Citation
Panama Canal Act oversight

Material Information

Title:
Panama Canal Act oversight hearing before the Subcommittee on Panama CanalOuter Continental Shelf of the Committee on Merchant Marine and Fisheries, House of Representatives, Ninety-seventh Congress, second session, on the amending of the Panama Canal Act of 1979 concerning the Panama Canal Commission's authority to adjust and pay claims for vessel damage; the Commission's accounting methods in setting aside toll revenues to pay claims; and the status of pending vessel damage claims, December 2, 1982
Creator:
United States -- Congress. -- House. -- Committee on Merchant Marine and Fisheries. -- Subcommittee on Panama Canal/Outer Continental Shelf
Place of Publication:
Washington, D.C.
Publisher:
U.S. G.P.O.
Publication Date:
Language:
English
Physical Description:
iii, 115 p. : ; 24 cm.

Subjects

Subjects / Keywords:
Liability for marine accidents -- United States ( lcsh )
Panama Canal (Panama) ( lcsh )
Genre:
bibliography ( marcgt )
federal government publication ( marcgt )

Notes

Bibliography:
Includes bibliographical references.
General Note:
Reuse of record except for individual research requires license from LexisNexis Academic & Library Solutions.
General Note:
CIS Microfiche Accession Numbers: CIS 83 H561-9
General Note:
MONTHLY CATALOG NUMBER: gp 83014641
General Note:
"Serial no. 97-46."
General Note:
Reuse of record except for individual research requires license from Congressional Information Service, Inc.
General Note:
Monthly Catalog Number: gp 3014641

Record Information

Source Institution:
University of Florida
Holding Location:
Centers of Excellence at UF
Rights Management:
This item is a work of the U.S. federal government and not subject to copyright pursuant to 17 U.S.C. §105.
Resource Identifier:
022053888 ( ALEPH )
09404259 ( OCLC )
Classification:
KF49 ( lcc )
Y 4.M 53:97-46 ( sudocs )

Aggregation Information

DLOC1:
Digital Library of the Caribbean
PCM:
Panama and the Canal
IUF:
University of Florida
IUFGOV:
Centers of Excellence at UF
UFPANCAN:
Documents of the Panama Canal

Downloads

This item has the following downloads:


Full Text
qPA A CANAL ACT OVERSIGHT
Tz2 ARING
BEFORE THE
COMMITTEE ON
/OUTER CONTINENTAL SHELF
OF THE
COMMITTEE ON
MERCHANT MARINE AND FISHERIES
HOUSE OF REPRESENTATIVES
NINETY-SEVENTH CONGRESS
SECOND SESSION
ON
THE AMENDING OF THE PANAMA CANAL ACT OF 1979 CONCERNING
THE PANAMA CANAL COMMISSION'S AUTHORITY TO ADJUST AND
PAY CLAIMS FOR VESSEL DAMAGE; THE COMMISSION'S ACCOUNTING
METHODS IN SETTING ASIDE TOLL REVENUES TO PAY CLAIMS; AND
THE STATUS OF PENDING VESSEL DAMAGE CLAIMS
DECEMBER 2, 1982
Serial No. 97-46
Printed for the use of the Committee on Merchant Marine and Fisheries
U.S. GOVERNMENT PRINTING OFFICE
12-978 WASHINGTON 1982




COMMITTEE ON MERCHANT MARINE AND FISHERIES
WALTER B. JONES, North Carolina, Chairman
MARIO BIAGGI, New York GENE SNYDER, Kentucky
GLENN M. ANDERSON, California PAUL N. McCLOSKEY, JR., California
JOHN B. BREAUX, Louisiana EDWIN B. FORSYTHE, New Jersey
GERRY E. STUDDS, Massachusetts JOEL PRITCHARD, Washington
DAVID R. BOWEN, Mississippi DON YOUNG, Alaska
CARROLL HUBBARD, JR., Kentucky NORMAN F. LENT, New York
DON BONKER, Washington DAVID F. EMERY, Maine
NORMAN E. D'AMOURS, New Hampshire THOMAS B. EVANS, JR., Delaware
JAMES L. OBERSTAR, Minnesota ROBERT W. DAVIS, Michigan
WILLIAM J. HUGHES, New Jersey WILLIAM CARNEY, New York
BARBARA A. MIKULSKI, Maryland CHARLES F. DOUGHERTY, Pennsylvania
EARL HUTTO, Florida NORMAN D. SHUMWAY, California
BRIAN J. DONNELLY, Massachusetts JACK FIELDS, Texas
W. J. (BILLY) TAUZIN, Louisiana CLAUDINE SCHNEIDER, Rhode Island
THOMAS M. FOGLIETTA, Pennsylvania JEAN S. ASHBROOK, Ohio
WILLIAM N. PATMAN, Texas
FOFO I. F. SUNIA, American Samoa
DENNIS M. HERTEL, Michigan
ROY DYSON, Maryland
JOSEPH F. SMITH, Pennsylvania
EDMUND B. WELCH, Chief Counsel
MICHAEL J. TOOHEY, Minority Staff Director
SUBCOMMITTEE ON PANAMA CANAL/OUTER CONTINENTAL SHELF
CARROLL HUBBARD, JR., Kentucky
JOHN B. BREAUX, Louisiana NORMAN F. LENT, New York
DAVID R. BOWEN, Mississippi EDWIN B. FORSYTHE, New Jersey
THOMAS M. FOGLIETTA, Pennsylvania DON YOUNG, Alaska
GLENN M. ANDERSON, California DAVID F. EMERY, Maine
BARBARA A. MIKULSKI, Maryland WILLIAM CARNEY, New York
W. J. (BILLY) TAUZIN, Louisiana JACK FIELDS, Texas
JOSEPH F. SMITH, Pennsylvania GENE SNYDER, Kentucky
WALTER BE JONES, North Carolina (Ex Officio)
(Ex Officio)
JANIE LAWSON, Staff Director
JANA RUE OAKLEY, Clerk
ROBIN MCCLUNG, Minority Professional Staff
BUn DRAGO, Minority Counsel
(HI)




CONTENTS
Page
H earing held Decem ber 2, 1982. 1
Statement of:
American Hull Insurance Syndicate (prepared statement) 114
Beale, Almer W., II, Esq., Toole, Taylor, Moseley & Joyner, representing
the Maritime Law Association of the United States 101
Prepared statem ent. 104
Brown, Richard H., Jr., Esq., Kirlin, Campbell & Keating, representing
the American Steamship Owners Mutual Protection & Indemnity Asso-
ciation In c 96
Prepared statem ent. 97
Burke, Raymond, Jr., Esq., Burke & Parsons. 72
Corrado, Ernest, vice president, American Institute of Merchant Shipping 72
Prepared statem ent. 82
Gianelli, William R., Assistant Secretary of the Army (Civil Works), and
Chairman of the Board of Directors, Panama Canal Commission. 9
Gotimer, Harry, Esq., Kirlin, Campbell & Keating 72
Prepared statem ent. 86
Jones, Hon. Walter B., chairman, Merchant Marine and Fisheries Com-
m ittee 2
Kujawa, Leonard J., partner, Arthur Andersen & Co 64
Prepared statem ent. 67
Luciano, Peter, executive director, Transportation Institute 72
McAuliffe, Dennis P., Administrator, Panama Canal Commission. 9, 108
Prepared statem ent. 12
Phillips, Bob, Esq., Texaco. 72
Smith, Waller B., Risk Manager to the Panama Canal Commission (pre-
pared statem ent). 112
U.S. General Accounting Office, International Division (prepared state-
m en t). 110
Additional material supplied:
Jones, Hon. Walter B.: Subcommittee staff memorandum to members of
the Subcommittee on Panama Canal/Outer Continental Shelf regard-
ing this hearing. 3
Kujawa, Leonard J.: Questions submitted by Mr. Hubbard and the an-
sw ers 108
Panama Canal Commission:
Questions submitted by Mr. Hubbard and the answers. 16
Questions submitted by Mr. Lent and the answers 53
Status of claims against the Panama Canal Commission arising from
vessel accidents occurring after September 30, 1979 38
Status of claims against the Panama Canal Company for fiscal years
1977-79 . 25
Transportation Institute:
Com parative print- Title 22. 76
Proposed amendment to Title 22, United States Code 75
Communication submitted:
Beale, Almer W., II: Letter of December 10, 1982, to Hon. Carroll Hub-
b ard 109
( III)







PANAMA CANAL ACT OF 1979
THURSDAY, DECEMBER 2, 1982
HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON PANAMA CANAL/
OUTER CONTINENTAL SHELF,
COMMITTEE ON MERCHANT MARINE AND FISHERIES,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:30 a.m., in room
1334, Longworth House Office Building, Hon. Carroll Hubbard, Jr.
(chairman of the subcommittee) presiding.
Present: Representatives Hubbard, Anderson, Tauzin, Sunia,
Lent, and Carney.
Also present: Jana Oakley, Janie Lawson, John Long, Robin
McClung, and Ed Welch.
Mr. HUBBARD. The Subcommittee on Panama Canal and Outer
Continental Shelf will come to order.
We do have three members present, all on the majority side. We
still do not have any representation from the minority side. How-
ever, I have been advised that none of them will object to our pro-
ceeding.
Congressman Anderson, Congressman Tauzin and I welcome our
distinguished colleague, Mr. Sunia, who sits in witness today. He is
a member of the full committee. We appreciate him very much for
being here for our subcommittee hearing.
Mr. SUNIA. Thank you.
Mr. HUBBARD. The subcommittee has scheduled an oversight
hearing for this morning to receive testimony from various inter-
ested parties on the possibility of amending the Panama Canal Act
of 1979 concerning the Panama Canal Commission's authority to
adjust and pay claims for vessel damage. Also to be discussed are
the Commission's accounting methods in setting aside toll revenues
to pay claims, and the status of pending vessel damage claims out-
side the locks exceeding $120,000.
Briefly summarizing the current law, the Panama Canal Act of
1979 directs the Panama Canal Commission to "adjust and pay"
claims on any vessel for damage which occurs while transiting the
Panama Canal. The act divides these claims into two categories-
inside the locks and outside the locks. If a vessel is damaged inside
the locks, there is no limit on the amount the Commission may
award. If a vessel is damaged outside the locks, the Commission
may pay only those claims not exceeding $120,000. Any claims for
outside-the-locks damage greater than $120,000 must be submitted
by the Commission to Congress along with a report stating the
facts behind the claim and the Commission's recommendation for
(1)




2
settlement. For the first time two claims exceeding the $120,000
limit were submitted to Congress on November 10 of this year.
A briefing memo was made available to subcommittee members
earlier this week and is in the members' folders. The memo details
the information about the current law and prior law for adjusting
and paying these claims.
This subcommittee has been contacted about this issue by several
interested parties, some of whom are testifying before us today.
We appreciate your taking the time from your schedules to
appear before us this morning, and we look forward to receiving
your remarks.
We do have a statement for the record on behalf of the full com-
mittee chairman, the Honorable Walter B. Jones. Without objec-
tion, the full statement of Chairman Jones will be entered into the
record.
[The statement of Walter B. Jones follows:]
STATEMENT OF HON. WALTER B. JONES, CHAIRMAN, MERCHANT MARINE AND
FISHERIES COMMITTEE
By way of introduction to the issues we will consider today, let me mention briefly
some of the background of this hearing. During the Panama Canal Commission au-
thorization process last year, the committee became aware-after meetings with
commission financial staff-that approximately $12 million per year in toll revenue
is earmarked for the payment of vessel damage claims. Of that amount, the Com-
mission allocates $6 million for the payment of claims for damage that occurs out-
side the canal locks where the claim exceeds $120,000. The committee questioned
whether this $6 million annual set-aside was appropriate in view of the fact that
section 1415(b) of the Panama Canal Act of 1979, 22 U.S.C. 3775, specifically prohib-
its the Commission from adjusting or paying any such claims. Under that section,
claims for outside-the-locks damage exceeding $120,000 must be referred to Con-
gress.
The Commission argued that while the law precluded their paying any of these
claims, it did not bar collecting tolls for that purpose. Doing so, they asserted, was
simply a prudent business practice since the claims forwarded to Congress would, in
all probability, eventually be paid out of Commission funds. The Commission felt
that Congress would not, and under the 1979 Panama Canal Act arguably could not,
pay such claims from the General Fund of the Treasury.
One reason for this hearing, therefore, is to inquire into whose interpretation of
the Panama Canal Act of 1979 is more accurate, and having examined that ques-
tion, to determine whether any changes in the law are needed. The Commission
may not disobey the law simply because it disagrees. On the other hand, Congress
should not unnecessariy mandate adherence to rules of operation that are illogical
or will be detrimental to the efficient and economical operation of the canal.
The other primary motivation for this hearing is the complaint by some canal
users that the Panama Canal Act of 1979 unfairly restricts the rights of vessel
damage claimants. Under sections 1412 and 1416 of the act, 22 U.S.C. 3772 and 3776,
the Panama Canal Commission has no power to settle claims for outside-the-locks
damage exceeding $120,000, and in no case may a claimant sue on any non-locks
claim. Thus, the Commission may pay non-locks claims under $120,000 but the
award cannot be appealed to court. Similar claims over $120,000 must be settled by
Congress, and again, cannot be taken to court. We meet today to consider various
options relating to this claims situation.
Mr. Chairman, at this point I would ask unanimous consent that the staff back-
ground memorandum on these matters be included in the hearing record immedi-
ately following my statement. The memorandum elaborates on the issues we will
discuss here today and puts them in historical perspective. I think it will helpful to
those interested in these proceedings.




3
.A. 3Jouse of 3Representatibes
Committee on
dMerdjant Aarine ab fijeries
room 1334, longinortf 3fouse Ofie Jguilbing
uwaington, B.C. 20515
November 30, 1982
MEMORANDUM
TO: Members, Subcommittee on Panama Canal/Outer Continental Shelf
FROM: Subcommittee Staff
RE: Hearing on Vessel Damage Claims Against the Panama Canal
Commission, December 2, 1982
INTRODUCTION
On Thursday, December 2, 1982, at 10:00 am, in 1334 Longworth, the
Panama Canal/Outer Continental Shelf Subcommittee will hold a hearing
on vessel damage claims against the Panama Canal Commission. The
hearing will focus primarily on three areas:
(1) The status of pending vessel damage claims exceeding $120,000;
(2) The Commission's accounting methods in setting aside toll
revenues to pay vessel damage claims; and
(3) The possible amendment of the Panama Canal Act of 1979 to
change the Commission's authority to pay claims.
CURRENT LAW
The Panama Canal Act of 1979 (the Act), Public Law 96-70, directs
the Panama Canal Commission (the Commission) to "adjust and pay"
claims for damage to any vessel, its cargo, crew, or passengers that
occurs while the vessel is passing through the Panama Canal. The Act
divides these claims into two categories -- inside the locks and
outside the locks.
Under section 1411 of the Act, 22 U.S.C. 3771, if a vessel is
damaged while inside the locks, there is no limit on the amount the
Commission may award, although the award must be reduced in proportion
to the contributory negligence of the vessel master, crew, or
passengers. However, since Commission employees exercise virtually
total control over a vessel while it is inside the locks, the
Commission is essentially an insurer of all claims for damage arising




4
inside the locks. If an inside-the-locks claimant disagrees with the
amount offered by the Commission, he or she may sue on the claim in
the United States District Court for the Eastern District of
Louisiana.
Section 1412 of the Act, 22 U.S.C. 3772, provides that if a vessel
is damaged outside the locks, the Commission must adjust and pay those
claims not exceeding $120,000, and again, the award must be reduced by
the contributory negligence of the vessel or its crew. Any claims for
outside-the-locks damage greater than $120,000 must be submitted by
the Commission to Congress, along with a report stating the facts
behind the claim and the Commission's recommendation for settlement.
The Act does not permit outside-the-locks claimants to sue if they are
dissatisfied with the Commission's award--the award is final.
Claims in both categories are barred unless, before leaving the
canal, the damage is called to the Commission's attention and the
Commisson's Board of Local Inspectors (BLI) conducts an investigation.
The Act empowers the BLI to summon witnesses, administer oaths, and
require the production of necessary documentation. The BLI hearing
transcript and findings are admissible evidence in court actions on
claims.
PRIOR LAW
From 1912 to 1951, an appropriated fund agency known simply as the
Panama Canal operated all aspects of the canal except for the
railroad, which was operated by the Panama Railroad Company. During
this period, the liability for inside-the-locks damage to vessels,
cargo, crew, and passengers was the same as it is now. The agency had
authority to pay all claims, without limitation, for damage occurring
inside the locks, and essentially insured all such claims. As for
outside-the-locks damage, from 1912 until 1940 the Panama Canal had no
liability whatsoever--no claims could be filed and sovereign immunity
blocked any legal action for injuries sustained. In 1940, Congress
partially waived sovereign immunity outside the locks, establishing
basically the same scheme that now exists. The Panama Canal was
authorized to pay outside-the-locks claims not exceeding $60,000, and
those over $60,000 had to be submitted to Congress. Still, no suits
could be brought on claims for damage outside the locks. This a pect
of sovereign immunity did not change. Apparently, no claims ove
$60,000 were ever filed during this period, so none was ever sent to
Congress.
In 1951, the Panama Canal Company, a federal corporation, took
over operation of the canal. Since control of the canal was changing
from a federal agency to a corporation, Congress felt that the
company's liability for damages should be comparable to other
corporations. It removed any restrictions on the company's ability to
settle claims and on the company's amenability to suit. Thus, from
1951 to 1979 the Panama Canal Company could settle and pay any claims
against it, sue, and be sued like every other corporation.




5
With passage of the Panama Canal Act of 1979, canal operations
returned to the control of an appropriated fund federal agency.
Consequently, Congress readopted the scheme of liability that had
existed from 1940 to 1951, but increased the amount above which
outside-the-locks claims had to be sent to Congress -- from $60,000 to
$120,000. As with the pre-1951 scheme, claimants for damage outside
the locks may not sue on their claim in court. The settlement of the
Commission is final.
ISSUES AND OPTIONS
A. Status of Pending Claims
The Committee is aware that at least 11 claims for damage outside
the locks exceeding $120,000 have been filed against the Commission
since October 1, 1979 (the effective date of the Panama Canal Act of
1979). Only two of these claims have been forwarded to Congress, and
those were sent on November 10 of this year. One of the issues to be
addressed at the hearing is the cause of the delay in processing these
claims and submitting them to Congress. It may be that the claims
procedure, at least with respect to this type of claim, is unduly
cumbersome and in need of adjustment. Another possibility is that
part of the delay is attributable to claimants. If this is true, and
if these delays are causing problems for the Commission, perhaps the
imposition of a statute of limitations on the filing of claims should
be considered.
B. Claims Accounting Methods
Section 1602(b) of the Act, 22 U.S.C. 3792(b), requires canal
tolls to cover all costs of canal operation. Since the payment of
claims is a cost of canal operation, the canal toll base includes an
amount for claims. Each year, $12 million in tolls is set aside for
the eventual payment of claims. Of this amount, the Commission
allocates $6 million to pay claims for damage inside the locks and to
pay outside-the-locks damage where the claim is less than $120,000.
There is no question about the propriety of this practice, since the
Commission clearly has authority to pay these claims.
The other $6 million annually is allocated to outside-the-locks
claims exceeding $120,000. The issue is whether the Commission should
be collecting $6 million a year in tolls to pay these claims when
section 1415(b) of the Act, 22 U.S.C. 3775(b), specifically prohibits
the Commission from adjusting or paying them. Section 1415(b) states:
"(b) The Commission shall not adjust and pay any claims for
damages for injuries arising by reason of the presence of the
vessel in the Panama Canal or adjacent waters outside the
locks where the amount of the claim exceeds $120,000 but
shall submit the claim to the congress in a special report
containing the material facts and the recommendation of the
Commission thereon."




6
The Commission states that it is simply following prudent business
practice in establishing and maintaining a reserve to pay these claims
even though it does not now have the authority to pay them. The
Commission assumes that Congress, after reviewing the claims submitted
to it and perhaps making adjustments, will direct the Commission to
pay the claim out of Commission funds. It is unreasonable to expect,
the Commission asserts, that Congress either will decide not to pay
the claim at all or will vote to pay the claim out of the general
treasury. The Commission, therefore, must have the money available to
pay these claims when directed to do so, and must be setting aside
that money in the meantime.
The problem with this approach is that the clear statutory
language prohibits the Commission from adjusting or paying any
outside-the-locks claims exceeding $120,000. If the Commission has no
authority to pay such claims, it is arguable whether it has the
authority to collect money to pay them. Furthermore, the Commission's
assumptions about how Congress will dispose of claims forwarded to it
are conjecture. If Congress chooses to disallow or reduce one or all
of these claims, then the Commission has overcharged its customers to
that extent. Because of the doctrine of sovereign immunity, if
Congress rejects a claim, the claimant would not be able to sue on it.
See, e g., Compagnie Generale Transatlantique v. Governor of the
Panama Canal, 90 F.2d 225 (5th Cir. 1934).
C. Possible Amendments
The first option with regard to the claims issue, of course, is
not to make any change. The current statutory scheme is essentially
the same as that in place form 1940 to 1951. Inside-the-locks claims,
those for which the Commission has the clearest liability, are treated
under the current law as they have been since 1912. The Commission
has full authority to settle these claims without monetary limit and
the dissatisfied claimant may sue on the claim in federal court.
Outside-the-locks claims exceeding $120,000 are subject to
Congressional approval, not a new idea, but one that has not yet been
put to practical test. The current law is silent as to how Congress
should handle these claims, but this silence should not create
insurmountable problems.
Another option is to make the Commission immune from any claims,
or, more narrowly, from all outside-the-locks claims. This latter
option would be a return to the pre-1940 status quo, when vessels were
deemed to assume the risk of passage through the canal outside the
locks, and had no basis for any claim or legal action for damage
sustained there. Vessels using the canal would not be unprotected,
however, since insurance exists--and is currently in use by many
vessels--to cover such damage. This option would get the Commission
out of the insurance business, and the amounts now included in the
toll base for payment of claims could be used for other purposes or
eliminated and tolls reduced.




7
An option that probably will be advocated by several witnesses at
the hearing is to return to the scheme in place from 1951 to 1979.
That is, allow the Commission to pay all claims without limit. This
option could promote faster settlements, although at the expense of
keeping the Commission involved as an insurer and maintaining higher
tolls. Also, the main reason for allowing the Panama Canal Company to
settle all claims from 1951 to 1979 was its corporate structure.
Congress felt it should have the same rights and responsibilities as
other corporations. Now, of course, control of the canal once again
rests with a federal agency, not a corporation. The corporate
rationale, therefore, no longer applies.
It is also possible to leave the claims structure as presently
constituted, but raise the monetary threshold for claims that are
required to be sent to Congress. The House report on the bill that
became the 1979 Act includes a letter from the then Governor of the
Canal Zone which indicates that, based on the consumer price index,
the $60,000 cut-off established in 1940 would be over $300,000 in
1978, owing to inflation. H. Rep. No. 98, Part I, 96th Cong. 1st
Sess. 100-01 (1979).With the high cost of vessel repair nowadays, the
$120,000 limit on the Commission's power to settle outside-the-locks
claims may be unreasonably low. If Congress wishes to retain the
power to approve large outside-the-locks claims, it can still do so,
but perhaps a higher threshold amount is in order.
Another option centers on the vessel pilots who guide ships
through the canal. These pilots are Commission employees and have
final authority over the movement of each ship they command. Since
the Commission pilot has the final word, legal liability for vessel
damage rests with him and, hence, with the Commission. If the pilots'
status were changed to an advisory role, then the ship's master would
retain final authority over the vessel's movement and would be
primarily liable for any damages. This option would probably be
difficult to implement with respect to inside-the-locks damage but
could be feasible for outside-the-locks damage.
A final option is to place a limitation on the time in which
claims may be filed. In 1979, the Senate version of what became the
Act contained a two-year statute of limitations for the filing of
claims, with any legal actions on those claims r quired to be fiAed
within one year of the Commission's final dispos tion of the claim.
See S. Rep. No. 255, 96th Cong., 1st Sess. 20-21(1979). Obviously, if
a claim may not be filed after a certain time, the Commission need not
carry a reserve for that claim indefinitely. Once the filing time for
the claim expires, the money set aside to pay that claim can be
dedicated to other purposes, including the payment of other claims,
which helps keep down tolls.
One general consideration concerning all the options should be
kpet in mind. Whatever course Congress takes may serve as a precedent
for how Panama will manage the canal after the year 2000. Obviously,
however, Panama will not be bound after 2000 by the way the United
States operates the canal until then.




8
Mr. HUBBARD. We will now hear from our distinguished ranking
minority member, Norman Lent of New York.
Mr. LENT. Thank you, Mr. Chairman, for scheduling these hear-
ings today to hear testimony on vessel damage claims, particularly
those in excess of $120,000 involving accidents outside the locks in
Panama Canal waters. Several issues appear to be involved: The
time it takes to resolve these claims is said to be excessive, and the
procedures unwieldly; the lack of judicial review and the propriety
of the $120,000 limit applied to claims which the Commission must
adjust and pay; and the accounting procedures by which the Com-
mission sets aside certain funds to meet potential liabilities.
The provisions in Public Law 96-70 governing vessel damage
claims have been in effect since October 1, 1979. They are pat-
terned after the procedures which were applicable when the
Panama Canal previously had been operated as an appropriated
fund agency, as it is today. In order to further examine the liability
issues raised, we will need to have the relevant facts on how vessel
damage claims were handled during the years immediately preced-
ing implementation of the Panama Canal Treaty, as well as since
the 1977 treaties took force. Pertinent facts will include the dates
of accidents occurring outside the locks and resulting in claims for
damages in excess of $120,000 each, the date the claim was filed
and in what amount, as well as the date and amount of the final
settlement. This information should clarify the issues and help us
determine if there is any need to amend the Panama Canal Act.
Without further adieu, Mr. Chairman, I look forward to hearing
from our witnesses this morning on these issues involving vessel
damage claims.
Mr. HUBBARD. Thank you very much, Mr. Lent.
We will now call on Congressman Glenn Anderson of California
for any opening comments.
Mr. ANDERSON. No comments, Mr. Chairman.
Mr. HUBBARD. Congressman Tauzin?
Mr. TAUZIN. Thank you, Mr. Chairman. As I understand it, ac-
cording to the act we are dealing with, section 1411 of 22 U.S.C.
3711, if the vessel is damaged within the locks, the Commission is
virtually the self-insurer since it has control of the vessel inside the
lock. Outside the locks is where the problem arises. As I under-
stand the problem, the Commission cannot settle the claim outside
the locks over $120,000. It must submit that claim to Congress.
When the claim is finally settled, it is final. There is no judicial
review.
Mr. Chairman, I want to express some concern about that proce-
dure at the onset of these hearings. It seems to me that asking
Congress to be in the business of arbitrating issues of contributory
negligence between masters and crew members of passengers even
of vessels outside the locks in cases involving $120,000 or more
places this Congress in a rather strange position. We can't get
through our business as it is with the pressing matters of budget
and appropriations every year. If we have to sit as a panel of arbi-
tration in issues involving the very technical and complicated
issues of contributory negligence on the seas, we probably are
never going to get any work done. It seems to me this is a judicial
matter. We ought to provide some mechanism for the Commission




9
to recommend settlements and perhaps some court to approve or
disapprove of that settlement; some court that is not only author-
ized to do that kind of work, empowered to make that kind of judg-
ment, but manned with the right personnel, equipment, and exper-
tise to do a good job. I am not sure this Congress can do it.
Mr. Chairman, I want to commend you for calling these hearings
and for calling this very serious problem to our attention. I hope as
a result of these hearings, we can come up with some new system
of settling these claims that will involve the Commission and the
courts rather than the Congress.
Thank you for the time.
Mr. HUBBARD. Thank you very much, Congressman Tauzin.
Mr. Sunia, do you have any remarks you would like to make at
this time? We again express our appreciation to you for being with
US.
Mr. SUNIA. I have nothing to say. I just thought I would stop by
and see what you all are doing.
Mr. TAUZIN. Somebody ought to.
Mr. SUNIA. I appreciate your allowing me to sit with you this
morning.
Mr. HUBBARD. Thank you again.
We would now ask our first witnesses to come forward.
Bill Gianelli, we will ask you to please go first.
STATEMENTS OF WILLIAM R. GIANELLI, ASSISTANT SECRETARY
OF THE ARMY (CIVIL WORKS), CHAIRMAN OF THE BOARD OF
DIRECTORS-PANAMA CANAL COMMISSION; AND DENNIS P.
McAULIFFE, ADMINISTRATOR-PANAMA CANAL COMMISSION
Mr. GIANELLI. Thank you very much, Mr. Chairman, members of
the subcommittee. For the record, I am William R. Gianelli, Assist-
ant Secretary of the Army for Civil Works and Chairman of the
Board of the Panama Canal Commission. At the table with me
today is Mr. Dennis P. McAuliffe, Administrator of the Panama
Canal Commission. General McAuliffe is on the site and runs the
canal on a day-to-day basis.
It is a pleasure for me to appear before you today as you receive
testimony on the possibility of amending the Panama Canal Act of
1979 concerning the Panama Canal Commission's authority to
adjust and pay claims for vessel damage. I think the dialog that
has taken place, Mr. Chairman, by you and your subcommittee
members indicated the nature of the problem.
My statement is very short. I would like to submit it for the
record. Following that, Mr. McAuliffe will elaborate further.
Mr. HUBBARD. Fine.
Mr. GIANELLI. Concern has been expressed by various sources-
the Panama Canal Commission, by the Office of Management and
Budget, by the U.S. General Accounting Office, by international
shipping, as well as by the Congress itself-relative to the liability
of the Commission for ship accidents which occur outside the
Panama Canal locks where the damages sustained are in excess of
$120,000. A definite need exists to clarify this matter for all parties
involved. Accordingly, I welcome your efforts in this regard today.




10
Public Law 96-70 has removed from the Commission the authori-
ty, which resided in the canal for over 25 years, to adjust and pay
these claims and requires instead that they be submitted to the
Congress of the United States. Confusion has arisen since the law
is not explicit as to congressional intent on who is to bear the ulti-
mate financial responsibility for these claims. While the law is am-
biguous on the point, we have taken the position that the Commis-
sion, in the final analysis, will be required to pay these claims.
Therefore, we are accruing reserves to fund these liabilities on the
assumption that Congress will assign the Commission responsibility
for their payment. This action, I might say, is in full accord with
the clear intent that the canal be operated on a self-sufficient basis,
without cost to the U.S. taxpayer.
The fact that we are charging shipping for the costs of these acci-
dents-through inclusion of a factor in the toll bases-makes it im-
perative that the situation be clarified, one way or the other. If the
law is amended to reflect no liability on the part of the United
States for these accidents, then the Commission can cease the as-
sessment of this cost which, in effect, constitutes an insurance pre-
mium. Also, moneys collected to date for this purpose could be re-
turned to shipping prospectively through the tolls process. If, on
the other hand, the Congress wishes to have the Commission bear
this cost, there will be no added cost to shipping since, as I have
just stated, the toll base presently contemplates that situation.
Mr. Chairman, in closing, I would like to reiterate my apprecia-
tion to you and the subcommittee for the opportunity to appear
before you today. I have asked Mr. McAuliffe to follow me and
present to this committee a more detailed analysis of the claims
situation. We will be available to respond to any questions which
the subcommittee might have with regard to our testimony. Thank
you for your attention.
Mr. HUBBARD. Naturally, we look forward to your answers to our
questions.
Now, we ask for Mr. McAuliffe to please address the subcommit-
tee.
STATEMENT OF DENNIS P. McAULIFFE, ADMINISTRATOR-
PANAMA CANAL COMMISSION
Mr. McAULIFFE. Thank you, Mr. Chairman, members of the sub-
committee. I am Dennis P. McAuliffe, the Adminstrator of the
Panama Canal. I am pleased to appear before you today regarding
claims procedures for vessel damage as they currently exist in the
Panama Canal.
Mr. Gianelli has asked me to expand on his testimony. I propose
to summarize my full statement which I request be made part of
the record of this hearing.
Before turning to the points which I have been asked to address,
I would like to say a few words about vessel accidents at the canal
in general. The Panama Canal poses perhaps the most difficult
challenge of its kind to safe navigation anywhere in the world. For
that reason, the safety of vessels passing through the waterway
must always be foremost in the minds of our pilots, tugmasters,
locks operators, and the other hundreds of persons involved in the




11
transit function. That we are succeeding is borne out by our safety
record. Over the 3 fiscal years which ended this past October, we
have averaged one accident for just over every 261 oceangoing
transits, which reflects a downward trend. I might also point out
that this figure includes those accidents which are due to steering
or engine failure aboard the vessel or to other causes not attributa-
ble to Commission employees or equipment. With the canal operat-
ing day and night and the number of vessels with beams of 80 to
106 feet using the canal increasing almost daily, we feel we can be
very proud of this record.
With regard to the specific provisions of law which govern the
Commission's liability for marine accidents, I am concerned that
confusion exists concerning that liability for accidents occurring in
the Panama canal outside the locks, where damages exceed
$120,000. This is a matter of financial importance both to the canal
and its users and we welcome the opportunity to explain the situa-
tion as it currently exists.
This ambiguity in the law required the Commission to deter-
mine, at the outset of the treaty period, whether this category of
marine accident would become a liability of this agency so as to re-
quire the inclusion of an expense provision in the tolls base. A deci-
sion on this question was particularly important in view of the re-
quirement-which is clear both in the statute and from its legisla-
tive history-that the canal be operated on a self-sustaining basis-
that is, at no cost to the U.S. taxpayer.
From the statute's requirement that nonlocks claims of over
$120,000 be submitted to the Congress with a special report con-
taining the Commission's recommendations, it appeared to the
agency more likely than not that meritorious claims would be hon-
ored-with the Commission's ultimately being directed to make the
payments. The General Accounting Office was consulted on the
question and agreed with the conclusion that the Commission
should recognize in its books the liability for such accidents. On
that basis, the Commission has included in the tolls base a provi-
sion to recover costs of all marine accidents which occur at the
canal, regardless of whether they occur inside or outside the locks
and regardless of their amount. By so doing, the agency has set
aside in the Panama Canal fund, moneys sufficient to cover its esti-
mated liability for nonlocks vessel accidents in excess of $120,000.
It would be extremely helpful if the Congress acted now to
remove this ambiguity which has existed in the law since October
1979.
Turning to another aspect of the vessel-accident provisions of the
Panama Canal Act, there exists a gap which the subcommittee
may, as a part of this amendatory process, wish to fill. It is present-
ly unclear if there is a statute of limitations which governs court
actions brought against the Commission on claims arising out of
vessel accidents occurring in the canal locks. In addition, there cur-
rently is no statutory limitation on the time in which vessel acci-
dent claims-whether they arise out of locks or nonlocks casual-
ties-must be presented to the Commission.
If the subcommittee considers that a statute of limitations would
be meritorious, the Commission would be prepared to work with
the subcommittee in perparing necessary legislative language. A




12
provision could be drafted in such a way that it would have the
effect of prohibiting stale claims while, at the same time, allowing
the majority of timely claims to be settled without the need of
trial.
The final subject which the subcommittee has asked to be ad-
dressed is the status of those vessel damage claims awaiting sub-
mission to the Congress under section 1415 of the Panama Canal
Act, that is, nonlocks cases where the amount of the claim exceeds
$120,000. Let me preface my remarks here by stating that the first
two such claims (involving the vessels Swan Arrow and Texaco
Connecticut were forwarded to the Office of Management and
Budget [OMB] earlier this year. Clearance by that agency was ob-
tained last month and those claims, along with the Commission's
report and recommendations concerning them, are now before the
Congress.
In addition to those two, the Commission has received 13 more
claims for vessel damage sustained outside the canal locks in which
more than the statutory limit of $120,000 has been demanded.
Three of these appear to have been adequately documented and are
undergoing review in the agency. We expect that review to be com-
pleted soon and the claims to be forwarded to the Congress,
through OMB, in the near future. The remaining 10 claims did not
contain the necessary supporting documentation required to be
submitted to the agency by the Panama Canal Act. The owners
have been requested to provide the missing evidentiary material
and, upon its receipt, the claim-analysis process will be resumed.
Since the Commission cannot predict when the necessary documen-
tation will be provided, we cannot estimate when these claims will
be ready for transmittal to the Congress.
In closing, Mr. Chairman, I would like to state that if this com-
mittee favors amending the Panama Canal Act to provide that the
Commission will adjust and pay all meritorious claims against it
for vessel accidents at the canal, regardless of where they occur or
of the amount of the damages, we would be prepared to provide ap-
propriate legislative language after consultation with other con-
cerned agencies. Such a system was in affect between 1951 and
1979 and was considered to be a just and equitable one.
Mr. Chairman, I thank you for the opportunity to appear before
you today to address this important subject. If you or the other
members of the subcommittee have any questions, I would be
pleased to answer them at this time.
[The full statement of Dennis McAuliffe follows:]
PREPARED STATEMENT OF DENNIS P. McAULIFFE, ADMINISTRATOR, PANAMA CANAL
COMMISSION
INTRODUCTION
Mr. Chairman, members of the subcommittee, I am Dennis P. McAuliffe, the ad-
ministrator of the Panama Canal Commission. I am pleased to appear before you
today regarding claims procedures for vessel damage as they currently exist in the
Panama Canal.
Mr. Gianelli has asked me to expand on his testimony, but before turning to the
points which I have been asked to address, I would like to say a few words about
vessel accidents at the canal in general. With its three sets of locks and its narrow,
twisting, rock-lined channels, the Panama Canal poses perhaps the most difficult
challenge of its kind to safe navigation anywhere in the world. For that reason, the




13
safety of vessels passing through the waterway must always be foremost in the
minds of our pilots, tugmasters, locks operators, and the other hundreds of persons
involved in the transit function. That we are succeeding is borne out by our safety
record. Over the three fiscal years which ended this past October, we have averaged
one accident for just over every 261 oceangoing transits, which reflects a downward
tend. I might also point out that this figure includes those accidents which are due
to steering or engine failure aboard the vessel or to other causes not attributable to
commission employees or equipment. With the canal operating day and night and
the number of vessels with beams of 80 to 106 feet using the canal increasing almost
daily, we feel we can be very proud of this record.
With regard to the specific provisions of law which govern the Commission's lia-
bility for marine accidents, I am concerned that confusion exists concerning that lia-
bility for accidents occurring in the Panama Canal outside the locks. This is a
matter of financial importance both to the canal and its users and we welcome the
opportunity to explain the situation as it currently exists.
PROVISIONS OF PUBLIC LAW 96-70
Section 1411 of Public Law 96-70 prescribes the extent of the Commission's liabili-
ty to pay damages as a result of accidents to vessels which occur while they are
passing through the canal locks. There is no statutory limit on the amount of liabili-
ty which the agency may incur in these cases, and claimants who are not satisfied
with an award offered by the Commission may bring suit on their claims in New
Orleans. That provision is abundantly clear.
Section 1412, which is the provision governing the agency's liability for vessel ac-
cidents occurring outside the locks, is quite different, however, and it is with respect
to that section that some confusion exists. Section 1412 limits the Commission's au-
thority to adjust and pay claims for injuries occurring outside the locks to those not
exceeding $120,000. Claims in excess of that amount must be submitted to the Con-
gress with a special report containing the material facts and the recommendation of
the Commission concerning them. Unlike the situation where damage is sustained
in the locks, claimants in non-locks cases have no recourse to the courts, regardless
of the amount of their claims. Because the law does not specify whether the Con-
gress will honor such claims, it leaves an open question as to whether legitimate
claims will be paid. Hence, the eventual liability of the United States with respect
to them is unclear. An outside consultant who has looked at the question for the
Commission has been unable to give a definitive opinion as to how that liability
should be determined in light of the statutory provision.
This ambiguity in the law required the Commission to determine, at the outset of
the treaty period, whether this category of marine accident would become a liability
of this agency so as to require the inclusion of an expense provision in the tolls
base. A decision on this question was particularly important in view of the require-
ment-which is clear both in the statute and from its legislative history-that the
canal be operated on a self-sustaining basis (that is, at no cost to the U.S. taxpayer).
From the statute's requirement that non-locks claims of over $120,000 be submit-
ted to the Congress with a special report containing the Commission's recommenda-
tions, it appeared to the agency more likely than not that meritorious claims would
be honored-with the Commission's ultimately being directed to make the pay-
ments. The General Accounting Office was consulted on the question and agreed
with the conclusion that the Commission should recognize in its books the liability
for such accidents. On that basis, the Commission has included in the tolls base a
provision to recover costs of all marine accidents which occur at the canal, regard-
less of whether they occur inside or outside the locks and regardless of their
amount. By so doing, the agency has set aside in the Panama Canal Commission
fund, moneys sufficient to cover its estimated liability for non-locks vessel accidents
in excess of $120,000.
It would be extremely helpful if the Congress acted now to remove this ambiguity
which has existed in the law now since October 1979.
Before moving to my next point, I would like to spend a few moments on our ac-
counting procedure.
Recovery of marine accident costs from tolls poses a special problem because both
the occurrence and the severity of accidents will vary from year to year. For exam-
ple, marine-accident costs in 1979 approximated $15 million, as compared with $6
million the previous year and $11 million in 1980. To accommodate these annual
cost fluctuations in the tolls process, the Commission has established a reserve to
provide for the normalization of marine-accident costs over several accounting peri-
ods. In this process, actual accident costs are charged against the reserve as they
12-978 O 2




14
are incurred, while the reserve itself is maintained through an annual expense pro-
vision calculated to approximate the yearly cost over time.
Aside from normalizing marine-accident costs, the reserve procedure provides the
basis for ensuring that integrity over the use of funds collected for this purpose is
maintained with canal users. If the reserve balance indicates over a period of time
that costs have been less than collections, the overrecovery is returned to shipping
prospectively through the tolls-setting process, that is, if the Congress determines
that these claims will not be honored-the Commission has in place an accounting
procedure whereby the moneys collected can and will be returned to shipping pro-
spectively through the deferment or minimization of future toll increases.
The result of these procedures is that the canal is self-insured against the risks
normally associated with recurring and reasonably predictable marine casualties.
One consultant has advised the agency, however, that there is clear and distinct
possibility that an accident of catastrophic proportions could occur under circum-
stances which would make the Commission liable. Such an eventuality could entail
the multi-million dollar loss of the vessel, its cargo, and/or the loss of multiple lives
which could produce claims far beyond the self-financing capability of the canal. He
concludes that it would be appropriate to consider the purchase of catastrophe in-
surance to cover the risk of such an eventuality. The Commission is in accord with
that recommendation but recognizes that authorization for it to acquire such insur-
ance would have to be set forth in statute.
Turning to another aspect of the vessel-accident provisions of the Panama Canal
Act, there exists a gap which the subcommittee may, as a part of this amendatory
process, wish to fill. It is presently unclear if there is a statute-of-limitations which
governs court actions brought against the Commission on claims arising out of
vessel accidents occurring in the canal locks. In addition, there currently is no stat-
utory limitation on the time in which vessel accident claims-whether they arise
out of locks or non-locks casualties-must be presented to the Commission.
If the subcommittee considers that a statute-of-limitations, which addresses both
the time in which an administrative claim may be filed with the agency, as well as
the period in which suit may be brought in those cases where judicial review is per-
mitted to be meritorious, the Commission would be prepared to work with the sub-
committee in preparing necessary legislative language. A provision could be drafted
in such a way that it would have the effect of prohibiting stale claims while, at the
same time, allowing that the majority of timely claims be settled without the need
of trial.
The final subject which the subcommittee has asked to be addressed is the status
of those vessel damage claims awaiting submission to the Congress under section
1415 of the Panama Canal Act, that is, non-locks cases where the amount of the
claim exceeds $120,000. Let me preface my remarks here by stating that the first
two such claims (involving the vessels Swan Arrow and Texaco Connecticut) were
forwarded to the Office of Management and Budget (OMB) earlier this year. Clear-
ance by that agency was obtained last month and those claims, along with the Com-
mission's report and recommendation concerning them, are now before the Con-
gress.
In addition to these two, the Commission has received 13 more claims for vessel
damage sustained outside the canal locks in which more than the statutory limit of
$120,000 has been demanded. Three of these appear to have been adequately docu-
mented and are undergoing review in the agency. We expect that review to be com-
pleted soon and the claims to be forwarded to the Congress, through OMB, in the
near future. The remaining ten claims did not contain the necessary supporting do-
cumentations required to be submitted to the agency by the Panama Canal Act. The
owners have been requested to provide the missing evidentiary material and, upon
its receipt, the claim-analysis process will be resumed. Since the Commission cannot
predict when the necessary documentation will be provided, we cannot estimate
when these claims will be ready for transmittal to the Congress.
Although we have not yet received claims concerning them, there have been 21
more vessel accidents outside the locks where we consider that the agency may have
some fault for damages which are estimated to be more than $120,000.
As a related matter, it is our understanding that there has been concern ex-
pressed by some shipping interests that settlement by the Commission of vessel-acci-
dent claims is a time-consuming affair. While we make every effort to process these
claims expeditiously, vessel-accident claims, by their nature, are generally not sus-
ceptible of prompt settlement and payment. This is so because, except in the most
serious cases, vessel owners will ordinarily defer repairing damages sustained at the
canal until the period of their ship's next regularly scheduled drydocking, which
may be months or years after the accident. The collection and presentation of docu-




15
mentary support for related, recoverable elements of these claims (such as drydock-
ing costs, charges for marine surveys, and loss of use) take more time.
These built-in delays notwithstanding, the Commission is constantly seeking ways
to improve all of its services to world shipping, and the field of claims settlement is
no exception. We would welcome any suggestions from the shipping community as
to how, within the parameters of the statutes under which we must operate, our
services in this area might be improved. I do feel, however, that we are presently
doing a good job here and we will continue to do so.
In closing, Mr. Chairman, I would like to state that if this committee favors
amending the Panama Canal Act to provide that the Commission will adjust and
pay all meritorious claims against it for vessel accidents at the canal, regardless of
where they occur or of the amount of the damages, we would be prepared to provide
appropriate legislative language after consultation with other concerned agencies.
Such a system was in effect between 1951 and 1979 and was considered to be a just
and equitable one.
Mr. Chairman, I thank you for the opportunity to appear before you today to ad-
dress this important subject. If you or the other members of the subcommittee have
any questions, I would be pleased to answer them at this time.
Mr. HUBBARD. Thank you very much.
This first question is to both or either of you: according to Com-
mission accounting procedures, $6 million dollars per year is col-
lected in a reserve fund to pay for the locks claims exceeding
$120,000. Could you please inform the subcommittee on the lower-
ing effect of the tolls should the $6 million dollars not be collected
or how would this lower the tolls?
Mr. McAULIFFE. All told, the amount of money set aside for acci-
dents amounts to approximately 3.7 percent of the total revenues
collected; so, therefore, a savings of about one-half of that might be
passed on if that class of accident were not collected for.
Mr. HUBBARD. Mr. Gianelli, do you have anything to add?
Mr. GIANELLI. No.
Mr. HUBBARD. When the Panama Canal Agency was the appro-
priated fund agency from 1912 to 1951, did the agency have a re-
serve fund even though no claims over $60,000 were submitted to
Congress during that time?
Mr. McAULIFFE. No, sir, there was not such a fund.
Mr. HUBBARD. What, prior to the enactment of Public Law 96-70,
was the average time lapse for claims over $120,000 from the date
of accident until the settlement of the claim?
Mr. GIANELLI. Mr. Chairman, we do not have the precise aver-
ages for the types of claims you have indicated. There are so many
imponderables relating to claims that it is difficult to judge precise-
ly how rapidly a claim can be completed after all of the review
process. Having spent a considerable amount of time going over
claims as well as the procedures that we use for the processing of
claims, it is my opinion that the time for processing claims now is
substantially the same as it was prior to the treaty.
Mr. McAULIFFE. Mr. Chairman, may I add a little bit to that?
One of the problems with respect to processing the claims is that
there is such a wide variation in the way that the facts are pre-
sented. For example, a number of ships that might have some sort
of claim will not actually file the claim, the final claim with all the
documentation for example, until such time as the ship might be
serviced for other reasons. So you might have a considerable period
of time before you can really get an exact handle on what the
amount of the damage would be.




16
So there is a wide variation, much of it beyond the control of the
Commission, but tied into, for example, how much time it takes a
claimant to get his documentation together to support the claim.
Mr. HUBBARD. On page 8 of your remarks, you state there have
been 21 incidents in the Commission's estimates that its liability
may exceed $120,000, but no claim has yet been filed. How many of
these claims would now be barred if a 2-year statute of limitations
on the filing of claims had been in effect since 1979?
Mr. GIANELLI. Mr. Chairman, we will have to furnish you that
information. We don't have it now. We could get it rapidly.
[The information follows:]
Of the 21 marine accidents for which no claims have been received, 4 would have
been time-barred by Dec. 1, 1982, if a 2-year statute-of-limitations on the filing of
claims had been in effect since Oct. 1, 1979.
[The following was received for the record:]
Mr. HUBBARD. What is your opinion about the possible imposi-
tion of such a statute of limitations?
Mr. GIANELLI. Speaking from my standpoint, it seems it would be
extremely helpful to have such a statute apply. How reasonable it
will be viewed in terms of the shipping people who have, for exam-
ple, certain time constraints on them by virtue of when they may
tie up a ship for various purposes, they may have a different view-
point. Certainly, from the standpoint of administering the claims
program, I think such a statute would be helpful.
Mr. HUBBARD. Last, what would you recommend as the time
limit?
Mr. GIANELLI. We might want to take a look at that and see if
we have specific recommendations for you, Mr. Chairman. I don't
think we have fully addressed that question.
QUESTIONS SUBMITTED BY MR. HUBBARD AND ANSWERED BY PANAMA CANAL
COMMISSION
Question 1. Have you experienced any problems with the shippers not submitting
claims to you within a reasonable time frame? (and) What do you feel is a reason-
able time frame?
Answer. In admiralty law, a shipowner whose vessel is involved in a marine acci-
dent is under a duty to mitigate his damages. Accordingly, unless the vessel is so
badly damaged as to render it unseaworthy, the owner will ordinarily defer repairs
until her next regularly-scheduled drydocking, when she will be out of commission
anyway. On the average, regular drydockings are now being scheduled about once
every two years, and that fact works to cause delays in the submission to the Com-
mission of most vessel accident claims. Such delays cannot, however, be character-
ized as "unreasonable". Indeed, the courts have long held that a shipowner who
elects to drydock and repair his damaged, but still seaworthy, vessel immediately
after an accident, instead of waiting its next regularly-scheduled drydocking, is the
only one who has acted unreasonably, and he will not be allowed to recover from
the tort feasor either his drydocking costs or any amount for loss of use during the
repair period.
Another problem confronting shipowners is the requirement, contained in section
1413 of the 1979 Panama Canal Act, to fully document vessel-accident claims
against the Commission. That requirement ordinarily delays the submission of such
claims further. The need for full documentation is, however, a real one, and protects
the Commission against spurious or inflated claims. The requirement for full docu-
mentation has existed pursuant to law or Executive Order since 1918 and, while it
may delay somewhat the submission of these claims to the agency, it does not do so
unreasonably.
In addition to the foregoing delays (which, as noted, are inherent in the system)
the Canal has, at times, received claims for vessel damage four or five years after
an accident has occurred and, in some instances, even later. Before the treaty en-




17
tered into force and the Panama Canal Act of 1979 became effective, these present-
ed no problem since section 42 of Title 5 of the Canal Zone Code, 76A Stat. 281,
provided a 3-year statute-of-limitations on actions against the agency based on such
claims. Claims received after that period were denied. Since it has been in existence
only since October 1979, it is still to early to tell whether the Commission, like its
predecessor, will also receive some unreasonably late claims, but we have no reason
to believe that it will not. Our suggestions concerning a statute-of-limitations de-
signed to deal with stale claims are set out in response to question No. 3, below.
Question 2. Prior to the enactment of P.L. 96-70, what was the average time lapse
for claims over $120,000 from the date of the accident until the settlement of the
claim?
Answer. It is understood that this question has now been revised to request cer-
tain data on vessel accidents occurring in fiscal years 1977 through 1979. Those data
are being compiled and will be provided separately.
Question 3. On page 8 of your remarks you state that there have been 21 out-of-
lock vessel accidents in which the Commission estimates that its liability may
exceed $120,000 although no claims have yet been filed. How many of these claims
would not be barred if a two-year statute of limitations on the filing of claims had
been in effect since 1979? What is you opinion about the possible imposition of such
a statute of limitations? What would you recommend as the time limits?
Answer. Of the potential claims arising out of the 21 marine accidents to which I
referred in my testimony, four would have been time barred by December 1, 1982 if
there were a two-year statute of limitations on the filing of such claims now in
effect.
The Commission favors the establishment of a limitation on vessel damage claims
and upon lawsuits in those cases in which judicial review is permitted. We envision
a provision, patterned after the one contained in the Federal Tort Claims Act,
which would forever bar a vessel accident claim against the Commission (1) unless it
is presented in writing to the agency within two years after it accrues and, (2), in
those cases where recourse to the courts is permitted, unless an action is begun
within one year after the Commission makes its final decision with respect to the
claim. Such a statute would have a dual benefit of preventing stale claims while, at
the same time, allowing the parties as much time as they require for negotiation.
That latter feature should result in the compromise and settlement of the vast ma-
jority of these claims, and should avoid time-consuming and expensive litigation in
New Orleans, in those cases where the agency is subject to suit.
Question 4. What problems do you foresee with the possibility of requesting a sup-
plemental appropriation to pay for the claims in excess of $120,000 should there not
be the $6 million in the "reserve fund"?
Answer. The first problem that exists for the Commission in submitting a supple-
mental appropriation is authority. Public Law 96-70 specifically precludes the Com-
mission from making payment of these outside-the-locks accidents in excess of
$120,000. Prior to requesting a supplemental appropriation, Congress would have to
first grant the Commission, through appropriate legislative action, authority to pay
these claims. Our accounting treatment of these claims, to date, has been predicated
on the assumption that this authority was forthcoming from Congress.
The Commission's second problem is ensuring that sufficient funds are on deposit
in the Panama Canal Commission Fund. Without the reserve fund, the costs of
these claims would not be reflected in the Commission's accounting records until
after the supplemental appropriation was requested. This could result in the Com-
mission not being able to demonstrate it had adequate resources in the Panama
Canal Commission Fund to finance such claims. The Commission would also be
placed in a "catch-up" situation to recover the costs of such claims from Canal users
in the future instead of during the time they are incurred. The Commission is man-
dated by law to recover all costs of maintaining and operating the Panama Canal.
By utilizing the reserve method, the Commission is better able to match (normalize)
operating expenses with revenues and thus establish the appropriate tolls rates for
the users of the Canal.
Question 5. You stated in the hearing that from 1912 to 1951, when the Panama
Canal was operated by an appropriated U.S. Agency, that there was no reserve fund
to handle the claims. What method of accounting was used and how did you pay for
the claims?




