant to all but the
regulated water carriers pertains to late discovered ecological
damage for which no standards or insurance requirements presently
exist; late discovered damage is defined as harmful effects of
It is arguable that because railroads hardly participate in trans-
portation of hazardous wastes, EPA's interest is with reference
to hazardous substances only.
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spills not identified prior to the expiration of the Statutes
of Limitation.: It should be pointed out here that under the
provisions of the Statutes of Limitation, claims not made during
the time periods available, generally from three to five years,
the liabilities and obligations of parties held responsible for
causing harmful effects are extinguished and no further recourse
is then available to the injured parties. Not 'enough definitive
information is presently available to determine the probabilities
of long-terra ecological damages resulting from hazardous waste
spills and which damages would not normally be identified, and
claims filed prior to the expiration of the time limiting
statutes. It is conceivable, however, according to experts in
the field, that under certain topographic, geologic, and environ-
mental conditions, several years could pass before the pollution
of an aquifer is discovered or a deep soil's crop bearing capa-
city is destroyed and this event and its cause are finally
established.
The potential problems arising from damage discoveries after
the expiration of the Statutes of Limitation may well be solved
by EPA's declaration under RCRA that a spill site is, by defini-
tion, a disposal site. A 20-year responsibility will apply to
all disposal sites.
The principal arguments against the promulgation of new
standards are:
a. the present legislative and regulatory climates which
abound with proposals for less or complete removal of
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economic regulations of interstate surface transporters
are opposed to additional regulations,
b. the voluntary practices of some transporters of hazardous'
materials serve as evidence of their risk managers' con-
cern for adequate financial resources to be available in
the event of accidental spills,
c. setting of standards at levels above those now voluntarily
employed by railroads and truckers is bound to cause pro-
blems of coverage availability and affordability. Such
higher standards could also be an impediment of new carriers'
entry.
The last of these points is bound to aggravate the first by
stimulating even greater opposition to new and additional transport
regulation. If indeed both or either of the availability and
affordability problems would arise, matters about which there is
no.certainty until they are put to the test, it is likely that
solutions to them will involve Federal facilitation measures,
either directly or indirectly. Direct measures would involve
the establishment of a suitable insurance or reinsurance vehicle
and the absorption of both administrative and casualty loss
expense. Indirect measures would involve authorizing increased
freight rates for transport services subject to economic reg-
ulation, and/or the transfer of financial responsibility from
transporter to shipper or consignee.
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Based on our findings in this study, we are inclined to
support* the viewpoint that additional standards are needed to
protect the public's interests. We have reached this conclusion
not only by careful examination of the "pro" and "con" arguments
noted before, but also because of our concern over the perpetua-
tion of the voluntary practices of railroads and motor carriers.
Both of these components of the transportation industry have
experienced severe financial difficulties of late. Their cost of
comprehensive liability insurance is not insignificant. It is
V
therefore logical to project that circumstances can arise which
would motivate carrier managements to insure only to the extent
required by law, rather than to continue their far more costly
voluntary practices.
This relatively large expense is not likely to decline if
present voluntary practices were to become "compliance" practices,
Then, though, carriers would not have any choice about the cost
of insurance; premium costs for limits complying with standards
are a necessary cost of doing business.
In the remainder of this chapter, subjects relevant to the
question posed in this section will be explored on the assumption
that EPA wishes to assure the availability of reasonable, if-
not all catastrophic cases, adequate financial resources to com-
pensate for damages caused by spills of hazardous wastes while in
transit.
B. Inadequacy of Present Standards
1. Railroads. The term inadequacy is somewhat inappropriate
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here since there are no standards. In Chapter III. B. we
explained that Federal and state agencies, specifically the
ICC and the states' commerce or public service commissions,
have traditionally held the view: railroads are large, well
capitalized entities for which financial responsibility regula-
tions are unnecessary. Admittedly, both small and large
carriers by railroad have consistently demonstrated a high
degree of financial responsibility (within the meaning of
this study) by implementing a balanced program of self-in-
surance and commercial insurance.
However, some recent events give rise to concern, these
were discussed in some detail before. It should be remembered
here that in addition to the industry's deteriorating financial
condition, rendering their self-insurance capability less
certain, there has been much deferred maintenance of tracks,
yards, and rolling stock. The deterioration of railroads'
physical plant is in large measure, according to safety and
insurance industry experts, the cause for more frequent
accidents, some of which involved spills of highly volatile
materials, and which spills have caused a number of cata-
strophic events, as herein defined.
As we noted previously, railroad managements are highly
sensitive to their risk exposure and many of the larger com-
panies, though they are currently insured for excess lia-
bilities of up to $50 million, and a few even for more, are
seeking more protection. The smaller, short-line railroads,
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practically without exception, are aware that their present
coverages of about $2 million, are grossly inadequate
in comparison with their exposures. For both the large
and small there is a common problem, insurance availability
and affordability. Setting of standards would not solve
that problem.
Finally, we must again remind of a peculiar risk as much
applicable to the short-line railroads, if not more, than
to the Class I industry. That risk is the concentration of
railroads in the highly industrialized and densely populated
urban areas. A major catastrophic event, if it were to happen
in one such area, could cause injury and damage in almost
unthinkable magnitudes. Surely, voluntary insurance of $2 mil-
lion and even $50 million per occurrence would fall far short
from the sums needed to provide compensation.
2. Water Carriers. Financial responsibility for pollution
"clean-up", administered by the FMC are, in our view, the model
s
recommended for modified adoption to the other modes. However
it should also be noted that these standards do not apply to
personal injury and wrongful death, nor do they apply to
non-self propelled vessels, i.e., barges, unless they carry
fuel oil or hazardous substances.
The water carrier industry too is one which assures avail-
ability of financial resources potentially needed for spill
"clean-up" through a voluntary, self-enlightened practice
of self and commercial insurance. The history and the
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tradition of marine Property and Indemnity coverage
differ from all others in that they are so well established
that public officials need not be as concerned, if at all,
about the perpetuation of these practices as is the case
in respect of the other modes. According to both carriers
and underwriters, no serious deficiency in coverage avail-
ability has ever existed. In fact, the insurance market for
marine Property & Indemnity is highly competitive and believed
to be among the most desirable lines of casualty insurance.
That is not to say that assureds do not complain of high
rates.
Further insight on the insurance industry's response to
financial responsibility regulation for carriers by water
is gained from the voluntary establishment of the Water Quality
Insurance Syndicate (WQIS). The point to be made is that
Federal regulations in this area per se do not necessarily
result in a financial responsibility requirement, such as the
pollution clean-up insurance written by WQIS, that cannot be
met by the regulated without Federal facilitation. In fact,
it should also be remembered that the FMC's regulations in
Parts 542 and 543 of Title 46 of the Federal Regulations
accord regulated carriers the choice for compliance by
filing of a surety bond, guarantee, or to qualify as a self-
insured .
As will be explained in some detail in a subsequent section
of this chapter, the FMC regulations nicely compliment
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carriers' voluntary practices in that they approach a reg-
ulatory sufficiency for standards both within our herein-
before defined concept of zone of reasonableness and the
public's expectations for adequate protection.
3. Motor Carriers. The most that can be said about Federal
and state standards for motor carriers' financial respon-
sibility is that there are such. The standards set by the
ICC in its Title 49, Part 1043, have not been revised since
1974, so that the minimum requirements of $300,000 for bodily
injury and $50,000 for property, constitute presently gross-
ly inadequate requirements, in particular when applied to
transporters of hazardous articles. While a few states,
Colorado and Virginia among them, require higher minima with
some exceptions, the states have largely followed the ICC's
lead or have even lesser requirements.
It is to be noted, the ICC never intended for its reg-
ulations to be reflective of the "worst case" situation.
Nevertheless, the data exposed in this study strongly suggest
the existing prescribed limits are far less than exposures
in "worst case" situations.
As we pointed out before, motor carriers in general, and
those transporting hazardous materials -in particular, have
mostly adopted voluntary practices of insurance which reflect
not only their sensitivities to risk exposure, but also their
explicit recognition of the inadequacy of existing standards.
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Though almost 90% of the motor carrier caused spills
quantified in our Chapter V analyses caused costs of less
than $300,000 per incident, it was shown in Table 6 that
32 spills had occurred with "clean-up" cost' estimates
in excess of the ICG's minimum coverage requirements.
The carriers' concern, and their willingness to spend
substantial sums for comprehensive insurance coverages,
obviously goes to these larger cost incidents.
Another factor of significance in support of our assess-
ment of inadequate standards, one that undoubtedly is of
special import to EPA, is the observed practice of a large
percentage of specialized hazardous waste transporters.
As was noted in Chapter VI, these mostly small carriers
do not follow the practices of their counterparts in
hazardous materials transportation by motor carriers of
property. This study did not endeavor to identify carriers'
non-compliance with existing regulations; rather, it focused
on actual practices. These practices were shown to include
commercial insurance at limits below those established by
Federal regulation.
Lastly, it is appropriate to review briefly an apparent
anomaly in the ICC's interpretation and administration of
its Part 1043 regulations. In a 1965 decision, Joray
Trucking Corp., Common Carrier Application, 99 M.C.C. 109,
the Commission ruled that garbage, refuse and trash are not
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within the meaning of property as defined in Sec. 202,
Chapter 8 of Title 49, and therefore, the transportation
thereof was not subject to the ICC's regulations. In a 1969
decision, Long Island Nuclear Service Corp., Common Carrier
Application, 110 M.C.C. 398, the Commission decided not-
withstanding the valuelessness of nuclear waste, it should
continue to regulate "dangerous" traffic. By that decision
hazardous waste transporters continued to be subject to
ICC regulation, including the Part 1043 regulations on
financial responsibility. In a more recent decision,
Nuclear Diagnostic, 129 M.C.C. 339, decided May 10, 1978,
the Long Island Nuclear decision would appear to be overruled.
Noting the extensive body of regulations promulgated by NEC
and DOT, the ICC held in Nuclear Diagnostic that transportation
of hazardous waste considered by the generator to be devoid
of economic value to be exempt of its regulations.
While one legal interpretation raises the specter that by
analogy transportation of all hazardous wastes is henceforth
exempt from the ICC's economic regulations; Commission staff
itself does not support this broad interpretation. Rather,
in the view of Office of General Counsel staff, the recent
decision has applicability to nuclear wastes only, while the
Long Island Nuclear decision continues unaltered with respect
to other hazardous wastes. That interpretation, until and
unless reaffirmed by another ICC decision, or a court's
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verdict, raises doubts as to the Commission's intention and-
ability to enforce its pwn Part 1043 regulations.
C. Standards for Hazardous Wastes or Hazardous Materials
The Consultant recognizes EPA's jurisdiction applies to
hazardous wastes only while DOT'S encompasses hazardous materials.
The distinction between the two agencies' mandates is embodied
in P. L. 94-580, RCRA, and its Subtitle C specifically, and the
Hazardous Materials Transportation Act of 1974 (HMTA) and reg-
ulations promulgated thereunder in 49 CFR 173 et. seq.
It has become apparent from the findings in this study that
financial responsibility standards for hazardous materials trans-
porters are as wanting as they are for wastes. In fact, the
point was made repeatedly that standards for hazardous materials
transporters specifically exist only for the maritime mode and
that, of course, no specific standards exist for any transporters
of dangerous wastes.
This basic finding, the absence of comprehensive standards
for the financial responsibility of transporters of hazardous
commodities, in other respects subject to DOT'S OHMT regulations,
raises the question: Should not EPA pursue the same policy as
it has in respect of other aspects, including packaging, labeling
and manifesting of hazardous wastes transportation? That policy
is one of cooperation with DOT to the effect and the maximum
extent feasible of "piggy-backing" EPA's statutory authority,
by regulation, to DOT'S authorities, and thereby assure the
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prospective existence of a uniform body of regulations which
is applicable to all articles defined to hazardous characteris-
tics, regardless of whether they are articles with or without
commercial value.
We have not investigated specifically DOT'S regulatory powers
v
in this area. We tend to believe, however, that HMTA is
sufficiently broad to grant DOT the requisite authority. Also,
as will be noted in section E. of this chapter, DOT has renewed
its legislative initiatives, first demonstrated during the tenure
of the 95th Congress, for comprehensive financial responsibility
legislation and regulation. Inclusion of hazardous wastes in
DOT'S initiatives would merely equal the precedent established
last year in respect of packaging, labeling, etc. of hazardous
wastes.
EPA, on the other hand, would have to "go it alone" if DOT
or the Congress were not to authorize the inclusion of hazardous
wastes in the legislation presently proposed. EPA's attitude-
is based on Congressional intent and the mandate with which
the Agency was charged pursuant to RCRA. In sum, EPA feels it
is responsible to protect the public against uncompensated
damages resulting from accidental spills of hazardous wastes
while in transit.
Standards for Transporters, Shippers or Consignees
Another fundamental question arises from the Subtitle C
(of RCRA), isolation of generators, transporters, and disposers,
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and EPA's approach to regulations applying to each of these.
While logic supports the view that regulations for hazardous
waste packaging should apply to the party tendering wastes for
shipment, possibly in addition to the transporter who has a
secondary responsibility to assure the shipper complied, that
same logic cannot be applied to financial responsibility.
Put simply, it can be argued the shipper or generator, or
for that matter; the consignee or disposal facility, have no
control over the performance of the transport service. Since
the non-transporters cannot assure the conduct of safe operations,
they cannot assure the avoidance of negligent behavior, they
should also not be held responsible for the omission of prudence
or the commission of negligence. Only, in those instances where
shipper and transporter are the same or related entities is it
logical to require either or both to iiold the public harmless
of damages caused by their actions.
Accordingly, it is concluded that standards should apply to
the party performing the transport service. This though is not
to say that transporters' obligations might not be assumed by
shippers or consignees or both. Whether they do or do not,
is again a matter of availability and affordability. The first
principle to be recognized in this context is that in the final
analysis, the public is the ultimate payer of the cost of pro-
tection. Whereas the ratepayer is the party of the first in-
stance absorbing the cost of protection, it is probable, if not
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certa u, .hat the ratepayer passes on that cost, along with its
other costs, to its ultimate consumer or customer.
With the public's interest best served by keeping the cost of
protection as low as possible, it should be noted that large,
well run manufacturing firms are likely to obtain insurance
coverages for transportation at lesser costs than transporters
themselves, especially the smaller trucking firms. The reason
is not only that insurers' risk assumption would apply to a
broader base, but also because these larger firms are usually
more competent risk managers and loss avoidance experts.
The same truism applies to the availability factor. Again
the larger manufacturer, being an assured for comprehensive
liability coverage, including product liability, would have less
difficulty to expand the scope of coverage provided by his
traditional underwriters to include "in-transit" coverage than
has been the case for the smaller motor carrier.
In sum, the conclusion reached here is that while the trans-
porter of hazardous articles must remain the party to be held
liable for compliance with existing and prospective standards
for financial responsibility, transfer of liability by hold
harmless agreements between shippers or consignees and the
transporters should be permitted and encouraged, as a cost
saving and improved protection measure.
E. Other Policy Issues Ralated to Standards
1. Limiting Liability. At least two precendents exist to limit
the liability of the parties held liable for causing injury
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and damage. The precendents referred to are in the FMC
administered Title 46, Part 543, which sets the maximum
liability of transporters at the same standard at which
their financial responsibility is set, and in the Price
Anderson Act, administered by NEC, under 42 U.S.C.A.
§ 2210(a), which limits the liability of certain nuclear
facilities, as defined in the regulations. That definition
includes not only the facilities themselves, e.g., their
owners, but .also engineers and architects, vendors and
transporters, all in the conduct of their business with the
subjected nuclear facilities.and up to the sum required as
financial responsibility, the establishement of which is
a condition precedent to the licensing required for such
nuclear facilities.
The history of both precedent examples reveals that the
intent was to establish some finite liability in the event
of catastrophic occurrences. Further, the intent reveals
that if such limits had not been established, insurability
would have been extinct.
It was documented in this report that insurability for, -
relatively high limits of hazardous waste spills is avail-
able to large transport entities and that those entities
hold themselves insured for more than the highest estimated
costs of spill "clean-up". However, one cannot say or
predict whether one or more catastrophic events may not occur
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at a future time with "clean-up" costs of hundreds of
millions of dollars. Such a' catastrophy is surely not
precluded considering the large damage awards made to
survivors of persons killed and the exposure of transporters
to densely populated areas. Also, again the unknowns of
long-term and initially undiscovered ecological damages
should be remembered.
We reason the public interest is well served by limitations
of liability, for it results in greater insurance availability
and affordability for all but catastrophic incidents. If
insurers would no longer have to worry about a railroad de-
railment for which their liability can now be $50 million, but
perhaps a limit of $10 million, they would be more likely to
participate in the underwriting of this risk at a greatly
reduced premium rate.
Still, how is the public to be made whole? The answer
is found by reference to the Public Liability Fund established
pursuant to the Price Anderson Act and administered by NEC.
Similarly, the National Flood Insurance Fund administered by
HUD is a mechanism providing for compensation in excess of
that required of or provided by commercial insurers.
Since the time this study was begun and the research
undertaken was completed, several legislative initiatives
have emerged during the first session of the 96th Congress.
In fact, the Congress was hardly sworn in when Mr. Biaggi
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and a number of co-sponsors introduced H. R. 85, the Com-
prehensive Oil Pollution Liability and Compensation Act.
A largely similar proposal is embodied in H. R. 29 and
S. 684. These proposed Bills' highlights are described in
Appendix F. Also contained in that appendix are summaries
of rules proposed by the Coast Guard and the Federal Mari-
time Commission, respectively, under the Outer Continental
Shelf Lands Act Amendments of 1978.
The Biaggi and Magnuson (S. 684) proposals reflect DOT'S
legislative proposals for the establishment of "Superfunds"
to compensate.for damages caused by oil spills, and to limit
the extent of financial liability for claims resulting from
accidental discharges.
Meanwhile, EPA has initiated its own legislative proposal.