18
Answer. Between 1912 and 1951, when the Panama Canal was operated as an ap-
propriated fund agency of the United States Government, marine accidents were ac-
counted for by charging the cost of each ship accident directly to expense as the
accident occurred. The actual payment of the claim was made from the appropri-
ated funds of the Agency at an amount agreed to between the Agency and the ship-
owner (or his agent). If the case was litigated, payment was made at the amount of
judgement awarded by the United States Court.
From 1940 through 1950, the Agency's liability for settlement of accidents which
occurred outside the locks was limited to $60,000 per ship, per accident. Claims in
excess of $60,000 were to be submitted to Congress for adjudication and payment.
Canal records indicate that no claims were ever submitted to the Congress under
this provision-apparently because no claims of that magnitude were ever received.
In fact, it wasn't until the late 1970's, as vessels became increasingly larger and
more sophisticated, that marine accident costs, both on a per accident and overall
basis, became significant dollarwise. For example, marine accident costs over the 20-
year period frQm 1952 to 1971 averaged only $164,000 per year and $6,300 per acci-
dent. For the two year period 1980 to 1981, marine accident costs averaged
$10,400,000 per year and $220,000 per accident. it is because of this sharp price dif-
ferential that it became necessary to adopt the present reserve method of account-
ing for marine accidents.
Question 6. In your opinion, would eliminating canal pilots or changing them to
only an advisory role make canal transits less safe? If your answer is yes, to what
extent, if any, does the vessel master's superior knowledge of the way his vessel
handles offset the danger of having the canal pilots in only an advisory role?
Answer. Eliminating canal pilots from transiting ships totally, or changing their
status to advisory, would be extremely detrimental to the safe passage of ships
through the waterway. That is, Commission pilots are in absolute control of transit-
ing vessels of all descriptions and handling characteristics and are continuously
faced with the challenge of maneuvering those vessels in extremely restricted
waters within close proximity to the Canal banks, Locks structures, and to other
transiting vessels. To allow ship Masters, who are unfamiliar with Canal operations,
to have complete or partial control over the movement of their vessels in Canal
waters would increase the potential for serious marine accidents. It takes some 8/2
years of intensified training and experience on top of strenuous entrance require-
ments for a Canal Pilot to obtain full qualifications to handle any ship passing
through the Canal. Although Masters may have greater knowledge over their par-
ticular vessel, the majority of those Masters have little or no experience in handling
them in restricted waters. With regard to placing a Pilot in an advisory control
status, the Pilot would be subject to questions and/or improper actions on the part
of the Master, which could contribute to or cause a marine accident. In summary,
68 years of experience have proven that Control Pilots are far better suited for
moving vessels through the Canal, from both the customer's and the Commission's
viewpoint.
Question 7. Is there any difference between the way claims for damage inside the
locks and claims for damage outside the locks are investigated by the Board of Local
Inspectors and processed thereafter by the Commission? If so, what differences and
why?
Answer. There are no differences between the manner in which the Commission's
Board of Local Inspectors investigates vessel accidents occurring in the Canal locks
and the manner in which it investigates marine casualties occurring outside those
locks. For the procedures followed by the Board in the conduct of its investigations
of marine accidents occurring at the Canal, see Part 117 of Title 35, Code of Federal
Regulations. (Attached)
Claims presented to the Commission for damage sustained by a vessel in the
Canal locks are examined by the agency under section 1413 of Public Law 96-70.1
That statutory provision sets out the items of damage which the Commission may
pay and those which it may not, and contains the requirements regarding the shi-
power's responsibility to fully document its claim. When the total amount of the al-
lowable damages have been calculated, the agency's legal office examines the facts
surrounding the accident (relying largely upon the Board of Local Inspector's report
of investigations) to determine whether and to what extent the accident was caused
or contributed to by the negligence or fault of the vessel herself, or her master, crew
or passengers. (See section 1411, which makes the Commission a virtual insurer in
this type of vessel accident, except where such vessel fault has occurred.) The
damage award then offered to the shipowner is the amount of the allowable dam-
1 The remainder of the citations in this Answer are also to Public Law 96-70.




19
ages, reduced by the percentage of vessel fault as is deemed by the agency to have
been a factor in the accident. If the shipowner is not satisfied with the findings de-
termination or award of the Commission, section 1416 provides that he may bring
suit on the claim in the U.S. District Court for the Eastern District of Louisiana,
where the Department of Justice will represent the Commission. Any amounts paid
to the shipowner either in settlement or as a result of such a court action are, as
provided in section 1415(a) and 1416, paid out of Commission appropriations.
Claims for $120,000 or less for damage sustained by a vessel in Canal waters out-
side the locks are also examined under section 1413 to determine which items of
damage claimed are legally payable, and to insure that all necessary supporting doc-
umentation has been provided. When that has been accomplished, the Commission's
attorneys, again relying mainly on the Board's accident report, make a determina-
tion as to whether, and to what extent, the accident was caused or contributed to by
the negligence or fault of an employee of the Commission acting in the scope of his
employment in connection with the operation of the waterway. Also, as is the case
in locks cases, the facts are examined to see whether, and to what extent, the vessel,
or her master, crew or passengers contributed to the accident. See section 1412. The
agency will then offer an award to the shipower of that proportion of its allowable
damages which is attributable to Commission negligence or fault; however, any such
award will be reduced in proportion to contributory vessel fault. Here, the vessel
owner has no recourse to the courts on his claim. This is so because the agency's
sovereign immunity has not been waived as, under section 1416, it has with respect
to accidents occurring in the Canal locks. Any settlements of these claims are paid
by the Commission, as provided in section 1415(a), out of its appropriations.
When the Commission receives a claim for more than $120,000 for damages sus-
tained by a vessel in Canel waters outside the locks, this same procedure is followed
in processing the claim, except that no offer is made to the shipower. Instead, as is
required by section 1415(b), the agency submits the claim to the Congress in a spe-
cial report containing the material facts and its recommendations with respect to it.
The differences in the manner in which vessel-accident claims are processed by
the Commission are soley attributable to the differing statutory requirements, as
outlined above, which govern the agency's liability with respect to them.
Question 8. What specific events might have required the doubling of the monthly
reserve during the first year of Canal operations under the 1977 Panama Canal
Treaties? Does the one million dollars per month reflect actual monthly accident
costs or potential liability? In other words is it the Commission's policy to set aside
for insurance against all possible risks in Canal operation?
Answer. For fiscal year 1980, the first year under the treaty, it was calculated
that a $6.0 million reserve would be adequate to cover marine accident costs that
the Commission was authorized to settle. After reconsideration and consultation
with the General Accounting Office, the Commission believed it was appropriate to
provide for all marine accident costs sustained even those outside of the locks with
claims in excess of $120,000. All accident costs in 1980 amounted to $11.3 million,
and accordingly, the accrual for marine accidents was adjusted in the latter part of
FY 1980. The total accrual for FY 1980 was $10.5 million. The reserve accrual for
marine accidents was increased to $12.0 million in 1981 and 1982.
The Commission does not reserve for all possible risks in Canal operation. The $1
million accrual each month establishes a "reserve" to account for the normal costs
arising from marine accidents only. Under this method of accounting, a reserve is
built up to cover normal losses from marine accidents by charging operating ex-
penses with a uniform amount each month. This normalizes the operating expense.
When accidents occur, the resultant losses are charged to the reserve rather than to
operations. It should be emphasized that the accrual is for "normal" accident costs.
It does not provide for accidents of a catastrophic nature for which the "reserve"
would be grossly inadequate.




20
Chapter I-Panama Canal Regulations 115.7
1115.2(c). When the Marine Director 115.4 Recorder of Board; duties.
is so designated, the Deputy Adminis- There shall be a Recorder of the
trator or such other official as the. Ad- Board, whose duty it shall be to keep a
ministrator may designate in his stead, record of its proceedings; of all appi-
shall serve as Supervising Inspector. nations for licenses; of those issued or
146 FR 63187, Dec. 30, 1981] refused; suspended, extended, or modi-
fied; together with the name, grade,
115.2 Compostion of the Board. and serial number of all such licenses;
(a) The Board of Local Inspectors, and of all casualties, collisions, foun-
referred to in this Part as "the derings, sinkings, fires and other dis-
Board," shall, except as otherwise pro- asters or matters of interest that may
vided in paragraphs (b) and (c) of this come before the Board. Under the di-
section, consist of the following offi- reaction of the Chairman he shall pre-
cials who shall serve in the capacities pare, submit, andregister all licenses
stated: and certificates of inspection, and the
(1) Chairman, Board of Local Inspec- reports mentioned in this part or in
tors. Part 117, 119, or 121 of this chapter,
(2) Chief, Navigation Division, as and shall perform such other duties as
member. may be directed by the Chairman.
(3) Senior Canal Port Captain, as 115.5 Recorder ma administer oaths.
member.
(b) Where the subject matter of cir- The Recorder is authorized to ad-
cumstances of a particular accident minister the oaths required for the
warrant such action, the Supervising completion of official documents of, or
Inspector may designate the Chief, In- which are presented to, the Board.
dustrial Division to serve, ex officio, as CRoss REYERENcE: For authority of the
member of the Board in place of the Board to administer oaths, see 2 C.Z.C. 1101,
members listed in paragraph (a)(2) or 76A Stat. 38.
(3) of this section. In the absence of
the Chairman, the Supervising Inspec- 115.6 Assistance of owners or operators
tor will appoint a member to act as and masters.
Chairman. Owners or operators and masters of
(c) If the Supervising Inspector vessels shall render all requested as-
deems it appropriate in a particular in- distance to the Board in its investiga-
vestigation, he may designate an alter- tons and inspections, and shall, when
nate to replace any official regularly requested, put machinery and gear in
serving on the Board. If he himself operation when necessary to demon-
serves as such an alternate, he shall state the efficiency of the machinery,
serve as Chairman of the Board.
(d) Any accident investigation or
other proceeding may, in the discre- 115.7 Inspection of records of Board.
tion of the Supervising Inspector, be All official records and documents in
conducted by one or more officials of the office of the Board, after official
the Board. The report of any such in- action thereon has been concluded,
vestigation or proceeding is subject,
however, to the requirements of Part shallnbeion t pub ic on and
117 of this subchapter. Board.
135 FR 12274, July 31, 1970, as amended at
46 FR 63187, Dec. 30, 19811 PART 117-MARINE ACCIDENTS: IN-
1115.3 Employ'ment of inspectors and ex- VESTIGATIONS; CONTROL; RE-
aminers. RESPONSIBILITY
The Board may employ or assign
such inspectors and examiners as it Sc
suchinsectos ad exminrs a it 117.1 Investigation of marine accidents.
nay require in the inspection of ves- 1171a Scheduling of investigations.
- Is and in the classification and li- 117.b Rights of party in interest.
sensingg of pilots, masters, mates, and 117.2 Change in physical status of proper-
mrigineers. ty affected by accident forbidden.
119




21
117.1 Title 35-Panama Canal
Sec. (d) For the purpose of this section -
117.3 Reports by Board to the Administra- the term "serious marine accident" in-
tor. cludes:
117.4 Reports of accidents by officer in (1) Any accident involving substan.
command to Board.
117.5 Control of wrecked, injured, or burn- eipme th ana c an Co
ing vessels.
117.6 Liability of vessel for injury to Canal mission or the United States; and
structures or equipment. (2) Any accident (i) involving deatIP.
orreuting in personal injury thatr-
AUTHoIrrY: Issued under authority vested quires ah
in the President by sec. 1417, 1418, Pub. L.
96-70, 93 Stat. 487; EO 12215, 45 FR 36043. pital as a bed patient; or (ii) resulting
in damages to a vessel which requlre -
SOURCE: 46 FR 63188, Dec. 30, 1981, unless the making of repairs prior to the vs
otherwise noted.
otherwise noted.sel's departure from the Canal;Po
117.1 Investigation of marine accidents. voided that the Supervising Inspec
or his designee has reason to believe.
(a) Whenever, within Panama Canal that personnel or equipment of the
waters, including the locks of the Panama Canal Commission were then
Canal, a vessel, or its cargo, crew, or aboard or were assisting the vessel In.
passenger, meets with a serious marine voiced in the accident or were situated
accident, or whenever, within the har- (aboard another vessel, ashore or oth;
bors, anchorages, and areas adjacent erwise) so as to have been a factor In
thereto, including the ports of Balboa the accident.
and Cristobal, there is a serious
marine accident involving Commission Csoss REFERENCE: Compelling attend
persnne orequpmen, te Bardof and testimony of witnesses and productIML
personnel or equipment, the Board ofBoard, see sect
Local Inspectors shall promptly inves- 1418, Pub. L. 96-70, 93 Stat. 487.
tigate in detail the conditions and cir-
cumstances under which such accident 117.1a Scheduling of investigations.
occurred. (a) Marine-accident investigator.
(b) Any other marine accident occur- shall be scheduled so as to afford.
ring in such waters may be investigat- pilots and other parties in interest -
ed by the Board at the discretion of period of time not less than that pr
the Supervising Inspector. voided below for rest and consultant
(c) The Master of a vessel involved prior to the commencement of an in-.
in a marine accident may request an investigation:
investigation of an accident not con-
sidered by the Board to fall within
paragraph (a) of this section. The re- Rehef time Time of investigation
quest must be addressed to the Super-
vising Inspector or the Chairman of 0000-0400. 1400-;800 112 hours minim
0400-0800 -. 1600-2000 (12 hours minimum)
the Board, and must be in writing. If 0800-1200) 1800-2200 (10 hours minimum)
the Master does not so request such an 1200-1600 0800 Next Day.
investigation in writing, he shall be 1600-2000-. 1000 Nest Day.
deemed to have waived all rights to
the investigation called for by section
1417, Pub. L. 96-70, 93 Stat. 487, which (b) The column "Relief ie",
provides that a claim may not be con- out in paragraph (a) of this section, Dr
sidered by the Panama Canal Commis- dictates the period during ch
sion, or an action for damages lie pilot or other party in intre 6*
thereon, unless, prior to the departure pleated the transit during which an
from the Panama Canal of the vessel client occurred or the time at whW"
involved: he was relieved of duty following
(1) The investigation by the compe- occurrence of an accident. The co
tent authorities of the accident or "Time of Investigation", set olW-
injury giving rise to the claim has paragraph (a) of this section, mdl
been completed; and, the earliest time at which the in
(2) The basis for the claim has been nation may be scheduled. In
laid before the Commission. tional cases a departure from
120




22
Chapter I-Panama Canal Regulations 117.6
schedule may be made, as for example Board or by a two-man Board. Reports
in the case of warships or other vessels to the Administrator shall be forward-
that have an imperative need to ed in duplicate through the Supervis-
resume the voyage as soon as possible. ing Inspector, who may place thereon
Unless a pilot or other party in inter- such endorsement as he may see fit.
est requests the time provided in this
schedule, the hearing may be set for 117.4 Reports of accidents by officer in
an earlier hour. command to Board.
[32 FR 3830, Mar. 8, 1967] The Master or other officer In com-
mand of a vessel shall, prior to the yes-
117.1b Rights of party in interest sell's departure from Panama Canal
Any Panama Canal pilot or other in- waters, report in writing to the Board
dividual who is a party in interest at a any accident involving his vessel in
marine-accident investigation may Canal waters that resulted in loss of
obtain counsel of his own choosing, life or serious personal injury or in
testify in his own behalf, cross-exam- substantial damage to property.
ine witnesses, call witnesses, and intro-
duce any relevant evidence. The Board 117.5 Control of- wrecked, injured, or
shall advise all parties in interest of burning vessels.
such rights. When a vessel in the Panama Canal
waters goes aground, or is wrecked, or
117.2 Change in physical status of prop- is so injured that it is liable to become
erty affected by accident forbidden. an obstruction in such waters, or is on
In the event of a marine accident or fire, the Canal authorities shall have
casualty affecting any property in the right to supervise and direct, or to
Panama Canal waters, or waters adja- take complete charge of and conduct,
cent thereto, or any property owned or all operations which may be necessary
operated by the Panama Canal Com- to float the vessel, to clear the wreck-
mission or the United States, which age, to remove the injured vessel to a
imposes on the Board an obligation to safe location, or to extinguish the fire,
investigate, no change in the physical as the case may be. The Canal au-
status of the property affected by the authorities may, when necessary, take
accident or casualty may be made or such action without awaiting the per-
permitted prior to inspection by prop- mission of the owner or agent of the
erly constituted authority, unless such vessel, and may require the Master of
change in status be imperative in the vessel and all persons under his su-
order to preserve life or property. provision and control to place the
vessel, and all equipment on board, at
117.3 Reports by Board to the Adminis- the disposal of the Canal authorities
trator. without costs to the Commission.
The Board shall make reports forth- Unless the Panama Canal Commission
with in detail to the Administrator of is subsequently found or determined
all marine-accident investigations con- to be responsible for the accident or
ducted by it, setting forth the facts the condition necessitating action by
and circumstances surrounding the ac- the Canal authorities, the necessary
cident and bearing upon its proximate expenses incurred by the Commission
causation, the nature and extent of in carrying out the provisions of this
the injury and the amount of dam- section shall be a proper charge
ages, If any, occasioned by such injury. against such vessel her owners and
The reports shall include a transcript her operators.
of the record of the Board's investiga- 117.6 Liability of vessel for injury to
tion, together with its findings and
opinions respecting the accident. All
findings and opinions of the Board A vessel, or her owner or operator,
shall be rendered by a full Board after shall be held liable for any injury to
a review of the entire transcript, even any structure, plant, or equipment of
though the hearing may have been or pertaining to the Canal, the
conducted by a single member of the Panama Canal Commission or the
121




23
119.1 Title 35-Panama
United States when the injury is Sec.
proximately caused by the negligence Subpart D-Pilots
or fault of the vessel or its master or
crew. No vessel shall make fast, or run tons.
any line, to any marker, buoy, beacon, 119.143 Pilot, United States Govemh
or other aid to navigation; and a vessel local vessel; employment requreie*
shall so navigate as not to strike such
aids in passing. Subpart E-Malorboat Operators
.~ FFIERS 119.183 Motorboat operator age ,
PART 119-LICENSING OF OFFICERS requirements
119.187 Operating test.
Subpart A-General Provisions
Subpart F-Engineers
Sec.
119.1 License defined; classification and li. 119.221 Grade and type of engneer--
censing of Masters, mates, engineers, censes.
pilots, and motorboat operators. 119.222 Chief engineer, steam vesselk-
119.2 Term of licenses. experience required.
119.3 Appeal from action refusing license. 119.223 Chief engineer, motor vessels; t,
119.5 Revocation for parting with license. perience required.
119.6 Employment of licensed officers. 119.224 Assistant engineer, steam veise
119.7 Original license defined. experience required.
119.8 Application form. 119.225 Assistant engineer, motor vesek
119.9 Service records and endorsements. experience required.
119.10 Age and literacy requirements. 11922 Che and ssst
119.11 Knowledge of first aid.
119.12 Physical and experience require- AUORITY: Issued under authority vest
ments. in the President by sec. 1801, Pub. L. 96-7k
119.13 Burden of establishing qualifica- 93 Stat. 492, EQ 12215, 45 FR 36043.
tions. SouRcE: 46 FR 63189, Dec. 30, 1981, unl
119.14 Applicant to appear for examina- otherwise noted.
tion.
119.15 Reexamination.
119.16 Raise of grade.
119.17 Renewal of license.
119.18 Sea service as member of armed 119.1 License defined; classificationand
forces of the United States or the Re- licensing of Masters, mates, engineers
public of Panama or on vessels owned by pilots, and motorboat operator
either nation.
119.19 Evaluation of equivalent experience.
119.20 Increase in scope of license; removal t
of limitations. mission license unless specifically iden.
119.21 Written statement of reasons for tified as one from another issuing au-
denying license. thority.
119.23 Limitations on license. (b) The Board of Local Inspecto
119.24 Oath of licensee. shall recommend the classification O
119.25 Duplicate license. Masters, mates and engineers of stead
and motor vessels owned and operated'
Subpart B-Masters by the Panama Canal Commission;
119.61 Master, steam and motor vessels; ex-
perience required. motorboats operating in Panama'
119.63 Master, non-self-propelled floating Canal waters, excluding pleasure
equipment; experience. and of Panama Canal pilots, and uponl
such recommendation licenses may be]
Subpart C-Mates issued by the Supervising InspectorO'
119.101 Mate, non-self-propelled floating nt Notperohl tr v as
equipment; experience required. plt Master, ma or eniner os
119.103 Mate, steam or motor, experience
required.erate said motorboats, unless he holds'
a valid license to do so.
122




24
Mr. HUBBARD. Thank you. When we come back, Mr. Lent will
begin the questioning and other members, of course, will be called
on for their questions.
[Recess.]
Mr. HUBBARD. We will now reconvene and ask Mr. Lent for his
questions.
Mr. LENT. I want to welcome you gentlemen back to the subcom-
mittee and to Washington. As I said in my opening remarks, I be-
lieve that in order to examine thoroughly the issues and alleged
delays surrounding current vessel damage claim procedures, we
ought to compare the Commission's experience with those of the
Panama Canal Company concerning accident claims and the time
it takes to settle them.
I am aware that the committee has received a listing of the
status of claims against the Commission since the treaties took
force. Have any statistics been developed that you are aware of re-
garding pretreaty accident claims and how long it might have
taken from 1977 to 1979?
Mr. GIANELLI. I am informed, Mr. Lent, the staff is working on
those statistics now. They were not ready at the moment.
Mr. LENT. You will provide the record with a similar listing of
canal accidents then between 1977 and 1979?
Mr. GIANELLI. Yes.
Mr. LENT. It will show the name of the vessel, the date of the
accident, whether it was in or out of the locks, the date and
amount of the claim, and the settlement date and amount?
Mr. GIANELLI. Yes.
[The following was received for the record:]




STATUS OF CLAIMS AGAINST THE PANAMA CANAL COMPANY FOR FISCAL YEARS 1977, 1978 AND 1979
Please note that the unusually large number of lawsuits filed during 1978 and the first nine months of 1979 were occasioned by the 1977 treaty
with Panama which provided that the United States District Court for the District of the Canal Zone (which was the only court with jurisdiction
over suits against the Panama Canal Company for vessel damage sustained at the canal) could not accept any new cases after October 1, 1979.
STATUS OF CLAIMS AGAINST THE
PANAMA CANAL COMPANY FOR FY 1977
DATE DATE AMOUNT
OF OF OF
BLI NO. VESSEL ACCIDENT CLAIM CLAIM STATUS
1-77 WORLD MEDAL 10/03/76 03/28/78 $ 54,977.41 Offer to settle for $30,257.76 communicated to owners 11/9/78. Offer rejected
5/10/79 and suit for $60,000 file 9/12/79. Settled by Department of Justice for
$36,000 12/3/80.
2-77 TRADE ENDEAVOR 10/06/76 03/06/79 512,779.81 Suit for $547,579.81 filed 8/23/79. Additional information received 10/8/80.
Settled by Department of Justice for $285,937.37 5/5/81.
3-77 TRADE ENDEAVOR 10/08/76 03/06/79 Both accidents under one claim.
4-77 DONA HOFTENCIA 10/17/76 12/30/77 150,974.53 Additional information received 4/4/79. Offer to settle for $77,936.28 sent
to owners on 9/27/79. Settled for $77,936.28 6/11/82.
5-77 MOTOR BOAT No. 3459 10/17/76 No claim
6-77 Yacht GLORIA MARIS 10/24/76 11/04/76 3,100.00 Settled for $1,550 4/4/77
7-77 AXEL MAERSK 10/30/76 No claim
8-77 SUECIA 11/17/76 No claim
9-77 SELLINIS 12/13/76 No claim
10-77 BENKENASCH 12/17/76 10/06/78 29,426.80 Five requests for additional information between 10/9/78 ano 4/4/79. Settled
for $18,444.29 9/27/79.
11-77 CHEVRON GENOA 12/20/76 05/02/77 5,500.00 Settled for $5,500.00 5/31/77.
12-77 SINGAPURA KEDUA 12/21/76 06/20/77 551,379.65 Six requests for additional information between 7/18/77 and 3/9/78. Referred
to General Counsel for review 9/11/78. Offer to settle for $497,120.89 5/3/79.
Settled for $497,120.89 7/12/79.




DATE DATE AMOUNT
OF OF OF
BLI NO. VESSEL ACCIDENT CLAIM CLAIM STATUS
13-77 MORMACSUN 12/22/76 11/7/77 $ 83,426.83 Offer to settle on 5/3/78. Revised offer to settle for $26,870.00 on 8/24/79.
Settled for $26,870.00 9/25/79.
14-77 BLUE KOBE 12/25/76 No claim
15-77 STATENDAM 12/26/76 05/11/79 72,220.79 Five requests made for additional information between 5/28/79 and 9/10/79.
Referred to General Counsel 12/03/79. Limitation period for lawsuit expired
12/26/79, but PCC concluded payment could be made. Offer of $28,130.30 sent
3/8/82. Settlement at that figure effected 5/5/82.
16-77 AMERICAN LEGION 12/28/76 12/08/77 150.00 Settled for $150.00 1/5/78.
17-77 MATAWRA 12/29/76 No claim
18-77 GOLDEN ORCHID 12/29/76 No claim
19-77 LEROY AND BARRY 12/29/76 No claim
20-77 BARON RENFREW 01/01/77 No claim
21-77 BELCHATOW 01/04/77 07/27/77 31,500.00 Settled for $25,238.66 5/9/78.
22-77 CARIBBEAN TAMANACO 01/06/77 No claim
23-77 WARSCHAU 01/18/77 No claim
24-77 ALTHEA 01/19/77 01/23/79 64,000.00 Disallowed on 2/16/79.
25-77 KING OSCAR 01/27/77 09/25/79 104,650.61 Suit for $104,410.61 filed 9/25/79. Settle by Department of Justice
for $1,751.39 5/5/81.
26-77 STAR CARIBBOO 02/06/77 10/23/78 127,322.49 Additional information requested 11/8/78. Suit for $127,322.49 filed 9/27/79.
Settled by Department of Justice for $79,687.00 9/10/80.
27-77 TABOGA 02/08/77 No claim




DATE DATE AMOUNT
OF OF OF
BLI NO. VESSEL ACCIDENT CLAIM CLAIM STATUS
28-77 TEXACO TRINIDAD 02/10/77 No claim
29-77 ATLANTIC OCEAN MAID 02/24/77 02/15/78 $ 26,865.76 Nine requests sent for additional information between 6/14/78 and 8/14/79.
Limitation period to sue expired 2/24/80, but PCC later concluded that
payment could be made. Offer of $11,585.58 sent 2/11/82.
30-77 ORIENTAL EDUCATOR 03/10/77 No claim
31-77 CANADIAN FARMER 03/13/77 No claim
32-77 Yacht QUATERNION 03/30/77 04/05/77 525.00 Settled for $525.00 12/6/77.
33-77 RIO BALSAS 04/03/77 No claim
34-77 SHIGA MARU 04/12/77 No claim
35-77 DIANNA 04/21/77 No claim
35-77 OGDEN SENEGAL 04/21/77 No claim
37-77 TOYOTA MARU No. 14 05/11/77 04/27/78 459,784.30 Six requests for additional information made between 5/10/78 and 9/10/79.
Suit for $500,000 filed 9/6/79. Settled by Department of Justice for
$300,000 7/20/81.
37-77 MASTER NICDS 05/11/77 05/03/78 665,693.23 Six requests for additional information between 5/11/78 and 5/10/79. Suit for
$666,000 filed 9/6/79. Settled by Department of Justice for $475,000
on 7/20/81. (Includes accident of 5/16/77).
38-77 Yacht CHUBASCOD 05/13/77 10/24/78 171,628.89 Suit filed 9/24/79. Dismissed 11/10/79
39-77 MASTER NICOS 05/16/77 05/03/78 6,339.70 See accident of 5/11/77.
40-77 CHEPO 05/27/77 No claim
41-77 IMME OLDENDORFF 06/04/77 No claim




DATE DATE AMOUNT
OF OF OF
BLI NO. VESSEL ACCIDENT CLAIM CLAIM STATUS
42-77 STRAAT HOG KONG 06/07/77 11/16/78 $118,366.93 Additional information provided 2/13/79. Suit for $118,366.93 filed 9/11/79. Offer
to settle for $52,736.80 communicated to owners 10/30/79. Settled by Department of
Justice for $94,736.80 9/22/81.
42-77 ORIENTAL COMMANDER 06/07/77 No claim
45-77 JANITA 06/19/77 08/27/79 407,575.33 Suit for $398,579.57 filed 9/27/79. Additional information received 5/12/80. Settled
by Department of Justice for $210,923.33 6/15/81
47-77 MARINE CHEMIST 07/09/77 03/05/79 452,589.16 Additional information received 3/12/80. Settled for $47,700.32 10/29/81.
49-77 SANTA ELENA 07/15/77 No claim
50-77 SHING ON 07/13/77 08/07/78 248,020.30 Suit filed for $280,000 9/12/79. Additional information received 5/13/80.
Settled by Department of Justice for $160,000 6/24/81.
51-77 YAMATO 07/21/77 No claim
51-77 PAC BARONES 07/21/77 No claim
52-77 PLOD 08/01/77 No claim
52-77 SUSANNE SKOU 08/01/77 No claim
53-77 Yacht SHUSHA 08/02/77 09/08/78 425.00 Settled for $425.00 12/6/78.
54-77 CHEPO 08/09/77 07/05/78 37,484.00 Additional information received on 10/23/78. Offer to settle for $2,736.92
communicated to owners 3/01/79. Suit filed for $32,808.59 9/19/79. Settled
by Department of Justice for $5,000 11/14/80.
55-77 MEIKO MARU 08/10/77 07/17/78 749,204.24 Additional information received 4/4/79. Settled for $564,707.16 9/28/79.
55-77 SOPHIA II 08/10/77 10/06/78 440,273.55 Suit filed for $764,631.34 9/12/79. Additional information received 2/7/80. Settled
by Department of Justice for $406,877.18 3/5/81.




DATE DATE AMOUNT
OF OF OF
BLI NO. VESSEL ACCIDENT CLAIM CLAIM STATUS
56-77 JAPAN CARRYALL 08/18/77 09/13/78 $ 81,832.04 Additional information received 11/9/78. Suit filed for $81,832.04 9/20/79. Settled
by Department of Justice for $40,530.97 8/27/80.
57-77 KAI PING 08/20/77 No claim
58-77 PUNTA SOLE 08/30/77 No claim
59-77 ATHENIAN VICTORY 09/02/77 No claim
60-77 CDNTINENTAL PIONEER 09/05/77 No claim
60-77 GRETA THOLIN 09/05/77 No claim
61-77 VISHVA TIRTH 09/14/77 06/04/79 8,102.01 Additional information received 10/30/79. Offer to settle for $6,879.19 6/11/80.
Settled for $6,879.19 9/11/80.
61-77 KYOWA MARU No. 18 09/14/77 No claim
62-77 ACE HERO 09/21/77 09/28/79 45,000.00 Suit for $75,000 filed 9/27/79. Additional information received 12/30/80. Settle
by Department of Justice for $20,700 5/15/81.
63-77 EL BUEY GRANDE 09/25/77 03/27/78 57,475.33 Additional information received 4/13/78. Offer to settle for $42,000 3/20/79.
Settled for $42,000 6/12/79.
63-77 MR. PAT 09/25/77 No claim
64-77 DADE 09/30/77 12/30/78 243,309.92 Additional information requested on six occasions between 3/2/79 and 11/30/79;
information received 12/4/79. Suit filed for $243,309.92 8/16/79. Settled by
Department of Justice $186,000 10/22/80
64-77 LIMA 09/30/77 12/4/78 462,844.54 Additional information requested on twelve occasions between 12/26/78 and 1/9/80;
information received 1/18/80. Suit filed for $462,844.54 9/13/79. Settled by
Department of Justice for $315,000 10/22/80
LFS 12/2/82




STATUS OF CLAIMS AGAINST THE
PANAMA CANAL COMPANY FOR FY 1978
DATE DATE AMOUNT
OF OF OF
BLI NO. VESSEL ACCIDENT CLAIM CLAIM STATUS
1-78 AMERICAN CHALLENGER 10/05/77 No Claim
1-78 CALYPSO 10/05/77 No Claim
2-78 CONTINENTAL HIGHWAY 10/11/77 No Claim
3-78 PENNSYLVANIA SUN 10/21/77 08/07/78 $ 129,361.28 Five requests for additional information between 8/9/78 and 10/23/78. Information
received 11/29/78. Referred to General Counsel for review 12/9/78. Offer to settle
for $95,502.87 communicated to owners 3/20/79. Settled for $98,073.29 7/23/80.
4-78 STAR CARIBOO 11/11/77 10/23/78 127,322.49 Additional information requested 11/8/78. Suit for $127,322.49 filed 9/27/79. Settled
by Department of Justice for $79,687.00 9/10/80. (Includes accident of 2/6/77).
5-78 OVERSEAS ALASKA 11/23/77 07/05/78 228,535.59 Three requests for additional information between 7/25/78 and 10/13/78. Additional C
information receive 11/6/78. Referred to General Counsel for review 1/24/79. Offer to
settle for $83.017.72 3/20/79. Suit for $214,807.88 filed 9/14/79. Settle by
Department of Justice for $274,977.00 8/4/81. (Includes accidents of 2/17/78 and
3/9/78).
8-78 DONA HORPENCIA 12/21/77 No Claim
9-78 WORLD COMMANDER 01/05/78 01/05/79 164,939.09 Three requests for additional information between 2/20/79 and 5/14/79. Information
received 5/15/79. Referred to General Counsel for review 7/10/79. Suit for $164,939.09
filed 8/28/79. Settled by Department of Justice for $45,200.00 6/13/80.
10-78 HOEGH MALLARD 01/06/78 09/27/79 63,658.22 Suit for $75,000 filed 9/27/79. Additional information requested 10/25/79 and 3/18/80.
Settled by Department of Justice for $60,000.00 5/5/81.
14-78 ORIENTAL LEADER 01/17/78 11/09/79 517,918.43 Additional information requested 11/20/79 and 01/30/80. Information received 6/3/80
Referred to General Counsel for review 6/26/80. Suit for $557,912.43 filed 1/16/81.
Settlement agreement for $345,000.00 reached 11/24/82. Payment being processed currently.
15-78 WORLD LEADER 01/26/78 No Claim




DATE DATE AMOUNT
OF OF OF
BLI NO. VESSEL ACCIDENT CLAIM CLAIM STATUS
16-78 UNION 01/27/78 12/28/78 $ 196,708-19 Three requests for additional information between 2/5/79 and 5/10/79. Suit for
$178,185.20 filed 9/18/79. Offer to settle for $96,593.36 communicated to owners
9/29/79. Settled by Department of Justice for $176,492.84 11/25/80.
17-78 WASHINGTON TRADER 01/29/78 10/13/79 22,844.04 Suit for $100,000.00 filed 9/27/79. Additional information requested 10/25/79. Settled
by Department of Justice for $72,165.91 5/1/81. (Includes accident of 6/23/78).
19-78 YACHT TARAVANA 02/03/78 No Claim
20-78 FERN VALLEY, 02/06/78 No Claim
21-78 CHRYSOVALANDOU DYO 02/07/78 09/19/78 118,871.49 Five requests for additional information between 10/5/78 and 9/1/79. Suit for
$118,871.49 filed 9/18/79. Settled by Depaftment of Justice for $98,000.00 12/23/80.
23-78 DIAKAN MASKOT 02/10/78 04/24/80 206,067.44 Referred to General Counsel for review 7/28/80. Settled for $152,909.50 10/14/80.
23-78 CELTA ROSE 02/10/78 No Claim
24-78 PORr CAROLINE 02/16/78 09/07/79 321,514.60 Suit for $85,000.00 filed 9/11/79. Additional information requested 10/16/79.
Additional information received 1/18/80. Settled by Department of Justice for
$264,727.03 3/5/81.
25-78 OVERSEAS ALASKA 02/17/78 8/28/78 158,333.05 Suit for $149,059.69 filed 9/14/79. See accident of 11/23/77.
27-78 TEXACD PENNSYLVANIA 02/18/78 No Claim
27-78 GLENPARK 02/18/78 01/09/79 148,836.71 Suit for $132,000.24 file 9/13/79. Four requests for additional information between
10/29/79 and 9/8/80. Additional information received 9/22/80. Settled by Department of
Justice for $107,983.00 6/15/80.
28-78 HOEGH TRADER 02/24/78 No Claim
29-78 MORANT 02/27/78 07/30/79 191,860.91 Five requests for additional information between 8/14/79 and 2/1/80. -Suit for
$191,860.91 filed 7/30/79. Additional information received 2/4/80. Settled by
Department of Justice for $53,608.64 8/28/80.




DATE DATE AMOUNT
OF OF OF
BLI NO. VESSEL ACCIDENT CLAIM CLAIM STATUS
30-78 SAGE 02/25/78 No Claim
31-78 TEXACO IDAHD 03/06/78 No Claim
32-78 OVERSEAS ALASKA 03/09/78 10/13/78 $ 117,492.52 Suit for $457,777.08 filed 9/14/79. See accident of 11/23/77.
33-78 PAN DYNASTY 03/16/78 04/04/79 222,247.49 Six requests for additional information between 4/16/79 and 6/6/80. Suit for $222,247.49
filed 9/11/79. Claim subsequently increased to include $640,000 as indemnification of
cargo interests. Total claim of $862,247.49 settled by Department of Justice for
$536,232.00 3/24/81.
33-78 TARPON SEALANE 03/16/78 02/08/79 1,528,932.93 Five requests for additional information between 2/23/79 and 10/29/79. Suit for
$1,528,932.93 filed 8/16/79. Information received 12/13/79. Referred to General Counsel
2/13/80. Settled by Department of Justice for $1,040,926.00 3/24/81. (Incluoes cargo
claim).
34-78 OVERSEAS OHIO 04/07/78 09/18/79 759,077.29 Five requests for additional information between 10/30/79 and 01/30/80. Suit for
$325,000.00 filed 9/20/79. Additional information received 6/2/80. Settled by
Department of Justice for $229,891.20 8/4/81. (Includes accidents of 10/15/78 and C
8/2/79).
35-78 TOHBEI MARU 04/17/78 05/03/79 181,795.51 Six requests for additional information between 5/30/79 and 2/1/80. Suit for $181,795.51
filed 7/30/79. Additional information received 2/14/80. Settled by Department of
Justice for $71,901.48 8/28/80.
36-78 TIBURON 04/21/78 No Claim
37-38 MOUNT WASHINGION 04/29/78 01/24/79 60,268.44 Three requests for additional information between 2/20/79 and 4/4/79. Information
received 5/8/79. Offer to settle for $57,002.00 communicated to owners 9/27/79.
Settlement at that figure effected 10/25/79.
41-78 LONTUE 05/24/78 No Claim
41-78 TAURUS 05/24/78 No Claim
42-78 OGDEN IOIRE 05/25/78 No Claim
43-78 BARGE CHEPO 05/27/78 09/11/79 6,210.00 Suit for $6,210.00 filed 9/24/79. Four requests for additional information between
10/30/79 and 1/31/80. Settled by Department of Justice for $3,100 11/17/80.




DATE DATE AMOUNT
OF OF OF
BLI NO. VESSEL ACCIDENT CLAIM CLAIM STATUS
45-78 WASHINGTON TPADER 06/23/78 07/25/80 $ 58,296.99 See accident of 1/29/78.
47-78 OVERSEAS WASHINGTON 07/04/78 No Claim
48-78 REPUBLICA DEL ECUADOR 07/05/78 No Claim
50-78 PUNTA BLANCA 07/27/78 No Claim
50-78 PENNSYLVANIA SUN 07/27/78 No Claim
51-78 WORLD FINANCE 07/30/78 05/02/79 406,292.92 Nine requests for additional information between 5/2/79 and 9/8/80. Information
received 9/22/80. Referred to General Counsel for review 11/17/80. Settled for
$322,381.72 7/24/81.
51-78 WORLD FINANCE (Cargo) 07/30/78 01/08/79 361,216.53 Additional information requested 2/5/79 and 8/14/79. Information received 9/1/79. C
Settled for $342,647.19 9/21/79. co
52-78 OVERSEAS NEW YORK 08/09/78 09/17/79 86,714.30 Three requests for additional information between 10/30/79 and 1/30/80. Suit for
$86,714.30 filed 9/14/79. Additional information received 8/4/80. Settled by Department
of Justice for $129,607.89 5/19/81. (Includes accident of 2/13/79).
53-78 DEL SOL 08/20/78 No Claim
54-78 OVERSEAS JOYCE 08/29/78 No Claim
54-78 PASADENA 08/29/78 No Claim
56-78 ORIENTAL COMMANDER 09/06/78 10/04/79 14,475.00 Suit for $14,475.00 filed 9/30/79. Seven requests for additional information between
11/20/79 and 11/26/80. Information received 12/12/80. Settled by Department of Justice
on 7/19/82 for $17,815.00 (due to accrued interest claimed).
57-78 DUGI OTOK 09/30/78 12/17/79 404,217.67 Referred to General Counsel for review 2/15/80. Offer to settle for $33,950.03
communicated to owners 9/24/81. Settlement negotiations in progress.




STATUS OF CLAIMS AGAINST THE
PANAMA CANAL COMPANY FOR FY 1979
DATE DATE AMOUNT
OF OF OF
BLI NO. VESSEL ACCIDENT CLAIM CLAIM STATUS
1-79 JEAN 10/02/78 05/31/79 $ 99,618.68 Six requests for additional information between 6/14/79 ano 7/14/80. Suit for
$100,000.00 filed 9/20/79. Settled by Department of Justice for $45,000.00 5/1/81.
2-79 BARGE EL CDNQUISTADOR 10/06/78 No Claim
3-79 MARA 10/09/78 No Claim
3-79 SAMOS STORM 10/09/78 No Claim
4-79 OVERSEAS OHIO 10/15/78 09/18/79 759,077.29 Five requests for additional information between 10/30/79 and 1/30/80. Suit for
$475,324.72 filed 9/20/79. Additional information received 6/2/80. Settled by Department C
of Justice for $229,891.20 8/4/81. (Includes accidents of 4/7/78 and 8/2/79).
5-79 EIBE OLDENDORFF 10/24/78 09/04/79 53,830.01 Suit for $52,000.00 filed 9/10/79. Additional information requested 9/27/79.
Information received 11/6/79. Settled by Department of Justice for $46,663.70 12/29/80.
6-79 NORDHVAL 11/13/78 11/07/79 125,776.60 Three requests for additional information between 11/23/79 and 2/1/80. Information
received 2/12/80. Referred to General Counsel for review 4/21/80. Offer to settle for
$80,953.31 communicated to owners on 10/21/81. Settlement at that figure effected
1/27/82.
7-79 OCEANIC CONFIDENCE 11/21/78 No Claim
7-79 SAN ANDRES 11/21/78 No Claim
8-79 HANAU 11/28/78 No Claim
None OVERSEAS CHICAGD 12/02/78 09/18/79 21,580.00 Suit for $21,580.00 filed 9/20/79. Settled by Department of Justice for $8,190.00 -
12/30/80.
11-79 BORIS ZHEMCHUZHIN 12/08/78 12/79 30,709.05 Suit for $150,000.00 filed by PCC 12/9/78. Additional information requested 12/6/79.
Information received 7/23/80. Case dismissed 10/27/80.




DATE DATE AMOUNT
OF OF OF
BLI NO. VESSEL ACCIDENT CLAIM CLAIM STATUS
12-79 OVERSEAS NATALIE 12/09/78 09/11/79 $ 25,473.91 Additional information requesteo 12/6/79 and 1/9/80. Suit for $25,473.91 file
9/20/79.Information received 1/16/80. Settled by Department of Justice for $54,587.22 -
6/24/81. (Includes accident of 4/9/79).
14-79 OVERSEAS ANCHORAGE 12/29/78 09/10/79 58,094.44 Three requests for additional information between 10/30/79 and 6/19/80. Suit for
$54,094.44 filed 9/20/79. Case dismissed 12/11/80.
15-79 STELLA SOLARIS 12/30/78 09/18/79 2,042,458.58 Six requests for additional information between 10/26/79 and 8/11/80. Suit for
$2,042,458.00 filed 9/24/79. Information receive 8/21/80. Settled by Department of
Justice for $1,651,197.45 6/7/82.
16-79 NORDIC NAVIGATOR 01/02/79 05/03/79 77,979.81 Six requests for additional information between 5/10/79 and 1/9/80. Referred to General
Counsel for review 3/4/80. Offer to settle for $18,558.39 communicated to owners 5/20/80.
Counter offer received 7/23/80. Referred to General Counsel for review 11/28/80. Settled
for $30,515.15 12/24/80.
17-79 ORIENTAL STATESMAN 03/15/79 11/01/79 33,126.10 Four requests for additional information between 11/23/79 and 5/5/80. Information
received 6/10/80. Referred to General Counsel for review 2/24/81. Settled for
$29,890.57 12/16/81.
18-79 YACHT SUNDAICE 01/05/79 No Claim
19-79 KEYSTONER 01/31/79 09/05/79 88,345.35 Suit for $88,345.35 filed 9/11/79. Settled by Department of Justice for $85,000.00 -
3/10/81.
20-79 GOLDEN PANAGIA 02/01/79 09/17/79 336,480.78 Three requests for additional information between 10/25/79 and 9/29/80. Suit for
$303,797.11 filed 9/18/79. Information received 11/4/80. Settled by Department of
Justice for $195,318.50 7/20/81.
20-79 WORLD AGA1EMINON 02/01/79 09/26/79 1,000,000.00 Suit for $1,000,000.00 filed 9/27/79.Additional information requested 10/25/79. Revised
claim submitted for $278,044.91 on 6/20/80. Additional information requested 8/11/80.
Information received 2/10/81. Settled by Department of Justice for $161,889.80 -
7/20/81.
21-79 TINOS 02/05/79 11/20/80 312,353.72 Suit for $250,000.00 fileo 9/27/79. Settled by Department of Justice for $188,083.51 -
6/25/81.




DATE DATE AMOUNT
OF OF OF
BLI NO. VESSEL ACCIDENT CLAIM CLAIM STATUS
22-79 OVERSEAS NEW YORK 02/13/79 07/25/80 $ 129,502.92 Suit for $145,438.42 filed 9/14/79. Settled by Department of Justice for $129,607.89 -
5/19/81. (Includes accident of 8/9/78).
23-79 YACHT GYPSIES FIVE 02/16/79 No Claim
24-79 BOBO 02/13/79 No Claim
25-79 COVE TRADER 03/26/79 09/24/79 1,091,432.84 Six requests for additional information between 10/30/79 and 12/04/80. Suit for
$1,128,881.20 filed 9/24/79.Information received 1/16/81. Settled by Department
of Justice for $1,000,000.00 8/10/81.
26-79 CRESTBANK 03/28/79 09/79 711.83 Additional information requested 10/25/79. Referred to General Counsel for review
1/30/80. Settled for $711.00 6/2/80.
28-79 OVERSEAS NATALIE 04/09/79 09/11/79 107,759.95 Suit for $78,071.96 filed 9/20/79. See accident of 12/09/78.
29-79 YACHT KARDIA 04/09/79 No Claim
30-79 KASTURBA 04/13/79 09/27/79 689,500.00 Additional information requested 10/25/79 and 05/27/80. Suit for $289,000.00 filed
9/27/79. Settled by Department of Justice for $37,014.00 1/7/81. (Includes the vessel
M1BER FOUR).
30-79 N14BER FOUR 04/13/79 10/10/80 49,035.50 Suit for $400,000.00 filed 9/12/79. Settled by Department of Justice. (See vessel
KASTURBA)
31-79 SEA SWAN 04/18/79 Mo Claim
32-79 JARILLA 04/20/79 09/27/79 252,000.00 Suit for $250,000.00 filed 9/27/79. Four requests for additional information between
10/26/79 and 1/8/81. Claim amended 2/6/81 to $79,947.11. Settled by Department of
Justice for $65,693.27 6/15/81.
33-79 STAR ALCYONE 04/30/79 07/08/80 27,760.64 Suit for $25,000.00 filed 9/18/79. Settled by Department of Justice for $27,496.24 -
12/23/80.
34-79 PENNSYLVANIA SUN 05/11/79 09/28/82 244,815.09 Additional information requested 10/8/82. Information received 11/12/82. Referred to
Industrial Division for advice 11/26/82. Analysis in process.




DATE DATE AMOUNT
OF OF OF
BLI NO. VESSEL ACCIDENT CLAIM CLAIM STATUS
36-79 APOSTOLOS K 06/11/79 No Claim
38-79 YACHT MOON RIVER 06/11/79 No Claim
39-79 SEATIDE 07/29/79 09/25/79 $ 609,612.06 Suit for $609,612.06 filed 9/25/79. Settlement agreement reached whereby the vessel
owners and the government would absorb their own losses. Each of the three parties
would also participate in paying the owner of the cargo aboard the QUIDNET.
39-79 QUIDNET 07/29/79 09/10/79 1,500,000.00 Suit for $1,500,000.00 filed 9/14/79. Settlement agreement reached whereby the vessel
owners ano the government would absorb their own losses. Each of the three parties woulo
also participate in paying the owner of the cargo aboard the QUIDNET.
39-79 QUIDNET (Cargo) 07/29/79 09/19/79 350,000.00 Suit for $350,000.00 file 9/30/79. Settled by Department of Justice for $100,000.00 -
8/4/81.
40-79 OVERSEAS OHIO 08/02/79 09/18/79 See accident of 10/15/78.
41-79 CHI GRACE 08/13/79 No Claim
42-79 TANAMBI 08/22/79 No Claim
43-79 THERMOPYLAE 08/28/79 09/26/79 20,000.00 Suit for $35,000.00 filed 9/27/79. Settled by Department of Justice for $35,000.00 -
3/25/81.
44-79 AMILLA 08/29/79 09/26/79 1,741,970.00 Suit for $1,741,970.00 filed 9/26/79. Additional information requested 11/7/79 and
9/10/80. Information received 5/13/81. Settled by Department of Justice for
$850,447.99 9/8/81.
44-79 STAR CAPELLA 08/29/79 09/28/79 1,000,000.00 Suit for $4,000,000.00 file 9/27/79. Five requests for additional information between
10/25/79 and 9/4/80. Information received 2/27/81. Settled by Department of Justice for
$1,209,631.86 9/8/81. (Includes cargo claim).
44-79 STAR CAPELLA (Cargo) 08/29/79 09/28/79 4,000,000.00 Suit for $1,000,000.00 file 9/30/79. Consolidated with vessel damage suit.
46-79 OVERSEAS WASHINGTON 09/05/79 09/26/79 $ 123,927.74 Suit for $123,927.74 file 9/25/79. Six requests for additional information between
10/25/79 and 12/29/80. Information received 1/12/81. Settled by Department of Justice
for $32,160.16 5/19/81.
48-79 MIRENE 09/09/79 11/18/80 219,179.54 Suit for $90,000.00 filed 9/30/79. Additional information requested 12/18/80.
Settled for $208,604.77 8/27/82.
49-79 D'ALBERPIS 09/13/79 09/25/79 19,444.32 Additional information requested 1/29/80 and 3/13/80. Information received 8/22/80.
Referred to General Counsel for review 10/2/80. Settled for $19 -1.32 12/10/80.
50-79 STOLT SPAN 09/17/79 08/19/81 92,185.66 Three requests for additional information between 9/10/81 ano Information
received 2/23/82. Referred to General Counsel for review 5/1. nalysis in process.