While details of EPA's proposals were not released as of
the time this report was being completed, the Agency's
approach and significant details have been made available
to us. Compared with all other pending legislative pro-
posals, existing and proposed regulations, EPA's approach
is the most comprehensive. Its proposal would establish
a uniform system of notification, emergency government, re-
sponse, enforcement, liability and compensation. That system
would apply to releases of oil, hazardous substances and
hazardous wastes. Thus, the EPA legislation, built upon and
incorporating Section 311 of the "Clean Water Act" and the
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proposed before mentioned "Comprehensive Oil Pollution
Liability Compensation Act" developed by DOT, extends the
DOT draft bill to spills to the environment, not just
navigable waters, of hazardous wastes and designated
hazardous substances. Also, notification, emergency re-
sponse, penalty and spill prevention of Section 311 would
be incorporated. The Section 311(k) fund, now an appropriated
fund, would be changed to an expanded fee-based fund while
adding a compensation system for third party property and
economic livelihood damages from spills. Active and
abandoned disposal sites are also included in the Agency's
proposal; compensation to third parties for releases from
disposal sites is, however; excluded. The fee basis of
this "Superfund" version extends to hazardous substances
and wastes, not just oil; an annual Federal appropriation
is retained.
EPA's concepts on liability are similar to those embodied
in other legislative initiatives.
From the perspective of this study's focus, several
comments appear warranted with respect to the recent evolution
of Executive and Legislative activities.
Briefly, they are:
Public officials' acknowledgement of the need for additional
public protection is amply demonstrated.
Approaches taken to the eventual provision of added public
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protection do not merely place an increased burden on
the transporters, generators and disposers of potentially
damaging materials, but give recognition to the fact that
in the event of catastrophic accidents, the private sector
is incapable of "going it alone".
The popularity of fee-based funds suggest an increasingly
strong desire to spread the cost of environmental pro-
tection, and spill "clean-up" to a broader societal base,
i.e., the consumers of a large variety of products and
not just the users of oil products or shippers of a
limited product list.
While liabilities of transporters would continue, and their
financial responsibility requirements would also survive,
the thrust to limit these liabilities both financially and
by cause of accident is bound to expand insurance avail-
ability and improve affordability.
2. Economic Effects of Increased Standards. There can be no
doubt that increased standards would cause additional costs
for transporters not now insuring for excess limits above
those required by regulation. However, we noted repeatedly
that such increased costs would only be incurred by the smaller
specialized waste haulers by motor carriers and the short-line
railroads. Other components of the transportation sector,
as noted, already incur the larger insurance costs for their
voluntarily insured high limits.
If anything, on average, a reduction in insurance cost
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could be anticipated from a combination of increased
standards and limited liability. Thus, large railroads
now expending an average 6% to 7% of their gross revenues
for third party liability insurance may be able to reduce
this costly item by as much as one half or even more,
while short-line railroads could expect to experience more
than doubling of their insurance costs. The same situation
would apply to the large and small motor carriers, except
that the family owned small special waste haulers, operating
mainly as contract carriers rather than regular common
carriers, could be indemnified either for premium costs or
their liabilities by agreement with their shippers and/or
consignees.
In substance then, the projectable economic impact is one
of a balancing shift. What is disturbing about this reality
is that it tends to benefit the large enterprise to the
detriment of the small. A mechanism to ameliorate this un-
desirable potential is proposed in the section following.
3. Mechanism for Impact Equalization and Full Public Protection.
Mentioned in a previous section were several public or
governmental funds from which payments to injured or damaged
parties are or would be made. These public funds are
similar in nature to the reserve funds established by private
insurers. In the latter case, certain portions of assureds'
premia are set aside to create financial reserves from which
claims can be paid as needed.
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Public finds are established either with appropriated'
funds, or like the private reserve funds, from insurance
premia or other fees paid by the private sector. To relieve
the public from the undesirable financial burden inherent
in appropriations, it is suggested that the practices
employed by the two of the before mentioned public funds be
employed. Specifically, concurrent with the implementation
of a liability limiting regulation and the establishment
of increased responsibility standards, transporters could be
required to pay into the public indemnity fund the equivalent
of an insurance premium, the level of which could be related
or tied to transporters gross income or gross revenue. Tying
premia to gross revenue has the dual effect of being a
readily measurable standard and avoiding an excessive burden
on the smaller carrier.
If the suggested practice is adopted, the larger carriers
s
by rail and highway (water carriers should probably be excluded
because of the existing FMC standards) would pass up their
premium savings for some time since the difference between
present and prospective commercial insurance premiums would be
paid over to the public fund. At the same time the increased
premium cost for small carriers would affect them only to the
extent which carriers are now grossly underinsured.
Eventually, the pooling of resources in a public fund will
result in reduced costs to all transporters subject to
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contribution to and payment of damages from the funds.
That would happen when a sufficient reserve is established
so that additional contributions to the fund would be made
only to the extent depletion occurred due to payment of
damages. Again, the principle espoused is the same as that
attending to the (Nuclear) Public Liability Fund, except
that in its case the initial industry participation of
$125 million was shared by the government's participation
in the amount of $435 million, to create a total liability
fund in the amount of $560 million.
4. Role for Federal - Insurance Industry Cooperation. The role
chosen for itself by and of the American casualty insurance
industry in recent years has been more limited than desirable.
Much of the premium volume generated from coverages for the
large railroads ends up in foreign banks, mainly the London
market. Were it not for the non-admitted segment of the
casualty underwriters, i.e., insurers writing coverage extend-
ing to states in which they are not.licensed-to write,
practically no domestic coverage would be available for the
railroad industry. Just how much of the other modes' coverage
is written abroad, either directly or as reinsurance, is not
readily identifiable. It is a fair assumption, however, that
also much of the demand for Marine Property and Indemnity
coverage is satisfied by offshore insurers.
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Contrarily, the aggregate financial capacity of the
domestic casualty insurance industry is second to none in
the world. The causes for the industry's lacking partici-
pation in the marketplace are not insufficient capacity,
but, as noted before, their assessment of the risks and their
unsatisfactory claim experience. We noted that two railroad
insurance syndicates were demised by large claims and small
premia; also, the relatively new WQIS claims to have incurred
losses and contemplates to raise its rates, if not also re-
stricting its coverages further.
Recommendations contained in the preceding section, if
implemented, are believed to go a long way towards increased
participation in the liability insurance market by domestic
underwriters. Principally, the risk'limitation proposal
would provide the industry with finite measurable quantities
it can cope with in the actuarial sense. Hence, it should be
evident that opportunities would exist for a new dialogue
between Federal regulators and the insurance industry. The
effects of this dialogue can be projected as increased domestic
underwriting at reduced premium costs.
An extremely interesting development related to the U. S.
casualty insurance industry was first publicized in the New
York Times of Sunday, May 13, 1979. Called the New York
Insurance Exchange (NYIE) and stimulated by recent changes
in the State of New York insurance laws and Lloyd's of London's
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refusal to allow access to its facilities to two American
insurance brokers, the emerging exchange proposes to become
»
a U. S. Lloyd's. Though, on the path to implementation,
NYIE is bound to encounter numerous difficulties, among
them the need to raise very large sums of investment -capital,
the Exchange's enterpreneurs have already travelled a long
way to assure their eventual success.
NYIE will provide insurance and reinsurance facilities,
mainly through syndications among members, for esoteric and
large risks. At this time we cannot be clear whether these
terms are meant to include, for example, the large risks of
small railroads or, for that matter, those now insured by
the Class I railroad industry in London.
The initiatives taken by the Exchange's organizers are
sufficiently innovative to suggest that their enterprise can
reasonably be expected to include in its routine scope of
insurance writing the needs of hazardous substances trans-
porters. Again, it bears emphasizing that the legislatively
proposed liability limitations are bound to go a long way
towards encouraging this new facility or an offshoot of
it to encompass hazardous substance spill liability.
In sum, NYIE's emergence should be welcomed and supported,
for it promises to retain in the U. S. a major portion of the
$4 billion in insurance premia which annually leave our
shores. Along with these most welcome attributes, this enter-
prise is also emerging as a new employer for hundreds of U. S,
citizens.
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*.; Finally, being a domestic organization, it is susceptible
to working with the Congress and the Executive Branch in
the development of a public-private partnership which will
provide the public protection needed at the least societal
cost.
Another related policy issue has been examined. Namely,
is there statutory authority to require domestic insurers
to provide coverage for transporters of hazardous wastes,
and related thereto, may premia be prescribed if deemed
necessary to preclude confiscatory rates for the smaller
operator? Our research has not revealed any existing authority
for either of the two addressed issues.
A recently proposed Senate Bill (S.2083, 95th Congress)
would have come close to providing enabling legislation though
it still would have left the insurance industry's participa-
tion in the proposed coverages voluntary. The "stick" in
that legislation would have been another public fund into
which premia would have been paid by assureds which have not
been able to contract for commercially underwritten coverage
at reasonable cost. It should be noted that a similar but
not identical Bill was passed by the House (H.R. 6803, 95th
Congress, 1st Session).
F. Summing Up
Even though the avoidance of additional regulations in the
area of transporters' financial responsibility would be desirable
from every viewpoint but one - the need to assure adequate public
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protection in harmony with the public's reasonable expectations -
it was concluded that existing requirements do not nearly meet
perceived needs. Unless public policy makers are satisfied to
place continued reliance upon the voluntary measures adopted by
the larger entities in the hazardous waste transport industry,
there is no other choice than to promulgate a set of new regula-
tions calling for financial responsibility standards of sufficient
size to satisfy damage claims for all but the most severe
catastrophic occurrences.
Moreover, an aspect practically ignored in present standards,
insurance practices and the governing laws, is that which is
especially germane to the EPA's direct scope of interest. We
refer to not readily discovered long-term environmental damage.
The term long-term environmental damage in this context should
be interpreted to include human injury such as that resulting
reportedly from exposure to asbestos and numerous other substances
which often time is not revealed for many years subsequent to the
initial exposure.
The burden of additional regulation could be mitigated by in-
clusion of regulations for transporters of wastes with those
needed for transporters of hazardous commodities. Not only would
this concept assure uniformity of regulations, in particular
as between the different Federal agencies with present juris-
dictions, i.e., ICC, DOT, FMC, EPA, NEC, USCG and CAB, but it
would avoid the necessity for establishing an additional
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implementing and enforcing bureaucracy at considerable cost
to the general taxpayer.
Various mechanisms to accomplish the ultimate aim without
significant adverse economic impacts have been suggested. Their
implementation, it is surmised, will require legislation in-
addition to interagency cooperation. For example, the public
funds cited as examples as vehicles for the creation of catastrophic
events reserves have all been established pursuant to specific
authorizing legislation.
In the event EPA's legislative initiatives are ultimately
unproductive, the control options then available would be rather
restricted. In particular, without the ability to limit trans-
porters' liability, it is unlikely that concurrent gains in in-
surance availability and affordability could be achieved.
In conclusion, it would seem that recognition of the transport
industry's voluntary financial responsibility practices is
presently accorded far greater protection than existing regula-
tions require. Increased public awareness of the environmentally
damaging potentialities of hazardous waste spills, and the demand
for more environmental protection and improved damage mitigation
appear to be incompatible with exclusive reliance on transporters'
voluntary practices.
Such exclusive reliance would, as noted, apply to the railroad
industry. Recalling the financial difficulties some major
components of this industry have experienced, and the industry's
enormous capital shortfall projected just recently by the
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Secretary of Transportation, exacerbate public policy makers'
concerns. That situation alone, coupled with the observed
practices of the smaller but vitally important special hazardous
waste truckers, give credence to the recommendation of a
minimum regulation for transporters of hazardous wastes by
railroad and highway. Such minimum regulation, it is reasoned,
would aim at providing sufficient financial resources to com-
pensate for "clean-up" costs, including property damage and
personal injury, at levels identified in this report for non-
catastrophic incidents. These, it will be recalled, comprise
between 76% and 95% of all hazardous materials spills in the
18-month sample.
Finally, what is hoped to have been accomplished in this
project is the presentation, in one concise and comprehensive
report, the "picture" respecting financial responsibility of
hazardous waste transporters as it now exists. More to the
point, special efforts were made to compile information reflecting
the latest legislative initiatives for the establishment of
statutory funds with the view of providing the financial resources
to mitigate environmental damage caused by accidental hazardous
material spills. As noted before, some of these legislative
proposals would extend the Federal financial muscle to compensate
for loss of business income and deprivation of individuals'
economic opportunity. Most important, however, is not the
i
diversity of these legislative proposals, but the need for a
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consistent policy approach, and uniformity of regulation and
enforcement.
EPA's initiatives of bringing hazardous waste packaging,
labeling and placarding regulations in conformance with
hazardous materials regulations administered by DOT is an
excellent example for inter-agency cooperation, avoidance of
regulatory inconsistency, and minimization of regulatory bur-
dens imposed on the regulated and the public at large. It
should be hoped that this enlightening experience can be
operated in the area of financial responsibility legisla-
tion and regulation.
Undoubtedly some additional legislation and regulations for
the administration of such new legislation are needed to assure
both adequate financial responsibility standards and the avail-
ability of resources to deal with the consequences of catastrophic
spills. What is not needed, though, is a rash of new statutes
with conflicting provisions, each dealing with some slice of the
hazardous materials pie, and a number of involved Federal depart-
ments and agencies to administer redundant sets of regulations.
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Appendix A
Excerpt from Title 46 Shipping
Chapter IV Federal Maritime Commission
Part 543 FINANCIAL RESPONSIBILITY FOR OIL POLLUTION
ALASKA PIPELINE
Final Rule
§543.5 Financial Responsibility, Amount
Each applicant shall establish that it is able to pay $14
million to meet its liability under subsection (c) of section 204
of the Act. The amount required by this Part is separate from
and in addition to the amount, if any, required of the applicant
pursuant to Part 542 of this Title.
§543.6 Financial Responsibility, How Established
(a) An applicant shall establish its financial responsibility
within the meaning of this Part by any one of, or by any com-
bination acceptable to the Commission of, the following methods:
(1) Filing with the Commission an insurance Form FMC-225P,
executed by an insurer which is acceptable to the Commission for
purposes of this Part.
(2) Filing with the Commission a surety bond Form FMC-226P,
executed by the applicant and by a surety company which is accept-
able to the Commission for purposes of this Part. To be accept-
able, surety companies, among other things, must be certified by
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the United States Department of the Treasury with respect to
the issuance of Federal bonds in the penal sum of the bond.
(3) By maintaining in the United States working capital
and net worth, each in the amounts as set forth below in this
/
subparagraph. The amount of working capital and net worth to
be maintained by the applicant shall be determined by the number
of vessels operated by the applicant within the meaning of this
Part: for one vessel, $19,000,000; for two vessels,? $24,000,000;
for three vessels, $28,000,000; for four vessels, $31,000,000;
for five vessels, $33,000,000; and for six or more vessels,
$34,000,000. For the purposes of this subparagraph, "working
capital" is defined as the amount of current assets located in
the United States, less all current liabilities; and "net worth"
is defined as the amount of all assets located in the United
States, less all liabilities. The amounts required by this
r
subparagraph are in addition to the amount, if any, required by
subparagraph (3) of paragraph (a) of section 542.5 of this Title
s
Maintenance of the required working capital and net worth shall
be demonstrated by submitting with the initial application the
items specified in subdivision (i) of this subparagraph for t'ife"
last fiscal year preceding the date of application. Thereafter,
so long as the application is pending or the certificant is
holding a Certificate, the applicant/certificant shall submit
the items specified in subdivision (i) and (ii) of this sub-
paragraph and shall be subject to the provisions of subdivisions
(iii), (iv), and (v) of this subparagraph:
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(i) An annual, current, npnconsolidated balance sheet
and an annual, current, nonconsoli.dated statement of income
and surplus, for each fiscal year certified by an indepen-
dent Certified Public Accountant. Said financial state-
ments are to be accompanied by an additional statement
from the Certified Public Accountant, certifying to the
total amount of current assets and total assets included
in the accompanying balance sheet, which are located in
the United States and acceptable for purposes of this Part.
If the balance sheet and statement of income and surplus
cannot be submitted in nonconsolidated form, but are
submitted in consolidated form, there must also be sub-
mitted an additional statement prepared by the involved
Certified Public Accountant, certifying to the amount by
which the applicantTs/certificant's total assets, which
are located in the United States and acceptable for pur-
poses of this Part, exceed its total liabilities, and also
certifying to the amount by which the applicant's/certi-
ficant's current assets, which are located in the United
States and acceptable for purposes of this Part, exceed
its current liabilities. Such additional statement must
specifically name the applicant/certificant, must indicate
that the amounts so certified relate only to the applicant/
certificant, apart from any other entity, and must identify
the consolidated financial statement to which it applies.
(ii) Supplementary statements as follows:
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First, a statement prepared by the Certified Public
Accountant, certifying that, as of the end of the first
six months of the applicant's/certificant's current
fiscal year, the applicant's/certificant's working capital
and net worth have not fallen below the required amounts
and, second, a quarterly affidavit filed by the corporate
Treasurer or equivalent stating that the working capital
and the net worth, have not, as of the close of the
quarter, fallen below the required amounts. Such affidavits
are required only for the first and third fiscal year
quarters.
(iii) Such additional financial information as the
Commission may deem necessary in particular cases shall be
submitted.
(iv) All persons subject to the provisions of this
subparagraph (3) shall, in addition to all other reporting
requirements, notify the Commission within five days of
the date such persons knew, or had reason to believe, that
the amounts of working capital or net worth have fallen
below the amounts required by this subparagraph.
(v) All annual financial statements required under this
subparagraph (3) shall be received by the Commission within
three calendar months after the close of the applicant's/
certificant's fiscal year, and the six-month statements
within three calendar months after close of such six-month
period. Quarterly affidavits shall be received within 30
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days of the close of the quarter being attested to. Upon
9
written request, the Commission may grant a reasonable
extension of the time limits imposed by this subdivision
(v), provided that the request is received 15 days before
the statements are due, and provided further that such
request sets forth good and sufficient reason to justify
the requested extension, and provided further that such
requests include an estimate of the final calculation of
working capital and of net worth. In no event, however,
will the Commission entertain a request for an extension
of more than 30 days.