STATUS OF CLAIMS AGAINST THE PANAMA CANAL COtaMISSION
ARISING FROM VESSEL ACCIDENTS OCCURRING AFTER SEPTEMBER 30, 1979
DATE IN OR DATE AMOUNT
OF OUT OF OF OF
BLI NO. VESSEL ACCIDENT IDCKS CLAIM CLAIM STATUS
1-80 PAMPUS 10/02/79 I $ No Claim (Personal Injury)
2-80 Tug the POLARIS 10/08/79 0 No Claim
3-80 OVERSEAS VALDEZ 10/18/79 I 03/17/80 166,068.63 Settled 10/29/82 for $129,477.00 (Note: 1st offer on 12/16/81 was not accepted and
additional information was submitted on 3/8/82)
3-80 Yacht ALASMAR 10/18/79 I 04/07/80 419.60 Additional information requested 9/81 (Previously in General Counsel for advice)
3-80 Yacht AGUILA 10/18/79 I 02/26/80 147.00 Additional information requested 9/81 (Previously in General Counsel for advice)
3-80 Yacht FREVEN 10/18/79 I 02/25/80 205.95 Additional information requested 9/81 (Previously in General Counsel for advice)
Cr
3-80 Yacht FRIENDSHIP 10/18/79 I 01/24/80 375.00 Additional information requested 9/81 (Previously in General Counsel for advice)
3-80 Yacht SILVER HEEFS 10/18/79 I 01/18/80 530.00 Additional information requested 9/81 (Previously in General Counsel for advice)
4-80 OVERSEAS ALASKA 10/24/79 I 11/04/82 Indemnity action based upon personal injury. Under reviews by General Counsel
5-80 OVERSEAS NEW YORK 10/25/79 I 03/17/80 137,878.66 Settled 12/14/81 $67,849.52 (Partial claim submitted on 3/17/80, additional
documents submitted 1/9/81)
6-80 OVERSEAS NEW YORK 10/30/79 I 03/17/80 120,870.57 Settled 12/14/81 $52,026.42 (Partial claim submitted on 3/17/80, balance of claim
filed 8/19/80)
7-80 MAIPO II 11/01/79 0 No Claim
8-80 MESSINIAKI AVGI 11/13/79 I No Claim (Personal Injury)
9-80 SWAN ARROW 11/08/79 0 07/29/80 367,066.12 Submitted to OMB on 3/8/82; forwarded to Congress 11/9/82 (Four requests for
additional information were necessary before analysis could be made)




DATE IN OR DATE AMOUNT
OF OUT OF OF OF
BLI NO. VESSEL ACCIDENT LOCKS CLAIM CLAIM STATUS
10-80 ATHENA 11/13/79 0 $ No Claim
11-80 FUHWO VENTURE 11/20/79 0 01/27/81 282,709.32 Additional information requested 9/27/82 (7th request)
12-80 CARIB FREEZE 11/21/79 0 No Claim
13-80 WASHINGTON TRADER 11/24/79 I 06/26/81 148,955.30 Settled on 3/30/82 $139,155.56
14-80 BARBER 'IOBA 12/03/79 I 01/30/81 27,042.62 Settled 1/14/82 $23,696.52
15-80 Yacht CREDENCE 12/08/79 I 04/18/80 388.70 Settled on 5/5/82 for $135.00 (Offers of settlement made since 6/13/80)
16-80 GOLDEN SABRE 12/19/79 I No Claim
17-80 OVERSEAS WASHINGTON 12/21/79 I 05/06/80 80,743.07 Settled 12/17/81 $39,908.50 (Additional information requested 1/13/81)
18-80 HOLSTENKOOG 12/25/79 I 07/28/80 18,594.59 Settled 11/18/81 $14,903.65 (Additional information requested 11/26/80)
19-80 BARGE EL REY 12/30/79 I No Claim (Personal Injury)
20-80 BUNKO MARU 01/02/80 0 No Claim
21-80 TUG SIDNEY ROSS 01/24/80 0 No Claim (Personal Injury)
22-80 STAR RHODIAN 02/06/80 I 02/11/82 10,698.04 Referred to General Counsel for review 10/6/82 (Additional information
requested 6/15/82)
23-80 BARGE GLENKAR 02/07/80 0 No Claim
23-80 BARGE SUBLIET 02/07/80 0 No Claim
24-80 OVERSEAS ALASKA 02/10/80 I 06/10/80 20,695.72 Disallowed 11/10/80
25-80 CRENNA 02/12/80 I No Claim




DATE IN OR DATE AMOUNT
OF OUT OF OF OF
BLI NO. VESSEL ACCIDENT IDCKS CLAIM CLAIM STATUS
27-80 ZIM TOKYO 03/01/80 I $ No Claim (Personal Injury)
28-80 WASHINGION TRADER 03/03/80 0 06/26/81 101,511.38 Settlea on 7/22/82 for $52,274.37 (Offer of settlement made on 1/25/82 and
accepted on 7/21/82)
29-80 ISABEL CINCO 03/09/80 0 No Claim
29-80 RIO ARIMAO 03/09/80 0 No Claim
30-80 -LAGD HUALAIHUE 03/10/80 0 No Claim
30-80 SAPPORD OLYMPICS 03/10/80 0 No Claim
31-80 OVERSEAS ANCHORAGE 03/23/80 I 06/24/80 4,805.42 Disallowed 11/12/80
32-80 Yacht SPICE 03/25/80 I No Claim
33-80 KEYS'IONER 03/27/80 0 No Claim
33-80 MING SHINE 03/27/80 0 No Claim
34-80 ANNA 04/10/80 I 08/10/80 446,982.76 Referred to General Counsel for review 10/28/82 (Note: Four requests for
additional information necessary before analysis could be made)
35-80 ESSO NASSAU 04/10/80 0 04/07/82 391,855.77 Additional information requested 5/5/82 and traced 11/1/82
35-80 ESSO GUAM 04/10/80 0 04/07/82 889,369.38 Additional information requested 5/14/82 and traced 9/2/82
36-80 OVERSEAS ALASKA 04/13/80 I 05/09/80 114,524.86 Settled on 1/24/82 $69,858.87 (Additional information received 8/26/81)
37-80 ALTAVIA 04/13/80 0 12/11/80 63,450.00 Settled 2/19/82 for $33,797.39 (Additional information received 6/15/81)
38-80 Yacht WILLING MIND 04/03/80 I No Claim




DATE IN OR DATE AMOUNT
OF o1 OF OF OF
BLI NO. VESSEL ACCIDENT LOCKS CLAIM CLAIM STATUS
39-80 EASTERN HORNET 04/22/80 0 $ No Claim
39-80 DORYFOOS 04/22/80 0 No Claim
40-80 CAPE GRENVILLE 05/01/80 0 No Claim
40-80 Yacht INDIAN SLMER 05/01/80 0 06/30/80 102,223.10 Settled on 3/6/81 for $57,626.08 (Additional information received 9/15/80)
41-80 AGIOS NIKOLAS 05/25/80 0 No Claim
42-80 LACON 06/01/80 0 10/01/82 196,648.04 Additional information requested 11/5/82
43-80 DANUBE SEA 06/01/80 0 No Claim
43-80 BAHIA DE QOCHIN0S 06/01/80 0 No Claim
44-80 STEFAN DRESCHER 05/20/80 0 No Claim
44-80 Yacht OURINTHIAN 05/20/80 0 No Claim
44-80 Yacht PHOENIX 05/20/80 0 No Claim
45-80 TEXACD ODNNECTICUT 06/07/80 0 05/18/81 2,488,433.14 Submitted to OMB on 3/8/82; forwarded to Congress on 11/9/82
46-80 DANUBE SEA 06/08/80 0 No Claim
47-80 ALSATIA 06/25/80 0 No Claim
48-80 LLOYD LIVERPOOL 06/30/80 0 No Claim
48-80 OPAL 06/30/80 0 No Claim
49-80 KOREAN LEADER 07/06/80 0 04/23/81 1,202,972.74 Referred to General Counsel for review 10/14/82 (Additional information
received in September 1982)




DATE IN OR DATE AMOUN
OF OUT OF OF OF
BLI NO. VESSEL ACCIDENT LOCKS CLAIM CLAIM STATUS
50-80 TEXACD ROME 07/06/80 0 $ No Claim
51-80 ESSO CDRAL GABLES 07/10/80 0 No Claim
52-80 OVERSEAS WASHINGION 07/11/80 I 12/11/80 37,000.71 Settled on 8/21/82 $35,000.00 (Claim disallowed 1/16/81. Claim increased to
$75,000 and suit filed in 7/81)
53-80 OVERSEAS OHIO 07/21/80 I 12/11/80 88,068.86 Settled 3/2/82 $43,085.45 (Note: Suit had been filed and dismissed for
administrative settlement on 11/9/81)
54-80 -ATHENA 07/23/80 0 03/26/82 70,000.00 Referred to General Counsel for review 9/30/82
55-80 AULICA 08/03/80 0 09/27/82 332,268.03 Additional information requested 09/29/82 and traced 10/21/82
56-80 (EGA 08/02/80 0 No Claim
57-80 OLYMPIAN REEFER 08/10/80 I 04/13/82 99,115.74 Offer of settlement made on 11/17/82 (Additional information received 7/16/82)
58-80 BARGE BELCHER 101 09/02/80 0 No Claim
59/80 EXXON WASHINGION 09/08/80 0 11/01/82 581,592.23 Additional information requested 11/9/82
60-80 FAIR REEFER 09/12/80 0 No Claim
61-80 SEIRYU 09/18/80 I No Claim
62-80 OVERSEAS ALEUTIAN 09/23/80 I 12/11/80 89,173.51 Additional information provided by shipowner on 2/11/81 and 7/23/81.
Referred to General Counsel for advice on 9/10/81. Additional information provided
by shipowner on 12/28/81. To date, shipowners have adequately documented $150 in
damages




DATE IN OR DATE AMOUNT
OF OUT OF OF OF
BLI NO. VESSEL ACCIDENT LOCKS CLAIM CLAIM STATUS
1-81 AMERICAN APOLLO 10/01/80 0 11/18/81 $5,620,095.67 Additional information requested 12/7/81, 2/12/82, and 7/6/82. Revised claim
filed on 10/22/82. Additional information requested 11/2/82
2-81 DONA PAZ 10/06/80 0 No Claim
3-81 MING OCEAN 10/07/80 0 No Claim
4-81 AMYNIAS 10/15/80 0 No Claim
4-81 SILVER SPAR 10/15/90 0 No Claim
5-81 HELLESPONT COURAGE 10/27/80 0 10/07/82 148,139.30 Additional information requested 10/20/80
5-81 OCEAN VIP 10/27/80 0 10/04/82 12,831.62 Referred to Industrial Division for advice 11/2/82
6-81 LONITUE 11/02/80 I 10/05/81 13,106.24 Settled 3/5/82 for $12,045.41
7-81 MORMACSUN 11/03/80 I 03/23/82 71,374.68 Referred to General Counsel for review on 11/15/82
8-81 Launch SANTA RITA 11/01/80 0 03/11/81 39,652.00 In Claims for analysis (Supporting documents submitted 9/10/82. Received from
official translator 11/12/82)
9-81 PUERIO PRINCESA 11/12/80 0 No Claim
9-81 CHI STAR 11/12/80 0 No Claim
10-81 OCEANIS 11/18/80 0 No Claim
10-81 ZIM GENOVA 11/18/80 0 No Claim
11-81 MOUNI VERNON VICTORY 11/19/80 I No Claim
12-81 OGDEN CHAMPION 11/21/80 I No Claim
13-81 KOREAN WONIS SUN 12/01/80 0 08/27/81 2,957,098.50 Suit involving cargo interests and another vessel filed in New York. Commission
tendered defense 5/6/82. Tender rejected 5/24/82




DATE IN OR DATE AMOUNT
OF OUT OF OF OF
BLI NO. VESSEL ACCIDENT LOCKS CLAIM CLAIM STATUS
14-81 DANICA 12/26/80 I 07/29/81 $ 9,500.00 Settled on 5/19/82 for $9,500.00
15-81 OGDEN WILLAMETTE 01/06/81 I 10/19/82 116,157.94 Referreo to Industrial Division for advice 10/25/82
16-81 LADY NINA 01/08/82 0 No Claim
16-81 COASTAL CALIFORNIA 01/08/81 0 No Claim
17-81 OCEAN PANGER 01/10/81 0 No Claim
18-81 NICmDLAS G. PAPALIOS 01/11/81 I No Claim
19-81 AMERICAN AQUARIUS 01/12/81 0 07/07/82 539,818.27 Additional information requested 09/8/82
20-81 BARGE YRBM 32 01/16/81 0 04/23/81 46,513.75 Additional information received 9/9/81. Settled 3/17/82 for $29,913.75
21-81 BARGE YRMB 32 01/20/81 0 04/23/81 (Both accidents under one claim)
23-81 NYK TUG BAYAND 02/03/81 0 No Claim
24-81 REPUBLICA DEL ECUADOR 02/13/81 I No Claim
25-81 C. K. APOLLO 03/01/81 I No Claim
26-81 NEOTIS 03/05/81 0 No Claim
27-81 AQUAFAITH 03/06/81 I 10/19/82 1,055,224.51 Additional information requested 10/28/82
28-81 LLOYD MARSELHA 03/09/81 I No Claim
29-81 MONTERREY 03/15/81 I No Claim
30-81 OVERSEAS JOYCE 03/23/81 0 02/16/82 61,248.13 Referred to GC fdr review on 11/15/82




DATE IN OR DATE AMOUNT
OF OUT OF OF OF
BLI NO. VESSEL ACCIDENT LOCKS CLAIM CLAIM STATUS
31-81 MOUNT WASHINGTON 04/07/81 I 01/25/82 $ 81,159.63 Additional information receive 7/6/82. Referred to General Counsel for
review 8/10/82
33-81 FORT KAMLOOPS 04/17/81 I No Claim
34-81 OGDEN NABASH 05/04/81 I No Claim
35-81 Yacht GHOST II 05/04/81 I 10/19/81 316,698.70 Settled 6/28/82 for $165,000.00
36-81 UNIQUE FONTUNE 05/07/81 0 No Claim
36-81 CHOKO MARU 05/07/81 0 No Claim
37-81 LUIS EANCHERO 05/18/81 No Claim
38-81 OCEAN EVER 05/25/81 0 02/01/82 685,104.10 Forwarded to Congress December 3, 1982
39-81 NAT NOEMI 05/26/81 0 No Claim
39-81 Tug SAN BLAS 05/26/81 0 No Claim
40-81 CABO PILAR 05/25/81 I No Claim
41-81 CABO PILAR 05/25/81 0 No Claim
42-81 OVERSEAS ALEUTIAN 05/29/81 I No claim
43-81 WESTERN SUN 06/05/81 I No Claim
44-81 TELFAIR PIONEER 06/07/81 I No Claim
45-81 WASHINGTON TRADER 06/13/81 0 No Claim
46-81 OVERSEAS WASHINGTON 06/22/81 0 No Claim




DATE IN OR DATE AMOUNT
OF OUT OF OF OF
BLI NO. VESSEL ACCIDENT LCKS CLAIM CLAIM STATUS
46-81 BALTIC NEPTUNE 06/22/81 0 $ No Claim
47-81 CDLDITZ 07/02/81 0 No Claim (Personal Injury)
48-81 IMPERIAL 07/05/81 0 No Claim
49-81 CORDIALITY 07/12/81 0 No Claim
50-81 GULF FARMER 07/12/81 I No claim
51-81 Yacht THETIS III 07/10/81 I No Claim
52-81 COLLMBUS NEW ZEALAND 08/04/81 0 03/01/82 54,666.93 Additional information requested 3/11/82 and traced 9/2/82
54-81 LLOYD MARSELHA 09/15/81 0 Wo Claim




DATE IN OR DATE AMOUNT
OF OUT OF OF OF
BLI NO. VESSEL ACCIDENT LOCKS CLAIM CLAIM STATUS
1-82 VALTETSI 10/06/81 I $ No Claim
2-82 STOLT NORNESS 10/12/81 0 No Claim
2-82 ASIAN EXPRESS 10/12/81 0 No Claim
3-82 ZAMORA 10/19/81 0 07/01/82 1,118,496.15 Additional information requested 8/9/82
4-82 LINDENHALL 10/22/81 0 05/28/82 58,828.45 Additional information requested 6/7/82 (Partial information received 10/7/82)
5-82 BARBER TONSBERG 10/24/81 0 No Claim
6-82 DAISHIN MARU 10/31/81 0 No Claim
7-82 ACUMEN 10/31/81 I No Claim
8-82 LLOYD ABGENTINA 11/06/81 0 No Claim
9-82 ESSO TAMPA 11/07/81 I No Claim
10-82 MONTAIGLE 11/09/81 I 05/27/82 214,418.46 Additional information received 10/25/82
Referred to Industrial Division for advice 11/4/82
11-82 TOYOTA MARU No. 16 11/22/81 0 No Claim
11-82 THOR STAR 11/22/81 0 No Claim
12-82 LEDA 12/09/81 0 No Claim
13-82 ARCO HERITAGE 12/11/81 0 No Claim
14-82 LEDA 12/11/81 0 No Claim
15-82 SNOW HILL 01/12/82 0 No Claim




DATE IN OR DATE AMOUNT'
OF OUT OF OF OF
BLI NO. VESSEL ACCIDENT LOCKS CLAIM CLAIM STATUS
16-82 HARILEY ACE 01/26/82 0 $ No Claim
16-82 GOLDEN PANAGIA 01/26/82 0 No Claim
17-82 GOLDEN PANAGIA 01/25/82 I No Claim
18-82 Yacht LOW RIDER 01/21/82 I No Claim
19-82 OLYMPOS 02/03/82 0 No Claim
20-82 SILVER CLOUD 02/06/82 0 No Claim
20-82 LAGD IZABAL 02/06/82 0 No Claim
21-82 OVERSEAS ALEUTIAN 02/08/82 0 No Claim
22-82 FRAICIS SINCER No. 6 02/15/82 I No Claim
OO
23-82 SANTA CRUZ 02/16/82 0 No Claim (Personal Injury)
24-82 ATLANTIS 02/20/82 I No Claim
25-82 TRINITY NAVIGATOR 03/02/82 0 No Claim
25-82 COVE SAILOR 03/02/82 0 No Claim
26-82 Yacht SUNDOWNER 03/01/82 I No Claim
27-82 DAPHNE 03/13/82 0 No Claim
28-82 MOBIL POWER 04/12/82 I No Claim
29-82 OVERSEAS NEW YORK 04/22/82 I No Claim
30-82 DORITAL 04/25/82 0 No Claim




DATE IN OR DATE AMOUNT
OF OUT OF OF OF
BLI ND. VESSEL ACCIDENT LOCKS CLAIM CLAIM STATUS
31-82 LUIGI CASALE 04/27/82 0 $ No Claim
31-82 CHIBORAZO 04/27/82 0 08/30/82 153,351.99 Additional information requested 9/20/82
32-82 SANTA BARBARA 05/15/82 I No Claim
33-82 AUSTRALIAN ENDEAVOR 05/08/82 I No Claim (Personal Injury)
34-82 Tug EXPLORER 05/20/82 0 No Claim (Personal Injury)
35-82 CDVE COMMUNICATOR 05/20/82 0 No Claim
36-82 EXXON BOSION 05/26/82 0 No Claim
37-82 OVERSEAS ALEUTIAN 06/01/82 0 No Claim
37-82 MIYUNHAI 06/01/82 0 No Claim
38-82 MOUNT WASHINGTON 06/19/82 I No Claim
39-82 COLMBUS AMERICA 06/21/82 I No Claim
40-82 TEXAll) NEW YORK 06/25/82 I No Claim
41-82 GEORGE S. EMBIRIODS 07/12/82 0 No Claim
42-82 BALTIMORE TRADER 07/12/82 I No Claim
43-82 ANDROS CITY 07/12/82 0 No Claim
44-82 ISTRIA 07/23/82 I No Claim
45-82 OVERSEAS ALEUlTIAN 07/26/82 0 No Claim
46-82 TEXACD KENTUCKY 07/26/82 0 No Claim




DATE IN OR DATE 1MUNT
OF OUT OF OF OF
BLI NO. VESSEL ACCIDENT IDCKS CLAIM CLAIM STATUS
46-82 NYK Tug DONOSO 07/26/82 0 $ No Claim
46-82 NYK Tug lORTOBELLO 07/26/82 0 No Claim
46-82 P.C. Yacht Club 07/26/82 0 No Claim
46-82 Yacht MATANG 07/26/82 0 No Claim
46-82 Yacht POGD II 07/26/82 I 11/16/82 4,036.92 Referred to General Counsel for review 11/16/82
46-82 Yacht CRUSADER 07/26/82 0 No Claim
46-82 Yacht FREEDOM 07/26/82 0 No Claim
46-82 Yacht WATER NYMPH 07/26/82 0 No Claim
46-82 Yacht SUNDOWMER 07/26/82 0 No Claim
C"1
46-82 KECH GEMINI 07/26/82 0 No Claim
46-82 JUNK RIG QUIBIAN 07/26/82 0 11/01/82 8,200.00 Referred to General Counsel for review 11/2/82
46-82 TRIMARIAN FOGUE SWAN 07/26/82 0 No Claim
47-82 GHIONA 07/30/82 I No Claim
48-82 ASIAN FOREST 08/03/82 0 No Claim
49-82 JADE III 08/11/82 I No Claim
50-82 Yacht PAINBOW 08/18/82 I 10/18/82 6,104.78 Additional information received 11/12/82
51-82 ALTAJ 09/02/82 I No Claim
51-82 ISLAY 09/02/82 I No Claim




DATE IN OR DATE AMOUNT
OF OuI OF OF OF
BLI NO. VESSEL ACCIDENT LOCKS CLAIM CLAIM STATUS
52-82 SHANNON 09/08/82 I $ No Claim
53-82 PAMELA ANN 09/11/82 0 No Claim
54-82 PAMELA ANN 09/11/82 0 No Claim
55-82 CHIKUZEN MARU 09/22/82 0 No Claim




52
Mr. LENT. I understand that a reading of the board meeting tran-
scripts suggests that both American and Panamanian board mem-
bers believe-or some of them believe-that the Commission ought
to get out of the insurance business and somehow change their reg-
ulations so shipowners would bear a greater share of the expense
of casualties.
The supervisory board's objective appears to be reduction or pref-
erably elimination of Commission liability for marine accidents
both outside and inside the locks. Is that the case?
Mr. GIANELLI. Let me say, Mr. Lent, there has been much discus-
sion about this matter as far as the Board is concerned. But as of
this moment, the only specific action which the Board has taken is
to direct the Commission to study alternatives for reducing the cost
of marine accidents to the agency. Let me say that the situation
becomes complex because, as you know, at the present time the
Commission puts pilots on the ships the minute they enter the
waters for transit through the canal; and there is some concern
about whether or not, if we try to, for example, eliminate the liabil-
ity of the Commission for these claims, whether it might also have
the effect of changing who, in fact, is in charge of the ships as they
transit the canal.
So I think the entire subject is a complicated one. We have
talked about it at great length; but the Board has come to no con-
clusions with respect to any changes at this time.
Mr. LENT. Is it true that shipowners carry insurance?
Mr. GIANELLI. That is correct, for their purposes; yes.
Mr. LENT. This question-also should be asked of the other wit-
nesses-what would be the problem with the shipowners' insurance
being the responsible entity for accidents in or out of the canal
while a pilot of the Panama Commission is aboard?
Mr. GIANELLI. I suspect that perhaps you should talk to the ship-
ping people about this. I would expect that, if they feel that their
insurance is going to cover the transit, then they would want their
masters in control of the ships. We have been looking at that prob-
lem also; but let me say, Mr. Lent, that because of the precarious
nature of transiting ships through the canal, I think the history of
the Commission and its predecessor agencies has shown it to be im-
portant that the pilots of the Commission or the canal company,
before it, take charge of the ships throughout the transit of the
canal.
Mr. LENT. I am not suggesting a change in that arrangement. I
understand and agree with you that the employees of the Panama
Canal Commission-pilots particularly-are probably the proper
personnel to escort these ships through the Panama Canal; but
could not the shipowner assume the responsibility, the liability for
any damages to the ship while it was under the navigational con-
trol of a Panama Canal pilot? It would seem to me similar to insur-
ance on my automobile. If my wife or my son or a friend drives my
car and has an accident, I am still covered.
So, who is at the wheel isn't necessarily the determinant of lia-
bility.
Mr. GIANELLI. I think you are right. I am not sure the ship-
owners would agree with your analysis there with respect to an
automobile. I think that is a subject which would be well to disuss




53
with the shippers to see whether or not they would agree to what
you are suggesting.
As I say, I think our preliminary information is that there may
be problems under their insurance policies with our pilots control-
ling the ships during transit.
Mr. LENT. I understand that in January 1981, the monthly provi-
sion for accident reserves was doubled from a half a million dollars
to a million dollars per month for fiscal year 1981, effective with
the October 1981 accounts. Is that correct?
Mr. GIANELLI. I think that information is correct.
Mr. McAULIFFE. That is correct.
Mr. LENT. The question I had then was can you tell us how much
the company set aside for accident reserves in 1979, the last day of
its operation? The last year of its operation?
Mr. GIANELLI. Mr. Lent, could we double check those figures and
present them to you?
Mr. LENT. Yes. I realize these questions perhaps should have
been submitted to you in advance.
Mr. GIANELLI. We will certainly submit responses to those.
Mr. LENT. Along that line, I would like to know what specific
events might have required the doubling of the monthly reserve
during the first year of canal operations under the 1977 Panama
Canal treaties and whether or not the $1 million per month re-
flects actual monthly accident costs or potential liability.
In other words, is it the Commission's policy to set aside for in-
surance against all possible risks in the canal operation?
[The following was received for the record:]
QUESTIONS SUBMITTED BY MR. LENT AND ANSWERED BY THE PANAMA CANAL
COMMISSION
Question 1. Please tell us how much the Panama Canal Company set aside for
accident reserves in fiscal year 1979, the last year of its operation?
Answer. The monthly accrual or reserve for marine accidents in fiscal year 1979
was $0.5 million for the first three months and somewhat more than $0.9 million for
the remaining months, for a total of $10.0 million. The increase in monthly accrual
was made in January based on the high ship accident cost experience for the first
quarter of the fiscal year. This increased accrual proved insufficient for current
year costs and revised estimates for pending claims for prior years and an addition-
al $5.7 million accrual was booked for 1979 to sustain the reserve account balance.
The total charge to operations in 1979, therefore, was $15.7 million. Compounding
the inflationary impact on vessel accident costs in 1979 was the occurrence of two
major marine accident collisions-Quidnet/Seatide and Amilla/Star Capella.
Question 2. What specific events required the doubling of the monthly reserve
during the first year of Canal operation under the 1977 Panama Canal Treaties?
Answer. For fiscal year 1980, the first year under the treaty it was calculated that
a $6.0 million reserve would be adequate to cover marine accident costs that the
Commission was authorized to settle. After reconsideration and consultation with
the General Accounting Office, the Commission believed it was appropriate to pro-
vide for all Marine accident costs sustained even those outside of the locks with
claims in excess of $120,000. All accident costs in 1980 amounted to $11.3 million,
and accordingly, the accrual for marine accidents was adjusted in the latter part of
FY 1980. The total accrual for FY 1980 was $10.5 million. The reserve accrual for
Marine accidents was increased to $12.0 million in 1981 and 1982.
Question 3. Does the $1 million per month reflect actual monthly accident costs or
potential liability? In other words, is it the Commission's policy to set aside for in-
surance against all possible risks in the Canal operation?
Answer. No, the Commission does not reserve for all possible risks in Canal oper-
ation. The $1 million accrual each month establishes a "reserve" to account for the
normal costs arising from marine accidents only. Under this method of accounting,
a reserve is built up to cover normal losses from marine accidents by charging oper-




54
ating expenses with a uniform amount each month. This normalizes the operating
expense. When accidents occur, the resultant losses are charged to the reserve
rather than to operations. It should be emphasized that the accrual is for "normal"
marine accident costs. It does not provide for accidents of a catastrophic nature.
Question 4. Section 1414(6) of P.L. 96-70 specifically states that the Commission is
not responsible and may not consider any claim for demurrage or delays caused by
time necessary for investigation of marine accidents. I understand that witnesses to
follow you later today will express concern with the present procedures for award-
ing the Board of Local Inspection (BLI) damages. Please tell us what procedures are
followed by the Board of Local Inspectors in conducting accident investigations?
Answer. The Board of Local Inspectors is now established under authority of the
President pursuant to section 1418(a) of The Panama Canal Act of 1979, Pub. L. 96-
70. Originally it was an administrative body, first created in 1909 at the direction of
President Taft. Its accident-investigation procedures have been subject to very little
change through the years since the Canal was opened in 1914. The Board always
has performed this function with the objective of conducting a formal inquiry into
each marine casualty as soon as practicable after the incident occurs. Such a policy
is advantageous for serveral reasons, including that of enabling the vessel promptly
to continue its voyage. It is obvious that in some cases a damaged ship will be de-
layed (irrespective of the investigation) in order to make temporary or permanent
repairs that are necessary prior to sailing.
The basic procedures that are followed by the Board and the parties giving evi-
dence or testimony before it are published at Part 117 of Title 35, Code of Federal
Regulations. It will be noted that provision is made in section 117.1a for scheduling
the investigation at least 10 hours after the accident. The regulation describes the
purpose of this rule as that of affording pilots and other parties-in-interest a period
for rest and consultation before the proceeding begins. This waiting period may be
waived or shortened in urgent cases.
It is the Commission's understanding that shipowners and operators are not pri-
marily concerned with, or critical of, the manner in which the Board of Local In-
spectors conducts these inquiries or the time that they require. Rather, the affected
parties are protesting the fact that, when the Commission is liable for damages that
accrue as a result of an accident, they are precluded from recovery of the expense of
detention time attributable to the hours spent in Canal waters awaiting and attend-
ing the investigation by the Board. As the Subcommittee has noted, however, sec-
tion 1414(6) of the Panama Canal Act prohibits the Commission from considering
any claim for that element of an injured party's damages. The Panama Canal Com-
mission is neutral on the question of whether the provisions of this subsection
should be removed from the law.
Mr. LENT. Another subject: I understand since October 1, 1980,
all harbor movements in the ports of Balboa and Cristobal are per-
formed by tugs operating under contract with the National Board
of Panama.
My question would be, is it true that after this date, October 1,
1980 the Japanese NYK Co., took over Balboa and Cristobal
Harbor tug operations?
Mr. McAULIFFE. Yes. As I recall, that was about the date that
the National Port Authority of Panama contracted with the Japa-
nese firm to provide tug service in the harbors.
Mr. LENT. Are those vessels involved in harbor movements as
distinct from canal movements required to have Panama Canal
Commission pilots aboard?
Mr. McAULIFFE. No, sir, not on the tugs. Our pilots, however, do
man the vessels themselves that are being maneuvered into the
two port areas and out of them.
Mr. LENT. Even though they are not going to transit the canal?
Mr. McAULIFFE. Well, the fact is that they must have a pilot
aboard in order to traverse even the smaller portions of the canal
between the ports and the open seas.
Mr. LENT. So that the Panama Canal Commission, as opposed to
the Port Authority of Panama, continues to have liability for any




55
accidents that might occur in those waters in either of those two
cities?
Mr. McAULIFFE. That is correct, Mr. Lent, to the extent that lia-
bility can be shown to rest with the Commission because of the ac-
tions of our employee, namely the pilot or someone of that nature.
For if an accident occurring in the harbor should be attributed to,
let us say, the Japanese tugboat, then obviously the Commission
would not be at fault.
Mr. LENT. So if there is no one from the Commission aboard the
vessel, pilot or otherwise, there is no question there is no liability
on the part of the Commission, is there?
Mr. McAULIFFE. That is correct, Mr. Lent.
Mr. LENT. So if there is someone from the Commission aboard a
vessel and an accident occurs, then it is possible that the Commis-
sion might be liable but only if there is negligence demonstrated on
the part of the personnel of the Commission?
Mr. McAULIFFE. That is substantially correct, Mr. Lent. There
are other reasons than negligence as it is defined in the law. A
judgment call, let us say, on the part of a pilot that would not nec-
essarily be negligent but would be perhaps an unwise decision at
the point; there are many reasons for accruing fault.
In the case of the harbor movements that you mentioned, our
pilot does have operational control of the ship because that ship is
moving out of or into canal waters and we must maintain control.
That is the reason that our pilots are aboard and in control.
Mr. LENT. Thank you for that. That helps me.
The legislative proposal forwarded to Congress pursuant to
Public Law 96-70 in October 1981 proposed that the Commission
may require as a condition of transit of the canal that vessels
obtain insurance or otherwise demonstrate financial responsibility
sufficient in amount to provide reasonable indemnification for
damages resulting from acts or omissions of such vessels when
passing through the canal.
Would enactment of this provision reduce the amount set aside
in reserve for accidents; and if so, by approximately how much?
Mr. McAULIFFE. In my opinion, Mr. Lent, if that were the case,
that would not necessarily reduce the amount of tolls.
Mr. LENT. Approximately what percentage, if you know, of the
accident reserve is set aside to pay for cleanup of oil pollution
damage?
Mr. GIANELLI. I don't think there is any specific amount set aside
for that purpose, Mr. Lent.
Mr. LENT. Would an oil tanker traversing the canal carry insur-
ance to cover oil pollution cleanup costs? Would a tanker be re-
quired to carry that sort of insurance?
Mr. GIANELLI. My understanding, Mr. Chairman, since the enact-
ment of the treaty, is that they are not required to carry insurance
to cover cleanup costs resulting from any spillage that might occur.
Mr. LENT. I think we ought to check into that, because it seems
to me if a tanker spills, there ought to be responsibility on the part
of the tanker.
Mr. GIANELLI. I think the situation is, as I understand it from
counsel, with whom we have just been talking on the subject, that
is prior to the effective date of the treaty, there were certain re-




56
sponsibilities under the Water Pollution Control Act that applied.
My understanding is since the treaty, those provisions do not apply
and, therefore, they are not liable for penalties under that law.
At least that is my understanding preliminarily from counsel.
We can look at this matter further and advise you on it.
Mr. LENT. One of the reasons we asked that question is to deter-
mine whether there might be not a duplication of insurance if, for
example, a container were carrying insurance for that kind of act,
and at the same time they were paying through the rate structure
on the tolls for that kind of protection to the canal itself, there
would be a duplication.
Mr. GIANELLI. I assume in the one case, Mr. Lent, you would be
talking about, for example, charges for cleaning up a mess that
might result from an oil spill. On the other hand, it seems to me
part of what we have been talking about in terms of claims or dam-
ages that would occur to the ship.
Whether the oil spill would be included as part of those I think is
something we would have to look at.
Mr. LENT. I have no further questions at this time, Mr. Chair-
man.
Mr. HUBBARD. Congressman Tauzin?
Mr. TAUZIN. Thank you, Mr. Chairman.
Mr. McAuliffe, let me express to you publicly my appreciation
for having the chance to meet you, sir, and work with you and for
your appearance here today. As I understand the manner in which
the toll system works and the liability of the Commission functions
under the act, the assessment of tolls is a matter in which the risk
of the Commission for damage to a single vessel traversing the
canal is spread across all of those vessels traversing the canal.
If we were to go to a different system, whereby the vessels them-
selves were to be obligated as in the case of automobiles-my good
friend from New York used the analogy-would not that require
the spreading of the risk for damage while traversing the canal
over all vessels insured generally in the global insurance market,
whether or not they traverse the canal?
Mr. GIANELLI. If it were not a Commission responsibility, then
the Commission would certainly not have to include in its toll
structure provisions for paying those claims. I assume then if the
ships had that responsibility, that would be reflected by the indi-
vidual policies which they would pay.
Mr. TAUZIN. My point is if ships generally had to be responsible,
the ships that ended up not traversing the canal might end up in
the insurance rating that is applied for ships carrying part of the
risk, those vessels that did traverse the canal.
The current system guarantees only those vessels traversing the
canal through the toll system which will share the risk of those
that are damaged in the process of going through the canal; isn't
that correct?
Mr. GIANELLI. I think that is right.
Mr. TAUZIN. Second, in answering the gentleman from New
York's question with reference to the liability of the canal having a
pilot on board a ship, my understanding of the law in reading it is
that the liability attaches outside the locks unless there is a show-
ing of contributory negligence on the part of the master, the crew,




57
or passengers of the vessel. As I read the law-and I wish you
would clear this up for me-you don't really have to show that the
canal pilot was somehow negligent, that unless you have evidence
there was negligence, contributory negligence, not bad judgment or
something, but negligence, on the part of the master of the ship, its
crew, or its passengers, that the Commission is liable?
Mr. GIANELLI. Mr. Chairman, I wonder if we could have Mr.
Dwight McKabney, the General Counsel for the Commission, come
to the table? He is in the audience, and can assist in answering
some of these questions.
Mr. TAUZIN. Let me elaborate again. The difference between my
understanding and what I thought the question the gentleman
from New York was raising, he was asking the question, the Com-
mission is liable, upon a showing that the pilot, representing the
Commission on the vessel, did something wrong and the answer
was, well, it is almost correct, there are some variations to that.
My question is: Isn't it true that the Commission pilot may show
he hasn't done anything wrong or negligent, but unless you show
that the master, the crew, or the passengers did something to con-
tribute to the accident which something they did is considered neg-
ligent, unless you show that, the Commission is liable, whether or
not you show the Commission man was negligent or not?
Mr. McKABNEY. May I answer the question by saying with re-
spect to the accidents that occur in the locks, the Commission is a
virtual insurer of the vessel. Only if we can show that action or
omission by the vessel contributed to the accident is the amount of
the damages payable herself reduced.
Outside the locks, however, the regular admiralty rules of recov-
ery apply; and unless there is negligence on the part of the pilot,
the tug master, or some other employee of the Panama Canal Com-
mission or a negligent omission, then there is no liability. That is
the rule that was in effect prior to the treaty implementation and
it is the rule that is still applied in the settlement of claims by the
Commission.
Mr. LENT. Would the gentleman yield?
A followup to that, sir, is who makes that determination of negli-
gence and liability?
Mr. McKABNEY. Prior to October of 1979, it was made by the
Panama Company but was subject to judicial review. Since Septem-
ber of 1979, the out-of-locks cases are settled, if they are under
$120,000, by the Commission and the Commission's judgment on
that is final. So then it is the Commission that is making the deter-
mination as to whether there was negligence on the part of the em-
ployee.
With respect to those claims that are in excess of $120,000 that
have now gone to the Congress and that are in the process of being
prepared to be sent, the Congress itself is to make that determina-
tion, on the basis of the analysis and the recommendation of the
Panama Canal Commission. That, sir, is the way we read the stat-
ute.
Mr. TAUZIN. Let me reclaim. I am not sure I still understand
your answer.
In the memorandum I have on the law, it says that inside the
locks, the Commission employees exercise virtual total control.




58
Therefore, inside the locks, the Commission is essentially an insur-
er of all claims, although technically, the Commission may, in fact,
reduce the award in proportion to contributory negligence. I under-
stand that.
Outside the locks, however, the memorandum provides that the
Commission must adjust and pay those claims not exceeding
$120,000; and, again, the award must be reduced by the contribu-
tory negligence of the vessel and its crew.
This leads me to this question: Does that mean within $120,000,
and over $120,000 if Congress approves, that the Commission is
liable for the claim whether or not there is proof that the Commis-
sion was negligent? The Commission is liable for this claim only to
be reduced by any proof of contributory negligence?
Mr. McKABNEY. The position that the Commission has so far
taken since the treaty went into effect in October of 1979 is that
the determination with respect to claims for accidents occurring
outside the locks is made on the basis that only a showing of a neg-
ligent act or omission on the part of the Commission will result in
liability.
Mr. TAUZIN. I am glad to hear that. What I still cannot under-
stand in the law is the next series of questions. I hope you will help
me here. As I understand the law, if an inside-the-locks accident
occurs, and the damage in the inside-the-locks accident is what-
ever-$120,000, $200,000, $1 million-you can settle it as an inside-
the-locks claim. Is that correct?
Mr. McKABNEY. That is correct, sir.
Mr. TAUZIN. If the damage occurs outside the locks and the Com-
mission employee's negligence operates, let's say, to only 5 percent
of the claim, the master of the ship is 95 percent negligent, and the
damage is $120,000 plus, then in that instance, even though the
Commission's liability is limited to maybe $5,000 or $6,000 or
$10,000, the Commission cannot settle that claim; it has to bring
that claim to Congress?
Mr. McKABNEY. That is correct, sir. The Comptroller General
has construed the statute to read that if the claim itself--
Mr. TAUZIN. Total claim?
Mr. McKABNEY. Total claim exceeds the $120,000, then the Com-
mission may take no action on it except to analyze it, collect the
data, and send it to the Congress with the recommendation of the
Commission.
Mr. TAUZIN. So the Commission has been empowered by the act
to settle claims within the locks, with no limit; and that Commis-
sion, however, in some cases may not be able to settle claims out-
side the locks where it has been determined the Commission's lia-
bility may be no more than a few thousand dollars?
Mr. McKABNEY. That is correct, sir. The Panama Canal Compa-
ny from 1951 until October 1979 had authority to settle those out-
of-locks cases for any amount, but with its determination being
subject then to judicial review.
Mr. TAUZIN. It seems to me that we are in desperate need for a
change in the law in that regard if we are going to have some com-
monsense applied to the settlment of these claims.
There is another provision in the law that Mr. McAuliffe has
pointed out that is appalling to me. As I understand your testimo-




59
ny, you are charged with setting the tolls in order to collect enough
money to cover contingency claims. Mr. McAuliffe's testimony
indicates there are some 36 claims that are either pending or
before the Congress or likely to come before the Commission since
accidents involve cases over $120,000 outside the locks.
Thirty-six claims are likely to come to this Congress for settle-
ment under the current law; and you further stated in your testi-
mony, Mr. McAuliffe, there is no statute of limitations whatsoever
upon those 21 potential claimants who have not yet filed. They can
wait 2, 3, 5, 10, 20 years before filing a claim with the Commission.
In the meantime, the Commission is required on some formula,
apparently using some crystal ball analysis, to assess tolls to cover
those potential claims which has no statute of limitations.
It occurs to me, sir, that your testimony calls for this Congress
immediately to act upon that serious omission. You need a statute
of limitations upon those claims so that you can accurately forecast
your potential liability and the contingencies that the toll collec-
tions must cover.
I would also like to comment, sir, that in your testimony there
appears to be some confusion as to whether or not there is a stat-
ute of limitations affecting judicial review of inside-the-lock dis-
putes which also calls upon this committee and this Congress to
look seriously at correcting that situation and clarifying the status
of those claims.
It seems to me again if there is no statute of limitations on the
judicial review of inside-the-lock claims, that you are terribly
handicapped at knowing what to assess in tolls in order to cover
contingent liabilities.
Lastly, let me ask you this: You have testified that you have on
hand sufficient funds in the tolls already collected as a contingency
to cover the anticipated claims. Is that statement true in view of
the fact that there are 21 claims which you do not yet have that
are estimated to be above $120,000 for which the Commission may
have some liability? And how do you go about estimating that con-
tingent liability until you have done an assessment of the contribu-
tory negligence relationships between the Commission's liability
and that of the crew, master, and passengers of the vessels?
Mr. McAULIFFE. As you point out, it is a very difficult procedure;
but we, first of all, have the experience of any number of years in
handling accidents; and we are watching the rate of accidents. We
see accidents as they occur and we are able, by virtue of the imme-
diate investigation which we make of an accident when it occurs, to
make an estimate for our own purposes of the amount of damage
involved. That estimate is always subject to later, very technical
assessment which is done on the part of the shipowner. But in most
cases, our original estimates are shown to be at least accurate
enough for purposes of laying aside the funds for later paying the
claims.
We did-this goes to a question that Mr. Lent asked earlier-
when we started off our first year of operation under these condi-
tions, we were setting aside a certain amount of money per month
and per fiscal year for accident claims.
We found, as a result of the first year of operation, that we were
not setting aside enough funds because the costs of repairing




60
damage to the larger size ships now using the canal were greater
than estimated. That is why we raised the amount to 1 million a
month which is what we are setting aside now.
Mr. TAUZIN. Let me ask you specifically: Is that amount suffi-
cient to cover what your preliminary investigations lead you to be-
lieve may be the contingent liability of the Commission with refer-
ence to the 21 accidents for which you have not yet received
claims?
Mr. McAULIFFE. Yes. It is sufficient.
Mr. TAUZIN. Let me finally ask you. If this Congress provided a
clear statute of limitations on when claims must be submitted to
you, No. 1; second, a clear statute of limitations on when judicial
filings must be made to contest inside-the-lock decisions by the
Commission; and, third, if you had a procedure whereby you could
also settle your liability outside the locks with some judicial
review, would you not have, No. 1, a more rational system of set-
tling these claims? And No. 2, a more rational basis upon which to
assess the tolls so that the risk covered by those traversing the
canal is more equal to the contingent liability?
Mr. GIANELLI. Yes. I think the answer without question is yes,
Mr. Congressman.
Mr. TAUZIN. I thank you very much.
I thank the Chair for the time. I yield back the balance of my
time.
Mr. HUBBARD. Congressman Bill Carney?
Mr. CARNEY. Thank you, Mr. Chairman.
Is there any redress to the decisions that you make? Do ship-
owners have any redress to the decisions you make?
Mr. GIANELLI. The decisions for inside-the-lock cases, yes; they
have recourse to the courts.
Mr. CARNEY. Where would that be? Where would they take their
claims?
Mr. GIANELLI. I am informed that is a U.S. district court in Lou-
isiana.
Mr. CARNEY. New Orleans? What about outside the locks?
Mr. GIANELLI. Outside the locks, Mr. Carney, I think we have the
particular problem which is the subject of this hearing. That is, if
the claims over $120,000 must be decided by the Congress, it is our
understanding there is no channel for a shipowner, for example, to
appeal that decision of the Congress.
Mr. CARNEY. I am asking about the appeal below $120,000 as
well.
Mr. GIANELLI. I am informed our decision is final on those.
Mr. CARNEY. There is no appeal above or below? It doesn't
matter? It is not necessarily the cause of the Public Law of 1979,
the treaty of 1977 that makes the exclusion on 120 because Con-
gress has to review it and pass on it? It would happen anyhow,
below $120,000?
Mr. McKABNEY. No. Prior to the treaty, Mr. Carney, it would
have been possible to have those smaller claims reviewed judicially
in the U.S. District Court for the District of the Canal Zone which
was disestablished by the treaty. It is only since then that the
claims for $120,000 and less, are subject to review and payment
only by the Canal Agency.




61
Mr. CARNEY. Did my colleague want me to yield?
Mr. LENT. I just asked you to yield because I wanted to make the
point that the final arbiter of the larger claims above $120,000 is
the Congress of the United States. So the claimant, the shipowner,
is not without recourse.
Mr. CARNEY. I am fully aware of the recourse they would have,
coming to Members of Congress.
Mr. TAUZIN. Will the gentleman yield?
Mr. CARNEY. I will be glad to yield.
Mr. TAUZIN. As I understand this discussion, this testimony, even
in a so-called larger claim, the Commission's liability may be very
small. It may be just a few thousand dollars. Yet, in that instance,
the Commission, under the present law, is not permitted to settle it
because it is outside the locks nor is there any judicial review for
the claimant.
So the actual recovery by the shipowner may be a very small
one. He may have been liable for most of his own damage. Yet he
has no judicial review as he has for a very large recovery or a very
small recovery inside the locks.
Mr. CARNEY. If I may, I would like to get off that subject and ask
questions about the accidents within the canal and the responsibili-
ty in the entire area of the canal.
Mr. McAuliffe, you stated there were 261 ocean passages for
every accident that we have and that was a trend in a good direc-
tion. Would you say that looking at overall accident figures that
that might be high compared to, say, accidents in the 1960's?
Mr. McAULIFFE. I am not prepared to state that answer with pre-
cision. When I stated that there was a downward trend, I was talk-
ing about the 3 years of our responsibility as the Panama Canal
Commission.
Mr. CARNEY. We are not taking the past history into that trend?
Mr. GIANELLI. Let me add, one of the problems the Commission
has had in recent years is the ships are much larger than they
used to be. As you have larger ships transiting the canal, the prob-
lems are much more difficult. For example, the percentage of ships
now that exceed, for example, 100 foot beam are much higher now
than it was, for example, 10 or 15 or 20 years ago.
So the point I would like to make, without even knowing what
the statistics will show, is that the problems that the Canal Com-
mission have now are much more difficult than they used to be just
by virtue of the fact that the ships are much larger and much more
difficult, for example, to take through the canal.
Mr. CARNEY. I am glad you brought that logic to the attention of
everyone on this committee. However, when you look at the list of
accidents, you find many of the accidents are small yachts, ketches,
tugboats. Certainly, their size is very small.
In fact, 1 day, they had 13 accidents. I don't think of the 13, any
ships were with beams bigger than 80 feet. Thirteen accidents July
26, I believe.
Mr. TAUZIN. Was that a full moon?
Mr. CARNEY. Many of them were yachts going through. As I look
at this, only one accident was in the lock. Most of them were
within the waters of the canal, not within the locks; I can under-
12-978 O 5




62
stand if you had a lot of ships in a lock and something went wrong,
you would have accidents detailing all the ships.
But they were not in the locks. I wondered why were there 13
accidents with small ships?
Mr. McAULIFFE. As I remember the day and looking at the
statistics, I believe that at least 11 of those ships were all involved
in the one incident. The Texaco-Kentucky happened, unfortunately,
to collide with a number of small yachts at the Cristobal Yacht
Club. So, each is listed as a separate accident when indeed all were
involved in one unfortunate incident.
Mr. CARNEY. I am not laughing at the incident. I wondered. That
cleared it up rather rapidly.
I was also curious, looking over the list of the accidents, that
there was a ship that went through and had extensive damage, I
would think. I don't know what extensive damage is.
The claims were in excess of $100,000-or $120,000 with both
ships. They were the same ships in a 5-day time period. Would
there be any reason for that? I am going back quite a while to the
Overseas New York. They were both in the locks. One was on the
25th of October and the other on the 30th of October.
Mr. McAULIFFE. The Overseas New York did have a rash of acci-
dents, accidents of the type of its hull coming in contact with some
portion of a lock's walls; and in each case cited in these reports, an
investigation was conducted while the ship was still in canal
waters; and then the ship master, on behalf of the shipowner, made
the decision to continue the voyage to deliver his product. He was
delivering Alaskan oil or picking up Alaskan oil, as the case may
be.
You have spotted something that we have found, and that is that
accidents which do not necessarily disable a ship can be-under
today's conditions-extremely costly, several hundreds of thou-
sands of dollars, for what would appear to be a minor denting of a
hull, for example.
But nevertheless, that is what we face. In many cases, I would
say in most cases, the ship is entirely sea worthy and is allowed to
proceed to sea; then an assessment of the full damage is made the
first time that the ship is pulled up in drydock and thoroughly in-
spected.
Of course, divers will go under while the ship is still in canal
waters to be absolutely sure that the ship is seaworthy and that
both the canal and the owner are satisfied on that point.
Mr. CARNEY. If I can sum this up in a few words, there was the
accident, the delay of 5 days was basically because we kept the ship
there to investigate and it moved on and maybe was in another
lock when it had another accident?
Mr. McAULIFFE. No; it was making repeated transits through the
canal from one side to the other, delivering or loading oil, you see.
Mr. CARNEY. The larger ships, the one that could go through the
canal to a larger ship?
Mr. McAULIFFE. That is right.
Mr. CARNEY. I understand.
Mr. McAULIFFE. However, for example, if an accident to a ship
occurs today and requires an investigation, then our normal proce-
dure is to start the investigation the following day. That permits




63
the ship to be tied up at one end of the canal and for the pilot to
get required rest and then to appear before the board of local in-
spectors that has the responsibility of investigating accidents. So
we do hold the ship at least 24 hours after an accident; sometimes
a little longer, but we try not to do so. We try to complete the in-
vestigation as quickly as we can.
Mr. CARNEY. Who makes up the members of the local board?
Mr. McAULIFFE. Canal pilots. We have a pilot who is assigned to
our management structure who is the chairman of the board of
local inspectors. We will normally have three experienced pilots
who sit on that board. We, in effect, detail other pilots to join with
the chairman.
Mr. CARNEY. Is there someone who would represent the interests
of the ship?
Mr. McAULIFFE. I would like to ask our General Counsel, Mr.
McKabney, to respond to that.
Mr. McKABNEY. The hearings that are conducted by the board of
local inspectors are conducted with sworn testimony, and repre-
sentatives of the shipowner or operator may attend. Ordinarily, a
local attorney representing the shipowner or operator does appear
at the board of local inspectors hearing where he interrogates the
witnesses and presents whatever evidence he sees fit through the
crew members and the officers of the damaged vessel.
Mr. CARNEY. Those sitting in judgment would be the three pilots?
Mr. McKABNEY. That is correct. The three members of the board
of local inspectors merely render their opinion with regard to the
cause of the accident. Those reports by the board of local inspectors
have been, since about 1932, accepted into evidence in the courts in
the fifth circuit as being reports from qualified, experienced navi-
gators who know the Panama Canal.
Mr. CARNEY. But now we don't have the fifth circuit; right?
Mr. McKABNEY. The fifth circuit still has the jurisdiction over
locks cases because suits are brought in the eastern district of Lou-
isiana at New Orleans.
Mr. CARNEY. Nonlocks cases below $120,000?
Mr. McKABNEY. Well, the board of local inspectors' opinion is not
the sole determining factor in those claims below $120,000.
Mr. CARNEY. They make a judgment, pass that judgment on to
the Commission?
Mr. McKABNEY. The Commission then considers that opinion by
the board of local inspectors in making its determination as to how
much to pay of the $120,000.
Mr. CARNEY. Thank you very much.
I yield back my time. I thank the chairman for being so generous
with it.
Mr. HUBBARD. Thank you, Congressman Carney.
Any other questions or comments by any members of the sub-
committee?
Hearing none--
Mr. GIANELLI. Mr. Chairman, may I make a final comment?
Mr. HUBBARD. Surely.
Mr. GIANELLI. One of the things the Commission and the Con-
gress are both confronted with is how the law sets up the proce-
dure for handling claims outside the locks in excess of $120,000. We




64
have, as I think has been indicated by the record, submitted to the
Congress the first two claims under this procedure. I would respect-
fully suggest and hope that the Congress now, having had those
two claims filed with it, will address the subject of how it is going
to handle claims of this nature, because I can see others coming
down the line, and I think it is important to the shipping industry
and I think it is important to the Commission, certainly, to have
some feel for how these things are going to be handled.
I would certainly support what Mr. Tauzin has said here in
hoping that the Congress will look at that one issue as an impor-
tant one to resolve as fast as possible.
I just wanted to make that closing comment.
Mr. HUBBARD. Thank you, Mr. Gianelli, Mr. McAuliffe, Mr.
McKabney.
Mr. TAUZIN. Mr. Chairman, just one final comment. You know,
in the cases involving claims over $120,000, they are coming to
Congress. You can make an argument there is some review. Con-
gress is going to review it, even though we are not, in my opinion,
really capable of doing that kind of a job.
But in the cases under $120,000 outside the locks, we have a situ-
ation where individual vessel owners are subject to having their
claims adjudicated by the Commission with no judicial review
whatsoever, with no appeal to anyone. It seems to me that is an
untenable situation that our judicial system has always recognized
the right of review, whether it be civil or criminal, by some higher
authority.
Although I certainly respect the Commission and respect the
work it does in those instances, I think that the individuals in-
volved in those cases ought to have a right to go somewhere and
have that decision appealed and reviewed. We seriously ought to
look at doing that, sir.
Thank you, sir.
Mr. HUBBARD. Thank you, Mr. Tauzin.
Congressman, you have made an excellent point. I agree with
you. Perhaps other members of the subcommittee agree with your
good statement.
Once again, thanks to these three witnesses. I personally have a
lot of admiration and fond regard for Mr. McAuliffe and Mr. Gian-
elli. It is always a pleasure to be with them.
The next witness is Mr. Leonard J. Kujawa, a partner with
Arthur Andersen & Co. He has done consulting work for the
Panama Canal Commission. Of course, you know Arthur Andersen
& Co. is an internationally known accounting firm. We welcome
your comments.
We do hear after Leonard Kujawa, Peter Luciano, Ernest Cor-
rado, and Harry Gotimer.
STATEMENT OF LEONARD J. KUJAWA, PARTNER, ARTHUR
ANDERSEN & CO.
Mr. KUJAWA. Thank you, Mr. Chairman. My name is Leonard J.
Kujawa. I am pleased to have the opportunity to again testify
before this committee.




65
As a matter of background, I am a partner in Arthur Andersen
& Co., a certified public accountant, and a member of the Ameri-
can Institute of Certified Public Accountants and other professional
societies and organizations. Regarding the Panama Canal, I have
been a consultant on various financial and accounting matters
since 1962 for both the Commission and the predecessor company.
Arthur Andersen & Co. is an international firm of independent
public accountants. We serve clients in all areas of industry and
government and we are among the largest public accounting firms
in the world.
Beginning with the first toll increase in 1974, we have had sig-
nificant continuing involvement in the toll-setting process of the
Panama Canal and the accounting upon which tolls are based.
I prepared for the record a complete statement. In the interest of
time I will summarize from my complete statement.
Mr. HUBBARD. Thank you. It is agreed your full remarks will
appear in the record. We appreciate your summarization.
Mr. KUJAWA. Sound accounting has been an underpinning for
the financial success of the Panama Canal. The cost of marine acci-
dents is an unusual but significant cost requiring the application of
appropriate accounting. Although it is difficult to predict the cost
of marine accidents over the short run, the appropriate accounting
recognizes the inevitability of marine accident costs over the longer
term. This is the accounting followed by the Panama Canal.
In implementing the Panama Canal Commission, Public Law 96-
70 required self-sufficiency, as did the legislation establishing the
Panama Canal Company. In addition, Public Law 96-70 included a
requirement for an accounting as an appropriated agency.
When implementing legislation was being considered, I urged in
testimony before this committee that the requirement for sound ac-
counting be continued. This I referred to as enterprise accounting
which is a comprehensive accounting for all costs and revenues
over a long-term in order to measure financial performance.
Enterprise accounting was essential since the legislative objective
was that the Panama Canal Commission continue to be a self-suffi-
cient, financially viable entity providing service to world shipping.
Public Law 96-70 does establish the requirement for enterprise
accounting for purposes of measuring financial performance and in
the setting of tolls. In addition, as a measure of control, there is the
requirement for an accounting for appropriations. From the per-
spective of financial management, each accounting method has a
role to play and the respective roles must be understood. Clearly
stated, appropriation accounting is not a proper basis for setting of
tolls nor for the accounting for costs in measuring long-term finan-
cial performance.
The financial viability of the canal enterprise is dependent upon
the process of setting a proper level of tolls. As established by law,
the present policy regarding the tolls level is to set tolls to recover
costs. Cost is interpreted to be a comprehensive accounting for all
costs.
The assurance that prices will be set based on cost gives the user
confidence in the reliability of the price-setting process. He is as-
sured that tolls will be rationally set and thus he can predict his
future course of action with more reasonable certainty. This is a




66
positive economic contribution and is essential for a service such as
the Canal to be able to attract users.
From an accounting standpoint, the basis for tolls requires that
all costs of maintaining and operating the Panama Canal be recog-
nized-reflected in the accounting records. Costs which are not rec-
ognized cannot be reckoned with in the toll-setting process. It
should be appreciated that the accounting process for a rate-regu-
lated utility such as the Panama Canal has special significance in
that the level of cost recognized through the accounting process es-
tablishes the price to be charged for the service. Thus, the account-
ing process has a direct relationship to the actual cash received.
This is in contrast to a profit-oriented company wherein the ac-
counting process serves the principal function of measuring the
level of profit earned.
Let me deal with the use of estimates in the accounting process.
The accountant constantly deals with the requirement for cost esti-
mation. Decisions on when to recognize costs require the exercise of
judgment based upon the understanding of financial realities and
the application of generally accepted accounting principles. Howev-
er, the alternative of not recognizing incurred costs or recognizing
such costs only after some physical event has occurred certainly ig-
nores economic facts, and is wrong.
For a sound basis of cost measurement, the accountant must
make estimates based upon the asssumption that the enterprise is
a going concern. Months or years before a check is drawn, the ac-
countant must measure costs for such things as product liability
where claims have not yet been made; bad debts for which the
payor has not yet declared his inability to pay; estimate of taxes
when the tax return has not yet been completed, or the position of
the taxing authority is not yet known; estimate of cost to complete
a contract months or years before it is physically completed; and
the list of examples goes on and on.
Marine accidents at the Panama Canal inherently place the ac-
countant in the role of an estimator. Obviously, it cannot be pre-
dicted when an accident will occur, who will be responsible, or how
much the repairs will cost if the Panama Canal is held responsible.
Although these are complications, they do not present overwhelm-
ing obstacles to a proper accounting. By reference to level of traffic
and past occurrences of accidents over a period of time, it is possi-
ble to reach reasonable judgments regarding levels of cost.
One thing is certain: If the canal operates, accidents will occur.
What is uncertain in a given month or a given year is the number
of accidents and their relative severity. To wait until a claim is ul-
timately settled before accounting for it has potential for great dis-
tortion in the measurement of cost. The more appropriate basis is
to normalize the costs by recognizing that accidents are an inher-
ent part of operations and that each period of operations should
bear a pro rata share of costs over a longer period of time.
Prior to the Panama Canal's first toll increase in 1974, we recom-
mended that the Panama Canal Company establish a reserve for
marine accidents by charging each year with a pro-rata cost of acci-
dents over a multiyear period. This has been the policy of the
Panama Canal in accounting for marine accidents. We believe it to
be a sound and prudent approach.




67
I am not a lawyer. I deal with the issues from the perspective of
an accountant. With the longstanding policy of assuming the cost
of ship accidents where the Commission has been found at fault, it
is sound from an accounting standpoint to continue the recognition
of marine accident costs in the accounting process. This requires an
estimation, as previously described, and is obviously based on the
assumption that the Congress will not preclude such reimburse-
ment. However, until the Congress concludes that a different policy
is approporiate, the proper accounting is to recognize the cost as as
been done by the Commission.
In a matter not different from changes of other accounting esti-
mates, if the ultimate costs are different than estimated, then new
estimates are accounted for and reflected in the Commission's ac-
counting records. Such accounting adjustments will be reflected in
the tolls-setting process, giving credit for overestimates or charging
back underestimates.
In summary, based on the facts and circumstances as I note
them, the Commission's accounting for ship accident costs is sound
and establishes an appropriate basis for the settling of tolls. It also
is consistent with the congressional mandate that the Commission
be self-sustaining and maintain operations at no cost to the U.S.
taxpayer. Accordingly, unless the Congress directs a different
policy in terms of the assumption of the liabilty, I urge that no
change be made or directed in the manner in which the Commis-
sion accounts for ship accident costs.
I thank you for your attention. If you have any questions, I will
be pleased to answer them.
[The statement of Leonard J. Kujawa follows:]
PREPARED STATEMENT OF LEONARD J. KUJAWA, ARTHUR ANDERSEN & CO.
INTRODUCTION
My name is Leonard J. Kujawa and I am pleased to have the opportunity to again
testify before this committee. As a matter of background, I am a partner in Arthur
Andersen & Co., a Certified Public Accountant, and a member of the American In-
stitute of Certified Public Accountants and other professional societies and organiza-
tions. Regarding the Panama Canal, I have been a consultant on various financial
and accounting matters since 1962 for both the Commission and the predecessor
company.
Arthur Andersen & Co. is an international firm of independent public account-
ants. We serve clients in all areas of industry and government and we are among
the largest public accounting firms in the world. Our relationship with the Panama
Canal Company began in 1951 when we assisted in establishing the initial account-
ability for the newly formed Panama Canal Company. We also assisted in the finan-
cial reorganization to the Panama Canal Commission as a result of the Panama
Canal Treaties of 1977. Included in this work was our report, "Analysis of the Esti-
mated Cash Requirements of the Panama Canal Commission, 1979-1983," which
was used to determine the financial impact of the treaties on the Canal enterprise.
Beginning with the first toll increase in 1974, we have had significant continuing
involvement in the toll-setting processes of the Panama Canal and the accounting
upon which tolls are based. An example of this was our report on recommended ac-
counting policy which resulted in several significant accounting changes in fiscal
1973. This report was previously submitted to this Committee. Almost all of the ac-
counting policies we recommend at that time still remain in effect.
SUMMARY OF TESTIMONY
Sound accounting has been an underpinning for the financial success of the
Panama Canal. The cost of marine accidents is an unusual but significant cost re-
quiring the application of appropriate accounting. Although it is difficult to predict




68
the cost of marine accidents over the short run, the appropriate accounting recog-
nizes the inevitability of marine accident costs over the longer term.
FINANCIAL SELF-SUFFICIENCY
In implementing the Panama Canal Commission, Public Law 96-70 required fi-
nancial self-sufficiency, as did the legislation establishing the Panama Canal Com-
pany. In addition, Public Law 96-70 included a requirement for an accounting as an
appropriated agency.
When implementing legislation was being considered, I urged in testimony before
this Committee that the requirement for sound accounting be continued. This I re-
ferred to as enterpirse accounting which is a comprehensive accounting for all costs
and revenues over a long-term in order to measure financial performance. Enter-
prise accounting was essential since the legislative objective was that the Panama
Canal Commission continue to be a self-sufficient, financially viable entity providing
service to world shipping.
Public Law 96-70 does establish the requirement for enterprise accounting for
purposes of measuring financial performance and in the setting of tolls. In addition,
as a measure of control, there is the requirement for an accounting for appropri-
ations. From the perspective of financial management, each accounting method has
a role to play and the respective roles must be understood. Otherwise, there is po-
tential for confusion. Clearly stated, appropriation accounting is not a proper basis
for setting of tolls nor for the accounting for costs in measuring long-term financial
performance.
COST RECOGNITION AND TOLL SETTING
The financial viability of the Canal Enterprise is dependent upon the process of
setting a proper level of tolls. As established by law, the present policy regarding
the tolls level is to set tolls to recover costs. Cost is interpreted to be a comprehen-
sive accounting for all costs, including the recovery of plant (capital).
The economic value of the Panama Canal to world shipping comprises a number
of factors. These include its reliability for planning purposes, its ability to pay its
own way, the economic diversity it provides and savings realized by its users. The
assurance that prices will be set based on cost gives the user confidence in the reli-
ability of the price-setting process. He is assured that tolls will be rationally set and
thus he can predict his future course of action with more reasonable certainty. This
permits him to make the required long-range plans for investment in facilities such
as ships, with more reasonable assurance that his investment can be recovered.
Thus, through its reliability, the Canal is able to permit users to control their risks
and have a basis for long-range planning. This is a positive economic contribution
and is essential for a service such as the canal to be able to attract users.
From an accounting standpoint, the tolls formula requires that all costs of main-
taining and operating the Panama Canal be recognized (reflected in the accounting
records). Costs which are not recognized cannot be reckoned with in the toll-setting
process. It should be appreciated that the accounting process for a rate-regulated
utility such as the Panama Canal has special significance in that the level of cost
recognized through the accounting process establishes the price to be charged for
the service. Thus, the accounting process has a direct relationship to the actual cash
received. This is in contrast to a profit-oriented company wherein the accounting
process serves the principal function of measuring the level of profit earned.
REQUIREMENT FOR ESTIMATION
The accountant constantly deals with the requirement for cost estimation. Deci-
sions on when to recongize costs require the exercise of judgement based upon the
understanding of financial realities and the application of generally accepted ac-
counting principles. However, the alternative of not recognizing incurred costs or
recognizing such costs only after some physical event has occurred certainly ignores
economic facts, and is wrong.
The limitation of appropriation accounting is that accounting does not take place
until a physical certainty or legally defined act has occurred such as the signing of a
contract, or the issuance of a check. This does not mean that appropriation account-
ing is wrong, but that appropriation accounting serves a role different from that of
cost measurement. It deals with the control of governmental funds.
For a sound basis of cost measurement, the accountant must make estimates
based upon the assumption that the enterprise is a going concern. Months or years
before a check is drawn, the accountant must measure costs for such things as prod-




69
uct liability where claims have not yet been made; bad debts for which the payor
has not yet declared his inability to pay; the estimated life of equipment where the
retirement date is not yet certain; estimate of taxes when the tax return has not yet
been completed, or the position of the taxing authority is not yet known; estimate of
cost to complete a contract months or years before it is physically completed; and
the list of examples goes on and on . .
THE ENVIRONMENT OF MARINE ACCIDENTS
Marine accidents at the Panama Canal inherently place the accountant in the
role of an estimator. Obviously, it cannot be predicted when an accident will occur,
who will be responsible, or how much the repairs will cost if the Panama Canal is
held responsible. Although these are complications, they do not present overwhelm-
ing obstacles to a proper accounting. By reference to level of traffic and past occur-
rences of accidents over a period of time, it is possible to reach reasonable judge-
ments regarding levels of cost.
One thing is certain: if the Canal operates, accidents will occur. What is uncertain
in a given month or year is the number of accidents and their relative severity. To
wait until a claim is ultimately settled before accounting for it has potential for
great distortion in the measurement of cost. The more appropriate basis is to nor-
malize the costs by recognizing that accidents are an inherent part of operations
and that each period of operations should bear a pro-rata share of costs over a
longer period of time.
Prior to the Panama Canal's first toll increase in 1974, we recommended that the
Panama Canal Company establish a reserve for marine accidents by charging each
year with a pro-rata cost of accidents over a multiyear period. This has been the
policy of the Panama Canal Company and the successor Panama Canal Commission
in accounting for marine accidents. We believe it to be a sound and prudent ap-
proach.
I wish to quote from our report dated August 24, 1973, setting forth our reasoning
for a change in the method of accounting:
"The Panama Canal Company is precluded by law from obtaining outside insur-
ance coverage to protect it from the risks associated with the costs of these losses.
By their nature, such losses are unusual and would distort the cost of providing
Canal service in the year(s) of occurrences if provisions were not made annually to
reserve for such losses. Under the previous practice of recording these losses in the
year of occurrence, the risk of nonrecovery of such costs was borne by the company.
Under the new policy, which recognizes the unpredictability but certainty of such
occurrences, the company is attempting to minimize a risk for which it is not being
compensated.
"Recording annual provisions for these losses which will occur. These provisions
are comparable to the insurance expense which would be incurred if the company
were permitted to obtain outside insurance coverage. This practices also allows for a
reasonable accommodation of the cost of marine accidents and other casualty losses
in the rate-making process."
LIABILITY
At this proceeding there is substantial testimony on the question of the Commis-
sion's legal liability for ship accidents. Mr. McAuliffe has indicated that the present
legislation is somewhat confusing on this matter and requires clarification. Accord-
ingly, there appears to be a legal question regarding the longstanding policy of the
Commission to reimburse the Panama Canal's customers where the Commission or
its employees are found to be at fault.
I am not a lawyer. I deal with the issues from the perspective of an accountant.
With the long-standing policy of assuming the costs of ship accidents where the
Commission has been found at fault, it is sound from an accounting standpoint to
continue the recognition of marine accident costs in the accounting process. This re-
quires an estimation, as previously described, and is obviously based on the assump-
tion that the Congress will not preclude such reimbursement. However, until the
Congress concludes that a different policy is appropriate, the proper accounting is to
recognize the cost as has been done by the Commission.
In a matter not different from changes of other accounting estimates, if ultimate
costs are different than estimated, then new estimates are accounted for and reflect-
ed in the Commission's accounting records. Such accounting adjustments will be re-
flected prospectively in the tolls-setting process, giving credit for overestimates or
charging back underestimates.




70
SUMMARY
Based on the facts and circumstances as I note them, the Commission's account-
ing for ship accident costs is sound and establishes an appropriate basis for the set-
ting of tolls. It also is consistent with the Congressional mandate that the Commis-
sion be self-sustaining and maintain operations at no cost to the U.S. taxpayer. Ac-
cordingly, unless the Congress directs a different policy in terms of the assumption
of the liability, I urge that no change be made or directed in the manner in which
the Commission accounts for ship accident costs.
Mr. HUBBARD. Thank you. About two-thirds of the questions I
have here I will submit for the record. I would ask over a period, a
reasonable period of time, that you try to answer those that are
submitted for the record. Our staff will be in contact with you.
For today, and for this hearing, in your statement, of course, you
have noted you are long associated with the Panama Canal. You
indicate that you and your company were involved in helping the
Panama Canal Company establish a marine accident recovery back
in 1973. Prior to this, how was the accounting for vessel accident
claims done?
Was there no marine accident reserve?
Mr. KUJAWA. There was no reserve at that time. The accounting
was to recognize the costs when the claim, in effect, was known,
both in terms of the entitlement to the ship owner and the meas-
urement of damages.
Mr. HUBBARD. In setting up the reserve in 1972, what base period
was used to determine how much should be set aside annually for
claims and how was that period chosen?
Mr. KUJAWA. I forget the exact number of years, but it was at
least the previous 3-year period, as I recall.
Mr. HUBBARD. Were all different types of claims during the base
period considered?
Mr. KUJAWA. Yes.
Mr. HUBBARD. Lastly, how was the amount to be set aside under
the marine accident reserve calculated?
Mr. KUJAWA. There were two factors taken into account. Basical-
ly, the actual experience for the prior periods and the establish-
ment of some type of balance in the reserve, a judgment call, to
take care of the possibility for uncertainty in terms of the severity
of future accidents.
Mr. HUBBARD. Thank you very much. Again, I will submit other
questions for the record.
Mr. Lent?
Mr. LENT. Thank you very much, Mr. Chairman.
I understand, Mr. Kujawa, that you deal with these liability
issues from the perspective of an accountant. However, assuming
the Panama Canal currently has no legal authority to settle vessel
damage claims in excess of $120,000 that occur outside the locks, is
it a proper practice to set aside reserves for that type of accident?
In other words, if the Commission cannot settle a claim for an acci-
dent that occurs outside the lock having an amount in excess of
$120,000, why does the Commission set aside a reserve to cover
that?
Mr. KUJAWA. The absence of authority for the Commission to ac-
tually settle would not be of concern to me as an accountant. The
question I would address would be, Would ultimately the cost of




71
the accident have to be borne by the Commission on the basis of
the conclusion reached by Congress if delegated to some other out-
side authority? Companies have the same problem. The decision
may be reached by a court of law, outside of their authority, but
they must account for it or the potential cost of it on their books.
Mr. LENT. You are assuming then-and this may be the correct
assumption, I don't know-that even though the Congress adjudi-
cates the claim, that the claim will be paid out of the Panama
Canal funds?
Mr. KUJAWA. That is an assumption in the accounting that is
being followed.
Mr. LENT. One other question. This is just an opinion question.
In your opinion, would it be more sensible for you, the accountant,
for a business enterprise that is some business enterprise not con-
strained by the various constraints contained in the Panama Canal
implementing legislation, would you advise your client to attempt
to cover this entire area of contingent liability by the purchase of
liability insurance? Or would you advise him to continue, as they
presently are, covering this contingent liability through the esta-
bishment of a reserve?
Mr. KUJAWA. That is a decision that I have seen clients deal
with and entails consideration of the cost of administering their
own claims or engaging a third party insurance company to deal
with it. In a company environment, it also has tax consequences
that must be dealt with. But essentially, it is a cost comparison,
how much it cost for you to do it versus how much does it cost-to
engage a third party.
An insurance company is going to charge you for your experi-
ence in this kind of insurance. So ultimately, as part of your premi-
ums, they will come back to you in terms of your experiences. I see
this, for example, in airlines insurance. Lloyds, for example,
charges the airlines based upon what the actual experience has
been in the last 2 or 3 years in airline accidents. It gets directly
into your current premiums.
So I think in the Panama Canal environment, it would be pri-
marily a cost-benefit relationship as to what would it cost you to
administer it yourself versus contracting with an insurance compa-
ny.
Mr. LENT. Thank you.
Mr. HUBBARD. Thank you very much, Mr. Leonard J. Kujawa,
partner with Arthur Andersen and Co., for your testimony today.
Mr. HUBBARD. We now call a panel composed of Peter Luciano,
Ernest Corrado, and Harry Gotimer. Mr. Luciano is the executive
director of the Transportation Institute; Mr. Corrado is vice presi-
dent of the American Institute of Merchant Shipping; Mr. Gotimer
is an attorney with the law firm of Kirlin, Campbell, & Keating in
New York City. They are accompanied by two other attorneys,
Raymond Burke and Bob Phillips. Welcome.
We will call first on Mr. Peter Luciano, executive director of the
Transportation Institute.




72
STATEMENTS OF PETER LUCIANO, EXECUTIVE DIRECTOR,
TRANSPORTATION INSTITUTE; ERNEST CORRADO, VICE PRESI-
DENT, AMERICAN INSTITUTE OF MERCHANT SHIPPING; AND
HARRY GOTIMER, ESQ., KIRLIN, CAMPBELL, & KEATING, AC-
COMPANIED BY RAYMOND BURKE, JR., ESQ, BURKE & PAR-
SONS, AND BOB PHILLIPS, ESQ., TEXACO
Mr. LUCIANo. Thank you, Mr. Chairman, members of the sub-
committee.
For the record, I am Peter Luciano, executive director of the
Transportation Institute. The institute is a nonprofit research and
educational organization founded in 1968 and comprising 174
member companies operating U.S.-flag vessels in the Nation's for-
eign and domestic shipping trades. Several of our members regular-
ly use the Panama Canal.
In the interest, Mr. Chairman, and members of the subcommit-
tee, of saving your time, I would appreciate it if my prepared state-
ment might be entered into the record. I would like to summarize.
Mr. HUBBARD. We appreciate your doing that. It will be entered
in the record in full.
Mr. LUCIANO. Thank you.
First of all, I deeply appreciate the opportunity to appear before
this subcommittee. This is an issue which is of great importance to
our member companies and we value very much your interest in
the issue and your concern.
The problem here basically is, as they say, a thing that wasn't
broke got fixed, and that is the case in at least three major areas
that affect our membership. You have heard all of the problem
areas discussed in great detail already this morning. I won't bore
you with a reiteration of all the details. Essentially, we would ask
that the Congress restore judicial review of outside-the-locks claims
of any amount; also, that the Commission be authorized to settle
all outside-the-locks claims; and that the previous treatment be re-
stored with respect to detention time required by any activity of
the board of local inspectors.
These proposed procedures are the same ones that were in place
before the Commission took over in 1979. The previous procedures
had worked very well for 27 years and we feel that in the interest
of equity, in the interest of saving the time of the Congress, in the
interest of saving the time of all parties concerned, and in the in-
terest of restoring logic to this situation, the restoration of the pre-
1979 regimen offers the most reasonable solution.
We have taken the liberty of proposing several amendments
which are attached to my prepared statement and which we feel
would solve the problem.
Thank you very much.
Mr. HUBBARD. Thank you.
[The statement of Peter Luciano follows:]
PREPARED STATEMENT OF PETER J. LUCIANO, EXECUTIVE DIRECTOR, TRANSPORTATION
INSTITUTE
Mr. Chairman and members of the subcommittee, my name is Peter Luciano. I
am Executive Director of the Transportation Institute. The Transportation Institute
is a nonprofit research and educational organization, founded in 1968, comprising




73
174 member companies operating U.S.-flag vessels in the nation's foreign and do-
mestic shipping trades. Several of our members regularly use the Panama Canal.
The Transportation Institute believes that the current claims procedures, estab-
lished in the Panama Canal Act of 1979, are in need of amendment. The Panama
Canal Act of 1979 prohibits the Panama Canal Commission from settling negligence
claims in excess of $120,000 for injuries occurring within the Canal waters but out-
side the Canal locks. For over twenty-seven years prior to the passage of the 1979
Act, however, the Commission's predecessor, the Panama Canal Company, had satis-
factorily dealt with all negilgence claims on accidents occurring outside the locks.
In addition to the burden placed on United States and world shipping, the current
procedure for settlement of outside-the-locks claims provides no economic benefits to
the United States. Damage claims are paid from an account in the U.S. Treasury
known as the Panama Canal Commission Fund. Revenues from this fund come en-
tirely from Canal users, as the Commission is required by law to recover from users
the cost of operating and maintaining the Canal. A statutory tolls formula insures
that user tolls produce revenues sufficient to cover operating costs. Thus, the
amendments proposed by the Transportation Institute would result in no increased
costs to the United States Government or its taxpayers.
Primarily because the Canal is used by larger ships, both the number and dollar
amount of accident claims have been increasing over the past several years. Of the
claims submitted to the Commission since the effective date of the 1979 Act, fifteen
are beyond the authority of the Commission to settle. At least four of the pending
claims exceed $1,000,000. Thus, it is clear that the current maximum settlement
amount is unrealistically low.
The Commission continues to have unlimited settlement authority in connection
with claims arising inside the locks. For example, in 1981 the Commission settled a
pre-treaty (prior to October 1, 1979) inside-the-locks claim for $1,000,000. Presum-
ably a post-treaty settlement would have produced the same result. A similar out-
side-the-locks claim arising today, however, would require Congressional approval
for settlement. The Commission has demonstrated its ability efficiently to adminis-
ter inside-the-locks claims without artificial limits. Thus, there is no consistent
rational basis to saddle the Commission with an unrealistic limitation on awards for
accidents outside the locks.
In the interest of facilitating shipping and providing for consistent, expeditious
adjustment of claims, the Panama Canal Act should be amended to re-institute the
pre-1979 procedure of authorizing the Commission to settle all outside-of-the-locks
negilgence claims.
The Transportation Institute also is concerned with another aspect of the claims
procedure, the judicial review process for outside-the-locks claims.
When the Panama Canal Act of 1979 transferred operation of the Canal from the
Panama Canal Company to the new Panama Canal Commission, existing provisions
allowing judicial review for inside-the-locks claims were continued. However, the
1979 Act eliminated the judical review process for outside-the-locks claims of any
amount. Relief now must be sought from Congress to resolve disputed outside-the-
locks awards. Unfortunately, passage of a private bill often is a long and cumber-
some process. The Institute submits that Congress should not be distracted from
matters of national policy to analyze routine commercial claims which are more ef-
ficiently dealt with in the traditional forum provided by the federal courts.
In order to expedite the equitable resolution of disputed claims, and relieve the
Congress of needless work, the Transportation Institute believes that the pre-1979
procedure of allowing judicial review of claims settlements should be reinstated.
Lastly, the Institute is concerned with the present procedure for awarding the
Board of Local Inspection (BLI) detention damages. In order for a claim for accident
damages to be considered by the Commission, a vessel must remain in Canal waters
until the BLI conducts an investigation. Prior to 1979, the U.S. Court of Appeals for
the Fifth Circuit construed the Measure of Damages provision (now 22 U.S.C. S.
3773) as establishing rules for recovery of damages substantially parallel to that ac-
corded by general maritime law. Under those principles, shipowners could not only
recover for actual damages to the vessel, lost charter hire, crew wages and mainte-
nance, but also damages for loss of use of a vessel while the BLI investigation was
taking place.
The 1979 Act specifically excluded consideration of such detention damages as an
item of recovery in claims before the Commission. The ability to recover such dam-
ages is vital to shipowners who may incur substantial losses because of detainment
of a vessel in Canal waters awaiting completion of the BLI investigation. In order to
fully compensate shipowners for the damages their vessels incur, the Institute urges




74
that the Act be amended to restore the pre-1979 law, thus leaving intact the judicial
interpretation of the statute allowing BLI detention claims.
We have taken the liberty of attaching to our comments proposed draft amend-
ments to Title 22 of the United States Code in addition to a comparative print of
those amendments (Exhibits "A" and "B"). The Transportation Institute respectful-
ly requests that these proposals be included in the record.
Thank you.




75
Exhibit "A"
PROPOSED AMENDMENT TO TITLE 22 UNITED STATES CODE
Provision dealing with claims for injuries to persons or
property occurring outside the locks of the Panama Canal.
1. Section 3772 is amended by striking "Canal. and when
the amount of the claim does not exceed $120,000" and inserting
in lieu thereof "Canal".
2. Section 3774 is amended by:
a. Striking subsection (6)
b. Inserting "or" immediately after "traffic"
c. Renumbering subsection (7) as subsection (6).
3. Section 377b is amended by:
a. In subsection (a) striking "(a) subject to
subsection (b) of this section, the" and inserting in lieu
thereof "The"; and
b. Striking subsection (b).
4. Section 3776 is amended by:
a. Inserting "or section 3772' immediately after
"section 3771"
b. Striking "the United States District Court
for the Eastern District of Louisiana" and
inserting "any United States District Court."




76
Exhibit "B"
COMPARATIVE PRINT
Title 22
Chapter 51 -- Panama Canal
Part 4 -- Claims for Injuries to Persons or Property
Subpart II -- Vessel Damage
3771. Injuries in locks of canals.
[unchanged]
3772. Injuries outside locks.
The Commission shall promptly adjust and pay damages for
injuries to vessels, or to the cargo, crew, or passengers of
vessels which may arise by reason of their presence in the Panama
Canal, or waters adjacent thereto, other than the locks, when the
injury was proximately caused by negligence or fault on the part
of an officer or employee of the United States acting within the
scope of his employment and in the line of his duties in
connection with the operation of the, ena -
e [Canal.] If the negligence
or fault of the vessel, master, crew, or passengers proximately
contributed to the injury, the award of damages shall be
diminished in proportion to the negligence or fault attributable
to the vessel, master, crew, or passengers. In the case of a
vessel which is required by or pursuant to regulations prescribed
pursuant to section 3811 of this Title to have a Panama Canal
pilot on duty aboard, damages may not be adjusted and paid for
injuries to the vessel, or its cargo, crew, or passengers,
incurred while the vessel was underway and in motion, unless at




77
the time the injuries were incurred the navigation or movement of
the vessel was under the control of a Panama Canal pilot.
3773. Measure of damages generally.
[unchanged]
3774. Delays for which no responsibility is assumed.
[unchanged]
3775. Settlement of claims.
-h [The]
Commission, by mutual agreement, compromise, or otherwise, may
adjust and determine the amounts of the respective awards of
damages pursuant to this subpart. Such amounts shall be payable
promptly out of any moneys appropriated or alloted for the
maintenance and operation of the Panama Canal. Acceptance by a
claimant of the amount awarded to him shall be deemed to be in
full settlement of such claim against the Government of the
United States.
4W-h-emise-hh1ntaistadpyan-li-e
S3776. Actions on claims.
A claimant for damages pursuant to 3771 [or 3772] of this
title who considers himself aggrieved by the findings,




78
determination, or award of the Commission in reference to his
claim may bring an action on the claim against the Commission
in
e4-4ad Ra-[any United States District Court.] Subject to the
provisions of this part and of applicable regulations issued
pursuant to 9 3811 of this title relative to navigation of the
Panama Canal and adjacent waters, such actions shall proceed
and be heard by the Court without a jury according to the
principles of laws and rules of practice obtaining generally in
like cases between a private party and a department or agency
of the United States. Any judgment obtained against the
Commission in an action under this subpart shall be paid out of
any moneys appropriated or alloted for the maintenance and
operation of the Panama Canal. An action for damages
cognizable under this section shall not otherwise lie against
the United States or the Commission, nor in any other court,
than as provided in this section; nor may it lie against any
officer or employee of the United States or of the Commission.




79
Mr. HUBBARD. We will next call on Ernest Corrado.
STATEMENT OF ERNEST CORRADO
Mr. CORRADO. Thank you, Mr. Chairman. I will read part of my
statement and leave out part of it and make a few extemporaneous
remarks at the end, if I may.
Mr. HUBBARD. Thank you, Ernie. Let me say the statements of
each of you will be included in full in the record. We appreciate
your considering us in limiting your remarks to a summary.
Mr. CORRADO. Thank you very much, sir.
I am the vice president of the American Institute of Merchant
Shipping, which is a national trade association consisting of 30
member companies which own or operate almost 12 million dead-
weight tons of U.S. flag bulk shipping operating mostly in the U.S.
domestic commerce.
Many of our members use the Panama Canal frequently in their
trades, so we are happy to have been invited here today to com-
ment on this matter of extreme importance to our membership.
Also, we are encouraged that the subcommittee is holding these
hearings and we regard it as a sign that the subcommittee and full
Merchant Marine and Fisheries Committee intend moving expedi-
tiously to solve this vexing problem involving damage to vessels oc-
curring outside the locks during transits of the canal.
As has been set out in correspondence between AIMS and this
subcommittee (and full committee) over the past year, we are op-
posed to the two provisions of the Panama Canal Act of 1979 (22
U.S.C. 3601, et seq.): First, the requirement that any decision of the
Commission awarding $120,000 or more to claimants be forwarded
to Congress for approval; and, second, the requirement that claims
for damage arising outside of the locks be submitted to the Panama
Canal with no right of judicial review of the Commission's decision.
There seems to be some confusion on this matter in the previous
comments to testimony. There is no right of judicial review, either
under or above $120,000 for accidents outside the locks. That is, of
course, part of our complaint. You can't have liability imposed on
an entity by the negligence of a Canal Commission employee and
then not have judicial review, too. There are two wrongs there.
The users of the canal are adamantly opposed to this limitation
amount system and would like to return to the system which exist-
ed prior to the 1979 Panama Canal Act which implemented the
treaties, whereby the present Commission's predecessor corpora-
tion, the Panama Canal Company, had unlimited authority to
settle outside-the-locks claims, and judicial review of such claims
was available under the Canal Zone Code and in the Federal dis-
trict court in the Canal Zone.
Those, of course, are now gone.
In the interests of saving time, Mr. Chairman I will not burden
the record or waste time by going into the law, regulations, Execu-
tive orders, and other documents beginning with the Panama
Canal Act of 1912 and extending to the act of 1950. You have this
record and also all the individuals on your staff are well versed in
these documents.




80
The 1950 act, of course, transferred the operation of the Panama
Canal, effective July 1, 1951, to the Panama Railroad Company
which was renamed the Panama Canal Company. Section 3 of the
1950 act amended section 10 of title 2 of the Canal Zone Code gov-
erning claims for vessel damage. The Panama Railroad Company
was generally subject to suit on tort claims, so the transfer just
mentioned and the amendment of section 10 of title 2 would:
One, continue the previous rule imposing absolute liability for
damage in the locks;
Two, for the first time extend the liability of the company on
claims for vessel damage outside the locks caused by the negligence
of Panama Canal employees;
Three, continue the consent to suit against the agency operating
the canal for damage in the locks, and extend this consent to suit
for vessel damage outside the locks;
Four, continue the immunity of Panama Canal employees from
personal liability for vessel damage.
Assuming the corporation could sue and be sued, one effect of
the 1950 act was to give owners of vessels damaged in the canal
outside the locks the right to sue the entity operating the canal.
We think this result is legally and commercially correct and urge
that this should be reinstituted.
The 1950 act's extension of liability for outside-the-locks claims
to the governmental entity operating the canal is an accurate re-
flection of a properly perceived need for a government body which
operates in a commercial context to accept responsiblity for the
acts and omissions of its employees. Moreover, such extension is
consistent with the general trend of congressional action in recent
years which has been toward expansion rather than contraction of
Government liability with respect to tort claims. Acceptance by the
Commission of responsibility for damage from inside-the-locks inci-
dents as set forth in both the 1950 and 1979 acts is a perfect exam-
ple of the principle that a government body functioning commer-
cially should be liable for its acts and omissions. The requirement
of the 1979 act, however, that Congress approve settlement of out-
side-the-locks claims exceeding $120,000 is an aberration which ef-
fectively deflects from the Commission a liability which should rest
directly there. Interposition of Congress between the claimant and
the Commission serves no constructive purpose but rather only pro-
longs the settlement process to the detriment of the injured party.
Unlike most, if not all other waterways, ports and harbors, in
the Panama Canal, the pilot is in complete control of the vessel.
There is nothing advisory about this function as is the case in the
ports and harbors of the continental United States. Since the
Panama Canal pilot is in complete control of the vessel during
transit, we do not see any basis for shielding the Commission from
liability as is accomplished by the 1979 act. It is difficult to see how
an argument that the Commission should not be responsible under
the principle of respondeat superior for the negligence of the pilot
when he is in complete control can be sustained. The pilot assigned
to a vessel shall have control of the navigation and movement of
such vessel. There is no distinction, regulatory or otherwise, in the
pilots' duties and obligations inside and outside the locks. Of
course, the pilot could be made to operate in an advisory capacity,




81
as in other waterways, but this raises a whole new set of problems,
not the least of which is that the pilots would not agree to such a
change in their authority after all these years. Nor would such a
change be in the best interests of Panama Canal transit maritime
safety.
Another point, we certainly do not think that damage claims in
excess of $120,000 occurring outside the locks should be submitted
to Congress for approval as established by the 1979 act. Aside from
the fact that the U.S. Congress is not the proper forum for the
processing an adjudication of tort damage claims, the system estab-
lished does not lend itself to an expeditious resolution of these
damage claims. Indeed, the record to date shows that there is no
resolution at all following this route for these claims.
The next part of my statement is not up to date, but we have had
testimony from the Panama Canal Commission today that there
are 36 claims, 15 active and 21 more whereby they think there is
negligence on the part of the canal employees and these claims will
probably be in the pipeline pretty soon.
Up to this point, only two claims are ready for referral to the
Congress and these were sent to OMB for clearance and referral.
These two claims have languished in OMB for the last 8 months
and were finally forwarded to the Congress on November 8, 1982.
Could anyone perceive that this system is working, even if the Con-
gress was the proper forum for tort damage claims? And what will
happen to these claims when the finally reach Congress after 3 to 4
years? How rapidly will the Congress act on these claims? How will
Congress process them? Will the Congress act at all? Should Con-
gress honor such claims, where will the money come from? We are
convinced that Congress will never pay such awards from general
revenues-the taxpayers, but will tell the Commission to pay them,
which is where the claim would be satisfied if the Commission were
not exonerated from liability.
We further believe that elimination of the judicial review process
effectuated by the 1979 act is misplaced. The attention of Congress
should not be distracted from matters of national policy to analyze
routine commercial claims which are more efficiently dealt with in
the traditional forums provided by the Federal courts.
Mr. Chairman, we cannot conceive of Congress' continued blind
adherence to the system established in the 1979 act with its numer-
ous uncertainties and almost limitless delays, when it is clear
under all the established principles of tort law that the Commis-
sion should bear the responsibility for the negligence of its tort
feasor employee who is in complete control of the vessel in transit.
Meanwhile, the years since enactment in 1979 begin to mount.
Claims accumulate, and the users of the canal continue on without
redress for their legitimate tort damage claims. What will happen
in the event of a major catastrophe in the canal? We submit, Mr.
Chairman, that continuation of the present circumstances is unsat-
isfactory from every standpoint and manifestly unfair to the users
of the canal.
A final point, Mr. Chairman, having served as chief counsel on
this committee for many years, I know one of the purposes of the
committee has always been to advance the welfare of the U.S. flag
merchant marine. I know the present leadership of the committee




82
is no less dedicated to that purpose; but the irony of this situation
is that this very issue we are discussing here today undermines the
efforts to keep these U.S. flag merchant fleet afloat. Everybody
knows that with the worldwide recession that with worldwide
shipping, and U.S. shipping in particular, is in very dire straits. We
are losing vessels every day, laid up or being scrapped. The margin of
profit on any company, be it liner or bulk, is only a few percent.
Here we have damage claims of our operators in the millions of
dollars and there is no redress for this; and the way it is going,
there is no telling when there will be.
In addition, we also support the statement of the Transporta-
tion Institute with respect to detention, although we didn't put it
in our statement. I won't take anymore time, Mr. Chairman.
Thank you very much for having us here today.
[The statement of Ernest Corrado follows:]
PREPARED STATEMENT OF ERNEST J. CORRADO, VICE PRESIDENT, AMERICAN INSTITUTE
OF MERCHANT SHIPPING
Thank you, Mr. Chairman, my name is Ernest J. Corrado, and I am vice president
of the American Institute of Merchant Shipping (AIMS), which is a national trade
association consisting of 30 member companies which own or operate almost 12 mil-
lion deadweight tons of United States flag bulk shipping operating mostly in U.S.
domestic commerce.
Many of our members use the Panama Canal frequently in their trades so we are
happy to have been invited here today to comment on this matter of extreme impor-
tance to our membership. Also, we are encouraged that the subcommittee is holding
these hearings and we regard it as a sign that the subcommittee and full Merchant
Marine and Fisheries Committee intend moving expeditiously to solve this vexing
problem involving damage to vessels occurring outside the locks during transits of
the canal.
As has been set out in correspondence between AIMS and this subcommittee (and
full committee) over the past year, we are opposed to two provisions of the Panama
Canal Act of 1979 (22 USC 3601, et seq.): (1) the requirement that any decision of the
Commission awarding $120,000 or more to claimants be forwarded to congress for
approval; and, (2) the requirement that claims for damage arising outside of the
locks be submitted to the Panama Canal Commission with no right of judicial
review of the Commission's decision.
The users of the canal are adamantly opposed to this limitation amount system
and would like to return to the system which existed prior to the 1979 Panama
Canal Act which implemented the treaties, whereby the present commission's prede-
cessor corporation, the Panama Canal Company, had unlimited authority to settle
outside the locks claims, and judicial review of such claims was available under the
canal zone code and in the Federal district court in the canal zone.
Mr. Chairman, in the interests of saving time and not burdening the record un-
necessarily, I will not go into the myraid of laws, regulations, executive orders, ap-
propriations act provisions, decisions of the Comptroller of the Treasury, and gov-
erning claims, beginning with the Panama Canal Act of August 24, 1912 (37 stat.
562) and extending to the act of September 26, 1950 (64 stat. 1038). You have this
record and also individuals available to you who are well versed in these develop-
ments.
The 1950 act, of course, transferred the operation of the Panal Canal, effective
July 1, 1951, to the Panama Railroad Company which was renamed the Panama
Canal Company. Section 3 of the 1950 act amended section 10 of title 2 of the canal
zone code governing claims for vessel damage. The Panama Railroad Company was
generally subject to suit on tort claims, so the transfer just mentioned and the
amendment of section 10 of title 2 would:
(1) Continue the previous rule imposing absolute liability for damage in the locks;
(2) For the first time extend the liability of the company on claims for vessel
damage outside the locks caused by the negligence of Panama Canal employees;
(3) Continue the consent to suit against the agency operating the canal for
damage in the locks, and extend this consent to suit for vessel damage outside the
locks;




83
(4) Continue the immunity of Panama Canal employees from personal liability for
vessel damage.
Assuming the corporation could sue and be sued, one effect of the 1950 act was to
give owners of vessels damaged in the canal outside the locks the right to sue the
entity operating the canal. We think this result is legally and commercially correct
and urge that this should be reinstituted.
The 1950 act's extension of liability for outside-the-locks claims to the governmen-
tal entity operating the canal is an accurate reflection of a properly perceived need
for a government body which operates in a commercial context to accept responsibil-
ity for the acts and omissions of its employees. Moreover, such extension is consist-
ent with the general trend of congressional action in recent years which has been
toward expansion rather than contraction of government liability with respect to
tort claims. Acceptance by the commission of responsibility for damages from inside-
the-locks incidents as set forth in both the 1950 and 1979 acts is a perfect example
of the principle that a government body functioning commercially should be liable
for its acts and omissions. The requirement of the 1979 act, however, that Congress
approve settlement of outside-the-locks claims exceeding $120,000 is an aberration
which effectively deflects from the commission a liability which should rest directly
there. Interposition of Congress between the claimant and the commission serves no
constructive purpose but rather only prolongs the settlement process to the detri-
ment of the injured party.
Unlike most, if not all other waterways, ports and harbors, in the Panama Canal,
the pilot is in complete control of the vessel. There is nothing advisory about his
functions as is the case in the ports and harbors of the continental Unted States.
Since the Panama Canal pilot is in complete control of the vessel during transit, we
do not see any basis for shielding the commission from liability as is accomplished
by the 1979 act. It is difficult to see how an argument that the commission should
not be responsible under the principle of respondent superior for the negligence of
the pilot when he is in complete control can be sustained. Section 105.6 of title 35,
Code of Federal Regulations (CFR) states: "the pilot assigned to a vessel shall have
control of the navigation and movement of such vessel." Furthermore, there is no
distinction, regulatory or otherwise, in pilot's duties and obligations inside and out-
side the locks. Of course, the pilot could be made to operate in an advisory capacity,
as in other waterways, but this raises a whole new set of problems, not the least of
which is that the pilots would not agree to such a change in their authority after all
these years. Nor would such a change be in the best interests of Panama Canal
transit maritime safety.
An examination of the situation in other canals in the world supports our conten-
tion:
(A) Suez Canal-This is a sea level canal with no locks whatsoever and, according
to the Suez rules of navigation, masters are held solely responsible for damages or
accidents from the handling or navigation of their vessels, but the masters are in
control.
(B) Kiel Canal-The german government has consented to be sued in connection
with casualties in the Kiel Canal.
(C) St Lawrence Seaway-The portion of the seaway lying in the United States is
operated by the St. Lawrence seaway development corporation under the act of May
13, 1954, as amended, 33 USC 983, et. seq. The U.S. government as sovereign has
consented to be sued (suits in Admiralty Act, 46 U.S.C. 741 et. seq., and Federal Tort
Claims Act, 28 U.S.C. 2672, 2679 and 1346(b)); the Seaway Corporation may be sued
in its corporate name (33 U.S.C. 984(a)(3) and is subject to the Federal Tort Claims
Act (Handley v. Tecon Corporation, 172 F. supp. 565 (1959); Federal Reserve Bank v.
Metrocentre Imp. Dist. 492 F. Supp. 353 at 355, 356 (1980); Breitbeck v. United States,
500 F. 2nd 556 at 559 (1974).)
(D) Cape Cod Canal-A toll free canal maintained by the Corps of Engineers with
tort claims handled by the Department of the Army under the provisions of the Fed-
eral Tort Claims Act, supra.
(E) Tennessee Valley Authority-TVA, like the Panama Canal Commission, may
sue or be sued in its corporate name, the corporation is generally liable for the neg-
ligence of its employees and judgements or amounts paid in settlement of claims are
paid out of funds available to that activity included as a cost of operation.
One final point, we certainly do not think that damage claims in excess of
$120,000 occurring outside the locks should be submitted to Congress for approval as
established by the 1979 act. Aside from the fact the U.S. Congress is not the proper
forum for the processing and adjudication of tort damage claims, the system estab-
lished does not lend itself to an expeditious resolution of these damage claims.




84
Indeed, the record to date shows that there is no resolution at all following this
route for these claims.
Consider, if you will, that experience to date indicates that since 1979 there have
been ten (10) accident claims filed. The accidents occurred from November 8, 1979 to
May 25, 1981. The bureau of local inspectors (BLI) began its inspections as early as
November 9, 1979 and its reports were issued on various dates in 1980 and 1981. Up
to this point only two claims are ready for referral to the Congress and these were
sent to OMB and the Department of Justice for clearance for referral. These two
claims have languished in OMB for the last eight months and were finally forward-
ed to the Congress on November 8, 1982. Could anyone perceive that this system is
working, even if the Congress was the proper forum for tort damage claims? And
what will happen to these claims when they finally reach Congress after three to
four years! How rapidly will the Congress act on these claims? How would the Con-
gress process them? Will the Congress act at all? Should Congress honor such
claims, where will the money come from? We are convinced that Congress will
never pay such awards from general revenues-the taxpayers, but will tell the com-
mission to pay them, which is where the claim would be satisfied if the commission
were not exonerated from liability.
We further believe that elimination of the judicial review process effectuated by
the 1979 act is misplaced. The attention of Congress should not be distracted from
matters of national policy to analyze routine commercial claims which are more ef-
ficiently dealt with in the traditional forums provided by the Federal Courts.
Mr. Chairman, we cannot conceive of Congress' continued blind adherence to the
system established in the 1979 act with its numerous uncertainties and almost limit-
less delays, when it is clear under all the established principles of tort law that the
commission should bear the responsibility for the negligence of its tort feasor em-
ployee who is in complete control of the vessel in transit. Meanwhile the years since
enactment in 1979 begin to mount, claims accumulate, and the users of the canal
continue on without redress for their legitimate tort damage claims. What will
happen in the event of major catastrophe in the canal? We submit, Mr. Chairman,
that continuation of the present circumstances is unsatisfactory from every stand-
point and manifestly unfair to the users of the canal.
Mr. HUBBARD. Thank you, Mr. Corrado. You understand the pur-
pose of our hearing is to find out all we can about the need for leg-
islative change. You do agree that the two claims above $120,000
have not been delayed at this point by Congress?
Mr. CORRADO. Yes, sir. They only came to Congress a month ago.
Mr. HUBBARD. Right.
Let us hear at this point Mr. Harry Gotimer.
STATEMENT OF HARRY A. GOTIMER
Mr. GOTIMER. Mr. Chairman, distinguished members of the sub-
committee, my name is Harry A. Gotimer. I am a member of the
law firm of Kirlin, Campbell & Keating of New York City and
Washington, D.C. It has been principally engaged in the practice of
admiralty law for over the past 100 years. In addition, I am an ad-
junct professor of admiralty law at New York Law School, a gradu-
ate of the U. S. Merchant Marine Academy, and a licensed mer-
chant marine officer.
Our law firm represents major shipowners and marine under-
writers. We represent United States Lines, Inc., and Exxon Corp. in
connection with casualties occurring in the Panama Canal since
the passage of the Panama Canal Act of 1979.
We are currently handling three claims presently pending before
the Panama Canal Commission which arose from casualties outside
the Panama Canal locks where damages exceed $120,000: the colli-
sion between the Esso Nassau and the Esso Guam occurring in
Balboa Reach on April 10, 1980, resulting in damages of approxi-
mately $1,280,000; the grounding of the SS American Apollo in San




85
Pablo Reach on October 1, 1980, resulting damages of approximate-
ly $5,500,000.00; and the allision of the SS American Aquarius and
a dock in Balboa on January 12, 1981, resulting in damages to that
vessel of approximately $540,000.00, plus a contingent claim for in
rem liability for damages sustained by the dock owner and tug
owner.
I am testifying today not at the request of these shipowners, but
rather as an attorney involved in handling claims before the Com-
mission under the current procedures.
In general, as a practical matter, the vast majority of all claims
in the admiralty field are settled. I do not think it an exaggeration
to state that, in general, over 90 percent of the claims do not reach
trial. The damages and the probable result after litigation falls
within narrow parameters which can be fairly well evaluated by
experienced admiralty practioners after all the relevant facts are
obtained and analyzed.
I will abbreviate my statement by not going through the current
statue, if that is all right.
Mr. HUBBARD. As you know, your full statement will be in the
record.
Mr. GOTIMER. With respect to out-of-lock claims over $120,000, at
no time other than at the initial Board of Local Inspectors' investi-
gation does the claimant, the shipowner, the personal injury plain-
tiff, or the cargo owner participate in the procedure. What happens
is that approximately 24 hours after the casualty, a hearing is held
by the Board of Local Inspectors. The attorneys for the claimant do
participate fully in that. After which, the damages are submitted
to the claims branch of the Panama Canal Commission and they
request whatever additional supporting documentation they re-
quire. However, with response to these claims in excess of $120,000
outside the locks, at no time other than handing the damage docu-
mentation to the Commission is the shipowner or the claimant
privy to what factors are being considered as relevant in terms of
liability or damages until the report actually gets to Congress. That
report is confidential and unavailable.
I strongly support changing the law by allowing the Panama
Canal Commission to have settlement authority on all claims
where their employees negligence has contributed to a casualty. I
also recommend strongly that judicial review be granted to the
U.S. district court in any district which is convenient.
Finally, I think that any changes that are made should be retro-
active to include the claims such as the ones I am presently repre-
senting for my firm. We have a large number of claims. In our
opinion, they were caused not by the negligence on the part of our
employees, but rather by the pilot who was in command of the
ship. I think those claims ought to be included in any pending leg-
islation.
However, I do have a suggestion; and that is if for some reason
we cannot-if the law is passed and it cannot be retroactive, there
may well be authority under the congressional reference statute
for Congress to pass these to the U.S. Court of Claims for a hearing
and a determination on the merits of these claims.
I thank you for your time. I will be pleased to answer any ques-
tions you might have.
12-978 0 6




86
[The statement of Harry Gotimer follows:]
PREPARED STATEMENT OF HARRY A. GOTIMER, A MEMBER OF THE LAW FIRM OF
KIRLIN, CAMPBELL & KEATING, NEW YORK CITY AND WASHINGTON, D.C.
Mr. Chairman and distinguished members of Congress, my name is Harry A. Go-
timer. I am a member of the law firm of Kirlin, Campbell and Keating of New York
City which has principally engaged in the practice of admiralty law for over 100
years. I am also an Adjunct Professor of admiralty law at New York Law School, as
well as a graduate of the United States Merchant Marine Academy and a licensed
merchant mariner.
Our law firm represents major shipowners and marine underwriters. We repre-
sent United States Lines, Inc. and Exxon Corporation in connection with casualties
occurring in the Panama Canal since the passage of the Panama Canal Act of 1979.
We are currently handling three claims presently pending before the Panama
Canal Commission which arose from casualties outside the Panama Canal locks
where damages exceed $120,000: the collision between the Esso Nassau and the Esso
Guam occurring in Balboa Reach on April 10, 1980 resulting in damages of approxi-
mately $1,280,000; the grounding of the SS American Apollo in San Pablo Reach on
October 1, 1980 resulting in damages of approximately $5,500,000; and the collision
of the SS American Aquarius and a dock in Balboa on January 12, 1981 resulting in
damages to that vessel of approximately $540,000 plus a contingent claim for in rem
liability for damages sustained by the dock owner and tug owner.
I am testifying today not at the request of these shipowners but rather as an at-
torney involved in handling claims before the commission under the current proce-
dures.
In general, as a practical matter the vast majority of all claims in the admiralty
field are settled. I do not think it an exaggeration to state that in general over 90
percent of the claims do not reach trial. While there may be many reasons for this,
one in particular is that by statute and case law, the liability and quantum of dam-
ages can be fairly well evaluated by experienced admiralty practitioners after all
the relevant facts are obtained and analyzed.
The present statute provides that for injuries occurring in the locks (Public Law
96-70, Title I, 1411, 1415) and for injuries occurring outside the locks where re-
sulting damages are less than $120,000 (Public Law 96-70, Title I, 1412, 1415) the
Panama Canal Commission must adjust and pay for such injuries on the basis of
proportionate fault, i.e.-the Commission shall pay an amount which does not
exceed the percentage of fault of its employee's negligence in causing the casualty.
For injuries occurring outside the locks where damages exceed $120,000, the Com-
mission is prohibited from adjusting and paying claims but rather is required to
submit the claim to Congress in a special report with its recommendations (Public
Law 96-70, Title I, 1415(b)).
I recommend amending the current statute with respect to injuries occurring out-
side the locks to provide a judicial remedy to claimants damaged by the negligence
of Panama Canal Commission employees, principally the pilots who by law are in
complete control and command of a vessel's navigation during its transit through
the Canal.
The current procedure for handling claims occurring outside the Canal's locks and
where the amount involved exceeds $120,000 does not afford the same remedies as
are available to claimants for casualties occurring in the locks.
With respect to both types of claims, the present procedure is that promptly after
a casualty occurs, an investigation is conducted by the Board of Local Inspectors of
the Panama Canal Commission. This investigation basically and almost exclusively
deals with the factual and navigational situation leading up to the casualty. The
Board then prepares findings and conclusions indicating fault but they, at least in
our experience, do not apportion liability. Damages are thereafter submitted to and
reviewed by the Claims Branch of the Panama Canal Commission. Then, with re-
spect to claims arising from "in lock" casualties and "outside the locks" claims
under $120,000, the claimants and Commission attempt to reach an amicable settle-
ment. Failing in which the claimant in "in lock" claims is afforded a judicial
remedy. However with respect to "out of locks" claims exceeding $120,000, the Com-
mission is not empowered to settle such claims but, rather a special report is pre-
pared by the Commission and submitted to the Congress w which is then required to
deal with the claims.
With respect to "out of locks" claims at no time other than during the initial in-
vestigation does the claimant have the right to participate in the procedure, to
argue or urge its position or even to know what issues are being considered as rele-




87
vant or determinative. I do not mean to impugn in any way the good faith of anyone
associated with the Panama Canal Commission, but rather to call attention to the
fact that the system currently utilized is alien to the American system of jurispru-
dence.
The current statute, therefore, lacks essential fairness because it differentiates be-
tween "in lock" claims and "out of locks" claims. With respect to the former an
administrative and judicial remedy to resolve those claims is provided while as to
the latter the Panama Canal Commission is stripped of its decision making function
and no judicial remedy is afforded.
Although the Board of Local Inspectors performs the same function in both types
of claims, the elimination of settlement authority and judicial review in "out of
locks" claims prevents a claimant from presenting all relevant evidence to the
Panama Canal Commission to allow a full and fair evaluation of the claim, which
results in a lack of procedural due process, the claimant is deprived of any judicial
remedy.
When the special report from the Commission gets to Congress, the method of
handling it, at least to me, despite the reserch I've done, is unclear. It is entirely
probable that in most cases the report of the Commission will differ from what the
claimant considers fair and equitable, especially given their lack of input into many
of the ciritical steps leading to the report findings and recommendations.
Congreess, with innumerable pressing problems both foreign and domestic should
not be made judge and jury on these routine claims although they are of immense
importance to the individual claimants.
I submit that common fairness dictates that the normal judicial process be enlist-
ed to determine and evaluate the "out of locks" claims in the same manner as now
mandated for "in lock" claims. Furthermore, to encourage the amicable resolution
of claims the Panama Canal Commission should be given settlement authority for
all claims involving its employees' actions. If the claim cannot be settled, jurisdic-
tion should be vested in the United States District Court, our traditional admiralty
court, whose experience and capability is clear. This could easily be done by amend-
ing the Panama Canal Act of 1979.
The funds with which to pay such claims should be provided from the tolls paid
by the shipowner users of the Canal. I am informed that any tolls collected exceed-
ing the Commission's budget are paid to the Republic of Panama. There is. no just
reason for doing so until all costs associated with the operation of the Canal, includ-
ing damages to ships and others caused by the fault of Panama Canal Commission
employees, are included. If the tolls were so utilized the taxpayers of the United
States would be the beneficiaries in that the users of the Canal would be paying for
the claims through the tolls collected.
Any amendment to the current situation should be retroactive so as to encompass
the claims arising since passage of the Panama Canal Act of 1979. However, if this
is not possible, another possible solution for existing claims would be to submit
pending disputed claims to the United States Court of Claims under the Congres-
sional Reference Statute (28 U.S.C. 1492 and 2509) for determination. Although
this is not the preferred solution, it would be preferable to the present statute and
in large measure would free Congress from the burden of handling those claims.
I thank you for the opportunity of addressing you today. If you have any ques-
tions, I would be pleased to try to answer them.
Mr. HUBBARD. Thank you for your excellent presentation. We lis-
tened to you with interest knowing your background in admiralty
law and as a law professor at New York Law School. We have no
choice at this point but to stand in recess until about 1:30.
[Whereupon, at 12:45 p.m., the subcommittee was recessed, to re-
convene at 1:30 p.m. this same day.]
AFTERNOON SESSION
Mr. HUBBARD. We finished the comments of Peter, Ernie, and
Harry. It was time for questioning.
Mr. Luciano, you state that you recommend the limit should be
raised on settling outside-the-lock claimants for the Commission.
What do you feel is a realistic limit to put on these claims before
submission to Congress?




88
Mr. LUCIANO. It would seem to me, Mr. Chairman, that there
may not be a need to impose any limit on the size of the claim. The
question, I think, is a matter of principle. What works inside the
locks should work outside the locks. To differentiate between the
two does not seem, in our opinion, to have any basis.
Mr. HUBBARD. If Congress does see the need to put a limit on,
what do you think would be realistic?
Mr. LUCIANO. We have not addressed that issue, Mr. Chairman,
with our members. I don't know that I could advise you. Given the
size of the claims that we have heard discussed this morning, there
is the potential that any limit that might be imposed is one which
at some time or other down the road might require the Congress to
sit and arbitrate claims, which I think is probably not an efficient
use of the process.
Mr. HUBBARD. Regarding the present procedure of awarding the
Board of Local Inspectors detention damages, what is the average
length of time between the marine accident and the board's investi-
gation?
Mr. LUCIANO. I believe it is a relatively short period of time. The
investigation itself, I believe, takes no more than about 24 hours on
average. However, although that might seem like a small amount
of time, there are two factors which make it reasonable to include
those damages in with actual damages: In the first place, we have
heard testimony about the increasing size of the ships that are
using the canal. The cost of capital, the cost of operating expenses
and so forth and so on can be very substantial even for just 1 day's
detention. Added to that, however, is the fact that in some cases, a
vessel may be subject to very substantial damages if a cargo is not
delivered on time by a certain date. If a date certain is specified in
the delivery contract, those damages can be very appreciable in
many cases.
Mr. LUCIANO. Is that better?
Mr. HUBBARD. Right. We may be back to you with more ques-
tions.
Mr. Corrado, in fact be thinking of the answer to this. We won't
ask for your answer until Mr. Lent returns. He and I were discuss-
ing on the House floor after having heard Mr. Gianelli and Mr.
McAuliffe and the three of you, just where do you three disagree
with Mr. McAuliffe and Gianelli as to what we should do? It was
somewhat confusing because we seem to think that you are in
agreement much of the time as to what needs to be done as to
these outside-the-lock claims.
Mr. CORRADO. Would you like me to respond to that?
Mr. HUBBARD. I was just passed a note by Robin McClung, the
assistant to Mr. Lent, that he is unable to return to the hearing. I
would ask any of the three of you to respond to that question.
Mr. CORRADO. I don't think there is any difference philosophical-
ly between our position and the position of Mr. Gianelli and Mr.
McAuliffe. They came at it from a little different direction, but I
think we all are in agreement that we would like the system
changed back to the way it was; namely, the responsibility-the li-
ability should rest on the Commission for the negligence of its em-
ployees. I think that is basically our position and I think that has
been our position. I think that is the position of all of us at the




89
table; and as I understood the testimony of the Commission and
government people, it was the same, perhaps stated just a little dif-
ferently. I do think it is consistent.
Mr. LUCIANO. Mr. Chairman, I would agree with Mr. Corrado's
comments.
Mr. HUBBARD. How about accidents where it would not necessar-
ily be the negligence of the Commission employees?
Mr. CORRADO. Inside or outside the lock?
Mr. HUBBARD. Outside the lock.
Mr. CORRADO. Outside the locks? Under the present system or
under the last system?
Mr. HUBBARD. Under the present system. For example, Texaco
Kentucky, running into the yacht. Let's assume for the moment
that wasn't the fault of the Commission employees.
Mr. CORRADO. My recollection of the statutory language is-and I
have it here, although I had no chance to look at it-but my recol-
lection of the statutory language is that there is no Commission lia-
bility if there is no employee negligence and is diminished by the
amount of the negligence of the employee of the Commission.
Mr. HUBBARD. Thank you.
Again, to Mr. Corrado, one of the major concerns brought out in
your testimony is that the ship owners under Public Law 96-70 are
unable to exercise the right for judicial review of the Commission's
decision of the outside-the-locks claims. Prior to the enactment,
however, of this Public Law 96-70, when this judicial review right
was exercised on the average, were most of the Commission's deci-
sions adjusted in favor of the ship owner in settling the claim?
Mr. CORRADO. Adjusted, Mr. Chairman, by the courts in the regu-
lar judicial review, or by the Commission?
Mr. HUBBARD. Yes, adjusted by the courts.
Mr. CORRADO. I don't really know because I don't have a record
of all of the court's decisions. My guess is that when it went to
court-I really can't respond to that question, Mr. Chairman, be-
cause I don't know the decisions in the courts. Maybe somebody
else at the table might know some of the court decisions. My guess
is, though, that when it went to the court most of the decisions
were favorable to the shipowner because the Panama Canal Com-
pany had settled the ones favorable to it.
Mr. HUBBARD. Could you give us a better answer for the record
later?
Mr. CORRADO. We can attempt to supply that for the record, yes.
We have to talk to the Commission and some of the lawyers. But to
answer the question you are asking, we really have to get the court
decisions over whatever number of years you would like.
Mr. HUBBARD. Near the bottom of page 4 of your statement,
Ernie, you state,
Since the Panama Canal pilot is in complete control of the vessel during transit,
we do not see any basis for shielding the Commission from liability as is accom-
plished by the 1979 Act.
May we infer from this that if the pilots were made only adviso-
ry to the vessel master, that you would not object to the current
system?