(vi) Failure to timely file any statement, data, or
affidavit required by this subparagraph (3) sha'll cause
the revocation of the Certificate.
(4) Filing with the Commission a guaranty Form FMC-227P,
executed by a guarantor acceptable to the Commission for pur-
poses of this Part. To be acceptable a guarantor must comply
fully with all of the provisions of subparagraph (3) of this
paragraph (a). However, the amounts of working capital and
net worth required to be demonstrated by such guarantor shall
not be less than the aggregate amounts underwritten as a
guarantor pursuant to this Part 543 and Part 542 of this Title
and as an applicant/certificant pursuant to this Part 543 and
Part 542 of this Title. Joint guarantors, that is, two or more
entities which pool assets in order to qualify as guarantors
on behalf of an applicant/certificant, will not be permitted.
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(5) Any. other method specially justified and acceptable
to the Commission.
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Appendix B
Excerpt from Title 46 Shipping
Chapter IV Federal Maritime Commission
Part 542 FINANCIAL RESPONSIBILITY FOR WATER POLLUTION
§542.8 Financial Responsibility, How Established
(a) General - Each applicant shall demonstrate that it is
able to pay the amount necessary to meet its removal cost liability
under section 311 of the Act by establishing evidence of financial
responsibility. The amount of evidence of financial responsibility
required by this Part is separate from and in addition to the amount,
if any, required of the applicant pursuant to Part 543 (Oil Pol-
lution Cleanup - Alaska Pipeline) of this Title.
(b) Methods - An applicant shall establish evidence of
financial responsibility by any one of, or by an acceptable combin-
ation of, the following methods:
(1) Insurance - Filing with the Commission an Insurance
Form FMC-322 (Master Insurance Form FMC-323 when applying for
a Master Certificate) executed by an insurer which is accepta-
ble to the Commission for purposes of these regulations;
(2) Surety Bond - Filing with the Commission a Surety
i
Bond Form FMC-324, executed by the applicant and by a surety
company which is acceptable to the Commission for purposes of
these regulations. To be acceptable, surety companies must,
at a minimum, be certified by the United States Department
of the Treasury with respect to the issuance of Federal bonds
in the penal sum of the bonds to be issued under these regula-
tions;
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(3) Self-Insurance - By maintaining, in the United
States, working capital and net worth, each in the amount
of $150 per gross ton of the largest vessel to be self-
insured or $250,000, whichever is greater. For the purposes
of this subparagraph, "working capital" is defined as the
amount of current assets located in the United States, less
all current liabilities; and "net worth" is defined as the
amount of all assets located in the United States, less all
liabilities. The amounts required by this subparagraph are in
addition to-the amounts of working capital and net worth, if
any, required by Part 543. Maintenance of the required working
capital and net worth shall be demonstrated by submitting with
the initial application the items specified in subdivision (i)
of this subparagraph for the applicant's last fiscal year
preceding the date of application. Thereafter, for each of
the applicant's fiscal years in which the certificant is
holding a Certificate, the applicant/certificant shall submit
the items specified in subdivisions (i) and (ii) of this sub-
paragraph and shall be subject to the provisions of subdivisions
(iii), (iv), (v) and (vi) of the subparagraph:
(i) Initial and Annual Submissions - An applicant/
certificant shall submit an annual, current nonconsolidated
balance sheet and an annual, current nonconsolidated state-
ment of income and surplus, certified by an independent
Certified Public Accountant. Those financial statements
shall be accompanied by an additional statement from the
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applicant/certifleant's Treasurer (or equivalent official),
certifying to both the amount of current assets and the
amount of total assets included in the accompanying
balance sheet, which are located in the United States and
acceptable for purposes of this Part, e.g., not pledged
for purposes of Part 543. If the balance sheet and state-
ment of income and surplus cannot be submitted in non-
consolidated form, consolidated statements may be submitted
if accompanied by an additional statement prepared by
the involved CPA, certifying to the amount by which (A)
the applicant's/certificant's total assets, located in
the United States and acceptable for purposes of this
Part, exceed its total liabilities, and (B) the applicant's/
certificant's current assets, located in the United States
and acceptable for purposes of this Part, exceed its
current liabilities.
(ii) Semi-Annual Submissions - When the applicant's/
certificantTs self-insurance covers a vessel which carries
oil or hazardous substances in bulk as cargo and its
demonstrated net worth is not at least ten times the
required amount, an affidavit shall be filed by the
applicant's/certificant's corporate Treasurer (or the
equivalent official in cases where the applicant/certificant
is not a corporation) covering the first six months of
the applicant's/certificant's fiscal year. Such affidavits
shall state that neither the working capital nor the net
worth have, during the first six months, fallen below
the required amounts;
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(iii) Additional Submissions - Additional finan-
cial information shall be submitted upon request of
the Commission. All applicants/certificants who choose
self-insurance shall notify the Commission within five
days of the date such persons know, or have reason to
believe, that the amounts of working capital or net
worth have fallen below the amounts required by this
subparagraph;
(iv) Time for Submissions - All required annual
financial statements shall be received by the Commission
within three calendar months after the close of the
applicant's/certificant's fiscal year, and all six-
month affidavits within one calendar month after close
of the applicable six-month period. Upon written request,
the Commission may grant a reasonable extension of the
time limits for filing financial statements/affidavits,
provided that the request sets forth good and sufficient
reason to justify the requested extension and is re-
ceived 15 days before the statements/affidavits are
due. The Commission will not consider a request for
an extension of more than 45 days;
(v) Failure to Submit - Failure to timely file
any statement, data or affidavit required by this sub-
paragraph (3) shall cause the revocation of the Certi-
ficate;
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(vi) Waivers of Submissions - For good cause
shown in writing by the applicant/certificant, the
Commission may waive the" working capital requirement
in cases where the applicant/certificant is an economi-
cally regulated public utility, a municipal or higher-
level governmental entity: or an entity which operates
solely as a charitable, non-profitmaking organization.
The Commission will consider good cause to have been
shown when the applicant/certificant demonstrates- in
writing that the grant of such waiver would benefit
at least a local public interest without resulting
in undue risk to the environment and without resulting
in undue risk that the applicant's/certificant's removal
cost liability could not be met. In addition, for
good cause shown in writing by the applicant/certificant,
the Commission may waive the working capital require-
ment in any case where it can be demonstrated that
working capital is not a significant factor in the
applicant's/certificant's financial condition. An
applicant's/certificant's net worth in relation to
the amount of its exposure under the Act, as well as
a history of stable operations will be major elements
in such demonstration;
(4) Guaranty - An applicant/certificant may file with
the Commission a Guaranty Form FMC-325 (Master Guaranty Form
FMC-326 when applying for a Master Certificate) executed.by
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a guarantor acceptable to the Commission for purposes of
these regulations. A guarantor shall be subject to and must
fully comply with all of the self-insurance provisions of
subparagraph (3) of this paragraph (b). In addition, the
amounts of working capital and net worth required to be
demonstrated by an acceptable guarantor shall be -no less
than the aggregate amounts underwritten as a guarantor and
self-insurer pursuant to these regulations and the regulations
of Part 543 of this Title;
(5) Other Methods - An applicant may choose any other
method specially justified and acceptable to the Commission,
provided that such other method is not a mere modification
of any of the foregoing methods.
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Appendix C
Excerpt from General Order No. 40
Federal Maritime Commission
August 28, 1978
Hazardous Substances
On August 11, 1978 (43 Fed, Reg. 35704), the Commission Issued
regulations (revised Part 542) to Implement the Clean Water Act of
I/
1977. Those regulations concern removal cost liability on the part
of vessel operators who discharge harmful quantities of oil or haz-
ardous substances into United States waters.
The designation of hazardous substances, the harmful quantities
thereof, and related provisions were published by the Environmental
Protection Agency (EPA) on March 13, 1978 (43 Fed. Reg. 10474). How-
ever, on June 8, 1978, the United States District Court for the Western
District of Louisiana, issued a preliminary injunction against certain
of the EPA regulations. Manufacturing Chemists Association v. Douglas
M. Costle. Civil Action No. 78-0578. Hearings on a permanent injunction
were conducted on July 24, 1978.
In view of that pending court action, when the Commission issued
revised Part 542 it stated in footnote 2 under the Supplementary Infor-
mation portion of the Federal Register notice that:
"The Commission will issue such further
Order concerning the hazardous substances
provisions of Part 542 as may be appro-
priate following release of the Court's
decision."
On August 4, 1978, the Court issued its decision in Civil Action
No. 78-0578 and held that major portions of the EPA's regulations are
I/ P. L. 95-217, 91 Stat. 1566.The Clean Water Act amends the Federal
Water Pollution Control Act, 33 U.S.C. 1321. The latter statute, as
amended through 1977, is hereinafter referred to as the "Act".
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I/
"invalid, void, unenforceable, and of no legal effect." The validity
of the hazardous substances provisions encompassed in the Commission's
revised Part 542 depends entirely on the validity of the EPA's regula-
tions concerning hazardous substances. Therefore, the Commission will
stay all aspects of the hazardous substances provisions contained in
revised Part 542 until further notice.