90
Mr. CORRADO. Well, I think we would object, Mr. Chairman.
First, I am not sure you could impose-you could take away this
authority from the pilots; but if you did, I am not sure that would
be a very good system. Of course, if you took away the responsibili-
ty of the pilot and made him advisory, it would obviously alter the
tort aspect of this issue to that extent, but I am not sure that that
system would satisfy us. The Panama Canal is a very unique water-
way. The question is who would be in charge. The master of the
vessel? The master probably is not able to take it through that par-
ticular waterway. I don't think the pilots would agree to that. I
doubt the Commission would agree to it; and I do not think that it
would solve our problem.
Mr. HUBBARD. One last question, Ernie: You state in your testi-
mony that the pilot of the Panama Canal is in complete control of
the vessel during canal transiting. Is it not true that at least
during outside-the-locks transiting, that there are many factors in-
volved in accidents, sometimes over which the pilots really have no
control such as engine trouble, the master not carrying out the
order fast enough, et cetera?
Mr. CORRADO. That is true. That is something else that is
different. We are talking about the negligence of the employee of
the Panama Canal Company. If there is disregard of orders, or if
there are engine difficulties or some malfeasence inherent in the
vessel itself, I think we all agree that that is a different situation.
Those are mitigating factors impacting on the conduct of the em-
ployees of the canal and Commission liability. That is really not
what we are talking about.
Mr. HUBBARD. A question for Mr. Gotimer. Can you tell us what
effect, if any, the Panama Canal Act of 1979 may have had on the
cost of insurance for vessels transiting the canal?
Mr. GOTIMER. I think, Mr. Chairman, I would rather defer on
that question to Mr. Brown, who represents one of the major insur-
ance companies who will testify next.
I think, though, it is too early to say, because the claims that are
currently pending have not been resolved. At the current state, we
do not know whether the Commission agrees in full with our
claims or they agree that the claims are completely unsupportable.
Mr. HUBBARD. Mr. Gotimer, why cannot the ships traversing the
canal carry insurance that would protect them against any damage
inside or outside of the lock?
Mr. GOTIMER. Oh, I think they can. Again, I will defer to Mr.
Brown for a more detailed answer, only because you are talking
about insurance; but basically-and what you are talking about,
Mr. Chairman, is the sum and substance, as I understand it, of this
testimony-but what you are talking about is a ship owner buying
insurance and receiving or paying premiums on the basis of his ex-
perience. So the more casualties he has, the more he is going to
pay in terms not only of premiums, but what is called calls. So
what you are effectively doing is making it very much more costly
for him to operate.
Of course, there are major aspects that are not covered: loss of
use, and things like that.
Mr. HUBBARD. Would it be also an argument that the shippers
are already paying for the damages through tolls?




91
Mr. GOTIMER. Yes, it is. As a matter of fact, if I might digress
perhaps a little bit, I wonder what would happen in the case of a
Navy ship which runs aground or gets in a collision where the tax-
payer, through paying tolls for the Government ship has contribut-
ed to a big fund to pay those claims; and because of nonliability, it
comes to Congress, and Congress either agrees and says yes, pay it,
in which case the taxpayer is paying a second time, or they say
don't pay it, and then it goes and is paid out of the Department of
Navy's budget. In either event, I think the taxpayer gets hit twice
there if you are are talking about a Government ship involved in
the same situation as opposed to spreading the risk out by virtue of
the $6 million fund for outside-the-lock claims.
Mr. LUCIANO. Mr. Chairman, may I address that question as
well?
Mr. HUBBARD. Sure.
Mr. LUCIANO. I think there is, in addition, a question of equity
here. That is, the kinds of claims we are talking about are claims
that are the result of failure on the part of Commission employees.
To ask a vessel owner to bear the cost of insuring his vessel for
events that are under someone else's control and are, in fact, the
fault of someone else raises a serious question of equity.
Mr. HUBBARD. Thank you.
Mr. Gotimer, on page 3 of your testimony you state.
The elimination of settlement authority and judicial review in out-of-locks claims
prevents a claimant from presenting all relevant evidence to the Panama Canal to
allow a full and fair evaluation of the claim.
Should not this "relevant evidence" be submitted to the Panama
Canal prior to their submission of the claim to the Congress?
Mr. GOTIMER. Mr. Chairman, the problem is-and this is no criti-
cism of the Panama Canal Commission-representing a ship owner
we have no way of knowing what is relevant. We do participate in
the board of local inspectors' investigation. We know what issue
they consider relevant. They then come out with a report which
has findings of fact and conclusions; and the conclusions are, for
instance, fault: The pilot was going too fast; the ship had a fault in
that their automatic engine logger did not record a certain bell.
They do not apportion liability. What considerations go into that
liability and the amount of liability that would be apportioned to
either side we have no knowledge of.
As to what is done with the damages that are submitted, what is
considered provable and not consider provable, we have no input at
all into that. All we do is send the damage claim and supporting
documentation to the Commission; it is analyzed; the Commission
then sends back and asks for whatever additional information they
want. Only after the report is issued by the Panama Canal, it goes
through OMB and gets in Congress, and Congress releases it, does
the ship owner or his attorney have any idea what is in that
report.
When we have a case in court, we know what the issues are, we
can brief the issues, we can address the issues. We are operating in
a vacuum here with respect to most of the issues other than the
initial board of local inspectors' investigation.




92
If I might add, Mr. Chairman, I think not speaking for the Com-
mission, but I think their position has to be that all the consider-
ations that are going on since it is a special report to Congress is
something that is being done and it is not final yet; therefore, they
can't release it.
Mr. HUBBARD. Thank you very much.
Are there any other comments from Mr. Corrado, Mr. Luciano,
or Mr. Gotimer?
Let me ask, say it would be a real pleasure to hear from those
two rather shy fellows, Raymond Burke and Bob Phillips.
Mr. PHILLIPS. I would like to make a brief comment, if I may, Mr.
Chairman.
Mr. HUBBARD. Being an attorney myself, I can understand why
you want to say something.
Mr. PHILLIPS. This is directed at one of the more important topics
raised this morning, the Texaco Kentucky.
Mr. HUBBARD. Maybe I shouldn't have asked for your comment.
Mr. PHILLIPS. I would just like to say, Mr. Chairman, represent-
ing Texaco, despite the not always positive comments made about
the Kentucky performance this morning, I would like to assure you
over the years she has performed in a fashion that you, yourself,
and your constituents would be most proud of.
Mr. HUBBARD. I think it was the sight of that yacht that excited
it.
Mr. PHILLIPS. I think as shipowners sometimes say, Mr. Chair-
man, it is amazing how fixed objects like piers or in this case an-
chored boats have a tendency to move in front of the moving ves-
sels.
Mr. HUBBARD. Sounds very possible.
Mr. Burke?
Mr. BURKE. Not to be outdone, Mr. Chairman, I represent the
Overseas New York, the other vessel whose name was taken in
vain this morning. I would like to make a few comments.
You asked information about the cost of detention damages-the
cost to the shipowner for delays awaiting the BLI investigation.
My experience has been that for some of our client's larger ships
detention damages have been as high as $25,000 a day. In discuss-
ing this last week with Mr. Gotimer, I learned that on one of his
vessels, detention was as high as $45,000 a day. Our experience has
been that most of the delays have been approximately 24 hours.
There have been times when ships have been delayed longer than
that. Generally, if the ship is delayed longer, it is because the
board of investigation is busy handling another investigation; they
just didn't have the manpower to speed it up.
Just one other item: You asked Mr. Corrado about the effect of
the judicial review and how often courts disagreed with the find-
ings of the BLI and the Panama Canal Company. I think it would
be nearly impossible to document that. However, one of the effects
of having judicial review is that if initially the parties are unable
to come to an agreement with the Panama Canal authorities, the
existence of judicial review acts as an incentive to settle cases
before going to trial. In addition, there have been some signficant
decisions by what had been the district court for the Canal Zone
which from time to time disagreed with the findings and conclu-




93
sions of the BLI and claims branch and were of great benefit in
protecting the rights of the users of the Panama Canal.
Mr. HUBBARD. Thank you very much, Raymond Burke and Bob
Phillips.
Any other comments?
Mr. CORRADO. I have yet to see a shy lawyer, Mr. Chairman.
I would like to make one request, if I may, Mr. Chairman. In the
questioning of the Commission witnesses, the issue of a statute of
limitations arose. If you really seriously entertain that idea, I wish
that we might have input into that, because it is not so simple, and
it is not clear from the record the way it is right now whether the
statute of limitations would run from the time of the incident or
from the time of filing the claim or how it would relate to the pro-
duction of documents after filing the claim or now it would relate
to judical review, if it imposed for outside-the-locks claims. So if, in
fact, you should seriously entertain the idea of the imposition of a
statute of limitations, we would like to be able to discuss it with
the members of the staff, or whomever appropriate, to make sure
that we are adequately protected. I know the period of 2 years was
mentioned, but I think we would like something a little longer. The
statute of limitations in the Canal Zone Code was 3 years, for
example.
Mr. HUBBARD. Three years from the date of the incident?
Mr. CORRADO. My recollection is 3 years from the date of the inci-
dent. I would also like to mention the personal injury legislation
which came out of this committee several years ago. That had a 3-
year statute of limitations.
Mr. HUBBARD. Why that long a time? Why is that needed?
Thinking back on tort claims in my home State, where 1 year was
the statute of limitations, why 3 years for these types of accidents?
Mr. CORRADO. For personal injury or for the--
Mr. HUBBARD. Either.
Mr. CORRADO. By the time that the claim is filed and the docu-
mentation comes in there is a substantial lag-the documentation
is slow coming in.
Mr. HUBBARD. That slow?
Mr. CORRADO. I think it is.
We have claims right now on damages that are a couple years
old and additional information is still being requested and re-
quired. The processing of these claims is inordinately long, person-
al injury or property damage.
I think it takes quite a bit of time.
Mr. GOTIMER. Mr. Chairman, may I address that issue? I do
think I can speak to it.
With respect to a vessel that is damaged substantially so that it
has to be repaired immediately, repairs can take as long as 3 or 4
months. After that, finalizing the shipyard repair cost is often a
matter of negotiation and the first bill given by the shipyard is not
necessarily the final bill taken. It is quite conceivable a time of
almost a year will elapse before the repair costs of the vessel is
known. In addition to that, or casualties which do not require that
the vessel be taken out of service such as accident in the side or a
bow that is damaged, the ship may still be in service for the next
14 or 15 or 16 months before it goes in the shipyard for repairs.
The reason for that is if the ship were put in the shipyard immedi-




94
ately for repairs, there would be no recovery for loss of use and the
shipowner would lose a substantial amount of revenue. Therefore,
the time for the repairs in many of these cases does not even begin
for over a year after the casualty.
In addition to that, if you were talking about a judicial review, I
think you would like to have the repairs and the damage claim fi-
nalized sufficiently in advance so that negotiations could take place
before litigation is begun.
Mr. HUBBARD. It seems as though 2 years would be a--
Mr. GOTIMER. In our experience, 2 years is often very, very diffi-
cult.
Mr. BURKE. Mr. Chairman, if I may address that?
Mr. HUBBARD. Yes.
Mr. BURKE. Mr. Beale, who will testify after this panel finishes,
reminded me that there is a uniform act providing for a maritime
personal injury statute of limitations of 3 years.
Mr. HUBBARD. Thank you.
If a vessel is damaged in the canal and is repaired before the
claim is settled, who pays for the repairs?
Mr. BURKE. In the first instance, the owner and the owner's hull
underwriters pay for the repairs. Then the bill is submitted to the
Panama Canal Commission.
Mr. HUBBARD. Thank you. We would like to ask that written
questions be submitted by the members of the subcommittee to the
witnesses for answers for the record. I know Mr. Lent, Mr. Tauzin,
and Mr. Carney would have had some questions if they were here
right now. They were tied up on other matters this afternoon,
either on the House floor or in their offices. So we would send
those to you later, if they do, indeed, have questions.
Thank you so much.
Mr. GOTIMER. Thank you.
Mr. LUCIANO. Thank you, Mr. Chairman.
Mr. CORRADO. Thank you.
Mr. HUBBARD. We will now hear from Mr. Brown and Mr.
Beale-and if it wouldn't be too much out of line, I would ask Mr.
McAuliffe to be considering the possibility after brief comment at
the conclusion to counter or give a different viewpoint as to what
has been said since the time that you and Mr. Gianelli testified.
I know many things have been said and that you have sat there
and been silent; but at the very end we would give you the chance,
if you would like, to take 5 minutes or so to counter. If one of the
other witnesses wishes to add one more comment such as Ernie
Corrado or Peter Luciano or someone else, we would permit that.
We are happy to have Mr. Richard H. Brown, Jr., attorney with
the law firm of Kirlin, Campbell & Keating, the same law firm
Harry Gotimer is with, with offices in New York and Washington.
Mr. Brown represents the American Steamship Owners Mutual
Protection & Indemnity Association, Inc.; Mr. Almer W. Beale, II,
will be next.
We will hear first from Mr. Brown and then from Mr. Beale, an
attorney with the Toole, Taylor, Moseley & Joyner law firm in
Jacksonville, Fla. They represent the Maritime Law Association of
the United States.




95
STATEMENT OF RICHARD H. BROWN, JR., ESQ., KIRLIN, CAMP-
BELL, & KEATING, REPRESENTING THE AMERICAN STEAMSHIP
OWNERS MUTUAL PROTECTION, & INDEMNITY ASSOCIATION,
INC.
Mr. HUBBARD. Mr. Brown, we have already had several questions
pile up for you. Before the questions, we look forward to hearing
your testimony and both you and Mr. Beale can know that if you
do summarize, your full text will be entered in the record.
Mr. BROWN. Thank you, Mr. Chairman. I will summarize my
comments and thank you for the opportunity of being here today.
I represent the American P & I Association, which has insurance
coverage for P & I risks which are essentially nonhull risks. They
include personal injury, cargo damage, pollution, things of that
sort. On the subject of insurance which has been mentioned several
times earlier today, there are several things to bear in mind.
First of all, both hull and P & I insurance involve substantial de-
ductibles on the part of the shipowner. The reason for the deducti-
bles is to keep the premium costs down and it is not infrequent
that the deductibles are $25,000 or $50,000 per occurrence.
So there is in those regards a substantial uninsured risk on the
shipowner's part. In addition, ordinarily loss of use of the vessel is
not insured. Loss of use of a vessel and the substantial casualty
may run to several hundred thousand dollars which is usually an
uninsured risk.
As to risks which are insured and covered by an insurance com-
pany, just as in our own automobile insurance, if we have a bad
loss or a bad loss experience, our premiums go up. The same is true
for shipowners. If they have a bad loss record, their premiums go
up.
Therefore, it is a very important point for shipowners and under-
writers that when a casualty occurs that is the responsibility of
some party not insured or not the shipowner, that a recovery be
made against the party who is negligent or whose servant was
negligent.
I think it goes beyond the mere question of insurance and who
pays. I think it is a basic American principle and sound public
policy that a party injured by the negligence of another be compen-
sated by the negligent party for that injury and that is true with
regard to the United States under the Federal Tort Claims Act, the
Suits in Admiralty Act, and so forth.
In connection with Panama Canal operations, it is especially im-
portant, as a matter of principle, that the Panama Canal Commis-
sion be liable for the negligence of a Panama Canal pilot for one
reason which has been mentioned here before:
No. 1, almost unique in the world's waterways, the Panama
Canal pilot is a control pilot, not merely an adviser to the master.
He has control of the vessel from the time he takes it over. There
is a second feature which has not been mentioned which is that if a
pilot is in charge of a vessel, even though not employed by the
owner and that pilot is negligent, the vessel itself is liable to third
parties; so, for example, if ship A and ship B are passing through
the Panama Canal and ship A has a Panama Canal pilot on board
who is negligent, causing a collision with ship B, if there is no re-




96
course against the Panama Canal Commission, the owner of ship A
not only pays his own damages but he can be liable for the dam-
ages to the other ship, even though his own servants, the master
and crew, were not negligent. The unfairness of a result like that I
think is obvious.
We have listed in our written testimony really three specific
criticisms of the existing Panama Canal Act of 1979. The first is
that the Commission's settlement authority is limited to claims not
exceeding $120,000. A great many claims exceed that amount.
As is usually the case, in these matters, the parties can agree on
settling claims without adjudication or a resort to any third party
to decide the case. Now settlement happens much more often than
not, and when that does occur, the claims are resolved at minimum
expense and inconvenience to everybody.
The limitation on the Canal Commission's settlment authority
severely inhibits that settlement procedure and we think it ought
to be eliminated.
Our specific remedial proposal is to delete the limitation of
$120,000 in the first sentence of section 1412 and delete section
1415(b) altogether. That is the section that refers over-$120,000
matters to Congress.
Our second concrete criticism is that the present act makes no
provision for an aggrieved claimant for injuries occurring outside
the locks to bring an action in court against the Commission. It has
already been pointed out that for claims outside the locks up to
$120,000, the Panama Canal Commission is the court of last resort.
That is a party which is a party to the dispute is the one that
decides it. I think that is clearly an improper way to handle things.
For claims over $120,000, it seems to us the proper forum for adju-
dication or determination of issues the parties cannot resolve them-
selves is the court rather than Congress.
I think the courts are far better suited for that. It is a judicial
function. Congress is a legislative body. And if I may say so, I think
Congress has more important things to do these days than resolve
specific claims for specific damage incidents.
Our third specific criticism is that section 1414, item (6) thereof
bars a claim for any delay due to an investigation of marine acci-
dents by the Panama Canal authorities. These delays can be rather
substantial, and it seems unfair to penalize a shipowner where the
accident has been caused by the negligence of the pilot.
We point out one off-spin of this. This is that section 1417 pro-
vides that a claim may not be considered unless there has been an
investigation. There are cases where the damages are comparative-
ly minor, maybe only, say, $50,000, $75,000, or $100,000; and a ship-
owner would be very hesitant to delay an expensive ship at a cost
of, say, $25,000 a day for an investigation if he knows that cost
cannot be reimbursed.
So that puts unfair pressure on the shipowner to waive an other-
wise valid claim by waiving, not attending, the investigation and
leaving the Canal.
Our remedy for that is to delete item 6 of section 1414. Going
back to our second point, our remedy for lack of judicial review, is
to authorize a claimant for all injuries, outside the locks as well as




Full Text

PAGE 1

BEFORE THE COMMITTEE ON /OUTER CONTINENTAL SHELF OF THE COMMITTEE ON MERCHANT MARW]J AND" FISHERIES HOUSE OF REPRESENTATIVES NINETY-SEVENTH CONGRESS SECOND SESSION ON THE AMENDING OF THE PANAMA CANAL ACT OF 1979 CONCERNING THE PANAMA CANAL COMMISSION'S AUTHORITY TO ADJUST AND PAY CLAIMS FOR VESSEL DAMAGE; THE COMMISSION'S ACCOUNTING METHODS IN SETTING ASIDE TOLL REVENUES TO PAY CLAIMS ; AND THE STATUS OF PENDING VESSEL DAMAGE CLAIMS DECE MBER 2, 1982 Serial No. 97-46 Printed for the use of the Committee on Merchant Marine and Fisheries 12-978 U.S. GOVERNMENT PRINTING OFFICE WAS~INGTON : 1982

PAGE 2

I/ COMMITIEE ON MERCHANT MARINE i\ D .F-I.SljERIES : ., /. '~ t -rF'~ WALTER B. JONES, North Carolina, Cna man .-_,,,/ MARIO BIAGGI, New York GENE SNYDER, Kentucky GLENN M. ANDERSON, California PAUL N. McCLOSKEY, JR., California JOHN B. BREAUX, Louisiana EDWIN B. FORSYTHE, New Jersey GERRY E. STUDDS, Massachusetts JOEL PRITCHARD, Washington DAVID R. BOWEN, Mississippi DON YOUNG, Alaska CARROLL HUBBARD, JR., Kentucky NORMAN F. LENT, New York DON BONKER, Washington DAVID F. EMERY, Maine NORMAN E. D'AMOURS, New Hampshire THOMAS B. EVANS, JR., Delaware JAMES L. OBERSTAR, Minnesota ROBERT W. DAVIS, Michigan WILLIAM J. HUGHES, New Jersey WILLIAM CARNEY, New York BARBARA A. MIKULSKI, Maryland CHARLES F. DOUGHERTY, Pennsylvania EARL HUTTO, Florida NORMAND. SHUMWAY, California BRIAN J. DONNELLY, Massachusetts JACK FIELDS, Texas W. J. (BILLY) TAUZIN, Louisiana CLAUDINE SCHNEIDER, Rhode Island THOMAS M. FOGLIETTA, Pennsylvania JEANS. ASHBROOK, Ohio WILLIAM N. PATMAN, Texas FOFO I. F. SUNIA, American Samoa DENNIS M. HERTEL, Michigan ROY DYSON, Maryland JOSEPH F. SMITH, Pennsylvania EDMUND B. WELCH, Chief Counsel MICHAEL J. TOOHEY, Minority Staff Director SUBCOMMITTEE ON PANAMA CANAL/OUTER CONTINENTAL SHELF CARROLL HUBBARD, JR., Kentucky JOHN B. BREAUX, Louisiana NORMAN F. LENT, New York DAVID R. BOWEN, Mississippi EDWIN B. FORSYTHE, New Jersey THOMAS M. FOGLIETTA, Pennsylvania DON YOUNG, Alaska GLENN M. ANDERSON, California DAVID F. EMERY, Maine BARBARA A. MIKULSKI, Maryland WILLIAM CARNEY, New York W. J. (BILLY) TAUZIN, Louisiana JACK FIELDS, Texas JOSEPH F. SMITH, Pennsylvania GENE SNYDER, Kentucky WALTER B. JONES, North Carolina (Ex Officio) (Ex Officio) JANIE LAWSON, Staff Director JANA RuE OAKLEY, Clerk ROBIN. McCLUNG, Minority Professional Staff Bun DRAGO, Minority Counsel (II)

PAGE 3

CONTENTS .. Page Hearing held December 2, 1982 ............................................................................ : ... .. ~ -.... --1--Statement of: American Hull Insurance Syndicate (prepared statement) ............................. 114 Beale, Almer W., II, Esq., Toole, Taylor, Moseley & Joyner, representing the Maritime Law Association of the United States..................................... 101 Prepared statement.......................................................................................... 104 Brown, Richard H., Jr., Esq., Kirlin, Campbell & Keating, representing the American Steamship Owners Mutual Protection & Indemnity Association, Inc............................................................................................................. 96 Prepared statement.......................................................................................... 97 Burke, Raymond, Jr., Esq., Burke & Parsons...................................... .............. 72 Corrado, Ernest, vice president, American Institute of Merchant Shipping 72 Prepared statement.......................................................................................... 82 Gianelli, William R., Assistant Secretary of the Army (Civil Works), and Chairman of the Board of Directors, Panama Canal Commission.............. 9 Gotimer, Harry, Esq., Kirlin, Campbell & Keating ..................................... ~..... 72 Prepared statement ......................................... ....................... 86 Jones, Hon. Walter B., chairman, Merchant Marine and Fisheries Committee.............................. ........................................................................................ 2 Kujawa, Leonard J., partner, Arthur Andersen & Co...................................... 64 Prepared statement.......................................................................................... 67 Luciano, Peter, executive director, Transportation Institute.......................... 72 McAuliffe, Dennis P., Administrator, Panam~ Canal Commission ............... 9, 108 Prep~red statement................................................................................. ......... 12 Phillips, Bob, Esq., Texaco...................................................................................... 7~ Smith, Waller B., Risk Manager to the Panama Canal Commission (pre-pared statement) .............................. ....... 112 U.S. General Accounting Office, International Division (prepared statement) ............................................................................................ .-.......................... 110 Additional material supplied: Jones, Hon. Walter B.: Subcommittee staff memorandum to members of ~he S~bcom~ittee on Panama Canal/Outer Continental Shelf regarding this hearing..................................................................................................... 3 Kujawa, Leonard J.: Questions submitted by Mr. H:ubbard and the answers ....................................... ................................................ ~ .............................. 108 Panama Canal Commission: Questions submitted by Mr. Hubbard and the answers .................... .-....... 16 Questions submitted by Mr. Lent and the answers................................... 53 Status of claims against the Panama Canal Commission arising from vessel accidents occurring after September 30, 1979 ............................. 38 Status of claims against the Panama Canal Company for fiscal years 1977-79 ......................................................... ~.................................................. 25 Transportation Institute: Comparative print-Title 22........................................................................... 76 Proposed amendment to Title 22, United States Code.............................. 75 Communication submitted: Beale, Almer W., II: Letter of December 10, 1982, to Hon. Carroll Hub-bard ............. ................................................................................................... ....... 109 um

PAGE 5

PAN AMA CANAL ACT OF 1979 THURSDAY, DECEMBER 2, 1982 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON PANAMA CANAL/ OUTER CONTINENTAL SHELF, COMMITTEE ON MERCHANT MARINE AND FISHERIES,. Washington, D.C. The subcommittee met, pursuant to call, at 10:30 a.m., in room 1334, Longworth House Office Building, Hon. Carroll Hubbard, Jr. (chairman of the subcommittee) presiding. Present: Representatives Hubbard, Anderson, Tauzin, Sunia, Lent, and Carney. Also present: Jana Oakley, Janie Lawson, John Long, Robin McClung, and Ed Welch. Mr. HUBBARD. The Subcommittee on Panama Canal and Outer Continental Shelf will come to order. We do have three members present,.all.on the majority side. We still do not have any representation from the minority side. How ever, I have been advised that none of theni will object to our pro ceeding. Congressman Anderson, Congressman Tauzin and I welcome our distinguished colleague, Mr. Sunia, who sits in witness today. He is a member of the full committee. We appreciate him very much for being here for our subcommittee hearing. Mr. SuNIA. Thank you. Mr. HUBBARD. The subcommittee has scheduled an oversight hearing for this morning to receive testimony from various interested parties on the possibility of amending the Panama Canal Act of 1979 concerning the Panama Canal Commission's authority to adjust and pay claims for vessel damage. Also to be discussed are the Commission's accounting methods in setting aside toll revenues to pay claims, and the status of pending vessel damage claims out side the locks exceeding $120,000. Briefly .summarizing the current law, the Panama Canal Act of 1979 directs the Panama Canal Commission to "adjust and pay" claims -on any vessel for damage which occurs while transiting the Panama Canal. The act divides these claims into two categoriesinside the locks and outside the locks. If a vessel is damaged inside the locks, there is no limit on the amount the Commission may award. If a vessel is damaged outside the locks, the Commission may pay only those claims not exceeding $120,000. Any claims for outside-the-locks damage greater than $120,000 must be submitted by the Commission to Congress along with a report stating the facts behind the claim and the Commission's recommendation for (1)

PAGE 6

2 settlement. For the first time two claims exceeding the $120,000 limit were submitted to Congress on November 10 of this year. A briefing memo was made available to subcommittee members earlier this week and is in the members' folders. The memo details the information about the current law and prior law for adjusting and paying these claims. This subcommittee has been contacted about this issue by several interested parties, some of whom are testifying before us today. We appreciate your taking the time from your schedules to appear before us this morning, and we look forward to receiving your remarks. We do have a statement for the record on behalf of the full committee chairman, the Honorable Walter B. Jones. Without objec tion, the full statement of Chairman Jones will be entered into the record. [The statement of Walter B. Jones follows:] STATEMENT OF HON. WALTER B. JONES, CHAIRMAN, MERCHANT MARINE AND FISHERIES COMMITTEE By way of introduction to the issues we will consider today, let me mention briefly some of the background of this hearing. During the Panama Canal Commission au thorization process last year, the committee became aware-after meetings with commission financial staff-that approximately $12 million per year in toll revenue is earmarked for the payment of vessel damage claims. Of that amount, the Com mission allocates $6 million for the payment of claims for damage that occurs out side the canal locks where the claim exceeds $120,000. The committee questioned whether this $6 million annual set-aside was appropriate in view of the fact that section 1415(b) of the Panama Canal Act of 1979, 22 U.S.C. 3775, specifically prohibits the Commission from adjusting or paying any such claims. Under that section, claims for outside-the-locks damage exceeding $120,000 must be referred to Con gress. The Commission argued that while the law precluded their paying any of these claims, it did not bar collecting tolls for that purpose. Doing so, they asserted, was simply a prudent business practice since the cl~ims forwarded to Congress would, in all probability, eventually be paid out of Commission funds. The Commission felt that Congress would not, and under the 1979 Panama Canal Act arguably could not, pay such claims from the General Fund of the Treasury. One reason for this hearing, therefore, is to inquire into whose interpretation of the Panama Canal Act of 1979 is more accurate, and having examined that ques tion, to determine whether any changes in the law are needed. The Commission may not disobey the law simply because it disagrees. On the other hand, Congress should not unnecessariy mandate adherence to rules of operation that are illogical or will be detrimental to the efficient and economical operation of the canal. The other primary motivation for this hearing is the complaint by some canal users that the Panama Canal Act of 1979 unfairly restricts the rights of vessel damage claimants. Under sections 1412 and 1416 of the act, 22 U.S.C. 3772 and 3776, the Panama Canal Commission has no power to settle claims for outside-the-locks damage exceeding $120,000, and in no case may a claimant sue on any non-locks claim. Thus, the Commission may pay non-locks claims under $120,000 but the award cannot be appealed to court. Similar claims over $120,000 must be settled by Congress, and again, cannot be taken to court. We meet today to consider various options relating to this claims situation. Mr. Chairman, at this point I would ask unanimous consent that the staff background memorandum on these matters be included in the hearing record immediately following my statement. The memorandum elaborates on the issues we will discuss here today and puts them in historical perspective. I think it will helpful to those interested in these proceedings.

PAGE 7

TO: 3 11.~. J,o~e of P.epresentatibt~ ~ommittet on fflmbant .marine anb jf isbeties ltoom 1334, 'i.angtuortb J,ou.ut 6ffice ,Suilbing aa.ubington. a.~. 20515 November 30, 1982 M E M O R A N D U M FROM: Members, Subcommittee on Panama Canal/Outer Continental Shelf Subcommittee Staff RE: Hearing on Vessel Damage Claims Against the Panama Canal Commission, December 2, 1982 INTRODUCTION On Thursday, December 2, 1982, at 10:00 am, in 1334 Longworth, the Panama Canai/outer Continental Shelf Subcommittee will hold a hearing on vessel damage claims against the Panama Canal Commission. The hearing will focus primarily on three areas_ : (1) The status of pending vessel damage claims exceeding $120,000; (2) The Commission's accounting methods in setting aside toll revenues to pay vessel damage claims; and (3) The possible amendment of the Panama Canal Act of 1979 to change t~e Commiss1ofi's authority to pay claims. CURRENT LAW The Panama Canal Act of 1979 (the Act1 Public Law 96-70, di~ec~s the Panama Canal Commission (the Commission) to nadjust and pay" claims for damage to any vessel, its cargo, crew, or passengers that occurs while the vessel is passing through the P~nama Canal. The Act divides these claims into two categories --inside the locks and outside the locks. Under section 1411 of the Act, 22 u;s.c. 3771, if a vessel is damaged while inside the locks, there is no limit on the amount the Commission may award, although the award must be reduced in proportion to the contributory negligence of the vessel master, crew, or passengers. However, since Commission employees exercise virtually total control over a vessel while it is inside the locks, the Commission is essentially an insurer of all claims for damage arising

PAGE 8

4 inside the locks. If an inside-the-locks claimant disagrees with the amount offered by the Commission, he or she may ~~eon the claim in the United States District Court for the Eastern District of Louisiana. Section 1412 of the Act, 22 u.s.c. 3772, provides that if a vessel is damaged outside the locks, the Commission must adjust and pay those claims not exceeding $120,000, and again, the award must be reduced by the contributory negligence of the vessel or its crew. Any claims for outside-the-locks damage greater than $120,000 must be submitted by the Commission to Congress, along with a report stating the facts behind the claim and the Commission's recommendation for settlement. The Act does not permit outside-the-locks claimants to sue if they are dissatisfied with the Commission's award--the award is final. Claims in both categories are barred unless, before leaving the canal, the damage is called to the Commission's attention and the Commisson's Board of Local Inspectors (BLI) conducts an investigation. The Act empowers the BLI to summon witnesses, administer oaths, and require the production of necessary documentation. The BLI hearing transcript and findings are admissible evidence in court actions on claims. PRIOR LAW From 1912 to 1951, an apprnpriated fund agency known simply as the Panama Canal operated all aspects of the canal except for the railroad, which was operated by the Panama Railroad Company. During this period, the liability for inside-the-locks damage to vessels, cargo, crew, and passengers was the same as it is now. The agency had authority to pay all claims, without limitation, for damage occurring inside the locks, and essentially insured all such claims. As for outside-the-locks damage, from 1912 until-1940 the Panama Canal had no liability whatsoever--no claims could be filed and sovereign immunity blocked any legal action for injuries sustained. In 1940, Congress partially waived sovereign immunity outside the locks, establishing basically the same scheme that now exists. The Panama Canal was authorized to pay outside-the-locks claims not exceeding $69,000, and those over $60,000 had to be submitted to Congress. Still, no suits could be brought on claims for damage outside the locks. This a~pect of sovereign immunity did not change. Apparentl1, no claims ove~ $60,000 were ever filed during this period, sd none was ever sent to Congress. In 1951, the Panama Canal Company, a federal corporation, took over operation of the canal. Since control of the canal was changing from a federal agency to a corporation, Congress felt that the company's liability for damages should be comparable to other corporations. It removed any restrictions on the company's ability to settle claims and on the company's amenability to suit. Thus, from 1951 to 1979 the Panama Canal Company could settle and pay any claims agairist it, sue, and be sued lik~ every other corp6ration.

PAGE 9

5 With passage of the Panama Canal Act of 1979, canal operations returned to the control of an appropriated fund fediral agency. Consequently, Congress readopted the scheme of liability that had existed from 1940 to 1951, but increased the amount above which outside-the-locks claims had to be sent to Congress --from $60,000 to $120,000. As with the pre-1951 scheme, claimants for damage outside the locks may not sue on their claim in court. The settlement of the Commission is final. ISSUES AND OPTIONS A. Status of Pending Claims The Committee is aware that at least 11 claims for damage outside the locks exceeding $120,000 have been filed against the Commission since October 1, 1979 (the effective date of the Panama Canal Act of 1979). Only two of these claims have been forwarded to Congress, and those were sent on November 10 of this year. One of the issues to be addressed at the hearing is the cause of the delay in processing these claims and submitting them to Congress. It may be that the claims procedure, atleast with respect to this type of claim, is unduly cumbersome and in need of adjstment. Another possibility is that part of the delay is attributable to claimants. If this is true, and if these delays are causing problems for the Commission, perhaps the imposition of a statute of limitations on the filing of claims should be considered. B. Claims Accounting Methods Section 1602(b) of the Act, 22 u.s.c. 3792(b), requires canal tolls to cover all costs of canal operation. Since the payment of claims is a cost of canal operation, the canal toll base includes an amount for claims. Each year, $12 million in tolls is set aside for the eventual payment of claims. Of this amount, the Commission allocates $6 million t6 pay claims for d3mage inside the locks and to pay outside-the-locks damage where the claim is less than $120,000. There is no question about the propriety of this practice, since the Commission clearly has authority to pay_these claims. The other $6 million annually is allocated to outside-the-locks claims exceeding $l20,000. The issue is whether the Commission s~ould be collecting $6 million a year in tolls.to pay these claims when section 1415(b) of the Act, 22 u.s.c. 3775(b), specifically prohibits the Commission from adjusting or paying them. Section 1415(b) states: "(b) The Commission shall not adjust and pay any clai~s for damages for injuries arising by reason of the presence of the vessel in the Panama Canal or adjacent waters outside the locks where the.amount of the claim exceeds.$120,000 but shall submit the claim to the congress in a special.report containing the material facts and the recommendation of the Commission thereon."

PAGE 10

6 The Commission states that it is simply follo~ing prudent business practice in establishing and maintainirtg a reserv~ to pay these claims even though it does not now have the authority to pay them. The Commission assumes that Congress, after reviewing the claims submitted to it and perhaps making adjustments, will direct the Commission to pay the claim out of Commission funds. It is unreasonable to expect, the Commission asserts, that Congress either will decide no~ to pay the claim at all or will vote to pay the claim out of the general. treasury. The Commission, therefore, must have the money available to pay these claims when directed to do so, and must be setting aside that money in the meantime~ The problem with this approach is that the clear statutory language prohibits the Commission from adjusting or paying any outside-the-locks claims exceeding $120,000. If the Commission has no authority to pay such claims, it is arguable whether it has the authority to collect money to pay them. Furthermore, the Commission's assumptions about how Congress will dispose of claims forwarded to it are conjecture. If Congress chooses to disallow or reduce one or all of these claims, then the Commission has overcharged its customers to that extent. Because of the doctrine of sovereign immunity, if Congress rejects a claim, the claimant would not be able to sue on it. ~, -~, Compagnie Generale Transatlantique v. Governor of the Panama Canal, 90 F.2d 225 (5th Cir. 1934). c. Possible Amendments The first option with regard to the claims issue, of course, is not to make any change. The current statutory scheme is essentially the same as that in plac~ form 1940 to 1951. Inside-the-locks claims, those for which the Commission has the clearest liability, are treated under the current law as they have been since 1912. The Commission has full authority to settle these claims without monetary limit and the dissatisfied claimant may sue on the claim in federal court. Outside-the-locks claims exceeding $120,000 are subject to Congressional approval, not a new idea, but one that has not yet been put to practical test. The current law is silent as to how Congress should handle these claims, bt this silence should not create insurmountable problems. Another option is to make the Commission imm4ne from any cla~ms, or, more narrowly, from all,outside-the-locks claims. This latter option would be a return to the pre-1940 status quo, when vessels we~e deemed to assume the risk of passage through the canal outside the locks, and had no basis for any claim or legal action for damage sustained there. Vessels using the canal would not be unprotected, however, since insurance exists--and is currently in use by many vessels--to cover such damage. This option would get the Commission out of the insurance business, and the amounts now .included in the toll base for pay~ent of claims co~ld be used for other purposes or. eliminated and tolls reduced.

PAGE 11

7 An option that probably will. be advocated by ~everal witnesses at the hearing is to return to the scheme in place from 1951 to 1979. That is, allow the Commission to pay all claims without limit. This option could promote faster settlements, although at the expense of keeping the Commission involved as an insurer and maintaining higher tolls. Also, the main reason for allowing the Panama Canal Company to settle all claims from 1951 to 1979 was its corporate structure. Congress felt it should have the same rights and responsibilities as other corporations. Now, of course, control of the canal once again rests with a federal agency, not a corporation. The corporate rationale, therefor~, no ~onger applies. It is also possible to leave the claims structure as presently constituted, but raise the monetary threshold for claims that are required to be sent to Congress. The H~use report qn the bill that became the 1979 Act includes a letter from the then Governor of the Canal Zone which indicates that, based on the consumer price index, the $60,000 cut-off established in 1940 would be over $300,000 in 1978, owing to inflation. H. Rep. No. 98, Part I, 96th Cong. 1st Sess. 100-01 (1979).With the high cost of vessel repair nowadays, the $120,000 limit on the Commission's power to settle outside-the-locks claims may be unreasonably low. If Congress wishes to retain the power to approve large outside-the-locks claims, it can still do so, but perhaps a higher threshold amount is in order. Another option centers on ~he vessel pilots who guide ships through the canal. These pilots are Commission employees and have final authori.ty over the movement of each ship they command. Sinc e the Commission pilot has the final word, legal liability for vessel damage rests with him and, hence, with the Commission. If the pilots' status were changed to an advisory role, then the ship's master would retain final authority over the vessel's movement and would be primarily liable for any damages. This option would probably be difficult to implement with respect to inside-the-locks damage but could be feasible for outside-the-locks damage. A final option is to place a limitation on the time in which claims may be filed. In 1979,-the Senate version of what became ~he Act contained a two-year statute of limitations for the filing of claims, with any legal actions on those claims r~quired to be fi~ed within one year of the Commission's final disposition of the claim. See S. Rep. No. 255, 96th Cong., 1st Sess. 20-21(1979). Obviously, if a claim may not be filed after a certain time, the Commission need not carry a reserve for that claim indefinitely. Once the filing time for the claim expi~es, the money set aside to pay that claim can be dedicated to other purposes, including the payment of other claims, which helps keep down tolls. One general consideration concerning all the options should be kpet in mind. Whatever course Congress takes may serve as a precedent for how ~anama will manage the canal after the year 2000. Obviously, however, Panama will not be bound after 2000 by the way the United States operates the canal until then.

PAGE 12

8 Mr. HUBBARD. We will now hear from our distinguished ranking minority member, Norman Lent of New York. Mr. LENT. Thank you, Mr. Chairman, for scheduling these hearings today to hear testimony on vessel damage -claims, particularly those in excess of $120,000 involving accidents outside the locks in Panama Canal waters. Several issues appear to be involved: The time it takes to resolve these claims is said to be excessive, and the procedures unwieldly; the lack of judicial review and the propriety of the $120,000 limit applied to claims which the Commission must adjust and pay; and the accounting procedures by which the Com mission sets aside certain funds to meet potential liabilities. The provisions in Public Law 96-70 governing vessel damage claims have been in effect since October 1, 1979. They are patterned after the procedures which were applicable when the Panama Canal previously had been operated as an appropriated fund agency, as it is today. In order to further examine the liability issues raised, we will need to have the relevant facts on how vessel damage claims were handled during the years immediately preced. ing implementation of the Panama Canal Treaty, as well as f?ince the 1977 treaties took force. Pertinent facts will include the dates of accidents occurring outside the locks and resulting in claims for damages in. excess of $120,000 each, the date the claim was filed and in what amount, as well as the date and amount of the final settlement. This information should clarify -the issues and help us determine if there is any need to amend the Panama Canal Act. Without further adieu, Mr. Chairman, I look forward to hearing from our witnesses this morning on these issues involving vessel damage claims. Mr. HUBBARD. Thank you very much, Mr. Lent. We will now call on Congressman Glenn Anderson of California for any opening comments. Mr. ANDERSON. No comments, Mr. Chairman. Mr. HUBBARD. Congressman Tauzin? Mr. TAUZIN. Thank you, Mr. Chairman. As l understand it, ac cording to the act we are dealing with, section 1411 of 22 U.S.C. 3711, if the vessel is damaged within the locks, the Commission is virtually the self-insurer since it has control of the vessel inside the lock. Outside the locks is where the problem arises. As I understand the problem, the Commission cannot settle the claim outside the locks ove.r $120,000. It must submit that claim to Congress. Wh~n the claim is finally settl~d, it is final. There is no judicial review. Mr. Chairman, I want to express some concern about that procedure at the onset of these hearings. It seems to me that asking Congress to be in the business of arbitrating issues of contributory negligence between masters and crew members of passengers even of vessels outside the locks in cases involving $120,000 or more places this Congress in a rather strange position. We can't get through our business as it is with the pressing matte~s of budget and appropriations every year. If we have to sit as a panel of arbitration in issues involving the very technical and complicated issues of contributory negligence on t4e seas, we probably are never going to get any work done. It seems to me this is a judicial matter: We ought to provide some mechanism for the Commission

PAGE 13

9 to recommend settlements and perhaps some court to approve or disapprove of that settlement; some court that is not only authorized to do that kind of work, empowered to make that kind of judgment, but manned with the right personnel, equipment, and exper tise to do a good job. I am not sure this Congress can do it. Mr. Chairman, I w3:nt to commend you for c~lling these hearings and for calling this very serious problem to our attention. I hope as a result of these hearings, we can come up with some new system of settling these claims that will involve the Commission and the courts rather than the Congress . Thank you for the time. Mr. HUBBARD. Thank you very much, Congressman Tauzin. Mr. Sunia, do you have any remarks you would like to make at this time? We again express our appreciation to you for being with us. . Mr. SuNIA. I have nothing to say. I just thought I would stop by and see what you all are doing. Mr. TAUZIN. Somebody ought to. Mr. SuNIA. I appreciate your allowing me to sit with you this morning. Mr. HUBBARD. Thank you again. We would now ask our first witnesses to come forward. Bill Gianelli, we will ask you to please go first. STATEMENTS OF WILLIAM R. GIANELLI, ASSISTANT SECRETARY OF THE ARMY (CIYIL WORKS), CHAIRM~N OF THE BOARD OF DIRECTORS-PANAMA CANAL COMMISSION; AND DENNIS P. McAULIFFE, ADMINISTRATOR-PANAMA CANAL COMMISSION Mr. GIANELEI. Thank you very much, Mr. Chairman, members of the subcommittee. For the record, I am William R . Gia:p.elli, Assistant Secretary of the Army for Civil Works and Chairman of the Board of the Panama Canal Commission. At the table with me today is Mr. Dennis P. McAuliffe, Administrator of the Panama Canal Commission. General McAuliffe is on the site and runs the canal on a day-to-day basis. It is a pleasure for me to appear before you today as you receive testimony on the possibility of amending the Panama Canal Act of 1979 concerning the Panama Carial Commission's authority to adjust and pay claims for vessel damage. I think the dialog that has taken place, Mr. Chairman, by you and your subcommittee members indicated the nature of the problem. My statement is very short. I would like to submit it for the record. Following that, Mr. McAuliffe will elaborate further. Mr. HUBBARD. Fine. Mr. GIANELLI. Concern has been expressed by various sourcesthe Panama Canal Commission, by the Office of Management and Budget, by. the U.S. General Accounting Office, by international shipping, as well as by the Congress itself-relative to the liability of the Commission for ship accidents which occur outside the Panama Canal locks where the damages sustained are in excess of $120,000. A definite need exists to clarify this matter for all parties involved. Accordingly, I welcome your efforts in this regard today.

PAGE 14

I 10 Public Law 96-70 has removed from the Commission the authority, which resided in the canal for over 25 years, to adjust and pay these claims and requires instead that they be submitted to the Congress of the United States. Confusion has arisen since the law is not explicit as to congressional intent on who is to bear the ultimate financial responsibility for these claims. While the law is am biguous on the point, we have taken the position that the Commis sion, in the final analysis, will be required to pay these claims. Therefore, we are accruing reserves to fund these liabilities on the assumption that Congress will assign the Commission responsibility for their payment. This action, I might say, is in full accord with the clear intent that the canal be operated on a self-sufficient basis, without cost to the U.S. taxpayer. The fact that we are charging shipping for the costs of these accidents-through inclusion of a factor in the toll bases-makes it imperative that the situation be clarified, one way or the other. If the law is amended to reflect no liability on the part of the United States for these accidents, then the Commission can cease the assessment of this cost which, in effect; constitutes an insurance pre mium. Also, moneys collected to date for this purpose could be returned to shipping prospectively through the tolls process. If, on the other hand, the Congress wishes to have the Commission bear this cost, there will be no added cost to shipping since, as I have just stated, the toll base presently contemplates that situation. Mr. Chairman, in closing, I would like to ~eiterate my appreciation to you and the subcommittee for the opportunity to appear before you today. I have asked Mr. McAuliffe to follow me and present to this committee a more detailed analysis of the claims situation. We will be available to respond to any questions which the subcommittee might have with regard to our testimony. Thank you for your attention. Mr. HUBBARD. Naturally, we look forward to your answers to our questions. Now, we ask for Mr. McAuliffe to please address the subcommit tee. STATEMENT OF DENNIS P. McAULIFFE, ADMINISTRATORp AN AMA CANAL COMMISSION Mr. McAuLIFFE. Thank you, Mr. Chairman, members of the sub committee. I am Dennis P. McAuliffe, the Adminstrator of the Panama Canal. I am pleased to appear before you today regarding claims procedures for vessel damage as they currently exist in the Panama Canal. Mr. Gianelli has asked me to expand on his testimony. I propose to summarize my full statement which I request be made part of the record of this hearing-. Before turning to the points which I have been asked to address, I would like to say a few words about vessel accidents at the canal in general. The Panama Canal poses perhaps the most difficult challenge of its kind to safe navigation ~nywhere in the world. For that reason, the safety of vessels passing through the waterway must always be foremost in the minds of our pilots, tugmasters, locks operators, and the other hundreds of persons involved in. the

PAGE 15

11 transit function. That we are succeeding is borne out by our safety record. Over the 3 fiscal years which ended this past October, we have averaged one accident for just over every 261 oceangoing transits, which reflects a downward trend. I might also point out that this figure includes those accidents which are due to steering < or engine failure aboard the vessel or to other causes not attributable to Commission employees or equipment. With the canal operating day and night and the number of vessels with beams of 80 to 106 feet using the canal increasing almost daily, we feel we can be very proud of this recor9. With regard to the specific provisions of law which govern the Commission's liability for marine accidents, I am concerned that confusion exists concerning that liability for accidents occurring in the Panama canal outside the locks, where damages exceed $120,000. This is a matter of financial importance both to the canal and its users and we welcome the opportunity to explain the situation as it currently exists. This ambiguity in the law required the Commission to deter mine, at the outset of the treaty period, whether this category of marine accident would become a liability of this agency so as to re. quire the inclusion of an expense provision in the tolls base. A deci sion on this question was particularly important in view of the requirement-which is clear both in the statute and from its legisla tive history-that the canal be operated on a self-sustaining basisthat is, at no cost to the U.S. taxpayer. From the statute's requirement that nonlocks claims of over $120,000 be submitted to the Congress with a special report con~ taining the Commission's recommendations, it appeared to the agency more likely than not that meritorious claims would be honored-with the Commission's ultimately being directed to make the payments. The General Accounting Office was consulted on the question and agreed with the conclusion that the Commission should recognize in its books the liability for such accidents. On that basis, the Commission has included in the tolls base a provision to recover costs of all marine accidents which occur at the canal, regardless of whether they occur inside or outside the locks and regardless of their amount. By so doing, the agency has set aside in the Panama Canal fund, moneys sufficient to cover its estimated liability for nonlocks vessel accidents in excess of $120,000. It would be extremely helpful if the Congress acted now to remove this ambiguity which has existed in the law since October 1979. Turning to another aspect of the vessel-accident provisions of the Panama Canal Act, there exists a gap which the subcommittee may, as a part of this amendatory process, wish to fill. It is present ly unclear if there is a statute of limitations which governs court actions brought against the Commission on claims arising out of vessel accidents occurring in the canal locks. In addition, there currently is no statutory limitation on the time in which vessel accident claims-whether .they arise out of locks or nonlocks casualties-must be presented to the Commission. If the subcommittee considers that a statute of limitations would be meritorious, the Commission would be prepared to work with the subcommittee in perparing necessary legislative language. A

PAGE 16

12 prov1s10n could be drafted in such a way that it would have the effect of prohibiting stale claims while, at the same time, allowing the majority of timely claims to be settled without the need of trial. The final subject which the subcommittee has asked to be ad dressed is the status of those vessel damage claims awaiting sub mission to the Congress under section 1415 of the Panama Canal Act, that is, nonlocks cases where the amount of the claim exceeds $120,000. Let me preface my remarks here by stating that the first two such claims (involving the vessels Swan Arrow and Texaco Connecticut were forwarded to the Office of Management and Budget [0MB] earlier this year. Clearance by that agency was obtained last month and those claims, along with the Commission's report and recommendations concerning them, are now before the Congress. In addition to those two, the Commission has received 13 more claims for vessel damage sustained outside the canal locks in which more than the statutory limit of $120,000 has been demanded. Three of these appear to have been adequately documented and are undergoing review in the agency. We expect that review to be com pleted soon and the claims to be forwarded to the Congress, through 0MB, in the near future. The remaining 10 claims did not contain the ne~essary supporting documentation required to be submitted to the agency by the Panama Canal Act. The owners have been requested to provide the missing evidentiary material and, upon its receipt, the claim-analysis process will be resumed. Since the Comm~ssion cannot predict when the necessary documentation will be provided, we cannot estimate when these claims will b e ready for transmittal to the Congress. In closing, Mr. Chairman, I would like to state that if this com. mittee favors amending the Panama Canal Act to provide that the commission will adjust and pay all meritorious claims against it for vessel acc~dents at the canal, regardles~ of where they occur or of the amount of the damages, we would be prepared to provide appropriate legislative language after consultation with other concerned agencies. Such a system was in affect between 1951 and 1979 and was considered to be a just and equitable one. Mr. Chairman, I thank you for the opportunity to appear before you today to address this important subject. If you or the other members of the subcommittee have any questions, I would be pleased to answer them at this time. [The full statement of Dennis McAuliffe follows:] PREPARED STATEMENT OF DENNIS P. MCAULIFFE, ADMINISTRATOR, PANAMA CANAL COMMISSION INTRODUCTION Mr. Chairman, members of_ the subcommittee, I am Dennis P. McAuliffe, the ad ministrator of the Panama Canal Commission. I am pleased to appear before you today regarding claims procedures for vessel damage as they currently exist in the Panama Canal. Mr. Gianelli has asked me to expand on his testimony, but before turning to the points which I have been asked to address, I would like to say a few words about vessel accidents at the canal in general. With its three. sets of locks and its narrow, twisting, rock-lined channels, the Panama Canal po~es perhaps the most difficult challenge of its kind to safe navigation anywhere in the world. For that reason, the

PAGE 17

13. safety of vessels passing through the waterway must always be foremost in the minds of our pilots, tugmasters, locks operators, and the other hundreds of persons involved in the transit function. That we are succeeding is borne out by our safety record. Over the three fiscal years which ended this past October, we have averaged one accident for just over every 261 oceangoing transits, which reflects a downward tend. I might also point out that this figure includes those accidents which are due to steering or engine failure aboard the vessel or to other causes not attributable to commission employees or equipment. With the canal operating day an,d night and the number of vessels with beams of 80 to 106 feet using the canal increasing almost daily, we feel we can be very proud of this record. With regard to the specific provisions of law which govern the Commission's lia bility for marine accidents, I am concerned that confusion exists concerning that lia bility for accidents occurring in the Panama Canal outside the locks. This is a matter of financial importance both to the canal and its users and we welcome the opportunity to explain the situation as it currently exists. PROVISIONS OF PU. BLIC LAW 96-70 Section 1411 of Public Law 96-70 prescribes the extent of the Commission's liability to pay damages as a result of accid~nts to vessels which occur while they are passing through the canal locks. There is no statutory limit on the amountof liability which the agency m:iy incur in these cases, and claimants who are not satisfied with an award offered by the Commission may bring suit on their claims in New Orleans. That provision is abundantly clear. Section 1412, which is the provision governing the agency's liability for vessel ac cidents occurring outside the locks, is quite different, however, and it is with respect to that section that some confusion exists. Section 1412 limits the Commission's authority to adjust and pay claims for injuries occurring outside the locks to those not exceeding $120,000. Claims in excess of that amount must be submitted to the Con gress with a special report containing the material facts and the recommendation of the Commission concerning them. Unlike the situation where damage is sustained in the locks, claimants in non-locks cases have no recourse to the courts, regardless of the amount of their claims. Because the law does -not specify whether the Con gress will honor such claims, it leaves an open question as to whether legitimate claims will be paid. Hence, the eventual liability of the United States with respect to them is unclear. An outside consultant who has looked at the question for the Commission has been unable to give a definitive opinion as_ to how that liability should be determined in light. of the statutory provision. This ambiguity in the law required the Commission to determine, at the outset of the treaty period, whether this category of marine accident would become a liability .of this agency so as to require the inclusion of an expense provision in the tolls base. A decision on this question was particularly important in view of the requirement-which is clear both in the statute and from its legislative history_:...that the canal be operated on a self-sustaining basis (that is, at no cost to the U.S. taxpayer). From the statute's requirement that non-locks claims of over $120,000 be submitted to the Congress with a special report containing the Commission's recommenda tions, it appeared to the agency more likely than not that meritorious claims would be honored-with the Commission's ultimately being directed to make the pay ments. The General Accounting Office was consulted on the question and agreed with the conclusion that the Commission should recognize 'in its books the liability for such accidents. On that basis, the Commission has included in the tolls base a provision to recover costs of all marine accidents which occur at the canal, regard less of whether they occur jnside or outside the locks and Fegat dless of their amount. By so doing, the agency has set aside in the Panama Canal Commission fund, moneys sufficient to cover its estimated liability for non-locks vessel accidents in excess of $120,000. It would be extremely helpful if the Congress acted now to r,~move this ambiguity which has existed in the law now since October 1979. Before moving to my next point, I would like to spend a few moments on our accounting procedure. Recovery of marine .accident costs from tolls poses a special problem because both the occurrence and the severity of accidents will vary from year to year. For exam ple, marine-accident costs in 1979 approximated $15 million, as compared with $6 million the previous year and $11 million in 1980. To accommodate these annual cost fluctuations in the tolls process, the Commission has established a reserve to provide for the normalization of marine-accident costs over several accounting peri ods. In this process; actual accident costs are charged against the reserve as they 1 2 -978 0 2

PAGE 18

14 are incurred, while the reserve itself is maintained through an annual expense pro vision calculated to approximate the yearly cost over time. Aside from normalizing marine-accident costs, the reserve procedure provides the basis for ensuring that integrity over the use of funds collected for this purpose is maintained with canal users. If the reserve balance indicates over a period of time that costs have been less than collections, the overrecovery is returned to shipping prospectively through the tolls-setting process, that is, if the Congress determines that these claims will not be honored-the Commission has in place an accounting procedure whereby the moneys collected can and will be returned to shipping pro spectively through the deferment or minimization of future toll increases. The result of these procedures is that the canal is self-insured against the. risks normally associated with recurring and reasonably predictable marine casualties. One consultant has advised the agency, however, that there is clear and distinct possibility that an accident of catastrophic proportions could occur under circum stances which would make the Commission liable. Such an eventuality could entail the multi-million dollar loss of the vessel, its cargo, and/ or the loss of multiple lives which could produce claims far beyond the self-financing capability of the canal. He concludes that it would be appropriate to consider the purchase of catastrophe insurance to cover the risk of such an eventuality. The Commission is in accord with that recommendation but recognizes that authorization for it to acquire such insur ance would have to be set forth in statute. Turning to another aspect of the vessel-accident provisions of the Panama Canal Act, there exists a gap which the subcommittee may, as a part of this amendatory process, wish to fill. It is presently unclear if there is a statute-of-limitations which governs court actions brought against the Commission on claims arising out of vessel accidents occurring in the canal locks. In addition, there currently is no statutory limitation on the time in which vessel accident claims-whether they arise out of locks or non-locks casualties-must be presented to the Commission. If the subcommittee considers that a statute-of-limitations, which addresses both the time in which an administrative claim may be filed with the agency, as well as the period in which suit may be brought in those cases where judicial review is permitted to be meritorious, the Commission would be prepared to work with the sub committee in preparing necessary legislative language. A provision could be drafted in such a way that it would have the effect of prohibiting stale claims while, at the same time, allowing that the majority of timely claims be settled without the need of trial. The final subject which the subcommittee has asked to be addressed is the status of those vessel damage claims awaiting submission to the Congress under section 1415 of the Panama Canal Act, that is, non-locks cases where the amount of the claim exceeds $120,000. Let me preface my remarks here by stating that the first two such claims (involving the vessels Swan Arrow and Texaco Connecticut) were forwarded to the Office of Management and Budget (0MB) earlier this year. Clearance by that agen9y was obtained last month and those claims, 3:long with the Com mission's rep0rt and recommendation concerning them, are now before the Congress. In addition to these two, the Commission has received 13 more claims for vessel damage sustained outside the canal locks in which more than the statutory limit of $120,000 has been demanded. Three of these appear to have been adequately documented and are undergoing review in the agency. We expect that review to be com pleted soon and the claims to be forwarded to the Congress, through 0MB, in the near future. The remaining ten claims did not contain the necessary supporting documentations required to be submitted to the agency by the Panama Canal Act. The owners have been requested to provide the missing evidentiary material and, upon its receipt, the claim-analysis process will be resumed. Since the Commission cannot predict when the necessary documentation will be provided, we cannot estimate when these claims will be ready for transmittal to the Congress. Although we have not yet received claims concerning them, there have been 21 more vessel accidents outside the locks where we consider that the agency may have some fault for damages which are estimated to be more than $120,000. As a related matter, it is our understanding that there has been .concern ex pressed by some shipping interests that settlement by the Commission of vessel-accident claims is a time-consuming affair. While we make every effort to process these claims expeditiously, vessel-accident claims, by their nature, are generally not sus ceptible of prompt settlement and payment. This is so because, except in the most serious cases, vessel owners will ordinarily defer repairing damages sustained at the canal until the period of their ship's next regularly scheduled drydocking, which may be months or years after the accident. The collection and presentation of docu-

PAGE 19

15 mentary support for related, recoverable elements of these claims (such as drydock-ing costs, charges for marine surveys, and loss of use) take more time. These built-in delays notwithstanding, the Commission is constantly seeking ways to improve all of its services to world shipping, and the field of claims settlement is no exception. We would welcome any suggestions from the shipping community as to how, within the parameters of the statutes under which we must operate, our services in this area might be improved. I do feel, however, that we are presently doing a good job here and we will continue to do so. In closing, Mr. Chairman, I would like to state that if this committee favors amending the Panama Canal Act to provide that the Commission will adjust and pay all meritorious claims against it for vessel accidents at the canal, regardless of where they occur or of the amount of the damages, we would be prepared to provide appropriate legislative language after consultation with other concerned agencies. Such a system was in effect between 1951 and 1979 and was considered to be a just and equitable one. Mr. Chairman, I thank you for the opportunity to appear before you today to ad dress this important subject. If you or the other members of the subcommittee have any questions, I would be pleased to answer them at this time. Mr. HUBBARD. Thank you very much. This first question is to both or either of you: according to Com mission accounting procedures, $6 million dollars per year is col lected in a reserve fund to pay for the locks claims exceeding $120,000. Could you please inform the subcommittee on the lowering effect of the tolls should the $6 million dollars not be collected or how would this lower the tolls? Mr. McAuLIFFE. All told, the amount of money set aside for accidents amounts to approximately 3.7 percent of the. total revenues collected; so, therefore, a savings of about one-half of that might be passed on if that class of accident were not collected for. Mr. HUBBARD. Mr. Gianelli, do you have anything to add? Mr. GIANELLI. No. Mr. HUBBARD. When the Panama Canal Ag.ency was the appropriated fund agency from 1912 to 1951, did the agency have a re serve fund even though no claims over $60,000 were submitted to Congress during that time? Mr. McAuLIFFE. No, sir, there was not such a fund. Mr. HUBBARD. What, prior to the enactment of Public Law 96-70, was the average time lapse for claims over $120,000 from the date of accident until the settlement of the claim? Mr. GIANELLI. Mr. Chairman, we do not have the precise aver ages for the types of claims you have indicated. There are so many imponderables relating to claims that it is difficult to j~dge precisely how rapidly a claim can be completed after all of the review process. Having spent a considerable amount of time going over claims as well as the procedures that we use for the processing of claims, it is my opinion t4at the time for processing claims now is substantially the same as it was prior to the treaty. Mr. McAuLIFFE . Mr. Chairman, may I add a little bit to that? One of the problems with respect to processing the claims is that there is such a wide variation in the way that the facts are pre sented. For example, a number of ships that might have some sort of claim will not actually file the claim, the final claim with all the documentation for example, until such time as the ship might be serviced for other reasons. So you might have a considerable period of time before you can really get an exact handle on what the amount of the damage would be.

PAGE 20

16 So there is a wide variation, much of it beyond the control of the Commission, but tied into, for e~ample, how much time it takes a claimant to get his documentation together to support the claim. Mr. HUBBARD. On page 8 of your remarks, you state there have been 21 incidents in the Commission's estimates that its liability may exceed $120,000, but no claim has yet been filed. How many of these claims would now be barred if a 2-year statute of limitations on the filing of claims had been in effect since 1979? Mr. GIANELLI. Mr. Chairman, we will have to furnish you that information. We don't have it now. We could get it rapidly. [The information follows:] Of the 21 ma~ine accidents for which no claims have been received, 4 would have been time-barred by Dec. 1, 1982, if a 2"7year statute-of-limitations on the filing of claims had been in effect since Oct. 1, 1979. [The following was received for the record:] Mr. HUBBARD. What is your opinion about the possible imposition of such a statute of limitations? Mr. GIANELLI. Speaking from my standpoint, it seems it would be extremely helpful to have such a statute apply. How reasonable it will be viewed in terms of the shipping people who have, for exam ple, certain time constraints on them by virtue of when they may tie up a ship for various purposes, they may have a different view point. Certainly, from the standpoint of administering the claims program, I thi:Qk such a statute would be helpful. Mr. HUBBARD. Last, what would you recommend as the time limit? Mr. GIANELLI. We might want to take a look at that and see if we have specific recommendatio.ns for you, Mr. Chairman. I don't think we have fully addressed that question. QUESTIONS SUBMITTED BY MR. HUBBARD AND ANSWERED BY PANAMA CANAL COMMISSION Question 1. Have you experienced any problems with the shippers not submitting claims to you within a reasonable time frame? (and) What do you feel is a reason able time frame? Answer. In admiralty law, a shipowner whose vessel is involved in a marine acGi dent is under a duty to mitigate his damages. Accordingly, unless the vessel is so badly damaged as to render it unseaworthy, the owner will ordinarily defer repairs until her next regularly-scheduled drydocking, when she will be out of commission anyway. On the average, regular drydockings are now being scheduled about once every two years, and that fact works to cause delays in the submission to the Com mission of most vessel accident claims. Such delays cannot, however, be characterized as "unreasonable". Indeed, the courts have long held that a shipowner who elects to drydock and repair his damaged, but still seaworthy, vessel immediately after an accident, instead of waiting its next regularly-scheduled drydocking, is the only one who has acted unreasonably, and he will not be allowed to recover from the tort feasor either his drydocking costs or any amount for loss of use during the . Another problem confronting shipowners is the requirement, contained in section 1413 of the 1979 Panama Canal Act, to fully document vessel-accident claims against the Commission. That requirement ordinarily delays the submission of such claims further. The need for full documentation is, however, a real one, and protects the Commission against spurious or inflated claims. The requirement for full documentation has existed pursuant to law or E~ecutive Order since 1918 and, while it may delay somewhat the submission of these claims to the agency, it does not do so unreasonably. In addition to the foregoing delays (which, as noted, are inherent in the system) the Canal has, at times, received claims for vessel damage four or five years after an accident has occurred and, in some instances, even later. Before the treaty en-

PAGE 21

17 tered into force and the Panama Canal Act of 1979 became effective, these present ed no problem since section 42 of Title 5 of the Canal Zone Code, 76A Stat. 281, provided a 3-year statute-of-limitations on actions against the agency based on such claims. Claims received after that period were denied. Since it has been in existence only since October 1979, it is still to early to tell whether the Commission, like its predecessor, will also receive some unreasonably late claims, but we have no reason to believe that it will not. Our suggestions concerning a statute-of-limitations de signed to deal with stale .claims a:re set out in response to question No. 3, below. Question 2. Prior to the enactment of P.L. 96-70, what was the average time lapse for claims over $120,000 from the date of the accident until the settlement of the claim? Answer. It is understood that this question has now been revised to request certain data on vessel accidents occurring in fiscal years 1977 through 1979. Those data are being compiled and will be provided separately. Question 3. On page 8 of your remarks you state that there have been 21 out-of lock vessel accidents in which the Commission estimates that its liability inay exceed $120,000 although no claims have yet been filed. How many of these claims would not be barred if a two-year statute of limitations on the filing of claims had been in effect since 1979? What is you opinion about the possible imposition of such a statute of limitations? What would you recommend as the time limits? Answer. Of the potential claims arising out of the 21 marine accidents to which I referred in my testimony, four would have been time barred by December 1, 1982 if there were a two-year statute of limitations on the filing of such claims now in effect. The Commission favors the establishment of a limitation on vessel damage claims and upon lfl.wsuits in those cases in which judicial review is permitted. We envision a provision, patterned after the one contained_ in the Federal Tort Claims Act, which would forever bar a vessel accident claim against the Commission (1) unless it is presente~ in writing to the agency within two years after it accrues and, (2), in those cases where recourse to the courts is permitted, unless an action is begun within one year after the Commission makes its final decision with respect to the claim. Such a statute would have a dual benefit of preventing stale claims while, at the same time, allowing the .Parties as much time as they require for negotiation. That latter feature should result in the compromise and settlement of the vast majority of these claims, and should avoid time-consuming and expensive litigation in New Orleans, in those cases where the agency is subject. to suit. Question 4. What problems do you foresee with the possibility of requesting a supplemental appropriation to pay for the claims in excess of $120,000 should there not be the $6 million in the "reserve fund"? Answer. The first problem that exists for the Commission in submitting a supplemental appropriation is authority. Public Law 96-70 specifically precludes the Com mission from making payment of these outside-the-locks accidents in excess of $120,000. Prior to requesting a supplemental appropriation, Congress would have to first grant the Commission, through appropriate legislative action, authority to pay these claims. Our accounting treatment of these claims, to date, has been predicated on the assumption that this authority was forthcoming from Congress. The Commission's second problem is ensuring that sufficient funds are on deposit in the Panama Canal Commission Fund. Without the reserve fund, the costs of these claims would not be reflected in the Commission's accounting records until after the supplemental appropriation was requested. This could result in the Com mission not being able to demonstrate it had adequate resources in the Panama Canal Commission Fund to finance such claims. The Commission would also be placed in a "catch-up" situation to recover the costs of ~uch claims from Canal users in the future instead of during the time they are incurred. The Commission is mandated by law to recover all costs of maintaining and operating the Panama Canal. By utilizing the reserve method, the Commission is better able to match (normalize) operating expenses with revenues and thus establish the appropriate tolls rates for the users of the Canal. Question 5. You stated in the hearing that from 1912 to 1951, when the Panama Canal was operated by an appropriated U.S. Agency, that there was no reserve fund to handle the claims. What method of accounting was used and how did you pay for the claims?

PAGE 22

18 Answer. Between 1912 and 1951, when the Panama Canal was operated as an appropriated fund agency of the United States Government, marine accidents were ac counted for by charging the cost of each ship accident directly to expense as the accident occurred. The actual payment of the claim was made from the appropriated funds of the Agency at an amount agreed to between the Agency and the shipowner (or his agent). If the case was litigated, payment was made at the amount of judgement awarded by the United States Court. From 1940 through 1950, the Agency's liability for sett.lement of accidents which occurred outside the locks was limited to $60,000 per ship, per accident. Claims iri excess of $60,000 were to be submitted to Congress for adjudication and payment. Canal records indicate that no claims were ever submitted to the Congress under this provision-apparently because no claims of that magnitude were ever received .In fact, it wasn't until the late 1970's, as vessels became increasingly larger and more sophisticated, that marine accident costs, both on a per accident and overall basis, became significant dollarwise. For example, marine accident costs over the 20-year period frqm 1952 to 1971 averaged only $164,000 per year and $6,300 per acci dent. For the two year period 1980 to 1981, marine accident costs averaged $10,400,000 per year and $220,000 per accident. it is because of this sharp price differential that it became necessary to adopt the present reserve method of accounting for marine accidents. Question 6. In your opinion, would eliminating canal pilots or changing them to only an advisory role make canal transits less safe? If your answer is yes, to what extent, if any, does the vessel master's superior knowledge of the way his vessel handles offset the danger of having the canal pilots in only an advisory role? Answer. Eliminating canal pilots from transiting ships totally, or changing their status to advisory, would be extremely detrimental to the safe passage of ships through the waterway. That is, Commission pilots are in absolute control of transiting vessels of all descriptions and handling characteristics and are continuously faced with the challenge of maneuvering those vessels in extremely restricted waters within close proximity to the Canal banks, Locks structures, and to other transiting vessels. To allow ship Masters, who are unfamiliar with Canal operations, to have complete or partial control over the movement of their vessels in Canal waters would increase the potential for serious marine accidents. It takes some 8112 years of intensified training and experience on top of strenuous entrance requirements for a Canal Pilot to obtain full qualifications to handle any ship passing through the Canal. Although Masters may have greater knowledge over their particular vessel, the majority of those Masters have little or no experience in handling them in restricted waters. With regard to placing a Pilot in an advisory control status, the Pilot would be subject to questions and/ or improper actions on the part of the Master, which could contribute to or cause a marine accident. In summary, 68 years of experience have proven that Control Pilots are far better suited for moving vessels through the Canal, from both the customer's and the Commission's viewpoint. Question 7. Is there any difference between the way claims for damage inside the locks and claims for damage outside the locks are investigated by the Board of Local Inspectors and processed thereafter by the Commission? If so, what differences and why? Answer. There are no differences between the manner in which the Commission's Board of Local Inspectors investigates vessel accidents occurring in the Canal locks and the manner in which it investigates marine casualties occurring outside those locks. For the procedures followed by the Board in the conduct of its investigations of marine accidents occurring at the Canal, see Part 117 of Title 35, Code of Federal Regulations. (Attached) Claims presented to the Commission for damage sustained by a vessel in the Canal locks are e;xamined by the agency under section 1413 of Public Law 96-70.1 That statutory provision sets out the items of damage which the Commission may pay and those which it may not, and contains the requirements regarding the shi power's responsibility to fully document its claim. When the total amount of the al lowable damages have been calculated, the agency's legal office examines the facts surrounding the accident (relying largely upon the Board of Local Inspector's report of investigations) to determine whether and to what extent the accident was caused or contributed to by the negligence or fault of the vessel herself, or her master, crew or passengers. (See section 1411, which makes the Commission a virtual insurer in this type of vessel accident, except where such vessel fault has occurred.) The damage award then offered to the shipowner is the amount of the allowable dam-1 The remainder of the citations in this Answer are also to Public Law 96-70.

PAGE 23

19 ages, reduced by the percentage of vessel fault as is deemed by the agency to have been a factor in the accident. If the shipowner is not satisfied with the findings determination or award of the Commission, section 1416 provides that he may bring suit on the claim in the U.S. District Court for the Eastern District of Louisiana, where the Department of Justice will represent the Commission. Any amounts paid to the shipowner either in settlement or as a result of such a court action are, as provided in section 1415(a) and 1416, paid out of Commission appropriations. Claims for $120,000 or less for damage sustained by a vessel in Canal waters out side the locks are also examined under section 1413 to determine which items of damage claimed are legally payable, and to insure that all necessary supporting documentation has been provided. When that has been accomplished, the Commission's attorneys, again relying mainly on the Board's accident report, make a determination as to whether, and to what extent, the accident was caused or contributed to by the negligence or fault of an employee of the Commission acting in the scope of his employment in connection with the operation of the waterway. Also, as is the case in locks cases, the facts are examined to see whether, and to what extent, the vessel, or her master, crew or. passengers contributed to the accident. See section 1412. The agency will then offer an award to the shipower of that proportion of its allowable damages which is attributable to Commission negligence or fault; however, any such award will be reduced in proportion to contributory vessel fault. Here, the vessel owner has no recourse to the courts on his claim. This is so because the agency's sovereign immunity has not been waived as, under section 1416, it has with respect to accidents occurring in the Canal locks. Any settlements of these claims are paid by the Commission, as provided in section 1415(a), out of its appropriations. When the Commission receives a claim for more than $120,000 for damages sustained by a vessel in Canel waters outside the locks, this same procedure is followed in processing the claim, except that no offer is made to the shipower. Instead, as is required by section 1415(b), the agency submits the claim to the Congress in a spe cial report containing the material facts and its recommendations with respect to it. The differences in the manner in which vessel-accident claims are processed by the Commission are soley attributable to the differing statutory requirements, as outlined above, which govern .the agency's liability with respect to them. Question 8. What specific events might haye required the doubling of the monthly reserve during the first year of Canal operations under the 1977 Panama Canal Treaties? Does the one million dollars per month reflect actual monthly accident costs or potential liability? In other words is it the Commission's policy tO" set aside for insurance against all possible risks in Canal operation? Answer. For fiscal year 1980, the first year under the treaty, it was calculated that a $6.0 million reserve would be adequate to cover marine accident costs that the Commission was authorized to settle. After reconsideration and consultation with the General Accounting Office, the Commission believed it was appropriate to provide for all marine accident costs sustained even those outside of the locks with claims in excess of $120,000. All accident costs in 1980 amounted to $11.3 million, and accordingly, the accrual for marine accidents was adjusted in the_latter part of FY 1980. The total accrual for FY 1980 was $10.5 million. The reserve accrual for marine accidents was increased to $12.0 million in 1981 and 1982. The Commission does not reserve for all possible risks in Canal operation. The $1 million accrual each month establishes a "reserve" to account for the normal costs arising from marine accidents only. Under this method of accounting, a reserve is built up to cover normal losses from marine accidents by charging operating ex penses with a uniform :,imount each month. This normalizes the operating expense. When accidents occur, the resultant losses are charged to the reserve rather than to operations. It should be emphasized that the accrual is for "normal" accident costs. It does not provide for accidents of a catastrophic nature for which the "reserve" would be grossly inadequate.

PAGE 24

Chapter I-Panama Canal Regulations 115.2Cc). When the Marine Director is so designated, the Deputy Adminis t.rator or such other official as the. Administrator may designate in his stead, shall serve as Supervising Inspector. [46 FR 63187, Dec. 30, 1981] 115.2 Compostio n of the Board. < a) The Board of Local Inspectors, ref erred to in this Part as "the Board," shall, except as otherwise pro rided in paragraphs (b) and (c) of this section, consist of the following offi cials who shall serve in tne capacities stated: < 1) Chairman, Board of Local Inspec-tors. (2) Chief, Navigation Division, as member. (3) Senior Canal Port Captain, as member. (b) Where 'the subject matter of circumstances of a particular accident warrant such action, the Supervising Inspector may designate the Chief, Industrial Division to s erve, ex officio, as member of the Board in place of the members listed in paragra.ph (a)(2) or < 3 > of this section. In the absence of the Chairman, the Supervising Inspector will appoint a member to act as Chairman. (c) If the Supervising Inspector deems it appropriate in a particular in \"Cstigation, he may designate an alternate to replace any officiaf regularly serving on the Board. If he himself serves as such an alternate, he shall serve as Chairman of the Board. Cd) Any accident investigation or other proceeding may, in the discretion of the Supervising Inspector, be conducted by one o r more officials of the Board . The report of any -such in vestigation or proceeding is subject, however, to the requirements of Part 117 of this subchapter. [35 FR 1227t July 31, 1970, as amended at FR 63187, Dec. 30, 1981] 115.3 E mploy;n ent of inspectors and examiners. The Board may employ or assign s 'JCh inspectors and examiners as it ~ay require in the inspection of ves ls and in the classification and li~e~ing of pilots, masters, mates, and "':ig-ineers. 20 115.4 Recorder of Board; duties. There shall be a Recorder of the Board, whose .duty it shall be to keep a record of its proceedings; of all appli cations for licenses; of those issued or refused; suspended, extended, or. modi fied; together with the name, grade, and serial number of all such licenses; and of all casualties, collisions, founderings, sinkings, fires and other disasters or matters of interest that may come before the Board. Under the direction of the Chairman he shall prepare, submit, and. register all licenses and certificates of inspection, and the reports mentioned in, this part or in Part 117, 119, or 121 of this chapter, and shall perform such other duties as may be directed by the Chairman. 115.5 Recorder may administer oaths. The Recorder is authorized to administer the oaths required for the completion of official documents of, or which are presented to, the Board. CROSS REFERENCE: For authority of. the Board to administer oaths, see 2 C.Z.C. 1101, 76A Stat. 38. 115.6 Assistance of owners or operators and masters. Owners or operators and masters of vessels shall render all requested assistance to the Board in its investigations and inspections, and shall, when requested, put machinery and gear in operation when necessary to demonstrate the efficiency of the machinery, equipment, appliances or other gear. 115.7 Inspection of records of B~ard. All official records and documents in the office of t"he Board, after official action thereon has been concluded, shall be open to public inspection and examination in the office ol; the Board. P.~RT t 17-MARINE ACCIDENTS: INVESTIGA li lONS; CONTROL; RESPONSIBl'LITY --. Sec. 117 .1 Investigation of marine accidents. 117.la Scheduling of investigations. 117.lb Rights of party in interest. 117 .2 Change in physical status of property affected by accident forbidden. 119

PAGE 25

21117.1 Sec. 117.3 Reports by Board to the Administrator. iI 7.4 Reports of accidents by officer in command to Board. 117.5 Control of wrecked, injured, or burning vessels. 117.6 Liability of vessel for injury to Canal structures or equipment. AUTHORITY: Issued under authority vested in the President by sec. 1417, 1418, Pub. L. 96-70, 93 Stat. 487; EO 12215, 45 FR 36043. SouRcE: 46 FR 63188, Dec. 30, 1981, unless otherwise noted. 117.1 Investigation of marine accidents. (a) Whenever, within Panama Canal waters, including. the locks of the Canal, a vessel, or its cargo, crew. or passenger, meets with a serious marine accident, or whenever, within the harbors, anchorages, and areas adjacent. thereto,. including the ports of Balboa and Cristobal, there is a serious marine accident involving Commission personnel or equipment, the Bo?,rd of Local Inspectors shall promptly investigate in detail the conditions and circumstances under which such accident occurred. (b) Any other marine accident occur: ri.ng in such waters may be investigated by the Board at the discretion of the Supervising Inspector. (c) The Master of a vessel involved in a marine accident may request an investigation of an accident not considered by the Board to fall within paragraph (a) of this section. The re_ : quest must be addressed to the Supervising Inspector or the Chairman of the Board, and must be in writing. If the Master do.es not so request such an investigation in writing, he shall be deemed to have waived all rights to the investigation called for by section 1417, Pub. L. 96-70; 93 Stat. 487, which provides that a claim may not be considered by the Panama Canal Commis sion, or an action for damag_eslie thereon, unless, prior to the departure from the Panama Canal of the vessel involved: ( 1 > The investigation by the competent authorities of the accident or injury giving rise to the claim has been completed; and, C2) The basis for the claim has been laid before the Commission. Title 35-Panama Cana{~ (d) For the purpose of this sectfo~"'::/ the term "serious marine accident" fn.4: eludes: : (aboard another vessel, ashore or oth;_~: erwise) so. as to have been a factor m :-~ the accident. .:~ ;'. ,;..; CRoss REFERENCE:. Compelling attend~ : . and testimony of witnesses and productlozi::... of books and papers by Eoard, s~e sectlOll ~ 1418, Pub. L. 96-70, 93 Stat. 487. .":.:{ 117.la Scheduliitg of investigations.: ::!~[ (a) Marine-accident investigations::, shall be scheduled so as to afford; pilots and other parties in ipterest ,; period of time not less than that PI'0".2 vide"d below for rest and consultation prior to the commencement of an f;I-_.. vestigatiqn: Relief time Time of investigation -.. ,> .... OOOO-D400 .. ... . ..... 1400-iSOO (12 hours minimum) r-~.:.;. 0400--0800 1600-~~ooo (12 hours minimum) rt 0800-1200 1800-2200 (10 ho\,lrs minimum) -~~, ~ 1200-1600 -0800 Next Day. ,.,., 1600-2000 ......... 1000 Next Day. .~/.,:~f .. _a 2000-24QO ....... 1000 Next Day. . . ,.,.-~ (b) The column "Relief Time{~~ out in paragraph (a) of this section.~ dicates the period during which ~ pilot or other party 'in interest ~ pleted the transit during which an~ cident occurred or the time at wi he was relieved of duty following ~ ~ : occurrence of an accident. The col ~ "Time of Investigation", set out:, paragraph Ca> of this section, In~ the earliest time at which the in gation may be scheduled. In tional cases a departure from~,..= 120

PAGE 26

. 22 Chapter I-Panama Canal Regulations !-Cl)edule may be made, as for example ln the case of warships or other vessels th.at have an imperative need to rrsume .the voyage as soon as possible. Unless a pilot or other party in inter rst requests the time provided in this s-chedule, the hearing may be set for an earlier hour. [32 FR 3836\ Mar. 8, 19671 '117.lb Riih, ts of party in interest. Any .Panama Canal pilot or other indi ridual who is a party in interest at a marine-accident investigation may obtain counsel of his own choosing, testify in his own behalf, cross-exam ine witnesses, call witnesses, and introduce any relevant evidence. The Board shall advise all parties in interest of such rights. 117.2 Change in physical status of property affected by accident forbidden. In the event of a marine accident or casualty affecting any property in Panama Canal waters, or waters. adjacent thereto, or any property owned or operated by the Panama Canal Com mission or the United States, which imposes on the Board sin obligation to imestigate, no change in the physical status of .the property affected by the accident or casualty may be made or permitted prior to inspection by properly constituted authority; unless such change in status be imperative in order to preserve life or property. 117 .3 Reports_ by Board to the Administrator. The Board shall make reports forth with in detail to the Administrator of all marine-accident investigations con ducted by it, setting forth the facts and circumstances surrounding the ac cident and bearing upon its proximate causation, the nature and extent of the injury and the amount. of damage~, if any, occasioned by such injury. The reports shall include a transcript of the record of the Board's investiga tion, _together with its findings and opinions respecting the accident. All findings and opinions of the Board shall be rendered by a full Board after a review of the entire transcript, even though the hearing may have been canducted by a single member of the 117.6 Board or by a two-man Board. Reports to the Administrator shall be forwarded in duplicate through the Supervis ing Inspector, who may place thereon such endorsement as he may see fit. 117 .4 Reports of accidents by officer in command to Board. The Master or other officer in command of a vessel shall, prio;r to the ves sel ~s departure from Panama Canal waters, report in \\Titing to the Board any accident jnvolving his vessel in Canal waters that resulted in loss of life or serious personal injury or in substantial damage to property. 117.5 Control ofwrecked, injured, or burning vessels. When a vessel in the Panama Canal waters goes aground, or is wrecked, or is so injured that it is liable to become an obstruction in such waters, or is on fire, the Canal authorities shall have the right to supervise and direct, or to take complete charge of and conduct, all operations which may be necessary to float the vessel, to clear the wreck age, to remove the injured vessel to a safe location, or to extinguish the fire, as the case may be. The Canal authorities may, when necessary, take such action without awaiting the per mission of the oVvner or agent of the vessel, and may require the Master of the vessel and all persons under his supervision and control to place the vessel, and all equipment on board, at the disposal of the Canal authorities without costs to the Commission. Unless the Panam_a Canal Commission is subsequently found or determined to be responsible for the accident or the condition necessitating action by the Canal authorities, the necessary expenses incurred by the Comntlssion in carrying out the provisions of this section shall be a proper charge against such vessel. her owners and her operators. 117 .6 Liability of vessel for injury to Canal structures or eq uipment. A vessel, or her owner or operator, shall be held liable for any injury to any structure, plant, or equipment of or pertaining to the Canal, the P~ama Canal Commission or the 121

PAGE 27

23 119.1 United States when the injury ls proximately caused by the negligence or fault of the vessel or its master or crew. No vessel shall make fast, or run any line, to any marker, buoy, beacon, or other aid to navigation; and a vessel shall so navigate as not to strike such aids in passing. -. PART 119;.....LICENSING OF OFFICERS Subpart A-General Provisions Sec. 119.1 License defined; classification and li censing of Masters, mates, engineers, pilots, and motorboat operators. 119.2 Term of licenses. 119.3 Appeal from action refusing license. 119.5 Revocation for parting with llcense. 119 6 Employment of licensed officers. 119. 7 Original Ucense defined. 119.8 Application form. 119.9 Service records .and endorsements. 119.10 Age and literacy requirements. 119.11 Knowledge of first aid. 119.12 Physical and experience require-ments. 119.13 Burden of establishing qualifica-tions. -119.14 Applicant to appear for examina-tion. 119.15 Reexamination. 119.16 Raise of grade. 119.17 Renewal of license. 119.18 Sea service as member of armed forces of the United States or the Re public of Panama or on vessels owned by either nation. 119.19 Evaluation of equivalent experience. 119.20 Increase in scope of license; removal of limitations. 119.21 Written statement of reasons for denying license. 119.23 Limitations on license. 119.24 Oath of licensee. 119.25 Duplicate license. Subpart B-Ma,ten 119.61 Master, steam and motor vessels; experience required. 119.63 Master. non-self-propelled floating equipment; experience. Subpart C-Mates 119.101 Mate, non-self-propelled floating equipment: eXl)erience required. 119.103 Mate, steam or motor; experience required. .. ,. .;; Title 35-Panama ~ .h'.2 Sec. Subpart D-Pilots . ; ~ (.: : --~) ... ~:;r 119.1.41 Pilot, Panama Canal; q~., t1ons. .,,:r..l/=.' 119.143 Pilot, United States Gov~ local vessel; employment requl.reni~, .. . Subpart E-MoJorboat Ope,rato~ ri~~ ::::~~{u1~::: ~::::ge ) 119.221 Grade and type of epgineef~ censes ;-.. ... 119.222 chief. engineer, st~am. v~:;~=-perience required. ... t~ 119.223 Chief engineer, motor vessels;~. perience required. . r::;z: 119.224 Assistant engineer, steam vesRlc experience required. ;.~119.225 Assistant engineer, motor v~ experience required. :,'~ 119.227 Chief and assistant e~~: steam and motor vessels. ... . : -~ ........ ... AUTHORITY: Issued under authority V~ in the President by sec. 1801, Pub~ L. 96-'lA. 93 Stat. 492, EO 12215, 45 FR 36043. ., -. SoURcE: 46 FR 63189, Dec. 30, 1981, un1esi'-' otherwise noted. '' .,.. Subpart A-General Provision~-.\~~, ... ./ .. 119.1 License defined; c1assification ad licensing. of Masters, mates, engin~pilots, and motorboat operators. ~ ) (a) The word license when used: ~in' this part means a Panama Canal CoIJh mission license unless specifically id~~ tified as one from another issuing a~ thority. :~ Cb) The Board of Local Inspect<>~ shall recommend the classification c( Masters, mates and engineers of stem and motor vessels owned and operated~ by the Panama Canal Commisslo~ and of operators of U.S. Governm~ motorboats operating in Panam&i Canal waters, excluding pleasure cratt;j and of Panama Canal pilots, and upoDJ such recommendation licenses may. be} issued by the Supervising Inspector. by such other officer as he may desili nate. No person shall act or serve as a'.. pilot, Master, mate or engineer, or 01>-~ erate said motorboats, unless he holds~ a valid license to do so. '122

PAGE 28

24 Mr. HUBBARD. Thank you. When we come back, Mr. Lent will begin the questioning and other members, of course, will be called on for their questions. [Recess.] Mr. HUBBARD. We will now reconvene and ask Mr. Lent for his questions. Mr. LENT. I want to welcome you gentlemen back to the subcommittee and to Washington_ As I said in my opening remarks, I be lieve that in order to examine thoroughly the issues and alleged delays surrounding current vessel damage claim procedures, we ought to compare the Commission's experience with those of the Panama Canal Company concerning accident claims and the time it takes to settle them. I am aware that the committee has received a listing of the status of claims against the Commission since the treaties took force. Have any statistics been developed that you are aware of regarding pretreaty accident claims and how long it might have taken from 1977 to 1979? Mr. GIANELLI. I am informed, Mr. Lent, the staff is working on t~ose statistics now. They were not ready at the moment. Mr. LENT. You will provide the record with a similar listing of canal accidents then between 1977 and 1979? Mr. GIANELLI. Yes. Mr. LENT. It will show the name of the vessel, the date of the accident, whether it was in or out of the locks, the date and amount of the claim, and the settlement date and amount? Mr. GIANELLI. Yes. [The following was received for the record:]

PAGE 29

STATUS OF CLAIMS AGAINS'r THE PANAMA CANAL COMPANY FOR FISCAL YEARS 1977, 1978 AND 1979 Please note that the unusually large number of lawsuits filed during 1978 and the first nine months of 1979 were occasioned by the 1977 treaty with Panama which provided that the United States District Court for the District of the Canal Zone (which was the only court with jurisdiction over suits against the Panama Canal Company for ve~sel damage sustained at the ca~al) could not accept any new cases after October 1, 1979. BLI 00. VESSEL 1-77 OORLD MEDAL 2-77 TRADE ENDEAVOR 3-77 TRADE ENDEAVOR 4-77 OONA IDRI'EOCIA 5-77 MOI'OR BOAT No. 3459 6-77 Yacht GLORIA MARIS 7-77 AXEL MAERSK 8 77 SUECIA 9-77 SELLINIS :1.0-77 BENEI'NASCH 11-77 CHE.VIDN GENOA 12-77 SINGAPURA KEDUA DATE OF ACCIDENI' 10/03/76 DATE OF CLAIM 03/28/78 10/06/76 03/06/79 10/08/76 03/06/79 10/17/76 12/30/77 10/17/76 10/24/76 11/04/76 10/30/76 11/17/76 12/13/76 12/17/76 10/06/78 12/20/76 05/02/77 12/21/76 06/20/77 BrATUS OF CLAIMS AGAINsr THE PANAMA CANAL mMPANY FDR FY 1977 l-\110UNT OF CLAIM BrAWS $ 54,977~41 Offer to settle for $30,257.76 communicated to owners 11/9/78. Offer rejected 5/10/79 and suit for $60,000 filed 9/12/79. Settled by Department of Justice for $36,000 -12/3/80. 512,779.81 Suit for $547,579.81 filed 8/23/79. Additional information received 10/8/80. Settled by Department of Justice for $285,937.37 -5/5/81. Both accidents under one claim. 150,974.53 .A.ciditional information received 4/4/79. Offer to settle for $77,936.28 sent to owners on 9/27/79. Settled for $77,936.28 -6/11/82. No claim 3,100.00 Settled for $1,550 -4/4/77 No claim No claim No'claim 29,426.80 Five requests for additional information between 10/9/78 and 4/4/79. Settled for $18,444.29 -9/27/79. 5,500.00 Settled for $5,500.00 -5/31/77. 551,379.65 Six requests for additional information between 7/18/77 and 3/9/78. Referred to General Counsel for review 9/11/78. Offer to settle for $497,120.89 -5/3/79. Settled for $497,120.89 -7/12/79.

PAGE 30

DATE DATE J'IMOUNI' OF OF OF BLI ID. VESSEL ACCIDENI' CLAIM CLAIM BrATUS 13-77 MJRMACSUN 12/22/76 11/7/77 $ 83,426.83 Offer to settle on 5/3/78. Revised offer to settle for $26,870.00 on 8/24/79. Settled for $26,870.00 -9/25/79. 14~77 BLUE KOBE 12/25/76 No claim 15-77 BrATENDJ'IM 12/26/76 05/11/79 72,220.79 Five requests rrade for additional information between 5/28/79 and 9/10/79. Referred to General Counsel 12/03/79. Limitation periOd for lawsuit expired 12/26/79, but PCC concluded payment could be made. Offer of $28,130.30 sent 3/8/82. Settlement at that figure effeeted 5/5/82. 16-77 AMERICAN LEGION 12/28/76 12/08/77 150.00 Settled for $150.00 -1/5/78. Fl-77 MATNNRA 12/29/76 No claim 18-77 GOWEN ORGIID 12/29/76 No claim O') 19-77 LEROY AND BARRY 12/29/76 No claim 20-77 BARON RENFREW 01/01/77 No claim 21-77 BELCHATOW 01/04/77 07/27/77 31,500.00 Settled for $25,238.66 -5/9/78. 22-77 CARIBBEAN TAMANACO 01/06/77 No claim 23-77 WARSCHAU 01/18/77 No claim 24-77 ALTHEA 01/19/77 01/23/79 64,000.00 Disallowed on 2/16/79. 25-77 KING OSCAR 01/27/77 09/25/79 104,650.61 Suit for $104,410.61 filed 9/25/79. Settled by De:partrnent of Justice for $1,751.39 -5/5/81. 26-77 srAR CARIB:Ea:) 02/06/77 10/23/78 127,322.49 Additional information requested 11/8/78. Suit for $127,322.49 f iled 9/27/79. Settled by Department of Justice for $79,687.00 -9/10/80. 27-77 TM3a.J,A 02/08/77 No claim

PAGE 31

DATE DATE AMOUNr OF OF OF BLI ID. VESSEL ACCIDENr CLAJM CLA]M srATUS 28-77 TEXACD TRINIDAD 02/10/77 No claim 29-77 ATLANTIC OCEAN MAID 02/24/77 02/15/78 $26,865.76 Nine requests sent for additional information between 6/14/78 and 8/14/79. Limitation period to sue expired 2/24/80, but PCC later concluded that payment could be made. Offer of $11,585.58 sent 2/11/82. 30-77 ORIENI'AL EDlCATOR 03/10/77 No claim 31-77 CANADIAN FARMER 03/13/77 No claim 32-77 Yacht aJATERNION 03/30/77 04/05/77 525.00 Settled for $525.00 12/6/77. 33-77 RIO BALSAS 04/03/77 No claim 34-77 SHIGA MARU 04/12/77 No claim -:J 35-77 DIANNA 04/21/77 No claim 35-77 (X;[)EN SENffiAL 04/21/77 No claim 37-77 TOYorA MARU No. 14 05/11/77 04/27/78 459,784.30 Six requests for additional information made between 5/10/78 and 9/10/79. Suit for $500,000 filed 9/6/79. Settled by Department of Justice for $300,000 7/20/81. 37-77 MAsrER NICDS 05/11/77 05/03/78 665,693.23 Six requests for additional information between 5/11/78 and 5/10/79. Suit for $666,000 filed 9/6/79. Settled by Department of Justice for $475,000 on 7/20/81. (Includes accident of 5/16/77). 38-77 Yacht CHUBASCD 05/13/77 10/24/78 171,628.89 Suit filed 9/24/79. Dismissed 11/10/79 39-77 MAsrER NICDS 05/16/77 05/03/78 6,339.70 See accident of 5/11/77. 40-77 CHEPO 05/27/77 No claim 41-77 IMME OLDENOORFF 06/04/77 No claim

PAGE 32

BLI 00. VESSEL 42-77 SI'RAAT IDNG KONG 42-77 45-77 47-77 49-77 50-77 ORIENI'AL CCMMANDER JANITA MARINE CHJ;MISI' SANI'A ELENA SHIN3 ON 51-77 Y.AMA'ID 51-77 PAC BARONES 52-77 PWD 52-77 SUSANNE SKOU 53-77 54-77 55-77 55-77 Yacht SHUSMA CHEPO MEIKO MARU SOPHIA II DATE DATE OF OF ACCIDENI' CLAIM 06/07/77 11/16/78 06/07/77 06/19/77 08/27/79 07/09/77 03/05/79 07/15/77 07/13/77 08/07/78 07/21/77 07/21/77 08/01/77 08/01/77 08/02/77 09/08/78 08/09/77 07/05/78 08/10/77 07/17/78 08/10/77 10/06/?8 J.MOUNI' OF CLAIM SI'ATUS $118,366.93 Additional information provided 2/13/79. Suit for $118,366.93 filed 9/11/79. Offer to settle for $52,736.80 communicated to owners 10/30/79. Settled by Department of Justice for $94,736.80 9/22/81. No claim 407,575.33 Suit for $398,579.57 filed 9/27/79. Additional information received 5/12/80. Settled by Department of Justice for $210,923.33 6/15/81 I 452,589.16 Additional information received 3/12/80. Settled for $47,700.32 10/29/81. No claim 248,020.30 Suit filed for $280,000 9/12/79. Additional information received 5/13/80. Settled by Department ofJustice for $160,000 -6/24/81. No claim No claim No claim No claim 425.00 Settled for $425.00 12/6/78. 37,484.00 Additional information received on 10/23/78. Offer to settle for $2,736.92 communicated to owners 3/01/79. Suit filed for $32,808.59 9/19/79. Settled by Department of Justice for $5,0oo 11/14/80. 749,204.24 Additional information received 4/4/79. Settled for $564,707.16 -9/28/79. 440,273.55 Suit filed for $764,631.34 9/12/79 .Aqditional information received 2/7/80. Settled by Department of Justice for $406,877.18 3/5/81.

PAGE 33

0 w 56-77 57-77 58-77 59-77 60-77 60-77 61-77 61-77 62-77 63-77 63-77 64-77 64-77 VESSEL JAPAN CARRYALL KAI PI~ PUNI'A SOLE ATHENIAN VICTORY CDNI'INENI'AL PIONEER GRErA THOLIN VISHVA TIRI'H KYC'JiJA MARU No. 18 ACE HERO EL BUEY GRANDE MR. PAT DADE LIMA LFS 12/2/82 DATE OF ACCIDENI' DATE OF CLAIM AMOUNT OF CIAIM 8rATUS 08/18/77 09/13/78 $81,832.04 Additional information received 11/9/78. Suit filed for $81,832.04 9/20/79~ Settled by Department of Justice for $40,530.97 -8/27/80. 08/20/77 08/30/77 09/02/77 09/05/77 09/05/77 09/14/77 06/04/79 09/14/77 09/21/77 09/28/79 09/25/77 03/27/78 09/25/77 09/30/77 12/30/78 09/30/77 12/4/78 No claim No claim No claim No claim No claim 8,102.01 Additional information received 10/30/79. Offer to settle for $6,879.19 -6/11/80. Settled for $6,879.19 -9/11/80. No claim 45,000.00 Suit for $75,000 filed 9/27/79. Additional information received 12/30/80. Settled by Dep.3rtment of Justice for $20,700 -5/15/81. 57,475.33 .Additional information received 4/13/78. Offer to settle for $42,000 -3/20/79. Settled for $42,000 -6/12/79. No claim 243,309.92 .Additional information requested on six occasions between 3/2/79 and 11/30/79; information received 12/4/79. Suit filed for $243,309.92 -8/16/79. Settled by Dep.3rtrnent of Justice $186,000 -10/22/80 462,844.54 Additional information requested on twelve occasions between 12/26/78 and 1/9/80; information received 1/18/80. Suit filed for $462,844.54 -9/13/79. Settled by Dep.3rtment of Justice for $315,000 -10/22/80

PAGE 34

BLI 00. 1-78 1-78 2-78 3-78 4-78 5-78 8-78 9-78 10-78 14-78 15-78 VESSEL AMERICAN CHALLENGER CALYPSO OONI'INENI'AL HIGHWAY PENNSYLVANIA SUN Sl'AR CARIBJO OVERSEAS ALASKA OONA HORI'El'CIA WORLD CCM1ANDER HOEGH.MALLARD ORIENI'AL LFADER WJRLD LEADER DATE O F ACCIDENI' 10/05/77 10/05 /77 10/11/77 DATE OF CLAIM AMOUNI' O F CLAIM Sl'ATUS OF CLAIMS AGAINSI' THE PANAMA CANAL CDMPANY EDR E:Y 1978 Sl'ATUS No Claim No Claim No Claim 10/21/77 08/ 07/78 $ 129,361.28 Five requests for additional information between 8/9/78 and 10/23/78. Information received 11/29/78. Referred to Gen~ral Counsel for review 12/9/78. Offer to settle for $95,502.87 conununicated to owners 3/20/79. Settled for $98,073.29 -7/23/80. 11/11/77 10/23/78 11/23/77 07/05/78 12/21/77 01/05/78 01/05 /79 01/06/78 09/27/79 01/17/78 11/09/79 01/26/78 127,322.49 Additional information requested 11/8/78. Suit for $127,322.49 filed 9/27/79. Settled by Department of Justice for $79,687.00 -9/10/80. (Includes accident of 2/6/77). 228,535.59 Three requests for additional information between 7/25/78 and 10/13/78. Additional information received 11/6/78. Referred to General Counsel for review 1/24/79. Offer to settle for $83 017.72 -3/20/79. Suit for $214 ,807.88 filed 9/14/79. Settled by ~partment of Justice for $274,977.00 -8/4/81. (Includes accidents of 2/17/78 and 3 /9/78). No Claim 164,939.09 Three requests for additional information between 2/20/79 anci 5/14/79. Information received 5/15/79. Referred to General Counsel for review 7 /10/79. Suit for $164,939.09 filed 8/28/79. Settled by Department of Justice for $45,200.00 -6/13/80. 63,658.22 Suit for $75,000 filed 9/27/79. Additional information requested 10/25/79 and 3/18/80. Settled by Department of Justice for $60,000.00 -5/5/81. 517 918.43 Additional information requested 11/20/79 and 01/30/80. Information received 6/3/80 Referred to General Counsel for review 6/26/80. Suit for $557,912.43 filed 1/16/81. Settlement agreement for $345,000.00 reached 11/24/82. Payment being processed currently. No Claim

PAGE 35

VESSEL 16-78 UNION 17-78 WASHIN:nON TFADER 19-78 YACHI' TARAVANA 20-78 FERN VALLEY 21-78 CHRYSOVALANIX)U DYO 23-78 DIAKAN MASKOI' 23-78 CELTA ROSE 24-78 OORI' CAROLINE 25-78 OVERSEAS ALA.SKA DATE OF ACCIDENr 01/27/78 01/29/78 02/03/78 02/06/78 02/07/78 02/10/78 02/10/78 02/16/78 02/17/78 27-78 TEXAO) PENNSYLVANIA 02/18/78 27-78 GLENPARK 28-78 HOffiH TFADER 29-78 MORANI' 02/18/78 02/24/78 02/27/78 / DATE OF CLAIM PMOUNI' OF CLAIM srATUS 12/28/78 $ 196,708~ 19 Three requests for additional information between 2/5/79 and 5/10/79. Suit for $178,185.20 filed 9/18/79. Offer to settle for $96,593.36 communicated to owners 9/29/79. Settled by Department of Justice for $176,492.84 11/25/80. 10/13/79 09/19/78 04/24/80 09/07/79 8/28/78 01/09/79 07/30/79 22,844.04 Suit for $100,000.00 filed 9/27/79. Additional information requested 10/25/79. Settled by Department of Justice for $72,165.~l -5/l/8i. (InclUdes accident of 6/23/78). No Claim No Claim 118,871.49 Five requests for additional information between 10/5/78 and 9/1/79. Suit for $118,871.49 filed 9/18/79. Settled by Depaftment of Justice for $98,000.00 12/23/80. 206,067.44 Referred to General Counsel for review 7/28/80. Settled for $152,909.50 10/14/80. No Claim 321,514.60 Suit for $85,000.00 filed 9/11/79. Additional information requested 10/16/79. .Additional information received 1/18/80. Settled by Department of Justice for $264,727.03 3/5/81. 158,333.05 Suit for $149,059.69'filed 9/14/79. See accident of 11/23/77. No Claim 148,836.71 Suit for $132,000.24 filed 9/13/79. Four requests for additional inforIMtion between 10/29/79 and 9/8/80. Additional information received 9/22/80. Settled by Department of Justice for $107,983.00 6/15/80. No Claim 1~1,860.91 Five requests for additional information between 8/14/79 and 2/1/80. -Suit for $191,860.91 filed 7/30/79. Additional information received 2/4/80. Settled by Department of Justice for $53,608.64 8/28/80.

PAGE 36

VESSEL 30-78 SAGE 31-78 TEX.ACX) IDAID 32-78 OVERSEAS ALASKA 33-78 PAN DYNASTY 33-78 TARPON SEALANE 34-78 OVERSEAS OHIO 35-78 TOHBEI MARU 36-78 TIBURON 37-38 MOUNT WASHI~N 41-78 IDNI'UE 41-78 TAURUS 42-78 OGDEN IDIRE 43-78 BARGE CHEPO DATE OF ACCIDENT 02/25/78 03/06/78 03/09/78 03/16/78 03/16/78 04/07/78 04/17/78 04/21/78 04/29/78 05/24/78 05/24/78 05/25/78 05/27/78 DATE OF CLAIM AMOUNT OF CLAIM srATUS No Claim No Claim 10/13/78 $ 117,492.52 Suit for $457,777.08 filed 9/14/79. See accident of 11/23/77. 04/04/79 222,247.49 S1x requests for additional inforrration between 4/16/79 and 6/6/80. Suit for $222,247.49 filed 9/11/79. Claim sUbsequently increased to include $640,000 as indemnification of cargo interests. Total claim of $862,247.49 settled by Department of Justice for $536,232.00 -3/24/81. 02/08/79 1,528,932.93 Five requests for adaitional information between 2/23/79 and 10/29/79. Suit for $1,528,932.93 filed 8/16/79. Information received 12/13/79. Referred to General Counsel 2/13/80. Settled by Department of Justice for $1,040,926.00 -3/24/81. (Includes cargo claim). 09/18/79 05/03/79 01/24/79 09/11/79 759,077.29 Five requests for additional 1nformat1on between 10/30/79 and 01/30/80. Suit for $325,000.00 filed 9/20/79. Additional information received 6/2/80. Settled by Department of Justice for $229,891 .20 -8/4/81. (Includes accidents of 10/15/78 and 8/2/79). 181,795.51 Six requests for additional information between 5/30/79 and 2/1/80. Suit for $181,795.51 filed 7/30/79. Additional information received 2/14/80. Settled by Department of Justice for $71,901.48 -8/28/80. No Claim 60,268.44 Three requests for additional information betwee~ 2/20/79 and 4/4/79. Information received 5/8/79. Offer to settle for $57,002.00 corrrounicated to owners 9/27/79. Settlement at that figure effected 10/25/79. No Claim No Claim No Claim 6,210.00 Suit for $6,210.00 filed 9/24/79. Four requests for additional information between 10/30/79 and 1/31/80. Settled by,Department of Justice for $3,100 -11/17/80.

PAGE 37

DATE OF BLI NO. VESSEL ACCIDENr 45-78 WASHIN:;'TON TRADER 06/23/78 47-78 OVERSEAS WASHINJro.N 07/04/78 48-78 REPUBLICA DEL. EClJAIDR 07/05/78 50-78 PUNI'A BLANCA 07/27/78 50-78 PENNSYLVANIA SUN 07/27/78 51-78 W ORLDFINAN:E 07/30/78 51-78 WORLD FINAN:E (cargo ) 07/30/78 52-78 OVERSEAS NEW YORK 08/09/78 53-78 DEL SQL 08/20/7 8 54-78 GVERSEAS JOYCE 08/29/78 54-78 PASADENA 08/29/78 56-78' ORIENTAL Ca.1MANDER 09/06/78 57-78 DUGI Ol'OK 09/30/78 DATE OF CLAIM AMOUNI' OF CLAIM STATUS 07/25/80 $ 58,296.99 See accident of 1/29/78~ No Claim 05/02/79 01/08/79 09/17/79 10/04/79 12/17/79 No ciaim No Claim No Claim 406,292.92 Nine requests for adoit'ional information between 5 /2/79 and 9/8/80. Information received 9/22/80. Referred to Gener .al Counsel for review 11/17/80. Settled for $322,381.72 7/24/81. 361,216.53 Aciditional information requested 2/5/79 and 8/14/79. Information received 9/1/79. Settled for $342,647.19 -9/21/79. 86,714.30 Three requests for additional information between 10/30/79 and 1/30/80. Suit for $86,714.30 filed 9/14/79. Additional information receiveo 8/4/80. Settled by Department of Justice for $129,607.89 -5/19/81. (Includes. accident of 2/13/79). No Claim No Claim No Claim 14,475.00 Suit for $14,475.00 filed 9/30/79. Seven requests for additional information between 11/20/79 and 11/26/80. Information received 12/12/80. Settled by Department of Justice on 7/19/82 for $17,815.00 (due to accrued interest claimed). 404,217.67 Referred to General Counsel for review 2/15/80. Offer to settle for $33,950. 03 communicated to owriers 9/24/81. Settlement negotiations in progress.

PAGE 38

DATE OF BLI NO~ VESSEL ACCIDENI' 1-79 JEAN 10/02/78 2-79 BAR:;E EL (X)NJUisrAIX>R 10/06/78 3-79 MARA 3-79 SAMOS.SIOR-1 4-79 OVERSEAS OHIO 5-79 EIBE OLDENIDRFF 6-79 OORDHVAL 7:... 79 OCF.ANIC CONFIDEN'.:E 7-79 SAN ANDRES 8-79 HANAU None OVERSEAS CHICAOO 11-79 BORIS ZHEMCHUZHIN 10/09/78 10/09/78 10/15/78 10/24/78 11/13/78 11/21/78 11/21/78 11/28/78 12/02/78 12/08/78 DATE OF CLAIM .AM)UNI' OF CLAIM srATUS OF CLAIMS AGAINST THE PANAMA CANAL
PAGE 39

VESSEL 12-79 OVERSEAS NATALIE 14-79 OVERSEAS AN:OORAGE 15-79 BrELLA SOLARIS 16-79 IDRDIC NAVIGA'IDR 17-79 ORIENI'AL BrATESMAN 18-79 YACHI' s{JN])AfQ: 19-79 KEYBrONER 2079 OOLDEN PANAGIA 2079 WORLD. AGAMEMNON 21-79 TIIDS DATE OF ACCIDENI' 12/09/78 12/29/78 12/30/78 01/02/79 03/15/79 01/05/79 DATE OF CLAIM AMOUNI' OF CLAlM BrATUS 09/11/79 $ 25,473.91 Additional information requested 12/6/79 and 1/9/80. Suit for $25 473.91 filed 9/20/79.Information received 1/16/80. Settled by Department of Justice for $54,587.22 -09/10/79 6/24/81. (Includes accident of 4/9/79). 58,094.44 Three requests for additionai information between 10/30/79 and 6/19/80. Suit for $54,094.44 filed 9/20/79. case dismissed 12/11/80. 09/18/79 2,042,458.58 Six requests for additional information between 10/26/79 and 8/11/80. Suit for $2,042,458.00 filed 9/24/79. information received 8/21/80. Settled by Department of Justice for $1,651,197.45 -6/7/82. 05/03/79 11/01/79 77,979.81 Six requests for additional information between 5/10/79 and 1/9/80. Referred to General Counsel for review 3/4/80. Offer to settle for $18,558.39 corrrnunicated to owners 5/20/80. Counter offer received 7/23/80. Referred to General Counsel for review 11/28/80. Settled for $30,515.15 -12/24/80. 33,126.10 Four requests for additional information between 11/23/79 and 5/5/80. Information received 6/10/80. Referred to General Counsel for review 2/24/81. Settled for $29,890.57 -12/16/81. No Claim 01/31/79 09/05/79 88,345.35 Suit for $88,345.35 filed 9/11/79. Settled by Department of Justice for $85,000 .00 -3/10/81. 02/01/79 02/01/79 02/05/79 09/17/79 336,480.78 Three requests for additional informat~on between 10/25/79 and 9/29/80. Sui t for $303,797.11 filed 9/18/79. Information received 11/4/80. Settled by Department of Justice for $195, 318. 50 -7 /20/81. 09/26/79 1,000,000.00 Suit for $1,000,000.00 filed 9/27/79.Additional information requested 10/25/7~. Revised claim sl.i:>mitted for $278,044.91 on 6/20/80. Additional information requested 8/11/80. Information received 2/10/81. Settled by Department of Justice for $161,889 .80 -7/20/81. 11/20/80 312,353.72 Suit for $250,000.00 filed 9/27/79. Settled by Department of Justice for $188,083.51 6/25/81.