This action will not have any effect upon the validity of the
regulations in revised Part 542 with respect to oil, nor does this
action relieve ve'ssel operators from submitting evidence of financial
responsibility by using the methods set forth in section 542.8 of the
regulations.
Two of the effects which will result from this action are: (1)
that underwriters and their assured vessel operators, even though they
submit evidence of financial responsibility as set forth in section
542.8, do not thereby assume liability for removal costs in connection
with hazardous substances; and (2) non-self-propelled barges which do
not carry oil as cargo or fuel but which do carry hazardous substances
as cargo or fuel are relieved from the certification requirements of
revised Part 542.
2/ The Court's ruling does not appear to invalidate the EPA's list of
designated hazardous substances. However, the clear invalidation of
related provisions, especially the "harmful quantities" designation,
renders the list void for most intents and purposes. Thus, at least,
vessel operators and underwriters still know what substances are
"hazardous substances", even though the Court's ruling means that,
for the time being, discharges of such substances do not result in re-
moval cost liability under section 311 of the Act.
C-2
-------
The Commission will lift this stay by appropriate Orde^ r.t sucu
time as the legal impediments to the EPA's regulations under section -
311 of the Act are removed. Commencing upon the effective date of the
future Order which lifts this stay, all evidence of financial responsi-
bility on file with the Commission shall automatically begin to cover
liability for discharges of hazardous substances occurring on and after
that effective date.
C-3
-------
RAILROAD COMPREHENSIVE INABILITY APPENDIX D
I. In consideration of the premium as hereinafter provided it is understood and agreed that rhis oolicy shall indemnify th*
Assured for any and all sumr which the Assured shall be legally obligated to p.iy as damages and expenses for personal injuries
and damage to property arising out of occurrences during the period of this policy and resulting from the operations of the
railroad. Such operations shall be deemed to include the assumption of liability under contracts that are normal and incidental
to the operation of a railroad.
II. The Assured under this policy shall include partners, officers; directors, stockholders and employees, while acting as such in
connection with the operations covered, but it is understood and agreed that this inclusion does not increase the Company's
limit of liability in respect of any one occurrence as hereinafter stated.
III. It is specifically understood and agreed that the intention .of paragraph 1 is to include coverage for the Assured's liability for
injury, death, sickness or disease to any persons, including employees and including liability under any Workmen's Compensa-
tion Act or the Federal Employer's Liability Act, as well as damage to any property of others including foreign rolling stock.
IV. The limit of coverage hereunder shall be $ any one occurrence and shall apply only in excess of $
ultimate net loss in respect of each occurrence. Ultimate net loss shall consist of the amounts paid for
settlement of losses for which the Assured is liable after making deductions for all recoveries, salvages and other insurances, but
shall include expanses and costs incurred in connection therewith (other than expenses for salaried employees, retained counsel
and office expenses of the Assured) not covered by other insurance.
V. Exclusions
This policy does not apply:
(a) To any loss which at the time of the happening of such loss, is insured by, or would, but for the existence of this policy be
insured by any other existing policy or policies of valid and collectible insurance, except in respect of any excess beyond
the amount which would have been askable under such other policy or policies had this insurance not been in effect;
(t>) To any loss arising out of the Assured'rdpfer-atipp, maintenance or use.of auromobiles .and/or buses and/or aircraft and/or
vessels and/or watercraft. ^:».. i--/ ;"-' ^! r-'!. o : ;_ .-: '. .1 /;';''"''f"'\ f?;
VI. Conditions £.' /.-.;' '.'-3 ': } -., : " ' ''".';"/ »-..:^V ?\: /. f'$
A. Notice of Occurrence Co-operation over claims. "~* r<~i> £,: ?" '-^ ."; -.'_' ^'-j £.-i
""^ "** k*^ - t~^~ '* ' *!
The Assured shall immediately give written notice to The Canton Agency STTd/tfn-lvlidrapd Insurance Company of any
occurrence or claim which could reasonably be anticipated by the Assured to involve an amount in excess of the
underlying limits should the Assured be ultimately held legally liable for the occurrence or claim. Solely for the purposes
of reporting claims or occurrences, the Assured shall in all instances consider himself legally liable for such claims or
occurrences.
The course to be adopted by the Assured in connection with the defense or settlement of such claim or claims shall be
determined between the Assured and the Company or their representatives. The Assured shall cooperate with the
representatives of the Company in the defense of suits and actions by rendering aid and in effecting settlements, securing
evidence and prosecuting appeals as may be reasonably requested by the Company or their representatives. The Assured
shall not without the consent of the Company or their representatives litigate any such claim or claims.
In case of difference of opinion the parties agree to follow the advice of a referee to be mutually agreed.
B. Subrogation
Inasmuch as this policy is "Excess coverage", the Assured's right of recovery against any person or other entity cannot be
exclusively subrogated to the Company. It is, therefore, understood and agreed that in case of any payment hereunder, the
Company will act in concert with all oilier interests (including the Assured) concerned, in the exercise of such rights of
recovery. The apportioning of any amounts which may be so= recovered shall follow the principle that any interests
(including the Assured) that shall have paid an amount over and above any payment hereunder shall first be reimbursed up
to the amount paid by them; the Company is then to be reimbursed out of any balance then remaining up to the amount
paid hereunder; lastly the interests (including the Assured) of whom this coverage is an excess are entitled to claim the
residue, if any. Expenses necessary to the recovery of any such amounts shall be apportioned between the interests
(including the Assured) concerned, in the ratio of their respective recoveries as finally settled.
UNO No. 81-1 D-l
-------
C. .Bankruptcy and Insolvency.
fn the event of the bankruptcy or insolvency of the Assured, or any entity comprising the Assured, the company shall not
be relieved thereby of the payment of any claims hereundcr because of such bankruptcy or insolvency.
D. Inspection and Audit.
The Company shall be permitted at all reasonable times during the continuance of this policy to inspect the premises,
plants, machinery and appliances used in connection with the Assured'* trade, business or work, and to examine during the
continuance of this policy or within one year after, its-termination the Assured's books or other records so far as they
relate to the basis of the premium computation of this policy.
E. Cancellation.
This policy may be cancelled at any time at the written request of the Assured or by the Company or their representatives
with or without the return or tender of the unearned premium by giving thirty days notice of such cancellation, in which
event the earned premium shall be adjusted in the customary short rate basis should the policy be cancelled by the Assured
or on a pro rata basis should the policy be cancelled by the Company.
F. Premium Computation.
It is understood and agreed that the premium shown hcreon is provisional and the final premium shall be computed at a
rate of per $100 of gross receipts from the operations covered. The annual minimum premium for this
policy shall be
All other Terms and Conditions remained unchanged.
Attached to and forming part of Policy No.
Broker/Agent:
Date of Issue:
MIDLAND INSURANCE COMPANY
By.
e-rv
^mm
fc* $; "''
UNO No. 61-2
D-2
-------
This endorsement modifies such insurance as is afforded bv the provisions of the policy relating to
the following:
IT IS AGREED THAT CONDITION G "DEFINITIONS" IS ADDED TO PARA-
GRAPH VI CONDITIONS OF RAILROAD COMPREHENSIVE LIABILITY FORM
ATTACHED TO THIS POLICY.
G DEFINITION;
OCCURENCE. THE WORD "OCCURRENCE" WHEREVER USED IN THIS POLICY
MEANS ONE HAPPENING OR SERIES OF HAPPENINGS ARISING OUT OF ONE
EVENT TAKING PLACE DURING THE TERM OF THIS POLICY.
^%sl
-.«, v..\v\ %%|
.. ^.Vf-UWIifl
.-'. " '..*» i * i * *-A
Effective
issued to
by
(The information below is required to be completed only v/hen this endorsement
is issued subsequent to the policy effective date.)
this endorsement forms a part of Policy No.
MIDLAND INSURANCE COMPANY
AUTHORIZED REPRESENTATIVE
UNO No, 73
-------
(The Attachint Clause netd bit completed only when this endorsement Is Issued subsequent to preparation ol the policy.)
ISB-G 335 G 335
EXCLUSION
(Contamination or Pollution)
L6481
(Ed. 6-70)
This endorsement modifies such insurance as is afforded by the provisions of the policy relating to the following:
COMPREHENSIVE GENERAL LIABILITY INSURANCE
COMPLETED OPERATIONS AND PRODUCTS LIABILITY INSURANCE
CONTRACTUAL LIABILITY INSURANCE' \ v^
MANUFACTURERS' AND CONTRACTORS' LIABILITY INSURANCE
OWNERS' AND CONTRACTORS'-. PROTECTIVE LIABILITY INSURANCt
OWNERS',.LANDLORDS': AND "TENANTS' LIABILITY INSORANCE ;\
SPECIAL PROTECTIVE AWM.rSKWAY LIABILITY INSURANCE NEW YORK DEPARTMENTVOF TRANSPORTATION
-."'.' ": : . -. STOREKEEPER'S INSURANCE
If
This endorsement, effective
issued t-
' \ \ '-*
^ ~*
, forms a part of policy No.