PAGE 40

DATE DATE NvlOUNI' OF OF OF BL! NO. VESSEL ACCIDENI' CLAIM CLAIM BrATUS 22-79 OVERSEAS NEW YORK 02/13/79 07/25/80 $ 129,502.92 Suit.for $145,438.42 filed 9/14/79. Settled by Department of Justice for $129,607 .89 5/i9/81. (Includes accident of 8/9/78). 23-79 ):'ACHI' GYPSIES FIVE 02/16/79 No Claim 24-79 BOBO 02/13/79 No Claim 25-79 CQVE TRADER 03/26/79 09/24/79 1,091,432.84 Six requests for additional information between 10/30/79 and 12/04/80. Suit for $1,128,881.20 filed 9/24/79.Information received 1/16/81. Settled by Department of Justice for $1,000,000.00 -8/10/81. 26-79 CRESI'BANK 03/28/79 09/79 711.83 Additional information requested 10/25/79. Referred to General Counsel for review 1/30/80. Settled for $711.00 -6/2/80. 28-79 OVERSEAS NATALIE 04/09/79 09/11/79 107,759.95 Suit for $78,071.96 filed 9/20/79. See accident of 12/09/78. 29-79 YACHI' KARDIA 04/09/79 No Claim O') 30-79 KASTURBA 04/13/79 09/27/79 689,500.00 Additional information requested 10/25/79 and 05/27/80. Suit for $289,000.00 filed 9/27/79. Settled by Department of Justice for $37,014.00 -1/7/81. (Includes the vessel NlJv1BER FOUR) 3 0-79 NlMBER FDUR 04/13/79 .I0/10/80 49,035.50 Suit for $400,000.00 filed 9/12/79. Settled by Department of Justice. (See vessel KABrURBA) 31-79 SEA SWAN 04/18/79 No Claim 32-79 JARILLA 04/20/79 09/27/79 252,000.00 Suit for $250,000.00. filed 9/27/79. Four requests for additional information between 10/26/79 and 1/8/81. Claim amended 2/6/81 to $79,947.11. Settled by Department of Justice for $65,693.27 6/15/81. 33-79 BrAR ALCYONE 04/30/79 07/08/80 27,760.64 Suit for $25,000.00 fileo 9/18/79. Settled b Department of Justice fqr $27,496.24 -12/23/80. 34-79 PENNSYLVANIA SUN 05/11/79-. 09/28/82 24'4, 815. 09 Additional information requested 10/8/82. Information receiveo 11/12/82. Referred to Industria~ Division for advice 11/26/82. Analysis in process.

PAGE 41

BLI NO. VESSEL 36-79 AroSI'OIDS K 38-79 YACHI' MCX)N RIVER 39-79 SEATIDE 39-79 QUIJ1',JEI' 39-79 QJIDNEr (Cargo) 40-79 OVERSEAS OHIO 41-79 CHI GRACE 42-79 TANAMBI 43-79 THERMOPYLAE 44-79 AM.ILLA 44-79 SI'AR CAPELLA. DATE OF ACCIDEN1' 06/11/79 06/11/79 07/29/79 07/29/79 07/29/79 08/02/79 08/13/79 08/22/79 08/28/79 08/29/79 08/29/79 44-79 SI'AR CAPELLA (Cargo) 08/29/79 46-79 OVERSEAS WASHINGI'ON 09/05/79 48-79 MIRENE 09/09/79 49-79 D'AI.BERI'IS 09/13/79 50-79 SI'OLT SPAN 09/17/79 DATE OF CLAIM AMOUNI' OF CLAIM SI'ATUS No Claim No Claim 09/25/79 $ 609,612.06 Suit for $609,612.06 filed 9/25/79. Settlement agreement reached whereby the vessel owners and the government would absorb their own losses. Each of the three parties would also participate in paying the owner of the cargo aboard the QUIDNEI'. 09/10/79 1,500,000.00 Suit for $1,500,000.00 filed 9/14/79. Settlement agreerr~nt reached whereby the vessel owners ana the government would absorb their own losses. Each of the three parties would also participate in paying the owner of the cargo aboard the QUIDNEI'. 09/19/79 09/18/79 09/26/79 09/26/79 350,000.00 Suit for $350,000.00 filed 9/30/79. Settled by Department of Justice for $100,000.00 -8/4/81. see accident of 10/15/78. No Claim No Claim 20,000.00 Suit for $35,000.00 filed 9/27/79. Settled by Department of Justice for $35,000.00 -3/25/81. 1,741,970.00 Suit for $1,741,970.00 filed 9/26/79. Additional information requested 11/7/79 and 9/10/80. Information received 5/13/81. Settled by Department of Justice for $850,447.99 -9/8/81. 09/28/79 1,000,000.00 Suit for $4,000,000.00 filed 9/27/79. Five requests for additional information between 10/25/79 and 9/4/80. Information received 2/27/81. Settled by Department of Justice for $1,209,631.86 -9/8/81. (Includes cargo claim). 09/28/79 4,000,000.00 Suit for $1,000,000.00 filed 9/30/7~. Consolidated with vessel damage suit. 09/26/79 $ 123,927.74 Suit for $123,927.74 filed 9/25/79. Six requests for additional information between 10/25/79 and 12/29/80. Information received 1/12/81. Settled oy Department of Justice for $32,160.16 -5/19/81. 11/18/80 09/25/79 08/19/81 219,179.54 Suit for $90,000.00 filed 9/30/79. Additional information requested 12/18/80. Settled for $208,604.77 -8/27/82. 19, 444 32 Additional information requested 1/29/80 and 3/13/80. -Information received 8/22/80. Referred to General Counsel for review 10/2/80. Settled for $19 -~.32 12/10/80. 92,185.66 Three requests for additional information between 9 / 10 /81 ana received 2/23/82. Referred to General Counsel for review 5 / 1 Information nalysis in process.

PAGE 42

srATUS OF CLAIMS AGAINsr THE Pl\NllMA CANAL CXMMISSION ARISIN:; Fl01 VESSEL ACCIDENI.'S OCQJRRIN:; AFTER SEI!I'EMBER 30, 1979 DATE IN OR DATE N/OUNI' OF our OF OF OF BL! N). VESSEL ACCIDEN1' LOCKS CIAIM CIAIM srATUS 1-80 PN1PUS 10/02/79 I $ No Claim {Personal Injury) 2-80 Tug the POLARIS 10/08/79 0 No Claim 3-80 QVERSEAS VALDEZ 10/18/79 l 03/17/80 166,068.63 Settled 10/29/82 for $129,477.00 (Note: 1st offer on ii/16/81 was .not accepted and additional information was slbmitted on 3/8/82) 3-80 Yacht AI.ASMAR 10/18/79 I 04/07/80 419.60 Additional information requested 9/81 {Previously in General Coun~el for advice) 3-80 Yacht AGUIIA 10/18/79 I 02/26/80 147.00 Additional information requested 9/81 (Previously in General Counsel for advice) 3-80 Yacht FREVEN 10/18/79 I 02/25/80 205.95 Additional information requested 9/81 {Previously in General Counsel for advice) c~ 3-80 Yacht FRIENDSHIP lQ/18/79 I 01/24/80 375.00 Additional information requested 9f81 {Previously in General Counsel for advice) 00 3-80 Yacht SILVER HEEIS 10/18/79 I 01/18/80 530.00 Additional information requested 9/81 {Previously in General Counsel for advice) 4-80 OVERSEAS AIASKA 10/24/79 I 11/04/82 Indemnity action based upon personal injury. Under reviews by General Counsel 5-80 OVERSEAS NEW YORK 10/25/79 I 03/17/80 137,878.66 Settled 12/14/81 $67,849.52 {Partial claim slbmitted on 3/17/80, additional documents SU)mitted 1/9/81) 6-80 OVERSEAS NEW YORK 10/30/79 I 03/17/80 120,870.57 Settled 12/14/81 $52,026.42 {Partial claim sl.i:>mitted on 3/17/80, balance of claim filed 8/19/80) 7-80 MA!P() II 11/01/79 0 No Claim 8-80 MESSINIAKI AVGI 11/13/79 I No Claim {Personal Injury) 9-80 &"WAN ARIOl 11/08/79 0 07/29/80 367,066.12 Sl.i:>mitted to a.m on 3/8/82; forwarded to Congress 11/9/82 (Four requests for additional information were necessary before analysis could be made)

PAGE 43

DATE IN OR DATE AMOUNI' OF our OF OF OF BLI 00. VESSEL / ACCIDENr LOCKS CLAIM CIAJM srATUS 10-80 ATHENA 11/13/?9 0 $ No Claim 11-80 VENI'URE / 11/20/79 0 01/27/81 282,709.32 Mditional information requested 9/27/82 (7th request) 12-80 CARIB FREEZE 11/21/79 0 No Claim 13-80 Wl\SHIOOTON TRADER 11/24/79 I 06/26/81 1'48,955.30 Settled on 3/30/82 $139,155.56 14.:.00 'IDBi\ 12/03/79 I 01/30/81 27,042.62 Settled 1/14/82 -$23,696.52 15-80 Yacht CREDEN:E 12/08/79 I 04/18/80 388.70 Settled on 5/5/82 for $135.00 (Offers of settlement made since 6/13/80) 16-80 GOLDEN SABRE 12/19/79 I No Claim 17-80 WASHltUI'ON 12/21/79 I 05/06/80 80,743.07 Settl~ 12/17/81 -$39,908.50 (Additional information requested 1/13/81) (,0 18-80 HOLsrENKcxx.; 12/25/79 I 07/28/80 18,594.59 Settled 11/18/81 -$14,903.65 (Additional information requested 11/26/80) 19-80 B.l\R3E EL REY 12/30/79 I No Claim (Personal Injury) 20-80 BUNKO MARU. 01/02/80 0 No Claim 21-80 T(X; SIDNEY ross 01/24/80 0 No Claim (Personal Injury) 22-80 srAR ROODIAN 02/06/80 I 02/11/82 10,698.04 Referred to General Counsel for revi~ 10/6/82 (Additiona~ information requested 6/15/82) 23~80 BARGE GLEr.MAR 02/07/80 0 No Claim 23-80 l3AR3E SUBLIEI' 02/07/80 0 No Claim 24-80 OVERSEAS ALASKA 02/10/80 I 06/10/80 20,695.72 Disallowed 11/10 /8 O 25-80 CRENNA 02/12/80 I No Claim

PAGE 44

DATE IN O R DATE AMOUNr O F our o F O F O F BLI 00. VESSEL ACCIDENI' W.:::KS CIAIM CIAIM STATUS 27-80 ZIM TOKYO 03/01/80 I $ No Claim (Personal Injury) 28-80 WASHINGIDN TAADER 03/0 3 /80 0 06/26/81 101,511.38 Settled on 7/22/82 for $52,274.37 (Offer of settlement made on 1/25/82 and accepted on 7/21/82) 29-80 ISABEL cnm 0 3/09/80 0 No Claim 29-80 RIO ARIMAO 03/ 09/80 0 No Claim 30-80 IAOO HUALAIHUE 03/10/80 0 No Claim 30-80 SAPF0:00 OLYMPICS 03/10/80 0 No Claim 31-80 OVERSEAS AN2HORAGE 03/23/80 I 06/24/80 4,805.42 Disallowed 11/12/80 32-80 Yacht SPICE 03/25/80 I No Claim 0 33-80 KEYSIONER 03/27/80 0 No Claim 33-80 MING SHINE 03/27/80 0 No Claim 34-80 ANNA 04/10/80 I 08/10/80 446,982.76 Referred to General Counsel for review 10/28/82 (Note: Four requests for additional information necessary before analysis could be made) 35-80 ESSO NASSAU 04/10/80 0 04/07/82 391, 855. 77 Additional information requested 5/5/82 and traced 11/1/8~ 35-80 ESSO GUAM 04/10/80 0 04/07/82 889,369.38 Additional information requested 5/14/82 and traced 9/2/82 36-80 OVERSEAS ALASKA 04/13/80 I 05/09/80 114,524.86 Settled on 1/24/82 -$69,858.87 (Additional information received 8/26/81) 37-80 ALTAVIA 04/13/80 0 12/11/80 63,450.00 Settled 2/19/82 for $33,797.39 {Additional information received 6/15/81) 38-80 Yacht WILLIN:; MIND 04/03/80 I No Claim

PAGE 45

DATE IN OR DATE .AMOUNI' OF our OF OF OF BLI 00. VFSSEL ACCIDENI' LOCKS CLAIM CLAIM BrATUS 39-80 EASl'ERN H)RNEI' 04/22/80 0 $ No Claim 39-80 OORYFDOOS 04/22/80 0 No Claim 40-80 CAPE GRENVILLE 05/01/80 0 No Claim 40-8Q Yacht INDIAN Sllw1MER 05/01/80 0 06/30/80 102,223.10 Settled on 3/6/81 for $57,626.08 (Additional information received 9/15/80) 41-80 AGIOS NTIL 06/30/80 0 No Claim 48-80 OPAL 06/30/8, 0 0 No Claim 49-80 KOREAN LEADER 07/06/80 0 04/23/81 1,202,972.74 Referred to General Counsel for review 10/14/82 (Additional inforlTldtion received in Septerrber 1982) J

PAGE 46

50-80 51-80 52-80 53-80 54-80 55-80 56-80 57-80 58-80 59/80 60-80 61-80 62-80 T \ VFSSEL TEXACD IOME ESSO CDRAL GABLES DATE OF ACCIDENr 07/06/80 07/10/80 OVERSEAS WASHINJION 07/11/80 OVERSFAS OOIO 07/21/80 -ATHENA 07/23/80 AULICA 08/03/80 CMG.r\ 08/02/80 OLYMPIAN REEFER 08/10/80 BAK;E BELCHER 101 09/02/80 EXXON WASHINJION 09/08/80 FAIR REEFER 09/12/80 SEIRYU 09/18/80 OVERSFAS ALEUI'IAN 09/23/80 IN OR our OF LOCKS 0 0 I I 0 0 0 I 0 0 0 I I DATE AMOUNI' OF OF CLAlM CIAJM srATUS $ No CLaim No Claim 12/11/80 37,000.71 Settled on 8/21/82 $35,000.00 (Claim disallowed 1/16/81. Claim increased to $75,QOO and suit filed in 7/81) 12/11/80 88,068.86 Settled 3/2/82 $43,085.45 (Note: Suit had been filed and dismissed for administrative settlement on 11/9/81) 03/26/82 70,000.00 Referred to General Counsel for review 9/30/82 09/27/82 332,268.03 Additional information requested 09/29/82 and traced 10/21/82 No Claim 04/13/82 99,115.74 Offer of settlement made on 11/17/82 (Additional information received 7/16/82) No Claim 11/01/82 581,592.23 Additional information requested 11/9/82 No Claim No Claim 12/11/80 89,173.51 Additional information provided by shipowner on 2/11/81 and 7/23/81. Referred to General Counsel for advice on 9/10/81. Additional information provided by shipowner on 12/28/81. To date, shipowners have adequately documented $150 in damages

PAGE 47

DATE IN OR DATE AMOUNI' OF our OF OF OF BLI NJ. VESSEL ACCIDENI' LOCKS CLAIM CIAIM BrATUS 1-81 AMERICAN APOLID 10/01/80 0 11/18/81 $5,620,095.67 Additional information requested 12/7/81, 2/12/82, and 7/6/82. Revised claim filed on 10/22/82. Additional information requested 11/2/82 2-81 OONA -PAZ 10/06/80 0 No Claim 3-81 MING CC~ 10/07/80 0 No Claim 4-81 AMYNr'PS 10/15/80 0 No Claim 4-81 ..SIL~ Sl'AR 10/15/90 0 No Claim 5-81 HELLESFONI' CDURAGE 10/27/80 0 10/07/82 148,139.30 Additional information requested 10/20/80 5-81 CCE'.AN VIP 10/27/80 0 10/04/82 12,831.62 Referred to Industrial Division for advice 11/2/82 6-81 IONI'UE 11/02/80 I 10/05/81 13,106 .24 Settled 3/5/82 for $12,045.41 CA, 7-81 MORM.r\CSUN 11/03/80 I 03/23/82 71,374.68 Referred to General counsel for review on 11/15/82 8-81 Launch SANI'A RITA 11/01/80 0 03/11/81 39,652.00 In Claims for analysis (Supporting documents slbmitted 9/10/82. Received from official translator 11/12/82) 9-81 PUERro PRIOCESA 11/12/80 0 No Claim 9-81 OII SI'AR 11/12/80 0 No Claim 10-81 OCEANIS 11/18/80 0 No Claim 10-81 ZIM GEN'.JI/A 11/18/80 0 No Claim 11-81 M)tJNI' VERroN VICTORY 11/19/80 I No Claim 12-81 OODEN OjllMPION 11/21/80 I No Claim 13-81 KORF.AN OONIS SUN 12/01/80 0 08/27/81 2,957,098.50 Suit involving cargo interests and another yessel filed in N8'1 York. Commission tendered defense 5/6/82. Tender rejected 5/24/82

PAGE 48

DATE IN OR DATE -OUNI' OF our OF OF OF BLI. 00. VESSEL ACCIDENI' LCCKS CLAIM CLAIM BrATUS 14-81 OONICA 12/26/80 I 07/29/81 $ 9,500.00 Settled on 5/19/82 for $9,500.00 15-;-81 ~DEN WILI.JlMETI'E 01/06/81 I 10/19/82 116 157. 94 Referred to Industrial Division for advice 10/25/82 16-81 I.ADY NINA 01/08/82 0 No Claim 16-81 OOASrAL CALIFORNIA 01/08/81 0 No Claim 17-81 OCF.AN RAN:;ER 01/10/81 0 No Claim 18-81 N-ICIDI.J\S G. PAPALIOS 01/11/81 I No Claim 19-81 .AMERICAN AC.UARTI!S 01/12/81 0 07/07/82 539,818.27 .Additional information requested 09/8/82 20-81 BARGE YR 32 01/16/81 0 04/23/81 46,513.75 Additional information rec:::eived 9/9/81. Settled 3/17/82 for $29,913.75 21-81 BARGE YR1B 32 01/20/81. 0 04/23/81 (Both accidents under one ciaim) 23-81 NYK TUG BAYAN:> 02/03/81 0 No Claim 24-81 REPUBLICA DEL EQJAOOR 02/13/81 I No Claim 25-81 C. K. APOLID 03/0l/8i I No Claim 26-81 NEDI'IS 03/05/81 0 No Claim 27-81 f\(JJAFAITH 03/06/81 I 10/19/82 1,055,224.51 Additional information requested 10/28/82 28-81 LWYD MARSEIBA 03/09/81 I No Claim 29-81 MONI'ERREY 03/15/81 I No Claim 30-.81 OVERSEAS JOYCE 03/23/81 o 02/16/82 61,248.13 Referred to GC for review on 11/15/82

PAGE 49

N I w -...J co DATE IN OR DATE AMOUNr OF OUT OF OF OF 0 VESSEL ACCIDENT U:X:KS CLAIM CLAIM STATUS + 31-81 l'4)UNT WASHIN.;'ION 04/07/81, I 01/25/82 $ 81,159.63 Additional information received 7/6/82. Referred to General Counsel for review 8/10/82 33-81 FORI' KAMIOOPS 04/17/81 I No Claim 34-81 cx:;oEN WABASH 05/04/81 I No Claim 35-81 Yacht GI-DST II 05/04/81 I 10/19/81 316,698. 70 Settled 6/28/82 for $165,000.00 36-81 UNIQJE FDRI'UNE 05/07/81 0 No Claim 36-81 CHOKO MARU 05/07/81 0 No Claim 37-81 LUIS BANCHERO 05/18/81 No Claim C1' 38-81 OCEAN EVER 05/25/8i 0 02/01/82 685,104.10 Forwarded to Con:3ress December 3, 1982 39-81 NAI NOEMI 05/26/81 0 No Claim 39-81 Tug SAN BLAS 05/26/81 0 No Claim 40-81 CABO PILAR 05/25/81 I No Claim 41-81 CABO PILAR 05/25/81 0 No Claim 42-81 OVERSEAS ALEUTIAN 05/29/81 I No claim 43-81 WESTERN SUN 06/05/81 I No Claim 44-81 TELFAIR PIONEER 06/07/81 I No Claim 45-81 WASHIN.;'ION TFADER 06/13/81 0 No Claim 46-81 OVERSEAS WASHINGION 06/22/81 0 No Claim

PAGE 50

DATE IN OR DATE /IMOUNI' OF our OF OF OF BLI 00. VESSEL ACCIDENr r..cx::KS CLAIM CLAIM STATUS 46-81 PALTIC NEPI'UNE 06/22/81 0 $ No Claim 47-81 CDLDITZ 07/02/81 0 No Claim (Personal Injury) 48-81 IMPERIAL 07/05/81 0 No Claim 49-81 CDRDIALITY 07/12/81 0 No Claim 50-81 GULF FARMER 07/12/81 I No claim 51-81 Yacht THEI'IS III 07/10/81 I No Claim O'). 52-81 COLlMBUS NEW ZEALAND 08/04/81 0 03/01/82 54,666.93 Mditional information requested 3/11/82 and traced 9/2/82 54-81 LIDYD MARSELHA 09/15/81 0 i.-io Claim

PAGE 51

DATE IN OR DATE .AMOUNI' OF our OF OF OF BL! N? VF.sSEL ACCIDENI' IOCKS CIA1M CLAIM srATUS 1-82 VALTE1'SI 10/06/81 I $ No Claim 2-82 SI'OLT OORNESS 10/12/81 0 No Claim 2-82 ASIAN EXPRESS 10/12/81 0 No Claim 3-82 ZAMORA 10/19/81 0 07/01/82 1,118,496.15 Mditional information requested 8/9/82 4-82 LINDENHALL 10/22/81 0 05/28/82 '58,828.45 Mditional information requested 6/7/82 (Partial information received 10/7/82) 5-82 BARBER 'IDNSBERG 10/24/81 0 No Claim 6-82 DAISHlli MARU 10/31/81 0 No Claim 7-82 AQJMEN 10/31/81 I No Claim -:J 8-82 LIDYD AffiENI'INA 11/06/81 0 No Claim 9-82 ESSO T.AMPA 11/07/81 I No Claim 10-82 OONI'AIGLE 11/09/81 I 05/27/82 214,41:8.46 Mditional information received 10/25/82 Referred to Industrial Division for advice 11/4/82 U-82 TOYOI'A MARIJ No. 16 11/22/81 0 No Claim 11-82 TI-DR srAR 11/22/81 0 No Claim 12-82 IEDI\ 12/09/81 0 No Claim 13-82 ARCO HERITAGE 12/11/81 0 No Claim 14-82 IEDI\ 12/11/81 0 No Claim 15-82 SN:M HILL 01/12/82 0 No Claim

PAGE 52

DATE IN OR DATE .AMOUNI' OF our OF OF OF BLI 00. VESSEL ACCIDENI' LOCKS CLAIM CLAIM srATUS 16-82 HARrLEY ACE 01/26/82 0 $ No Claim 16-82 GJLDEN PANAGIA 01/26/82 0 No Claim 17-82 GOWEN PANAGIA 01/25/82 I No Claim 18-82 Yacht I.ru RIDER 01/21/82 I No Claim 19-82 OLYMR)S 02/03/82 0 No Claim 20-82 SILVER CI.DUD 02/06/82 0 No Claim 20-82 LAG) I ZABA.L 02/06/82 o No Claim 21-82 OVERSEAS ALEUTIAN 02/08/82 0 No Claim 22-82 F.RAN:IS SIN:ER No. 6 02/15/82 I No Claim 00 23-82 SANI'A CRUZ 02/16/82 0 No Claim (Personal Injury) 24-82 ATI.ANl'IS 02/20/82 I No Cl.aim 25-82 TRINITY NAVIGATOR 03/02/82 0 No Claim 25-82 COVE SAIIDR 03/02/82 0 No Claim 26-82 Yacht~ 03/01/82 I No Claim 27-82 DAPHNE 03/13/82 0 No Claim 28-82 MOBIL ro-JER 04/12/82 I No Claim 29-82 OVERSFAS NEW YORK 04/22/82 I No Claim 30-82 OORITAL 04/25/82 0 No Claim

PAGE 53

DATE IN OR DATE AMOUNI' OF our OF OF OF BLI-00. VE.5SEL ACCIDENI' ICCKS CIAIM CLAIM STATUS 31-82 WIGI CASALE 04/27/82 0 $ No Claim 31-82 OIIMBORAZO 04/27/82 0 08/30/82 153,351.99 Additional information requested 9/20/82 32-82 SANI'A BARBARA 05/15/82 I No Claim 33-82 AUsrRALIAN ENDF.AVQR 05/08/82 I No Claim (Personal Injury) 34-82 Tug EXPIORER 05/20/82 0 No Claim (Personal Injury) 35-82 CXJVE
PAGE 54

DATE IN OR DATE /IMOUNI' OF our OF OF OF ACCIDENI' I.OCKS CI.AIM CLAIM Sl'ATUS 46-82 NYK Tug OON)S() 07/26/82 0 $ No Claim 46-82 NYK Tug R)RI'OBELID 07/26/82 0 No Claim 46-82 P.C. Yacht ClLi:> 07/26/82 0 No Claim 46-82 Yacht MATAf.Xi 07/26/82 0 No Claim 46-82 Yacht PC
PAGE 55

DATE IN OR DATE N<10UNI' OF our OF OF OF BL! N:>. VESSEL ACCIDENI' IOCKS CIAIM CIAIM srATUS 52-82 SHANOON 09/08/82 I $ No Claim 53-82 P1'MEIA ANN 09/11/82 0 No Claim 54-82 PAMELA ANN 09/11/82 0 No Claim 55-82 OUKUZEN MARU 09/22/82 0 NO Claim

PAGE 56

52 Mr. LENT. I understand that a reading of the board meeting transcripts suggests that both American and Panamanian_ board members believe-or some of them believe-that the Commission ought to get out of the insurance business and somehow change their reg, ulations so shipowners would bear a greater share of the expense of casualties. The supervisory board's objective appears to be reduction or preferably elimination of Commission liability for marine accidents both outside and inside the locks. Is that the case? Mr. GIANELLI. Let me say, Mr. Lent, there has been much discus sion about this matter as far as the Board is concerned. But as of this moment, the only specific action which the Board has taken is to direct the Commission .to study alternatives for reducing the cost of marine accidents to the agency. Let me say that the situation becomes complex because, as you know, at the present time the Commission puts pilots on the ships the minute they enter the waters for transit through :the canal; and there is some concern about whether or not, if we try to, for example, eliminate the liability of the Commission for these claims, whether it might also have the effect of changing who, in fact, is in charge of the ships as they transit the canal. So I think the entire subject is a complicated one. We have talked about it at great length; but the Board has come to no con clusions with respect to any changes at this time. Mr. LENT. Is it true that shipowners carry insurance? Mr. GIANELLI. That is correct, for their purposes; yes. Mr. LENT. This questionalso should be asked of the other witnesses-what would be the problem with the shipowners' insurance being the responsible entity for accidents in or out of the canal while a pilot of the Panama Commission is aboard? Mr. GIANELLI. I suspect that perhaps you should talk to the shipping people about this. I would expect that, if they feel that their insurance is going to cover the transit, then they would want their masters in control of the ships. We -have been looking at that problem also; but let me say, Mr. Lent, that because of the precarious nature of transiting ships through the canal, I think the history of the Commission and its predecessor agencies has shown it to be important that the pilots of the Commission or the canal company, before it, take charge of the ships throughout the transit of the canal. Mr. LENT. I am not suggesting a change in that arrangement. I understand and agree with you that the employees of the Panama Canal Commission-pilots particularly-are probably the proper personnel to escort these ships through the Panama Canal; but could not the shipowner assume the responsibility, the liability for any damages to the ship while it was under the navigational control of a Panama Canal pilot? It. would seem to me similar to insurance on my automobile. If my wife or my son or a friend drives my car and has an accident, I am still covered. So, who is at the wheel isn't necessarily the determinant of lia bility. Mr. GIANELLI. I think you are right. I am not sure the shipowner_ s would .agree with your analysis there with respect to an. automobile. I think that is a subject which would be well to disuss

PAGE 57

53 with the shippers to see whether or not they would agree to what you are suggesting. As I say, I think our preliminary information is that there may be problems under their insurance policies with our pilots controlling the ships during transit. Mr. LENT. I understand that in January 1981, the monthly provi sion for accident reserves was doubled from a half a million dollars to a million dollars per month for fiscal year 1981, effective with the October 1981 accounts. Is that correct? Mt. GIANELLI. I think that information is correct. Mr. McAuLIFFE. That is correct. Mr. LENT. The question I had then was can you tell us how much the company set aside for accident reserves in 1979, the last day of its operation? The last year of its operation? Mr. GIANELLI. Mr. Lent, could we double check those figures and present them to you? Mr. LENT. Yes. I realize these questions perhaps should have been submitted to you in advance. Mr. GIANELLI; We will certainly submit responses to those. Mr . LENT. Along that line, I would like to know what specific events might have required the doubling of the monthly reserve during the first year of canal operations under the 1977 Panama Canal treaties and whether or not the $1 million per month re flects actual monthly accident costs or potential liability. In other words, is it the Commission's policy to set aside for insurance against all possible risks in the canal operation? [The following was received for the record:] QUESTIONS SUBMITTED BY MR. LENT AND ANSWERED BY THE PANAMA CANAL COMMISSION Question 1. Please tell us how much the Panama Canal Company set aside for accident reserves in fiscal year 1979, the last year of its operation? Answer. The monthly accrual or reserve for marine accidents in fiscal year 1979 was $0.5 million for the first three months and somewhat more than $0.9 million for the remaining months, for a total of $10.0 million. The increase in monthly accrual was made i~ January based on the high ship accident cost experience for the .first quarter of the fiscal year. This increased accrual proved insufficient for current year costs and revised estimates for pending claims for prior years and an additional $5.7 million accrual was booked for 1979 to sustain the reserve account balance. The total charge to operations in 1979, therefore, was $15.7 million. Compounding the inflationary impact on vessel accident costs in 1979 was the occurrence of two major marine accident collisions-Quidnet/Seatide and Amilla/Star Capella. Question 2. What specific events required the doubling of the monthly reserve during the first year of Canal operation under the 1977 Panama Canal Treaties? Answer. For fiscal year 1980, the first year under the treaty it was calculated that a $6.0 million reserve would be adequate to cover marine accident costs that the Commission was authorized to settle. After reconsideration and consultation with the General Accounting Office, the Commission believed it was appropriate to pro vide for all Marine accident costs sustained even those outside of the locks with claims in excess of $120,000. All accident costs in 1980 amounted to $11.3 million, and accordingly, the accrual for marine accidents was adjusted in the latter part of FY 1980. The total accrual for FY 1980 was $10.5 million. The reserve accrual for Marine accidents was increased to $12.0 million in 1981 and 1982. Question 3. Does the $1 million per month reflect actual monthly accident cos~s or potential liability? In other words, is it the Commission's policy to set aside for insurance against all possible risks in the Canal operation? Answer. No, the Commission does not reserve for all possible risks in Canal oper ation. The $1 million accrual each month establishes a "reserve" to account for the normal costs arising from marine accidents only. Under this method of accounting, a reserve is built up to cover normal losses from marine accidents by charging oper-

PAGE 58

54 ating expenses with a uniform amount each month. This normalizes the operating expense. When accidents occur, the resultant losses are charged to the reserve rather than to operations. It should be emphasized that the accrual is for "normal" marine accident costs. It does not provide for accidents of a catastrophic nature. Question 4. Section 1414(6) of P.L. 96-70 specifically states that the Commission is not responsible and may not consider any claim for demurrage or delays caused by time necessary for investigation of marine accidents. I understand that witnesses to follow you later today will express concern with the present procedures for awarding the Board of Local Inspection (BLI) damages. Please tell us what procedures are followed by the Board of Local Inspectors in conducting accident investigations? Answer. The Board of Local Inspectors is now established under authority of the President pursuant to section 1418(a) of The Panama Canal Act of 1979, Pub. L. 96-70. Originally it was an administrative body, first created in 1909 at the direction of President Taft. Its accident-investigation procedures have been subject to very little change through the years since the Canal was opened in 1914. The Board always has performed this function with the objective of conducting a formal inquiry into each marine casualty as soon as practicable after the incident occurs. Such a policy is advantageous for serveral reasons, including that of enabling the vessel promptly to continue its voyage. It is obvious that in some cases a damaged ship will be de layed (irrespective of the investigation) in order to make temporary or permanent repairs that are necessary prior to sailing. The basic procedures that are followed by the Board and the parties giving evi dence or testimony before it are published at Part 117 of Title 35, Code of Federal Regulations. It will be noted that provision is made in sectio n 117.la for scheduling the investigation at least 10 hours after the accident. The regulation describes the purpose of this rule as that of affording pilots and other parties-in-interest a period for rest and consultation before the proceeding begins. This waiting period may be waived or shortened in urgent cases. It is the Commission's understanding that shipowners and operators are not primarily concerned with, or critical of, the manner in which the Board of Local Inspectors conducts these inquiries or the time that they require. nather, the affected parties are protesting the fact that, when the Commission is liable for damages that accrue as a result of an accident, they are precluded from recovery of the expense of detention time attributable to the hours spent in Canal waters awaiting and attending the investigation by the Board. As the Subcommittee has noted, however, section 1414(6) of the Panama Canal Act prohibits the Commission from considering any claim for that element of an injured party's damages. The Panama Canal Com mission is neutral on the question of whether the provisions of this subsection should be removed from the law. Mr. LENT. Another subject: I understand since October 1, 1980, all harbor movements in the ports of Balboa and Cristobal are per formed by tugs operating under contract with the National Board of Panama. My question would be, is it true that after this date, October 1, 1980 the Japanese NYK Co., took over Balboa and Cristobal Harbor tug operations? Mr. McAuLIFFE. Yes. As I recall, that was about the date that the National Port Authority of Panama contracted with the Japa-nese firm to provide tug service in the harbors. Mr. LENT. Are those vessels involved in harbor movements as distinct from canal movements required to have Panama Canal Commission pilots aboard? Mr. McAuLIFFE. No, sir, not on the tugs. Our pilots, however, do man the vessels themselves that are being maneuvered into the two port areas and out of them. Mr. LENT. Even though they are not going to transit the canal? Mr. McAm:~IFFE. Well, the fact is that they must have a pilot aboard in order to traverse even the smaller portions of the canal between the ports and the open seas. ~ Mr. LENT. So that. the Panama Canal Commission, as opposed to the Port Authority of Panama, continues to have liability for any

PAGE 59

55 accidents that might occur in those waters in either of those two cities? Mr. McAuLIFFE. That is correct, Mr. Lent, to the extent that lia bility can be shown to rest with the Commission because of the ac tions of our employee, namely the pilot or someone of that nature. For if an accident occurring in the harbor should be attributed to, let us say, the Japanese tugboat, then obviously the Commission would not be at fault. Mr. LENT. So if there is no one from the Commission aboard the vessel, pilot or otherwise, there is no question there is no liability on the part of the Commission, is there? Mr. McAuLIFFE. That is correct, Mr. Lent. Mr. LENT. So if there is someone from the Commission aboard a vessel and an accident occurs, then it is possible that the Commis sion might be liable but only if there is negligence demonstrated on the part of the personnel of the Commission? Mr. McAuLIFFE. That is substantially correct, Mr. Lent.' There are other reasons than negligence as it is defined in the law. A judgment call, let us say, on the part of a pilot that would not nec essarily be negligent but would be perhaps an unwise decision at the point; there are many reasons for accruing fault. In the case of the harbor movements that you mentioned, our pilot does have operational control of the ship because that ship is moving out of or into canal waters and we must maintain control. That is the reason that our pilots are aboard and in control. Mr. LENT. Thank you for that. That helps me. The legislative proposal forwarded to Congress pursuant to Public Law 96-70 in October 1981 proposed that the Commission may require as a condition of transit of the canal that vessels obtain insurance or otherwise demonstrate financial responsibility sufficient in amount to provide reasonable indemnification for damages resulting from acts or omissions of ~uch vessels when passing through the canal. . Would enactment of this provision reduce the amount set aside in reserve for accidents; and if so, by approximately how much? Mr. McAuLIFFE. In my opinion, Mr. Lent, if that were the case, that would not necessarily reduce the amount of tolls. Mr. LENT. Approximately what percentage, if you know, of the accident reserve is set aside to pay for cleanup of oil pollution damage? Mr. GIANELLI. I don't think there is any specific amount set aside for that purpose, Mr. Lent. Mr. LENT. Would an oil tanker traversing the canal carry insur ance to cover oil pollution cleanup costs? Would a tanker be required to carry that sort of insurance? Mr. GIANELLI. My understanding, Mr. Chairman, since the enactment of the treaty, is that they are not required to carry insurance to cover cleanup costs resulting from any spillage that might occur. Mr. LENT. I think we ought to check into that, because it seems to me if a tanker spills, there ought to be responsibility on the part .of the tanker. Mr. GIANELLI. I think the situation is, as I understand it from counsel, with whom we have just been talking on the subject, that is prior to the effective date of the treaty, there were certain re-

PAGE 60

56 sponsibilities under the Water Pollution Control Act that applied. My understanding is since the treaty, those provisions do not apply and, therefore, they are not liable for penalties under that law. At least that. is my understanding preliminarily from counsel. We can look at this matter further and advise you on it. Mr. LENT. One of the reasons we asked that question is to determine whether there might be not a duplication of insurance if, for example, a container were carrying insurance for that kind of act, and at the same time they were paying through the rate structure on the tolls for that kind of protection to the canal itself, there would be a duplication. Mr. GIANELLI. I assume in the one case, Mr. Lent, you would be talking about, for example, charges for cleaning up a mess that might result from an oil spill. On the other hand, it seems to me part of what we have been talking about in terms of claims or dam ages that would occur to the ship. Whether the oil spill would be included as part of those I think is something we would have to look at. Mr. LENT. I have no further questions at this time, Mr. Chair-man. Mr. HUBBARD. Congressman Tauzin? Mr. TAUZIN. Thank you, Mr. Chairman. Mr. McAuliffe, let :rne express to you publicly my appreciation for having the chance to meet you, sir, and work with you and for your appearance here today. As I understand the manner in which the toll system works and the liability of the Commission functions under the act, the assessment of tolls is a matter in which the risk of the Commission for damage to a single vessel traversing the canal is spread across all of those vessels traversing the canal. If we were to go to a different system, whereby the vessels themselves were to be obligated as in the case of automobiles-my good friend from New York used the analogy-would not that require the spreading of the risk for damage while traversing the. canal over all vessels insured generally in the global insurance market, whether or not they traverse the canal? Mr. GIANELLI. If it were not a Commission responsibility, then the Commission would certainly not have to include in its toll structure provisions for paying those claims. I assume then if the ships had that responsibility, that would be reflected by the indi-vidual policies which they would pay. Mr. TAUZIN. My point is if ships generally had to be responsible, the ships that ended up not traversing the canal lll:ight end up in the insurance rating that is applied for ships carrying part of the risk, those vessels that did traverse the canal. The current system guarantees only those vessels traversing the canal through the toll system which will share the risk of those that are damaged in the process of going through the canal; isn't that correct? Mr. GIANELLI. I think that is right. Mr. TAUZIN. Second, in answering the gentleman from New York's question with reference to the liability of the canal having a pilot on board a ship, my understanding of the law in reading it is that the liability attaches outside the locks unless there is a showing of contributory negligence on the part of the master, the crew,

PAGE 61

57 or passengers of the vessel. As I read the law-and I wish you would clear this up for me-you don't really have to show that the canal pilot was somehow negligent, that unless you have evid~nce there was negligence, contributory negligence, not bad judgment or something, but negligence, on the part of the master of the ship, its crew, or its passengers, that the Commission is liable? Mr. GIANELLI. Mr. Chairman, I wonder if we could have Mr. Dwight McKabney, the General Counsel for the Commission, come to the table? He is in the audience, and can assist in answering some of these questions. Mr. TAUZIN. Let me elaborate again. The difference between my understanding and what I thought the question the gentleman from New York was raising, he was asking the question, the Com mission is liable, upon a showing that the pilot, representing the Commission on the vessel, did something wrong and the answer was, well, it is almost correct, there are some variations to that. My question is: Isn't it true that the Commission pilot may show he hasn't don e anything wrong or negligent, but unless you show that the master, the crew, or the passengers did something to contribute to the accident which something they did is considered ~ neg ligent, unless you show that, the Commission is liable, whether or not you show the Commission man was negligent or not? Mr. McKABNEY. May I answer the question by saying with re spect to the accidents that occur in the locks, the Commission is a virtual insurer of the vessel. Only if we can show that action or omission by the vessel contributed to the accident is the amount of the damages payable herself reduced. Outside the locks, however, the regular admiralty rules of recovery apply; and unless there is negligence on the part of the pilot, the tug master, or some other employee of the Panama Canal Com mission or a negligent omission, tpen there is no liability. That is the rule that was in effect prior to the treaty implementation and it is the rule that is still applied in the settlement of claims by the Commission. Mr. LENT. Would the gentleman yield? A followup to that, sir, is who makes that determination of negligence and liability? Mr. McKABNEY. Prior to October of 1979, it was m:ade by the Panama Company but was subject to judicial review. Since September of 1979, the out-of-locks cases are settled, if they are under $120,000; by the Commission and the Commission's judgment on that is final. so then it is the Commission that is making the determination as to whether there was negligence on the part of the employee. With respect to tho~e claims that are in excess of $120,000 that have now gone to the Congress and that are in the process of being prepared to be sent, the Congress itself is to make that determination, on the basis of the analysis and the recommendation of the Panama Canal Commission~ That, sir, is the way we read. the stat-ute. Mr. TAUZIN. Let me reclaim. I am not sure I still understand your answer. In the memorandum I have on the law, it says that inside the locks, the Commission employees exercise virtual total control.

PAGE 62

58 Therefore, inside the locks, the Commission is essentially an insurer of all claims, although technically, the Commission may, in fact, reduce the award in proportion to contributory negligence. I understand that. Outside the locks, however, the memorandum provides that the Commission must adjust and pay those claims not exceeding $120,000; and, again, the award must be reduced by the contributory negligence of the vessel and its crew. This leads me to this question: Does that mean within $120,000, and over $120,000 if Congress approves, that the Commission is liable for the claim whether or not there is proof that the Commis sion was negligent? The Commission is liable for this claim only to be .reduced by any proof of contributory negligence? Mr. McKABNEY. The position that the Commission has so far taken since the treaty went into effect in October of 1979 is that the determination with respect to claims for accidents occurring outside the locks is made on the basis that only a showing of a neg ligent act or omission on the part of the Commission will result in liability. Mr. TAUZIN. I am glad to hear that. What I still cannot understand in the law is the next series of questions. I hope you will help me here. As I understand the law, if an inside-the-locks accident occurs, and the damage in the inside-the-locks accident is whatever-$120,000, $200,000, $1 million-you can settle it as an inside the-locks claim. Is that correct? Mr. McKABNEY. That is correct, sir. Mr. TAUZIN. If the damage occurs outside the locks and the Com mission employee's negligence operates, let's say, to only 5 percent of the claim, the master of the ship is 95 percent negligent, and the damage is $120,000 plus, then in that instance, even though the Commission's liability is limited to maybe $5,000 or $6,000 or $10,000, the Commission cannot settle that claim; it has to bring that .claim to Congress? Mr. McKABNEY. That is correct, sir. The Comptroller General has construed the statute to read that if the claim itself--Mr. TAUZIN. Total claim? Mr. McKABNEY. Total claim exceeds the $120,000, then the Com mission may take no action on it except to analyze it, collect the data, and send it to the Congress with the recommendation of the Commission. Mr. TAUZIN. So the Commission has been empowered by the act to settle claims within the locks, with no limit; and that Commis sion, however, in some cases may not be able to settle claims out side the locks where it has been determined the Commission's lia bility may be no more than a few thousand dollars? Mr. McKABNEY. That is correct, sir. The Panama Canal Company from 1951 until October 1979 had authority to settle those out of-locks cases for any amount, but with its determination being subject then to judicial review. Mr. TAUZIN. It seems to me that we are in desperate need for a change in the law in that regard if we are going to have some com monsense applied to the settlment of these claims. There is another provision in the law that Mr . McAuliffe has pointed out that is appalling to me. As I understand your testimo-

PAGE 63

59 ny, you are charged with setting the tolls in order to collect enough money to cover contingency claims. Mr. McAuliffe's testimony indicates there are some 36 claims that are either pending or before the Congress or likely to come before the Commission since accidents involve cases over $120,000 outside the locks. Thirty-six claims are likely to come to this Congress for settlement under the current law; and you further stated in your testi mony, Mr. McAuliffe, there is no statute of limitations whatsoever upon those 21 potential claimants who have not yet filed. They can wait 2, 3, 5, 10, 20 years before filing a claim with the Commission. In the meantime, the Commission is required on some formula, apparently using some crystal ball analysis, to assess tolls to cover those potential claims which has no statute of limitations. It occurs to me, sir, that your testimony calls for this Congress immediately to act upon that serious omission. You need a statute of limitations upon those claims so that you can accurately forecast your potential liability and the contingencies that the toll collections must cover. I would also like to comment, sir, that in your testimony there appears to be some confusion as to whether or not there is a statute of limitations affecting judicial review of inside-the-lock disputes which also calls upon this committee and this Congress to look seriously at correcting that situation and clarifying the status of those claims. It seems to me again if there is no statute of limitations on the judicial review of inside-the-lock claims, that you are terribly handicapped at knowing what to assess in tolls in order to cover contingent liabilities. Lastly, let me ask you this: You have testified that you have on hand sufficient funds in the tolls already collected as a contingency to cover the anticipated claims. Is that statement true in view of the fact that there are 21 claims which you do not yet have that are estimated to be above $120,000 for which the Commission may have some liability? And how do you go about estimating that contingent liability until you have done an assessment of the contributory negligence relationships between the Commission's liability and that of the crew, master, and passengers of the vessels? Mr. McAuLIFFE. As you point out, it is a very difficult procedure; but we, first of all, have the experience of any number of years in handling accidents; and we are watching the rate of accidents. We see accidents as they occur and we are able~ by virtue of the immediate investigation which we make of an accident when it occurs, to make an estimate for our own purposes of the amount of damage involved. That estimate is always subject to later, very technical assessment which is done on the part of the shipowner. But in most cases, our original estimates are shown to be at least accurate enough for purposes of laying aside the funds for later paying the claims. We did-this goes to a question that Mr. Lent asked earlierwhen we started off our first year of operation under these condi tions, we were setting aside a certain amount of money per month and per fiscal year for accident claims. We found, as a result of the first year of operation, that we were not setting aside enough funds because the costs of repairing

PAGE 64

60 damage to the larger size ships now using the canal were greater than estimated. That is why we raised the amount to 1 million a month which is what we are setting aside now. Mr. TAUZIN. Let me ask you specifically: Is that amount sufficient to cover what your preliminary investigations lead you to be lieve may be the contingent liability of the Commission with refer ence to the 21 accidents for which you have not yet received claims? Mr. McAuLIFFE. Yes. It is sufficient. Mr. TAUZIN. Let me finally ask you. If this Congress provided a clear statute of limitations on when claims must be submitted to you, No. 1; second, a clear statute of limitations on when judicial filings must be made to contest inside-the-lock decisions by the Commission; and, third, if you had a procedur~ whereby you could also settle your liability outside the locks with some judicial review, would you not have, No. 1, a more rational system of set~ tling these claims? And No. 2, a more rational basis upon which to. assess the tolls so that the risk covered by those traversing the canal is more equal to the _contingent liability? Mr. GIANELLI. Yes. I think the answer without question is yes, Mr. Congressman. Mr. TAUZIN. I thank you very much. I thank the Chair for the time. I yield back the balance of my time. Mr. HUBBARD. Congressman Bill Carney? Mr. CARNEY. Thank you, Mr. Chairman. Is there any redress to the decisions that you make? Do shipowners have any redress to the decisions you make? Mr. GIANELLI. The decisions for inside-the-lock cases, yes; they have recourse to the courts. Mr. CARNEY. Where would _that be? Where would they take _their claims? Mr. GIANELLI. I am informed that is a U.S. district court in Lou isiana. Mr. CARNEY. New Orleans? What'about outside the locks? Mr. GIANELLI. Outside the locks, Mr. Carney, I think we have the particular problem which is the subject of this hearing. That is, if the claims over $120,000 must be decided by the Congress, it is our understanding there is no channel for a shipowner, for example, to appeal that decision of the Congress. Mr. CARNEY. I am asking about the appeal below $120,000 as well. Mr. GIANELLI. I am informed our decision is final on those. Mr. CARNEY. There is no appeal above or below? It doesn't_ matter? It is not necessarily the cause of the Public Law of l979, the treaty of 1977 that makes the exclusion on 120 because Con gress has to review it and pass on it? It would happen anyhow, below $120,000? -Mt. McKABNEY. No. Prior to the treaty; Mr. Carney, it would have been possible to have those smaller claims reviewed judicially in the U.S. District Court for the District of the Canal Zone which was disestablished by the treaty. It is only since then that the claims for $120,000 and less, are subj~ct to review and payment only by the Canal Agency.

PAGE 65

61 Mr. CARNEY. Did my colleague want me to yield? Mr. LENT. I just asked you to yield because I wanted to make the point that the final arbiter of the larger claims above $120,000 is the Congress of the United States. So the claimant, theshipowner, is not without recourse. Mr. CARNEY. I am fully aware of the recourse they would have, coming to Members of Congress. Mr. TAUZIN. Will the gentleman yield? Mr. CARNEY. I will be glad to yield. Mr. TAUZIN. As I understand this discussion, this testimony, even in a so~called larger claim, the Commission's liability may be very small. It may be just a few thousand dollars. Yet, in that instance, the Commission, under the present law, is not permitted to settle it because it is outside the locks nor is there any judicial review "for the claimant. So the actual recovery by the shipowner may be a very small one. He may have been liable for most of his own damage. Yet he has no judicial review as he has for a very large recovery or a very small recovery inside the locks. Mr. CARNEY. If I may, I would like to get off that subject and ask questions about the accidents within the canal and the responsibility in the entire area of the canal. Mr. McAuliffe, you stated there were 261 ocean passages for every ac .cident that we have and that was a trend in a good direc tion. Would you say that looking at overall accident figures that that might be high compared to, say, accidents in the 1960's? Mr. McAuLIFFE I am not prepared to state that answer with. pre cision. When I stated that there was a downward trend, I was talking about the 3 years of our responsibility as the .Panama Canal Commission. Mr. CARNEY. We are not taking the past history into that trend? Mr. GIANELLI. Let me add, one of the problems the Commission has had in recent years is the ships are much larger than they used to be. As you have larger ships transiting the canal, the problems are much more difficult. For example, the percentage of ships now that exceed, for example, 100 foot beam are much higher now than it was, for example, 10 or 15 or 20 years ago. So the point I would like to make, without even knowing whi~t the statistics will show, is that the problems that the Canal Com mission have now are much mo~e difficult than they used to be just by virtue of the fact that the ships are much larger.and much more difficult for example, to take through the canal. Mr. CARNEY. I am glad you brought that logic to the attention of everyone on this committee. However, when you look at the list of accid~nts, you find many of the accidents are small yachts, ketches, tugboats. Certainly, their size is very small. In fact, 1 day, they had 13 accidents. I don't think of the 13, any ships were with beams bigger than 80 fe.et. Thirteen accidents July 26, I believe. Mr. TAUZIN. Was that a full moon? Mr. CARNEY. Many of them were yachts going through. As I look at this, only one accident was in the lock. Most of them were within the waters of .the canal, not within the locks; I can under-12-978 0 5

PAGE 66

62 stand if you had a lot of ships in a lock and something went wrong, you would have accidents detailing all the ships. But they were not in the locks. I wondered why were there 13 accidents with small ships? Mr. McAuLIFFE. As I remember the day and looking at the statistics, I believe that at least 11 of those ships were all involved in the one incident. The Texaco-Kentucky happened, unfortunately, to collide with a number of small yachts at the Cristobal Yacht Club. So, each is listed as a separate accident when indeed all were involved in one unfortunate incident. Mr. CARNEY. I am not laughing at the incident. I wondered. That cleared it up rather rapidly. I was also curious, looking over the list of the accidents, that there was a ship that went through and had extensive damage, I would think. I don't know what extensive damage is. The claims were in excess of $100,000-or $120,000 with both ships. They were the same ships in a 5-day time period. Would there be any reason for that? I am going back quite a while to tp.e Overseas New York. They were both in the locks. One was on the 25th of October and the other on the 30th of October. Mr. McAuLIFFE. The Overseas New York did have a rash of acci dents, accidents of the type of its hull coming in contact with some portion of a lock's walls; and in each case cited in these reports; an investigation was conducted while the ship was still in canal waters; and then the ship master, on behalf of the shipowner, made the decision to continue the voyage to deliver his product. He was delivering Alaskan oil or picking up Alaskan oil, as the case may be. You have spotted something that we have found, and that is that accidents which do not necessarily disable a ship can be-under today's conditions-extremely costly, several hundre<;is of thousands of dollars, for what would appear to be a minor denting-of a hull, for example. But nevertheless, that is what we face. In many cases, I would say in most cases, the ship is entirely-sea worthy and is allowed to proceed to sea; then an assessment of the full damage is made the first time that the ship is pulled up in drydock and thoroughly in spected. Of course, divers will go under while the ship is still in canal waters to be absolutely sure that the ship is seaworthy and that both the canal and the owner are satisfied on that point. Mr. CARNEY. If I can sum this up in a few words, there was the accident, the delay of 5 days was basically because we kept the ship there to investigate and it moved on and maybe was in another lock when it had another accident? Mr. McAuLIFFE. No; it was making repeated transits through the canal from one side to the other, delivering or loading oil, you see. Mr. CARNEY. The larger ships, the one that could go through the canal to a larger ship? Mr. McAuLIFFE. That is right. Mr. CARNEY. I understand. Mr. McAuLIFFE. However, for example, if an accident to a ship occurs today. and requires an investigation, then our normal procedure is to start the investigation the following day. That permits

PAGE 67

63 the ship to be tied up at one end of the canal and for the pilot to get required rest and then to appear before the board of local in spectors that has the responsibility of investigating accidents. So we do hold the ship at least 24 hours after an accident; sometimes a little longer, but we try not to" do so. We try to complete the in vestigation as quickly as we can. Mr. CARNEY. Who makes up the members of the local board? Mr. McAuLIFFE. Canal pilots. We have a pilot who is assigned to our management structure who is the chairman of ~he board of local inspectors. We will no _rmally have three experienced pilots who sit on that board. We, in Effect, detail other pilots to join with the chairman. .. Mr. CARNEY. Is there someone who would represent the interests of the ship? Mr. McAuLIFFE. I would like to ask our General Counsel, Mr. McKabney, to respond to that. . Mr. McKABNEY. The hearings that are conducted by the board of local inspectors are conducted with sworn testimony, and representatives of the shipowner or operator m~y attend. Ordinarily, a local attorney representing the shipowner or operator does appear at the board of local inspectors hearing where he interrogates the witnesses and presents whatever evidence he sees fit through the crew members and the officers of the damaged vessel. Mr. CARNEY. Those sitting in judgment would be the three pilots? Mr. McKABNEY. That is correct. The three members of the board of local inspectors merely render their opinion with regard to the cause of the accident. Those reports by the board of local inspectors have been, since about 1932, accepted into evidence in the courts in the fifth circuit as being reports from qualified, experienced navi-gators who know the Panama Canal. Mr. CARNEY. But now we don't have the fifth circuit; right? Mr. McKABNEY. The fifth circuit still has the jurisdiction over locks cases because suits are brought in the eastern district of Louisiana at New Orleans. Mr. CARNEY. Nonlocks cases below $120,000? Mr. McKABNEY. Well, the board of local inspectors' opinion is not the sole determining factor in those claims below $120,000. Mr. CARNEY. They _make a judgment, pass that ju_dgment on to the Commission? Mr. McKABNEY. The Commission then considers that opinion by the board of local inspectors in making its determination as to how much to .pay of the $120,000. Mr. CARNEY. Thank you very much. I yield back my time. I thank the chairman for being so generous with it. Mr. HUBBARD . Thank you, Congressman Carney. Any other questions or comments by any members of the subcommittee? Hearing none-Mr. GIANELLI. Mr. Chairman, may I make a final comment? Mr. HUBBARD. Surely. Mr. GIANELLI. One of the things the Commission and the Con.: gress are both confronted with is how the law sets up the procedure for handling claims outside the locks in excess of $120,000. We

PAGE 68

64 have, as I think has been indicated by the record, submitted to the Congress the first two claims under this procedure. I would respect fully suggest and hope that the Congress now, having had those two claims filed with it, will address the subject of how it is going to handle claims of this nature, because I can see others coming down the line, and I think it is important to the shipping industry and I think it is important to the Commission, certainly, to have some feel for how these things are going to be handled. I would certainly support what Mr. Tauzin has said here in hoping that the Congress will look at that one issue as an important one to resolve as fast as possible. I just wanted to make that closing comment. Mr. HUBBARD. Thank you, Mr. Gianelli, Mr. McAuliffe, Mr. McKabney. Mr. TAUZIN. Mr. Chairman, just one final comment. You know, in the cases involving claims over $120,000, they are coming to Congress. You can make an argument there is some review. Con gress is going to review it, even though we are not, in my opinion, really capable of doing that kind of a job. But in the cases under $120,000 outside the locks, we have a situation where individual vessel owners are subject to having their claims adjudicated by the Commission with no judicial review whatsoever, with no _appeal to anyone. It seems to me that is an untenable situation that our judicial system has always recognized the right of review, whether it be civil or criminal, by some higher authority. Although I certainly respect the Commission and respect the work it does in those instances, I think that the individuals in volved in those cases ought to have a right to go somewhere and have that decision appealed and reviewed. We seriously ought to look at doing that, sir. Thank you, sir. Mr. HUBBARD. Thank you, Mr. Tauzin. Congressman, you have made an excellent point. I agree with you. Perhaps other members of the subcommittee agree with your good .statement. Once again, thanks to these three wit~esses.I personally have a lot of admiration and fond regard for Mr. McAuliffe and Mr. Gian elli. It is always a pleasure to be with them. The next witness is Mr. Leonard J. Kujawa, a partner with Arthur Andersen & Co. He has done consulting work for the Panama Canal Commission. Of course, you know Arthur Andersen & Co. is an internationally known accounting firm. We welcome your comments. We do hear after Leonard Kujawa, Peter Luciano, Ernest Cor rado, and Harry Gotimer. STATEMENT OF ILEONARD J. KUJA-WA, PARTNE_R, ARTHUR ANDERSEN & CO. Mr. KUJAWA. Thank you, Mr. Chairman. My name is Leonard J. Kujawa. I am pleased to have the opportunity to again testify before this committee.