Authorized Representative
It is agreed that the insurance does not apply to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke,
vapors, scot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land,
the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and
accidental.
M^,..*--
-------
SERVICE OF SUIT CLAUSE (U.S.A.)
It is agreed that in the event of the failure of Underwriters hereon to pay any amount claimed to be due hereunder.
Underwriters hereon. at the request of the insured (or reinsured), will submit to the jurisdiction of any Court of competent
jurisdiction within the United Stales and will comply with all requirements necessary to give such Court jurisdiction and all matters
arising hereunder shall be determined in accordance with the law- »H nractice of such Court.
It is further agreed that service of process in such suit may be ma_de upon THE INSURANCE COMMISSIONER ANY STATE and
that in any suit instituted against any one of them upon this contract. Underwriters will abide by the final decision of such court or
of any Appellate Court in the event of an appeal.
THE DESIGNATED INSURANCE COMMISSIONER is authorized and directed to accept service of process on behalf of Under-
writers in any such suit and/or upon the request of the insured (or reinsured) to give a written undertaking to the insured (or
reinsured) that he will enter a general appearance upon Underwriters' behalf in the event such a suit shall be instituted.
Further pursuant to any statute of any state, territory or district of the United States which makes provision therefor. Underwriters
hereon hereby designate the Superintendent. Commissioner or Director of Insurance or other officer specified for that purpose in
the statute, or his successor or successors in office, as their true and lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf of the insured (or reinsured) or any beneficiary hereunder arising out of
this contract of insurance (or reinsurance), and hereby designate the above-named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
Attached to and forming part of Policy No.
Issued to:
By: MIDLAND INSURANCE COMPANY
Dated: By
Endt. f 3
UNO No. 79 '
D-5
-------
This endorsement modifies such insurance as is afforded by the provisions of the policy relating to
the following:
COMPREHENSIVE GENERAL LIABILITY
IN CONSIDERATION OF THE PREMIUM CHARGED IT IS AGREED THAT THE
FOLLOWING ARE DELETED IN THEIR ENTIRETY FROM POLICY PROVISIONS-
1. SUPPLEMENTARY PAYMENTS
2. DEFINITIONS
3. CONDITIONS
IT IS FURTHER AGREED THAT THE NUCLEAR ENERGY LIABILITY EXCLUSION
ENDORSEMENT (BROAD FORM) REMAINS UNCHANGED.
Effective
issued to
(The Information below is required to be completed only when this endorsement
is issued subsequent to the policy effective date.)
, this endorsement forms a part off Policy No.
MIDLAND INSURANCE COMPANY
AUTHORIZED REPHfeSeiMTATIVE
UNO No, BO
D-6
-------
ENDORSEMENT
It is hereby agreed that the insurance with respect to Railroad
Operations does not apply to Bodily Injury to any passenger
being carried while in or upon, entering or alighting from any
such train, cars or equipment.
Effective
attached to and made a part of Policy No..
issued to
12:01 AM Standard Time, this Endorsement No
nf MIDLAND INSURANCE COMPANY
(The information above is required only when this endorsement is issued subsequent to preparation of the policy.)
Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, agreements or limitations
of this policy other than as above stated.
M.S. ChMiault, PrttldMit
By-
Authorised Rcpraswttativ*
FQPM UNO 262 (1/77) 10M
ORIGINAL
D-7
-------
ENDORSEMENT
EXCLUSION
(CONTAMINATION OR POLLUTION)
IT IS AGREED THAT IHE INSURANCE DOES NOT APPLY TO BODILY INJURY OR PROPERTY
DAMAGE ARISING OUT OF THE DISCHARGE, DISPERSAL, RELEASE OR ESCAPE OF SMOKE,
VAPORS, SOOT, FUMES, ACIDS, ALKALIS, TOXIC CHEMICALS, LIQUIDS OR GASES, WASTE
MATERIALS OR OTHER IRRITANTS, CONTAMINANTS OR POLLUTANTS INTO OR UPON LAND,
THE ATMOSPHERE OR ANY WATERCOURSE OR BODY OF WATERj BUT THIS EXCLUSION DOES
NOT APPLY IF SUCH DISCHARGE, DISPERSAL, RELEASE OR ESCAPE IS SUDDEN AND
ACCIDENTAL
Effective
attached to and made a.oart of Policy No..
issued to
12:0) AM Standard Time, this Endwsement No
MIDLAND INSURANCE COMPANY
iTbe infotmation above is tequiied only when .this endorsement is issued subsequent to pieparation ol the policy.)
Nothing herein contained shall be held to vary, alter, w
-------
APPENDIX E
Unit Costs Employed for Calculations
of Spill "Clean-Up" Costs
A. Major Hazardous
Spill Category
8 or ll-/
8 or ll^/
9
9
8
8
8 or 11'
8 or ll-/
11
9
3
3
3
3
3
11
8 or II^J
8
a
9
8 or ll-/
10
9
10
10
Substances "Clean-Up"-=-/
Applied to Spilled
Substance
Railroad
Sulfuric Acid
Hydrocloric Acid
Chlorine
LPG
Anhydrous Ammonia
Caustic Soda
Phosphoric Acid
Hydrofloric Acid
Acrylonitrile
Sulfur Dioxide
Water Carrier
Diesel Fuel
Fuel Oil
Crude Oil
Gasoline
Waste Oil
Motor Carrier
Gasoline
Sulfuric Acid
Anhydrous Ammonia
Caustic Soda
LPG
Hydochloric Acid
Fuel Oil
Chlorine
Organic Phosphate
Nitrobenzol
"Clean-Up"
Per Gallon
$ 2.3C4/
2.3c£/
4.17
4.17
1.34
1.34
2 . 30^/
3.25
4.17
8.34
8.34
8.34
8.34
8.34
3.25
2.3C4/
1.34
1.34
4.17
1.34
4.17
1.34
1.34
Cost
Per Ib.
$ .28-
OQJ
.50
.50
.16
.16
?S-
28^
.39
.50
1.00
1.00
1.00
1.00
1.00
.39
3
M O^
.16
.16
.50
9S
.16
.50
.16
.16
' Most frequently spilled hazardous substances by mode.
2/
"-' Category dependent upon chemical concentration.
3/
' Adjusted to account for differing chemical concentrations
E-l
-------
B. Other "Clean-Up" Costs
Item
"Clean-Up" Cost Per
Person or Incident
Wrongful Death Compensation
$600,000
Bodily Injury:
Medical Treatment
Emergency Room Treatment
Compensation in lieu of income
Hospitalization
Evacuation
Third Party Property Damage
$ 40 per person per
incident
$ 100 per person per
incident
$ 300 per week
$ 2,000 per person per
incident
$ 600 per episode
Incident Specific
E-2
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Appendix F
Highlights of Proposed Legislation and Rules
to Create a "Superfund" and Establish
Minimum Amounts of Financial Responsibility
1. Ninety-sixth Congress, 1st Session, H.R, 85 and H.R, 29,
Comprehensive Oil Pollution Liability and Compensation
Act
Both bills were introduced on January 15, 1979, and
.referred jointly to the Committees on Merchant
Marine and Fisheries and Public Works and Trans-
portation.
As of this writing, H.R. 85 has been passed by the
Merchant Marine and Fisheries Committee but has
not been voted on by the Public Works and Trans-
portation Committee.
H.R. 29 is very similar in concept to H.R. 85; where
significant differences occur in these two pro-
posals it is so noted below. Unless stated other-
wise, first reference is to H.R. 85, the Bill
introduced by Mr. Biaggi and others. H.R. 29 was
introduced by Mr. Studds.
§102 Creates the "Comprehensive Oil Spill Liability
Fund"
- should not exceed $200 million, but not less
than $150 million
collected by the Treasury Department
administered by the Secretaries of Transpor-
tation and Treasury
fees may be up to three cents per barrel of
'. oil received at a terminal or refinery for
export or entry into the United States
F-l
-------
- fees paid by terminal or refinery owner
§103 Recoverable Damages and Claimants
removal costs
- injury to or destruction of real or personal
property
- loss of use of real or personal property
injury to or destruction of natural resources
loss of use of natural resources
«
loss of profits on real or personal property
or natural resources
loss of tax revenue for a period not to ex-
ceed one year
§104 Liability Limits of Owner or Operator
other than a ship or inland oil barge, $150
per gross ton
- inland oil barge, $150,000 or $150 per gross
ton, whichever is greater
- ship, $250,000 or $300 per gross ton (up to
a maximum of $50 million) whichever is
greater
[H.R. 29 sets these amounts at $300,000 or
$300 per gross ton, and up to $50 million]
deepwater port subject to the Deepwater Port
Act of 1974, $50 million
- offshore facility operated under the Outer
Continental Shelf Lands Act, removal costs
plus $50 million
- other facilities, up to $50 million as de-
termined by the Secretary of Transportation
- these limits do not apply if the incident is
caused by gross negligence or by violation
of regulations, or when the owner or ope-
rator refuses to provide cooperation in
cleanup activities
F-2
-------
§105 Financial Responsibility
the owner or operator of a vessel over 300
gross tons which uses an offshore or on-
shore facility or the navigable waters
shall establish and maintain evidence of
financial responsibility sufficient to
satisfy the standards set forth in above--
mentioned liability limits
the owner or operator of a facility that is
used for drilling for, producing or pro-
cessing oil or has the capacity to handle
1,000 barrels of oil at any one time shall
show evidence of financial responsibility
to satisfy liability limits mentioned above
[H.R. 29 places these same limits on all
offshore facilities]
2. Ninety-sixth Congress', 1st Session, S, 684, Oil Trans-
portation by Vessel Liability Act
Introduced by Mr. Magnuson on March 15, 1979, first
referred to the Committee on Commerce, Science
and Transportation; on March 29, 1979, referred
jointly to the former Committee and the Committee
on Environment and Public Works
§6 Creates the "Oil Cargo Liability Fund"
fund may not exceed $250 million
fees may be up to three cents per barrel of
oil received at a terminal or refinery
§5 Recoverable Damages and Claimants
- injury to or destruction of real or personal
property
loss of use of real or personal property
injury to or destruction of natural resources
loss of use of natural resources
loss of profits on real or personal property
or natural resources
F-3
-------
- loss of tax revenue for a period not to ex-
ceed one year
§4 Liability Limits of Owner or Operator
- vessel not carrying oil in bulk, $150 per
gross ton
- vessel carrying oil in bulk, $300 per gross
ton or $500,000, whichever is greater
- these limits do not apply if the incident is
caused by gross negligence or by violation
of regulations, or when the owner or opera-
tor refuses to provide cooperation in clean-
up activities
§10 Financial Responsibility
the owner or operator of a vessel over 300
gross tons which ;iises any facility or the
navigable waters shall establish and main-
tain evidence of financial responsibility
to satisfy liability limits mentioned above
3. Outer Continental Shelf Lands Act Amendments of 1978,
P.L. 95-372, enacted September 18, 1978, Proposed Rules,
December 4, 1978, 33CFR Parts 130, 131, Offshore Oil
Pollution Liability and Compensation, Agency: Coast
Guard, (NPR published in Federal Register, Vol. 43,
No. 233).
Applicability
regulations apply to offshore facilities
(drilling units, wells, platforms and pipe-
lines) operating under the Outer Continental
Shelf Lands Act.
Offshore Oil Pollution Compensation Fund
created under the Outer Continental Shelf
Lands Act of 1978
jointly administered by the Secretaries of
Transportation and Treasury
- fund will initially cover spills as a result
of activities on the OCS; (Coast Guard expects
F-4
-------
legislative actions to expand scope to
include all marine oil pollution)
- amount of fund not to exceed $200 million
but more than'$100 million
fee not to exceed three cents per barrel of
oil produced from the OCS
Part 131, Subpart C, Recoverable Damages and Claimants
removal and cleanup cost
injury to or destruction of property
loss of property
injury to or destruction of natural resources
loss of use of natural resources
loss of profits on real or personal property
or natural resources
loss of tax revenue for a period of one year
§130.201 Financial Responsibility
1. By guarantee, surety bond, or self-insurance
offshore facility able to handle 1,000 barrels
of oil at a time must maintain $35 million
- two facilities, $43 million
three facilities, $47 million
- four facilities, $49 million
five or more facilities, $50 million
2. By insurance
- $35 million for each facility
4. Outer.Continental Shelf Lands Act- Amendments of 1978,
P.L. 95-372, enacted September 18, 1978, Proposed Rules,
46CFR 544, Financial Responsibility for Water Pollution,
Agency: FMC
This proposed rule specifies minimum amounts of
financial responsibility, how compliance is to be
demonstrated, and how certificates are issued.
No mention is made of a superfund; proposed rules do
not supersede existing regulations under Water
Pollution Control Act (FWPCA) and Trans-Alaska Pipe-
line Authorization Act.
F-5
-------
Applicability
- regulations apply to vessels transporting
oil;from an offshore facility located
on the Outer Continental Shelf, and then
only when such vessels are in offshore
waters
§544.8 Financial Responsibility
- $300 per gross ton or $250,000, whichever is
greater
if several vessels are owned by one person,
the amounts will be based on the tonnage
of the largest vessel owned
these amounts are separate from and in addi-
tion to the amount of financial responsibility
required of an applicant pursuant to Parts
542 and 543 of this Title. The amounts re-
required under Part 542,implementing section
311 of the Federal Water Pollution Control
Act, are:
for inland oil barges, $125 per gross ton
or $125,000, whichever is greater
for vessels other than inland barges which
carry oil, $150 per gross ton or $250,000,
whichever is greater
for vessels not carrying oil or hazardous
substances, $150 per gross ton
the amount required under Part 543, implementing
section 204(c) of the Trans-Alaska Pipeline
Authorization Act, is $14 million for each
applicant -
F-6
-------
APPENDIX G
PARTIAL LIST OF PERSONS AND ORGANIZATIONS CONTACTED
1. U.S. Government Agencies
U.S. Environmental Protection Agency
General Counsel's Office
Marine Activities Office
Office of Solid Waste Management
Federal Maritime Commission
Interstate Commerce Commission
General Counsel's Office
Section of Motor, Water, Forwarder Operations
National Transportation Safety Board
U.S. Department of Transportation
Federal Railroad Administration
U.S. Coast Guard
2. Other Public Agencies
Kentucky Department of Housing, Buildings and Construction
Louisiana Public Service Commission
Maine Department of Environmental Protection
Maine Department of Transportation
City of Phoenix Fire Department
Tennessee Department of Transportation
Wisconsin Department of Natural Resources
G-l
-------
3. Private Sector Persons, Organizations, and Businesses
Aetna Commercial Lines Department
Mr. L. Berg
Mr. J. Cooper
Alamo Chemical Transportation Company
Mr. C.N. Millican
Alexander & Alexander
Mr. A. Swann
American Association of Short Line Railroads
American Commercial Barge Line Company
Mr. R. Stith
American Insurance Association, Hazardous Transportation
.Committee
A. Kolmykow
J. Raskin
S. Ripley
American Petroleum Institute
Mr. J. Blackburn
American Waterway Operators, Inc.
Mr. H. Muth
Mr. N. Schuster
Ashland Oil Company
Mr. F. Charles
Association of American Railroads
Mr. C. Lyons
Burdick & Hunter
P. Lynch
G-2
-------
Canal Barge Company, Inc.
Mr. H.M. Lane
Canton Agency, Inc.
Mr. W. Beadell
Chessie System
Chotin Transportation Company
Mr. Berger
Federal Barge Lines, Inc.
Mr. 0. Patty
Hollowey Waste Oil
Mr. J. Hollowey
Houston Barge Line, Inc.
Mr. G. Force
Howden & Company
Mr. K. Goldstein
Ingram Barge Company
D.F. Sampsell
International Risk Managers, Ltd,
Mr- R. Salamansky
James Waste Oil
Mr. J. Holder
Kentucky Petroleum
Mr. L. Sharecliff
Lexington Insurance Company
Mr. P. Foster
Mr. K. Kelley
G-3
-------
Marsh - McLennon
Mr., R. Harris
National Association of Regulatory Utility Commissions
Mr. D. Burke
National Marine Service, Inc.
Mr. S. Howson
Nilo Barge Line, Inc.
Mr. J. Bowman
Peavey Company (Barge Division)
Shaver Transportation Company
Southern Railway, Insurance Department
Mr- J. Vonderhaar
Starr Associates, Inc.
Mr. R. Barnes
Mr. R. Lewis
Twin City Barge and Towing Company
Mr. Powers
Water Quality Insurance Syndicate
Water Transport Association
Mr. Creddi
Wisconsin Barge Line, Inc.
Mr. Alien
W.T. Burton Company
Mr. C. Carwile
(For sake of brevity, some fifty motor carriers surveyed
are not listed.)
A U.S. GOVERNMENT PMmWOfnCfc 1979-281-147/113 UOl 846
SW-178c
G-4
-------
EPA REGIONS
U.S. EPA, Region 1
Solid Waste Program
John F. Kennedy Bldg.
Boston, MA 02203
617-223-5775
U.S. EPA, Region 2
Solid Waste Section
26 Federal Plaza
New York, NY 10007
212-264-0603
U.S. EPA, Region 3
Solid Waste Program
6th and Walnut Sts.
Philadelphia, PA 19106
215-597-9377
U.S. EPA, Region 4
Solid Waste Program
345 Courtland St., N.E.
Altanta, GA 30308
404-881-3016
U.S. EPA, Region 5
Solid Waste Program
230 South Dearborn St.
Chicago. IL 60604
312-353-2197
U.S. EPA, Region 6
Solid Waste Section
1201 Bm St.
Dallas, TX 75270
214-767-2734
U.S. EPA, Region 7
Solid Waste Section
1735 Baltimore Ave.
Kansas City, MO 64108
816-374-3307
U.S. EPA, Region 8
Solid Waste Section
1860 Lincoln St.
Denver, CO 80295
303-837-2221
U.S. EPA, Region 9
Solid Waste Program
215 Fremont St.
San Francisco, CA 94105
415-556-4606
U.S. EPA, Region 10
Solid Waste Program
1200 6th Ave.
Seattle, WA 98101
206-442-1260
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