PAGE 69

65 As a matter of background, I am a partner in Arthur Andersen & Co., a certified public accountant, and a member of the American Institute of Certified Public Accountants and other professional societies and organizations. Regarding the Panama Canal, I have been a consultant on various financial and accounting matters since 1962 for both the Commission and the predecessor company. Arthur Andersen & Co. is an international firm of independent public accountants. We serve clients in all areas of industry and government and we are among the largest public accounting firms in the world. Beginning with the first toll increase in 197 4, we have had sig nificant continuing involvement in the toll-setting process of the Panama Canal and the accounting upon which tolls are based. I prepared for the record a complete statement. In the interest of time I will summarize from my complete statement. Mr. HUBBARD. Thank you. It is agreed your full remarks will appear in the record. We appreciate your summarization. Mr. KUJAWA. Sound accounting has been an underpinning for the financial success of the Panama Canal. The cost of marine accidents is an unusual but significant cost requiring the application of appropriate accounting. Although it is difficult to predict the cost of marine accidents over the short run, the appropriate accounting recognizes the inevitability of marine accident costs over the longer term. This is the accounting followed by the Panama Canal. In implementing the Panama Canal Commission, Public Law 96-70 required self-sufficiency, as did the legislation establishing the Panama Canal Company. In addition, Public Law 96-70 included a requirement for an accounting as an appropriated agency. When implementing legislation was being considered, I urged in testimony before .this committee that the requirement for sound accounting be continued. This I referred to as enterprise accounting which is a comprehensive accounting for all costs and revenues over a long-term in order to measure financial performance. Enterprise accounting was essential since the legislative objective was that the Panama Canal Commission continue to be a self-suffi cient, financially viable entity providing service to world shipping. Public Law 96-70 does establish the requirement for enterprise accounting for purposes of measuring financial performance and in the setting of tolls. In addition, as a measure of .control, there is the requirement for an accounting for appropriations. From the per spective of financial management, each accounting method has a role to play and the respective roles must be understood. Clearly stated, appropriation accounting is not a proper basis for setting of tolls nor for the accounting for costs in measuring long-term financial performance. The financial viability of the canal enterprise is dependent upon the pro~ess of setting a proper level of tolls. As established by law, the present policy regarding the tolls level is to set tolls to recover costs. Cost is interpreted to be a comprehensive accounting for all costs. The assurance that prices will be set based on cost gives the user confidence in the reliability of the price-setting process. He is assured that tolls will be rationally set and thus he can predict his future course of action with more reasonable certainty. This is a

PAGE 70

66 positive economic contribution and is essential for a service such as the Canal to be able to attract users. From an accounting standpoint, the basis for tolls requires that all costs of maintaining and operating the .Panama Canal be recognized-reflected in the accounting records. Costs which are not rec ognized cannot be reckoned with in the toll-setting process. It should be appreciated that the accounting process for a rate-regulated utility such as the Panama Canal has special significance in that the level of cost recognized through the accounting process es tablishes the price to be charged for the service. Thus, the accounting process has a direct relationship to the actual cash received. This is in contrast to a profit-oriented company wherein the accounting process serves the principal function of measuring the level of profit earned. Let me deal with the use of estimates in the accounting process. The accountant constantly deals with the requirement for cost esti mation. Decisions on when to recognize costs require the exercise of judgment based upon the understanding of financial realities and the application of generally accepted accounting principles. Howev er, the alternative of not recognizing incurred costs or recognizing such costs only after some physical event has occurred certainly ig nores economic facts, and is wrong. For a sound basis of cost measurement, the accountant must make estimates based upon the asssumption that the enterprise is a going concern. Months or years before a check is drawn, the accountant must measure costs for such things as product liability where claims have not yet been made; bad debts for which the payor has not yet declared his inability to pay; estimate of taxes when the tax return has not yet been completed~ or the position of the taxing authority is not yet known; estimate of cost to complete a contract months or years before it is physically completed; and the list of examples goes on and on. Marine accidents at the Panama Canal inherently place the accountant in the role of an estimator. Obviously, it cannot be pre dicted when an accident will occur, who will be responsible, or how much the repairs will cost if the Panama Canal is held responsible. Although these are complications, they do not present overwhelming obstacles to a proper accounting. By reference to level of traffic and past occurrences of accidents over a period of time, it is possi ble to reach reasonable judgments regarding levels of cost. One thing is certain: If the canal operates, accidents will occur. What is uncertain in a given month or a given year is the number of accidents and their relative severity. To wait until a claim is ultimately settled before accounting for it has potential for great distortion in the measurement of cost. The more appropriate basis is to normalize the costs by recognizing that accidents are an inherent part ,of operations and that each period of operations_ should bear a pro rata share of-costs over a longer period of time. Prior to the Panama Canal's first toll increase in 1974, we recommended that the Panama Canal Company establish a reserve for marine accidents by charging each year with a pro-rata cost of acci dents over a multiyea_ r period. This has been the policy of the Panama Canal in accounting for marine. accidents. We believe it to be a sound and prudent approach.

PAGE 71

67 I am not a lawyer. I deal with the issues from the perspective of an accountant. With the longstanding. policy of assuming the cost of ship accidents where the Commission has been found at fault, it is sound from an accounting standpoint to continue the recognition of marine accident costs in .the accounting process. This requires an estimation, as previously described, and is obviously based on the assumption that the Congress will not preclude such reimbursement. However, until the Congress concludes that a different policy is approporiate, the proper accounting is to recognize the cost as as been done by the Commission. In a matter not different from changes of other accounting esti mates, if the ultimate costs are different than estimated, then new estimates are accounted for and reflected in the Commission's accounting records. Such accounting adjustments will be reflected in the tolls-setting process, giving credit for overestimates or charging back underestimates. In summary, based on the facts and circumstances as I note them, the Commission's accounting for ship accident costs is sound and establishes an appropriate basis for the settling of tolls. It also is consistent with the congressional mandate that the Commission be self-sustaining and maintain operations at no cost to the U.S. taxpayer. Accordingly, unless the Congress directs a different policy in terms of the assumption of the liabilty, I urge that no change be made or directed in the manner in which the Commis sion accounts for ship accident costs. I thank you for your attention. If you have any questions, I will be pleased to answer them. [The statement of Leonard J. Kujawa follows:] PREPARED STATEMENT OF LEONARD J. KUJAWA, ARTHUR ANDERSEN & Co. INTRODUCTION My name is Leonard J. Kujawa and I am pleased to have the opportunity to again testify before this committee. As a matter of background, I am a partner in Arthur Andersen & Co., a Certified Public Accountant, and a member of the American Institute of Certified Public Accountants and other professional societies and organiza tions. Regarding the Panama Canal, I have been a consultant on various financial and accounting matters since 1962 for both the Commission and the predecessor company. Arthur Andersen & Co. is an international firm of independent public account ants. We serve clients in all areas of industry and government and we are among the largest public accounting firms in the world. Our relationship with the Panama Canal Company began in 1951 when we assisted in establishing theinitial account ability for the newly formed Panama Canal Company. We also assisted in the finan cial reorganization to the Panama Canal Commission as a result of the Panama Canal Treaties of 1977. Included in this work was our report, "Analysis of the Esti. mated Cash Requirements of the panama Canal Commission, 1979-1983," which was used to determine the financial impact of the treaties on the Canal enterprise. Beginning with the first toll increase in 197 4, we have had significant continuing involvement in the toll-setting processes of the Panama Canal and the accounting upon which tolls are based. An example of this was our report on recommended ac counting policy which resulted in several significant accounting changes in fiscal .1973. This report was previously submitted to this Committee. Almost all of the accounting policies we recommend at that time still !emain in effect. SUMMARY OF TESTIMONY Sound accounting has been an underpinning for the financial success of the Panama Canal. The cost of marine accidents is an unusual but significant cost requiring the application of appropriate accounting. Although it is difficult to predict

PAGE 72

68 the cost of marine accidents over the short run, the appropriate accounting recog nizes the inevitability of marine accident costs over the longer term. FINANCIAL SELF-SUFFIC~ENCY In implementing the Panama Canal Commission, Public Law 96-70 required financial self-sufficiency, as did the legislation establishing the Panama Carn;il Com pany. In addition, Public Law 96-70 included a requirement for an accounting as an appropriated agency. When implementing legislation was being considered, I urged in testimony before this Committee that the requirement for sound accounting be continued. This I referred to as enterpirse accounting which is a comprehensive accounting for all costs and revenues over a long-term in order to measure financial performance. Enterprise accounting was essential since the legislative objective was that the Panama Canal Commission continue to be a self-sufficient, financially viable entity providing service to world shipping. Public Law 96-70 does establish the requirement for enterprise accounting for purposes of measuring financial performance and in the setting of tolls. In addition, as a measure of control, there is the requirement for an accounting for appropriations. From the perspective of financial management, each accounting method has a role to play and the respective roles must be understood. Otherwise, there is potential for confusion. Clearly stated, appropriation accounting is not a proper basis for setting of tolls nor for the accounting for costs in measuring long-term financial performance. COST RECOGNITION AND TOLL SETTING The financial viability of the Canal Enterprise is dependent upon the process of setting a proper level of tolls. As established by law, the present policy regarding the tolls level is to set tolls to recover costs. Cost is interpreted to be a comprehen sive accounting for all costs, including the recovery of plant (capital). The economic value of the Panama Canal to world shipping comprises a number of factors. These include its reliability for planning purposes, its ability to pay its own way, the economic diversity it provides and savings realized by its users. The assurance that prices will be set based on cost gives the user confidence in the reliability of the price-setting process. He is assured that tolls will be rationally set and thus he can predict his future course of ~ction with more reasonable certainty. This permits him to make the required long-range plans for investment in facilities such as ships, with more reasonable assurance that his investment can be recovered. Thus, through its reliability, the Canal is able to permit users to control their risks and have a basis for long-range planning. This is a positive economic contribution and is essential for a service such as the canal to be able to attract users. From an accounting standpoint, the tolls formula requires-that all costs of maintaining and. operating the Panama Canal be recognized (reflected in the accounting records). Costs which are riot recognized cannot be. reckoned with in the toll-setting process. It should be appreciated that the accounting process for a rate-regulated utility such as the Panama Canal has special significance in that the level of cost recognized through the accounting process establishes the price to be charged for the service. Thus, the accounting process has. a direct relationship to the actual cash received. This is in contrast to a profit-oriented company wherein the accounting process serves the principal function of measuring the level of profit earned. REQUIREMENT FOR ESTIMATION The accountant constantly deals with the requirement for cost estimation. Deci sions on when to recongize costs require the exercise of judgement based upon the understanding of financial realities and the application of generally accepted accounting principles. However, the alternative of not recognizing incurred costs or recognizing such costs only after some physical event has occurred certainly ignores economic facts, and is wrong. The limitation of appropriation accounting is ~hat accounting does not take place until a physical certainty or legally defined act has occurred such as the signing of a contract, or the issuance of a check. This do~s not mean that appropriation accounting is wrong, but that appropriation accounting seryes a role different from that of cost measurement. It deals with the control of governmental funds. For a sound basis of cost -measurement, the accountant must make estimates based upon the assumption that the enterprise is a going concern. Months or years before a check is drawn; the accountant must measure costs for such things as prod-

PAGE 73

69 uct liability where claims have not yet been made; bad debts for which the payor has not yet declared his inability to pay; the estimated life of equipment where the retirement date is not yet certain; estimate of taxes when the tax return has not yet been completed, or the position of the taxing authority is not yet known; estimate of cost to complete a contract months or years before it is physically completed; and the list of examples goes on and on . THE ENVIRONMENT OF MARINE ACCIDENTS Marine accidents at the Panama Canal inherently place the accountant in the role of an estimator. Obviously, it cannot be predicted when an accident will occur, who will be responsible, or how much the repairs will cost if the Panama Canal is held responsible. Although these are complications, they do not present overwhelming obstacles to a proper accounting. By reference to level of traffic and past occur rences of accidents over a period of time, it is possible to reach reasonable judgemen ts regarding levels of cost. One thing is certain: if the Canal operates, accidents will occur. What is up.certain in a given month or year is the number of accidents and their relative severity. To wait until a claim is ultimately settled before accounting for it has potential for great distortion in the measurement of cost. The more appropriate basis is to nor malize the costs by recognizing that accidents are an inherent part of operations and that each period of operations should bear a pro-rata share of costs over a longer period of time. Prior to the Panama Canal's first toll increase in 1974, we recommended that the Panama Canal Company establish a reserve for marine accidents by charging each year with a pro-rata cost of accidents over a multiyear period. This has been the policy of the Panama Canal Company and the successor Panama Canal Commission in accounting for marine accidents. We believe it to be a sound and prudent ap proach. I wish to quote from our report dated August 24, 1973, setting forth our reasoning for a change in the method of accounting: "The Panama Canal Company is precluded by law from obtaining outside insurance coverage to protect it from the risks associated with the costs of these losses. By their nature, such losses are unusual and would distort the cost of providing Canal service in the. year(s) of occurrences if provisions were not made annually to reserve for such losses. Under the previous practice of recording these losses in the year of occurrence, the risk of nonrecovery of such costs was borne by the company. Under the new policy, which recognizes the unpredictability but certainty of such occurrences, the company is attempting to minimize a risk for which it is not being compensated. "Recording annual provisions 'for these losses which will occur. These provisions are co~parable to the insurance expense which would be incurred if the company were permitted to obtain outside insurance coverage. This practices also allows for a reasonable accommodation of the cost of marine accidents and other casualty losses in the rate-making process." LIABILITY At this proceeding there is substantial testimony on the question of the Commis sion's legal liability for ship accidents. Mr. McAuliffe has indicated that the present legislation is somewhat confusing on this matter and requires clarification. Accord ingly, there appears to be a legal question regarding the longstanding policy of the Commission to reimburse the Panama Canal's customers where the Commission or its employees are found to be at fault. I am not a lawyer. I deal with the issues from the perspective of an accountant. With the long-standing policy of assuming the costs of ship accidents where the Commission has been found at fault, it is sound from an accounting standpoint to continue the recognition of marine accident costs in the accounting process. This requires an estimation, as previously described, and is obviously based on the assumption that. the Congress will not preclude such reimbursement. However, until the Congress concludes that a different policy is appropriate, the proper accounting is to recognize the cost as has been done by the Commission. In a matter not different from changes of other accounting estimates, if ultimate costs are different than estimated, then new estimates are accounted for and reflect ed in the Commission's accounting records. Such accounting adjustments will be re flected prospectively in the tolls-setting process, giving credit for overestimates or charging back underestimates.

PAGE 74

70 SUMMARY Based on the facts and circumstances as I note them, the Commission's accounting for ship accident costs is sound and establishes an appropriate basis for the setting of tolls. It also is consistent with the Congressional mandate that the Commis sion be self-sustaining and maintain operations at no cost to the U.S. taxpayer. Ac cordingly, unless the Congress directs a different policy in terms of the assumption of the liability, I urge that no change be made or directed in the manner in which the Commission accounts for ship accident costs. Mr. HUBBARD. Thank you. About two-thirds of the questions I have here I will submit for the record. I would ask over a period, a reasonable period of time, that_ you try to answer those that are submitted for the record. Our staff will be in contact with you. For today, and for this hearing, in your statement, of course, you have noted you are long associated with the Panama Canal. You indicate that you and your company were involved in helping the Panama Canal Company establish a marine accident recovery back in 1973. Prior to this, how was the accounting for vessel accident claims done? Was there no marine accident reserve? Mr. KUJAWA. There was no reserve at that time. The accounting: was to recognize the costs when the claim, in effect, was known, both in terms of the entitlement to the ship owner and the measurement of damages. Mr. HUBBARD. In setting up the reserve in 1972, what base period was used to determine how much should be set aside annually for claims and how was that period chosen? Mr. KUJAWA. I forget the exact number of years, but it was at least the previous 3-year period, as I recall. Mr. HUBBARD. Were all different types of claims during the base period considered? Mr. KUJAWA. Yes. Mr. HUBBARD. Lastly, how was the amount to be set aside under the marine accident reserve calculated? Mr. KUJAWA. There were two factors taken into account. Basical ly, the actual experience for the prior periods and the establishment of some type of balance in the reserve, a judgment call, to take care of the possibility for uncertainty in terms of the severity of future accidents. Mr. HUBBARD . Thank you very much. Again, I will submit other questions for the record. Mr.Lent?Mr. LENT. Thank you very much, Mr. Chairman. I understand, Mr. Kujawa, that you deal with these liability issues from the perspective of an accountant. However, -assuming the Panama Canal currently has no legal authority to settle vessel damage claims in excess of $120,000 that occur outside the locks, is it a proper prac(ice to set aside Feserves for that type. of accident? Inother words, if the Commission cannot.settle a claim for an accident that occurs outside the lock having an amount in excess of $120,000, why does the Commission set aside a reserve to cover that? Mr. KUJAWA. The absence of authority for the commission to actually settle would not be of concern to me as an accountant. The question I would address would be, Would ultimately the co~t of

PAGE 75

the accident have to be borne by the Commission on the basis of the conclusion reached by Congress if delegated to some other out side authority? Companies have the same problem. The decision may be reached by a court of law, outside of their authority, but they must account' for it or the potential cost of it on their books. Mr. LENT. You are assuming then-and this may be the correct assumption, I don't know-that even though the Congress adjudicates the claim, that the claim will be paid out of the Panama Canal funds? Mr. KUJAWA. That is an assumption in the .accounting that is being followed. Mr. LENT. One other question. This is just an opinion question. In your opinion, would it be more sensible for you, the accountant, for a business enterprise that is some business enterprise not constrained by the various constraints contained in the Panama Canal implementing legislation, would you advise your client to attempt to cover this entire area of contingent liability by the purchase of liability insurance? Or would you advise him to continue, as they presently are, covering this contingent liability through the esta-bishment of a reserve? Mr. KUJAWA. That is a decision that I have seen clients deal with and entails consideration of the cost of administering their own claims or engaging a third party insurance company to deal with it. In a company environment, it' also has tax consequences that must be dealt with. But essentially, it is a cost comparison, how much it cost for you to do it versus how much does it cost-to engage a third party. An insurance company is going to charge you for your experi ence in this kind of in~urance. So ultimately, as part of your premi ums, they will come back to you in terms of your experiences. I see this, for example, in airlines insurance. Lloyds, for example, charges the airlines based upon what the actual experience has been in the last 2 or 3 years in airline accidents. It gets directly into your current premiums. So I think in the Panama Canal environment, it would be primarily a cost-benefit relationship as to what would it cost you to administer it yourself versus contracting with an insurance company. Mr. LENT. Thank you. Mr. HUBBARD. Thank you very much, Mr. Leonard J. Kujawa, partner with Arthur Andersen and Co., for your testimony today. Mr. HUBBARD. We now call a panel composed of Peter Luciano, Ernest Corrado, and Harry Gotimer. Mr. Luciano is the executive director of the Transportation Institute; Mr. Corrado is vice president of the American Institute of Merchant Shipping; Mr. Gotimer is an attorney with the law firm of Kirlin, Campbell, & Keating in New York City. They are accompanied by two other attorneys, Raymond Burke. and Bob Phillips. Welcome. We will call first on Mr. Peter Luciano, executive director of the Transportation Institute.

PAGE 76

72 STATEMENTS OF PETER LUCIANO, EXECUTIVE DIRECTOR, TRANSPORTATION INSTITUTE; ERNEST CORRADO, VICE PRESI DENT, AMERICAN INSTITUTE OF MERCHANT SHIPPING; AND HARRY GOTIMER, ESQ., KIRLIN, CAMPBELL, & KEATING, ACCOMPANIED BY RAYMOND BURKE, JR., ESQ, BURKE & PAR SONS, AND BOB PHIL:LIPS, ESQ., TEXACO Mr. LUCIANO. Thank you, Mr. Chairman, members of the subcommittee. For the record, I am Peter Luciano, executive director of the Transportation Institute. The institute is a nonprofit research and educational organization founded in 1968 and comprising 17 4 member companies 9perating U.S.-flag vessels in the Nation's for eign and domestic shipping trades. Several of our members regular-ly use the Panama Canal. In the interest, Mr. Chairman, and members of the subcommit tee, of saving your time, I would appreciate. it if my prepared statement might be entered into the record. I would like to summarize. Mr. HUBBARD. We appreciate your doing that. It will be entered in the record .in full. Mr. LUCIANO; Thank you. First of all, I deeply appreciate the opportunity to appear before this subcommittee. This is an issue which is of great importance to our member companies and we value very much your interest in the issue and your concern. The problem here basically is, as they say, a thing that wasn't broke got fixed, and that is the case in at least three major areas that affect our membership. You have heard all of the problem areas discussed in great detail already this morning. I won't bore you with a reiteration of all the details. Essentially, we would ask that the Congress restore judicial review of outside-the-locks claims of any amount; also, that the Commission be authorized to settle all outside-the-locks claims; and that the previous treatment be re. stored with respect to detention time required by any activity of the board of local inspectors. These proposed procedures are the same ones that were in place before the Commission took over in 1979. The previous procedures had worked very well for 27 years and we feel that in the interest of equity, in the interest of saving the time of the Congress, in the interest of saving the time of all parties concerned, and in the interest of restoring logic to this situation, the restoration of the pre-1979 regimen offers the most -reasonable solution. We have taken the liberty of proposing several amendments which are attached to my prepared statement and which we feel would solve the problem. Thank you very much. Mr. HUBBARD. Thank you. [The statement of Peter Luciano follows:] PREPARED STATEMENT OF PETER J. LUCIANO, EXECUTIVE DIRECTOR, TRANSPORTA.TION INSTITUTE Mr. Chairman and members of the subcommittee, my name is Peter Luciano. I am Executive Director of the Transportation Institute. The Transportation Institute is a nonprofit research and educational organization, founded in 1968, comprising

PAGE 77

73 17 4 member companies operating U.S.-flag vessels in the nation's foreign and domestic shipping trades. Several of our members regularly use the Panama Canal. The Transportation Institute believes that the current claims procedures, estab lished in the :Panama Canal Act of 1979, are in need of amendme. nt. The Panama Canal Act of 1979 prohibits the Panama Canal Commission from settling negligence claims in excess of $120,000 for injuries occurring within the Canal waters but out side the Canal locks. For over twenty-seven years prior to the passage of the 1979 Act, however, the Commission's predecessor, the Panama Canal Company, had satis factorily dealt with all negilgence claims on accidents occurring outside the locks. In addition to the burden placed on United States and world shipping, the current procedure for settlement of outside-the-locks claims provides no economic benefits to the United States. Damage claims are paid from an account in the U.S. Treasury known as the Panama Canal Commission Fund. Revenues from this fund come en tirely from Canal users, as the Commission is required by law to recover from users the cost of operating and maintaining the Canal. A statutory tolls formula insures that user tolls produce revenues sufficient to cover operating costs. Thus, the amendments proposed by the Transportation Institute would result in no increased costs to the United States Government or its taxpayers. Primarily because the Canal is used by larger ships, both the number and dollar amount of accident claims have been increasing over the past several years. Of the claims submitted to the Commission since the effective date of the 1979 Act, fifteen are beyond the authority of the Commission to settle. At least four of the pending claims exceed $1,000,000. Thus, it is clear that the current maximum settlement amount is unrealistically low. The Commission continues to have unlimited settlement authority in connection with claims arising inside the locks. For example, in 1981 the Commission settled a pre-treaty (prior to October 1, 1979) inside-the-locks claim for $1,000,000. Presumably a post-treaty settlement would have produced the same result. A similar out side-the-locks claim arising today, however, would require Congressional approval for settlement. The Commission has demonstrated its ability efficiently to administer inside-the-locks claims without artificial limits. Thus, there is no consistent rational basis to saddle the Commission with an unrealistic limitation on awards for accidents outside the locks. In the interest of facilitating shipping and providing for consistent, expeditious adjustment of claims, the Panama Can.al Act should be amended to re-institute the pre-1979 procedure of authorizing the Commission to settle all outside-of-the-locks negilgence claims. The Transportation Institute also is concerned .with another aspect of the claims procedure, the judicial review process for outside-the-locks claims. When the Panama Canal Act of 1979 transferred operation of the Canal from the Panama Canal Company to the new Panama Canal Commission, existing provisions allowing judicial review for inside-the-locks claims were continued. However, the 1979 Act eliminated the judical review process for outside-the-locks claims of any amount. Relief now must be sought from Congress to resolve disputed outside-the locks awards. Unfortunately, passage of a private bill often is a long and cumber some process. The Institute submits that Congress should not be distracted from matters of national policy to analyze routine commercial claims which are more ef ficiently dealt with in the traditional forum provided by the federal courts. In order to expedite the equitable resolution of disputed claims, and relieve the Congress of needless work, the Transportation. Institute believes that tp.e pre-1979 procedure of allowing judicial review of claims settlements should be reinstated. Lastly, the Institute is concerned with the present procedure for awarding the Board of Local Inspection (BLI) detention damages. In order for a claim for accident damages to be considered by the Commission, a vessel must remain in Canal waters until the BLI conducts an investigation. Prior to 1979, the U.S. Court of Appeals for the Fifth Circuit construed the Measure of Damages provision (now 22 U.S.C. S. 3773) as establishing rules for recovery of damages substantially parallel to that ac corded by general maritime law. Under those principles, shipowners could not only recover for actual damages to the vessel, lost charter hire, crew wages and mainte. nance, but also damages for loss of use of a vessel while the BLI investigation was taking place. The 1979 Act specifically exe:,luded consideration of such detention damages as an item of recovery in claims before the Commission. The ability to recover such dam ages is vital to shipowners who may incur substantial losses because of detainment of a vessel in Canal waters awaiting completion of the BLI investigation. In order to fully compensate shipowners for the damages their vessels incur, the Institute urges

PAGE 78

74 that the Act be amended to restore the pre-1979 law, thus leaving intact the judicial interpretation of the statute allowing BLI detention claims. We have taken the liberty of attaching to our comments proposed draft amendments to Title 22 of the United States Code in addition to a comparative print of those amendments (Exhibits "A" and "B"). The Transportation Institute respectful ly requests that these proposals be included in the record. Thank you.

PAGE 79

75 Exhibit 11A11 PROPOSEP AMENDMENT TO TITLE 22 UNITED STATES CODE Provision dealing with claims for injuries to persons or property occurring outside the locks of the Panama Canal. 1. Section 3'T/2 is amended by striking "Canal, and when tbe amount of the claim does not exceed $120,000'' and inserting in lieu thereof 11Canal11 2. Section 3774 is amended by: a. Striking subsection (6) b. Inserting 11or11 immediately after "traffic" c. Renumbering subsection (7) as subsection (6). 3. Section 317S is amended by: a. In subsection (a) striking 11 (a) subject to subsection (b) ot this section, the" and inserting in lieu thereof 11The11; and b. Striking subsection (b). 4. Section 3176 is amended by: a. Inserting "or section 377211 immediately after "section 3771" b. Striking "the United States District Court for the Eastern District of Louisiana" and i~1serting "any United States District Court."

PAGE 80

Part 4 76 Exhibit "B" COMPARATIVE PRINT Title 22 Chapter 51 -Panama Canal Claims for Injuries to Persons or Property Subpart I! --Vessel Damage Injuries in locks of canals. [unchanged] Injuries outside locks. The Commission shall promptly adjust and pay damages for injuries to vessels, or to the. caigo, c~ew, or p~ssengers of vessels which may arise by reason of their presence in the Panama Canal, or waters adjacent thereto, other than the locks, when the injury was proximat~ly caused by negligence or fault on the part i of an officer or employee of the United States acting within the scope of his employment and in the line of his duties in connection with th~ operation of the, a~ai a~~-w~e~-~~e-affleH~~ or fau~t of the vesseJ, master, crew, or passengers proximately contributed to the injury, the award of damages shall be diminished in proportion to the _negligence or fault attributable to the vessel, m~ster, crew, or passengers. In the case of a vessel which is required by or pursuant to regulations prescribed pursuant to sectio~3811 of this Title t6 have a ~anama Canal pilot or. duty aboard, damages may not be adjusted and paid for injuries to the vessel, or its cargo, crew, or passengers, incurred while the vessel was underway and in motion, unless at

PAGE 81

77i the time the injuries were.incurred the havigation or movement of the vessel was under the control of a Panama Canal pilot. Measure of damages generally. [unchanged] Delays for which no responsibility is assumed [unchanged] Settlement of claims. iet-Sttbjeet-te~stteseetie"-~et-ef-~kis-!!eetie~7-the [~he] Commission, by mutual agreement, compromise, or otherwise, may adjust and determine the amounts of the respective awards of damages pursuant to this subpart. Such amounts shall be payable ~romptly out of any moneys appropri~ted or alloted for the mainter.ance and operation of the Pqnama Canal. Acceptance by a claimant of the amount awarded to him.shall be deemed to be in full settlement of such claim against the Government of the Ur.ited States. i et~he-efflffli es ie" -s-ha i -"e~ -ee;tt!! t -e"e-J'ay-e"y-e ie iffl-er eefflages-fer-i";ttries-erisi"g-ey-ree!!e"-ef-~he-~re!!e~ee-ef-~he ve~se~-i"-the-Pe~effl8-e"e~-er-ee;eee"t-weters-etttsiee-the-ieeks whe~e-the-efflett"t-ef-the-e~aiffl-eMeeee!!-$1~878887-~ttt-~heii~~tt~fflit the-e~eiffl-te-e~g~es~-i~-e-s~eeiei-rel'ert-ee"~ei"i"~-the-meteriei faets-a"e-the-reeefflffle"eetie"-ef-the-efflffli!!sie"-theree". Actions on claims. A claima1:t for damages pursuant to 7 71 [2.!: 72] of this title who considers himself aggrieved by the findings.

PAGE 82

78 determination. or award of the Commission in reference to his claim may bring an action on th~ claim against the Commission ~~~4~4aRa-[any United States District Court.] Subject to the provisions of this part and of applicable regulations issued pursuant to 3811 of this title relative to navigation of the Panama Canal and adjacent waters. such actions shall proceed and be heard by the Court without a jury according to the principles of laws and rules-of practice obtaining generally in like cases between a private party and a department or agency of the United States. Any judgment obtained against the Commission in an action under this subpart shall be paid out of \ any moneys appropriated or alloted for the maintenance and operation of the Panama Canal. An action for damages cognizable under this section shall not otherwise lie against the United States or the Commission. nor in any other court. than as provided in this section; nor may it lie against any officer or employee of the United States or of the Commission.

PAGE 83

79 Mr. HUBBARD. We will next call on Ernest Corrado. STATEMENT OF ERNEST CORRADO Mr. CORRADO. Thank you, Mr. Chairman. I will read part of my statement and leave out part of it and make a few extemporaneous remarks at the en~, if I may. > Mr. HUBBARD. Thank you, Ernie. Let me say the statements of each of you will be included in full in the record. We appreciate your considering us in limiting your remarks to a summary. Mr. CORRADO. Thank you very much, sir. I am the vice president of the American Institute of Merchant Shipping, which is a national trade association consisting of 30 member companies which own or operate almost 12 million dead weight tons of U.S. flag bulk shipping operating mos _tly in the U.S. domestic commerce. Many of our me~bers use the Panama Canal frequently in their trades, so we are happy to have been invited here today to comment on this matter of extreme importance to our membership. Also, we are encouraged that the subcommittee is holding these hearings and we regard it as a sign that the subcommittee and full Merchant Marine and Fisheries Committee intend moving expedi tiously to solve this vexing problem involving damage to vessels oc curring outside the locks during transits of the canal. As has been set out in correspondence between AIMS and this subcommittee (and full committee) over the past year, we are op posed to the two provisions of the Panama Canal Act of 1979 (22 U.S.C. 3601, et seq.): First, the requirement that any decision of the Commission awarding $120,000 or more to claimants be forwarded to Congress for approval; and, second, the requirement that claims for damage arising outside of the locks be submitted to the Panama Canal with no right of judicial review of the Commission's decision. There seems to be some confusion on this matter in the previous comments to testimony. There is no right of judicial review, either under or above $12.0,.000 for accidents outside the locks. That is, of course, part of our complaint. You can't have liability imposed on an entity by the negligence of a Canal Commission employee and then not have judicial review, too. There are two wrongs there. The users of the canal are adamantly opposed to this limitation amount system and would like to return to the system which existed prior to. the 1979 Panama Canal Act which implemented the treaties, whereby the present Commission's predecessor corpora tion, the Panama Canal. Company, had unlimited authority to settle outside-the-locks claims, and judicial review of such claims was available under the Canal Zone Code and in the Federal district court in the Canal Zone. . Those, .of course, are now gone. I~ the interests of saving time, Mr. Ch~irman I will not burden the record or waste time by going into the law, regulations, Executive orders, and other documents beginning with the Panama Canal Act of 1912 and extending to the act of 1950. You have this record and also all the individuals on your staff are well versed in these documents.

PAGE 84

80 The 1950 act, of course, transferred the operation of the Panama Canal, effective July 1, 1951, to the Panama Railroad Company which was renamed the Panama Canal Company. Section 3 of the 1950 act amended section 10 of title 2 of the Canal Zone Code governing claims for vessel damage. The Panama Railroad Company was generally subject to suit on tort claims, so the transfer just mentioned and the amendment of section 10 of title 2 would: One, continue the previous rule imposing absolute liability for damage in the locks; Two, for the first time extend the liability of the company on claims for vessel damage outside the locks caused by the negligence of Panama Canal employees; Three, continue the consent to suit against the agency operating the canal for damage in the locks, and extend this consent to suit for vessel damage outside the locks; Four, continue the immunity of Panama Canal employees from personal liability for vessel damage. Assuming the corporation could sue and be sued, one effect of the 1950 act was to give owners of vessels damaged in the canal outside the locks the right to sue the entity operating the canal. We think this result is legally and commercially correct and urge that this should be reinstituted. The 1950 act's extension of liability for outside-the-locks claims to the governmental entity operating the canal is an accurate re flection of a properly perceived need for a government body which operates in a commercial context to accept responsiblity for the acts and omissions of its employees. Moreover, such extension is consistent with the general trend of congressional action in recent years which has been toward expansion rather than contraction of Governm _ent liability with respect to tort clai:rp.s. Acceptance by the Commission of responsibility for damage from inside-the-locks incidents as set forth in both the 1950 and 1979 acts is a perfect' exam ple of the principle that. a government body functioning commer cially should be liable for its acts and omissions .The requirement of the 1979 act, however, that Congress approve settlement of out side-the-locks claims exceeding $120,000 is an aberration which ef fectively deflects frqm the Commission a liability which should rest directly there. Interposition of Congress between the claimant and the Commission serves no constructive purpos~ but rather only pro longs the settlement process to the detriment of the injured party. Unlike most, if not all other waterways, ports and harbors, in the Panama Canal, the pilot is in complete control of the vessel. There is nothing advisory about this function as is the case in the ports and harbors of the continental United States. Since the Panama Canal pilot is in complete control of the vessel during transit, we do not see any basis for shielding the Commission from liability as is accomplished by the 1979 act. It is difficult to see how an argument that the Com mission should .not be responsible under. the principle of respondeat superior for the negligence of the pilot when q.e is in complete control can be sustained. The pilot assigned to a vessel shall have control of the navigation and movement of such vessel. There is no distinction, regulatory or otherwise, in the pilots' duties and obligations inside and outside the locks. Of course, the pilot could be made to operate in an advisory capacity,

PAGE 85

81 as in other waterways, but this raises a whole new set of problems, not the least of which is that the pilots would not agree to such a change in their authority after all these years. Nor would such a change be in the best interests of Panama Canal transit maritime safety. Another point, we certainly do not think that damage claims in excess of $120,000 occurring outside the locks should be submitted to Congress for approval as established by the 1979 act. Aside from the fact that the U.S. Congress is not the proper forum for the processing an adjudication of tort damage claims, the system estab lished does not lend itself to an expeditious resolution of these damage claims. Indeed, the record to date shows that there is no resolution at all following this route for these claims. The next part of my statement is not up to date, but we have had testimony from the Panama CanaJ Commission today that there are 36 claims, 15 active and 21 more whereby they think there is negligence on the part of the canal employees and these claims will probably be in the pipeline pretty soon. Up to this point, only two claims are ready for referral to the Congress and these were sent to 0MB for clearance and referral. These two claims have languished in 0MB for the last 8 months and were finally forwarded to the Congress on November 8, 1982. Could anyone perceive that this system is working, even if the Con gress was the proper forum for tort damage claims? And what will happen to these claims when the finally reach Congress after 3 to 4 years? How rapidly will the Congress act on these claims? How. will Congress process them? Will the Congress act at all? Should Con gress honor such claims, where will the money come from? We .are convinced that Congress will never pay such awards from general revenues-the taxpayers, but will tell the Commission to pay them, which is where the claim would be satisfied if the Commission were not exonerated from liability. We further believe that elimination of the judicial review process effectuated by the 1979 act is misplaced. The attention of Congress should not be distracted from matters of national policy to analyze routine commercial claims which are more efficiently dealt with in the traditional forums provided by the Federal courts. Mr. Chairman, we cannot conceive of Congress' continued blind adherence to the system established in the 1979 act with its numer,. ous uncertainties and almost limit.less delays, when it is clear under all the established principles of tort law that the Commis sion should bear the responsibility for the negligence of its tort feasor employee who is in complete control of the vessel in transit. Meanwhile, the years since enactment in 1979 begin to mount. Claims accumulate, and the users of the canal continue on without redress for their legitimate tort damage claims. What will happen in the event of a major catastrophe in the canal? We submit, Mr. Chairman, that continuation of the present circumstances is unsatisfactory from every standpoint and manifestly unfair to the use.rs of the canal. A final point, Mr. Chairm_an, having served as chief counsel on this committee for many years, I know one of the purposes of the committee has always been to advance the welfare of the U.S. flag merchant marine. I know the present leadership of the committee

PAGE 86

82 is no less dedicated to that purpose; but the irony of this situation is that this very issue we are discussing here today undermines the efforts to keep these U.S. flag merchant fleet afloat. Everybody knows that with the worldwide recession that with worldwide shipping, and U.S. shipping in particular, is in very dire straits. We are losing vessels every day, laid up or being scrapped. The margin of profit on any company, be it liner or bulk, is only a few percent. Here we have damage claims of our operators in the millions of dollars and there is no redress for this; and the way it is going, there is no telling when there will be. In addition, we also support the statement of the Transportation Institute with respect to detention, although we didn't put it in. our statement . I won't take anymore time, Mr. Chairman. 'Fhank you very much for having us here today. [The statement of Ernest Corrado follows:] PREPARED STATEMENT OF ERNEST J. CORRADO, VICE PRESIDENT, AMERICAN INSTITUTE OF MERCHANT SHIPPING Thank you, Mr. Chairman, my name is Ernest J. Corrado, and I am vice president of the American Institute of Merchan~ Shipping (AIMS), which is a national trade association consisting of 30 member companies which own or operate almost 12 mil lion deadweight tons of United States flag bulk shipping operating mostly in U.S. domestic commerce. Many of our members use the Panama Canal frequently in their trades so we are happy to have been invited here today to comment on this matter of extreme impor tance to our membership. Also, we are encouraged that the subcommittee is holding these hearings and we regard it as a sign that the subcommittee and full Merchant Marine ~nd Fisheries Committee intend moving expeditiously to solve this vexing problem involving damage to vessels occurring outside the locks during transits of the canal. As has been set out in correspondence between AIMS and this subcommittee (and full committee) over the past year, we are opposed to two provisions of the Panama Canal Act of 1979 (22 USC 3601, et seq.): (1) the requirement that any decision of the Commission awarding $120,000 or more to claimants be forwarded to congress for approval; and, (2) the requirement that claims for damage arising outside of the locks be submitted to the Panama Canal Commission with no right of judicial review of the Commission's decision. The users of the canal are adamantly opposed to this limitation amount system and would like to return to the system which existed prior to the 1979 Panama Canal Act which implemented the treaties, whereby the present commission's prede cessor corporation, the Panama Canal Company, had unlimited authority to settle outside the locks claims, and judicial review of such claims was available under the canal zone code and in the Federal district court in the canal zone. Mr. Chairman, in the interests of saving time and not burdening the record un necessarily, I will not go into the myraid of laws, regulations, executive orders, ap propriations act provisions, decisions of the Comptroller of the Treasury, and governing claims, beginning with the Panama Canal Act of August 24, 1912 (37 stat. 562) and extending to the act of September 26, 1950 (64 stat. 1038). You have this record and also individuals available to you who are well versed in these developments. "" The 1950 act, of course, transferred the operation of the Panal Canal, effective July 1, 1951, to the Panama Railroad Company which was renamed the Panama Canal Company. Section 3 of the 1950 act amended section 10 of title 2 of the canal zone code governing claims for vessel damage. The Panama Railroad Company was generally subject to suit on tort claims, so the transfer just mentioned and the amendment of section 10 of title 2 would: (1) Continue the previous rule imposing absolute liability for damage in the locks; (2) For the first time extend the liability of the company on claims for vessel damage outside the locks caused by the negligence of Panama Canal employees; (3) Continue the consent to suit against the agency operating the canal for damage in the locks, and extend t~is consent to suit for vessel damage outside the locks;

PAGE 87

83 (4) Continue the immunity of Panama Canal employees from personal liability for vessel damage. Assuming the corporation could sue and be sued, one effect of the 1950 act was to give owners of vessels damaged in the canal outside the locks the right to sue the entity operating the canal. We think this result is legally and commercially correct and urge that this should be reinstituted. The 1950 act's extension of liability for outside-the-locks claims to the governmental entity open:iting the canal is an accurate reflection of a properly perceived need for a government body which operates in a commercial context to accept responsibility for the acts and o missions of its employees. Moreover, such extension is consist ent with the general trend of congressional action in recent years which has been toward expansion rather than contraction of government liability with respect to tort claims. Acceptance by the commission of responsibility for damages from insid~ the-locks incidents _as set forth in both the 1950 and 1979 acts is a perfect example of the principle that a government body functioning commercially should be liable for its acts and omissions. The requirement of the 1979 act, however, that Congress approve settlement of outside-the-locks claims exceeding $120,000 is an aberration which effectively deflects from the commission a liability which should rest directly there. Interposition of Congress between the claimant and the commission serves no constructive purpose but rather only prolongs the settlement process to the detriment of the injured party. Unlike most, if not all other waterways, ports and harbors, in the Panama Canal, the pilot is in complete control of the vessel. There is nothing advisory about his functions as is the case in the ports and harbors of .the continental Unted States. Since the Panama Canal pilot is in complete control of the vessel during transit, we do not see any basis for shielding the commission from liability as is accomplished by the 1979 act. It is difficult to see how an argument that the commission should not be responsible under the principle of respondent superior for the negligence of the pilot when he is in complete control can be sustained. Section 105.6 of title 35, Code of Federal Regulations (CFR) states: "the pilot assigned to a vessel shall have control of the navigation and movement of such vessel." Furthermore, there is no distinction, regulatory or otherwise, in pilot's duties and obligations inside and out side the locks. Of course, the pilot could be made to operate in an advisory capacity, as in other waterways, but this raises a whole new set of problems, not the least of which is that the pilots would not agree to such a change in their authority after all these years. Nor would such a change be in the best interests of Panama Canal transit maritime safety. -An examination of the situation in other canals in the world supports our conten tion: (A) Suez Canal-This is a sea level canal with no locks whatsoever and; accor.ding to the Suez rules of navigation, masters are held solely responsible for damages or accidents from the handling or. navigation of their vessels, but the masters are in control. (B) Kiel Canal-The german government has consented to be sued in connection with casualties in the Kiel Canal. (C) St Lawrence Seaway-The portion of the seaway lying in the United States is operated by the St. Lawrence seaway development corporation under the act of May 13, 1954, as amended, 33 USC 983, et. seq. The U.S. government as sovereign has : consented to be sued (suits in Admiralty Act, 46 U.S.C. 741 et. seq., and Federal Tort Claims Act, 28 U.S.C. 2672, 2679 and 1346(b)); the Seaway Corporation may be sued in its corporate name (33 U.S.C. 984(a)(3.) and is subject to the Federal Tort Claims Act (Handley v. Tecon Corporation, 172 F. supp. 565 (1959); Federal Reserve Bank v. /yf etrdcentre Imp. Pist. 492 F. Supp. 353 at 355, 356 (1980); Breitbeck v. United States, 500 F. 2nd 556 at 559 (197 4).) (D) Cape Cod Canal-A toll free canal maintained by the Corps of Engineers with tort claims handled by the Department of the Army under the provisions of the Fed-eral Tort Claims Act, supra. (E) Tennessee Valley Authortty-TVA, lik_ e the Panama Canal Commission, may sue or be sued in its corpor-ate name, the corporation is generally liable for the neg ligence of its employees and judgements or amounts paid in settlement of claims are paid out of funds available to that activity included as a cost of operation. One final point, we certainly do not think that damage claims in excess of $120,000 occurring outside the locks should be submitted to Congress for approval as established by the 1979 act. Aside from the fact the U.S. Congress is not the proper forum for the processing and adjudication of tort damage claims, the system estab lished does not lend itself to an expeditious resolution of these damage claims.

PAGE 88

84 Indeed, the record to date shows that there is no resolution at all following this route for these claims. Consider, if you will, that experience to d~te indicates that since 1979 there have been ten (10) accident claims filed. The accidents occurred from November 8, 1979 to May 25, 1981. The bureau of local inspectors (BLI) began its inspections as early as November 9, 1979 and its reports were issued on various dates in 1980 and 1981. Up to this point only two claims are ready for referral to the Congress and these were sent to 0MB and the Department of Justice for clearance for referral. These two claims have languished in 0MB for the last eight months and. were finally forward ed to the Congress on November 8, 1982. Could anyone perceive that this system is working, even if the Congress was the proper forum for tort damage claims? And what will happen to these claims when they finally reach Congress after three to four yearsr How rapidly will the Congress act on these claims? How would the Con gress process them? Will the Congress act at all? Should Congress honor such claims, where will the money come from? We are convinced that Congress will never pay such awards from general revenues-the taxpayers, but will tell the com mission to pay them, which is where the claim would be satisfied if the commission were not exonerated from liability. We further believe that elimination of the judicial review process effectuated by the 1979 act is misplaced. The attention of Congress should not be distracted from matters of national policy to analyze routine commercial claims which are more ef ficiently dealt with in the traditional forums provided by the Federal Courts. Mr. Chairman, we cannot conceive of Congress' continued blind adherence to the system established in the 1979 act with its numerous uncertainties and almost limit less delays, when it is clear under all the established principles of tort law that the commission should bear the responsibility for the negligence of its tort feasor em.:. ployee who is in complete control of the vessel in transit. Meanwhile the years since enactment in 1979 begin to mount, claims accumulate, and the users of the canal continue on without redress for their legitimate tort damage claims. What will happen in the event of major catastrophe in the canal? We submit, Mr. Chairman, that continuation of the present circumstances is unsatisfactory from every stand point and manifestly unfair to the users of the canal. ~fr. HUBBARD. Thank you, Mr. Corrado. You understand the pur pose of our hearing is to find out all we can about the need for leg islative change. You do agree that the two claims above $120,000 have not been delayed at this point by Congress? Mr. CORRADO. Yes, sir. They only came to Congress a month ago. Mr. HUBBARD. Right. Let us hear at this point Mr. Harry Gotimer. STATEMENT OF HARRY A. GOTIMER Mr . GOTIMER. Mr. Chairman, distinguished members of the sub committee, my name is Harry A. Gotimer. I am a member of the law firm of Kirlin, Campbell & Keating of New York City and Washington, D.C. It.has been principally engaged in the practice of admiralty law for over the past 100 years. In addition, I am an adjunct professor of admiralty law at New York Law School, a graduate of the U. S. Merchant Marine Academy~ and a licens ed merchant marine officer. Out law firm represents major shipowners and marine underwriters. We represent. United States Lines, Inc., and Exxon Corp. in connection with casualties occurring in the Panama Canal since the passage of the Panama Canal Act of 1979. We are currently handling three claims presently pending before the Panama Canal Commission which arose from casualties outside the Panama Canal locks where damages exceed $120,000: the colli sion between the Esso Nassau and the Esso Guam occurring. in Balboa Reach on April 10, 1980, resulting in damages of ~pproxi mately $1,280,000; the grounding of the SS America n Apollo in San

PAGE 89

85 Pablo Reach on October 1, 1980, resulting damages of approximately $5,500,000.00; and the allision of the SS American Aquarius and a dock in Balboa on January 12, 1981, resulting in damages to that vessel of approximately $540,000.00, plus a contingent claim for in rem liability for damages sustained by the dock owner and tug owner . I am testifying today not at the request of these shipowners, but rather as an attorney involved in handling claims before the Com mission under the current procedures. In general, as a practical matter, the vast majority of all claims in the admiralty field are settled. I do not think it an exaggeration to state that, in general, over 90 percent of the claims do not reach trial. The damages and the probable result after litigation falls within narrow parameters which can be fairly well evaluated by experienced admiralty practioners after all the relevant facts are obtained and analyzed. I will abbreviate my statement by not going through the current statue, if that is all right. Mr. HUBBARD. As you know, your full statement will be in the record. Mr. GOTIMER~ With respect to out-of-lock claims over $120,000, at no time other than at the initial Board of Local Inspectors' investi. gation does the claimant, the shipowner, the personal injury plain tiff, or the cargo owner participate in the procedure. What happens is that ~pproximately 24 hours after the casualty, a hearing is held by the Board of Local Inspectors. The attorneys for the claimant. do participate fully in that. After which, the damages are submitted to the claims branch of the Panama Canal Commission and they request whatever additional -supporting documentation they re quire. However, with response to these claims in excess of $120,000 outside the locks, at no time other than handing the damage documentation to the Commission is the shipowner or. the claimant privy to what factors are being considered as relevant in terms of liability or damages until the report actually gets to Congress. That report is confidential and unavailable. I strongly support changing the law by allowing the Panama Canal Commission to have settlement authority on all claims where their employees negligence has contributed to a casualty. I also recommend strongly that judicial review be granted to the U.S. district court in any district which is convenient. Finally, I think that any changes that are made should be retro active to include the claims such as the ones I am presently representing for my firm. We have a large number of claims. In our opinion, they were caused not by the negligence on the part of our ~mployees, but rather by the pilot who was in command of the ship. I think those claims ought to be included in any pending leg islation. However, I do have a suggestion; and that is if for some reason we cannot-if the law is passed and it cannot be retroactive, there may well be authority under the congressional reference statute for Congress to pass these to the U.S. Court of Claims fo_ r a hearing and a determination on the merits of these claims. I thank you for your time. I will be pleased to answer any ques tions you might have. 12-978 O 6

PAGE 90

86 [The statement of Harry Gotimer follows:] PREPARED STATEMENT OF HARRY A. GOTIMER, A MEMBER OF THE LAW FIRM OF KIRLIN, CAMPBELL & KEATING, NEW YORK CITY AND WASHINGTON, D.C. Mr. Chairman and distinguished members of Congress, my name is Harry A. Gotimer. I am a member of the law firm of Kirlin, Campbell and Keating of New York City which has principal1y engaged in the practice of admiralty law for over 100 years. I am also an Adjunct Professor of admiralty law at New York Law School, as well as a graduate of the United States Merchant Marine Academy and a licensed merchant mariner. Our law firm represents major shipowners and marine underwriters. We represent United States Lines, Inc. arid Exxon Corporation in connection with casualties occurring in the Panama Canal since the passage of the Panama Canal Act of 1979. We are currently handling three claims presently pending before the Panama Canal Commission which arose from casualties outside the Panama Canal locks where damages exceed $120,000: the collision between the Esso Nassau and the Esso Guam occurring in Balboa Reach on April 10, 1980 resulting in damagei;; of approximately $1,280,000; the grounding of the SS American Apollo in San Pablo Reach on October 1, 1980 resulting in damages of approximately $5,500,000; and the collision of the SS American Aquarius and a dock in Balboa on January 12, 1981 resulting in damages to that vessel of approximately $540,000 plus a contingent claim for in rem liability for damages sustained by the dock owner and tug owner. I am testifying today not at the request of these shipowners but rather as an attorney involved in handling claims before the commission under the current proce dures. In general, as a practical matter the vast majority of all claims in the admiralty field are settled. I do not think it an exaggeration to state that in general over 90 percent of the claims do not reach trial. While there may be many reasons for this, one in particular is that by statute and case law, the liability and quantum of dam ages can be fairly well evaluated by experienced admiralty practitioners after all the relevant facts are obtained and analyzed. The present statute provides that for injuries occurring in the locks (Public Law 96-70, Title I, 1411, 1415) and for injuries occurring outside the locks where resulting damages are less than $120,000 (Public Law 96-70, Title I, 1412, 1415) the Panama Canal Commission must adjust and pay for such injuries on the basis of proportionate fault, i.e.-the Commission shall pay an amount which does not exceed the percentage of fault of its employee's negligence in causing the casualty. For injuries occurring outside the locks where damages exceed $120,000, the Com mission is prohibited from adjusting and paying claims but rather is required to submit the claim to Congress in a special report with its recommendations (Public Law 96-70, Title I, 1415(b)). I recommend amending the current statute with respect to injuries occurring out side the locks to provide a judicial remedy to claimants damaged by the negligence of Panama Canal Commission employees, principally the pilots who by law are in complete control and command of a vessel's navigation during its transit through the Canal. The current procedure for handling claims occurring outside the Canal's locks and where the amount involved exceeds $120,000 does not afford the sa~e remedies as are available to claimants for casualties 9ccurring in the locks. With respect to both typ~s of claims, the present procedure is that promptly after a casualty occurs, an investigation is conducted by the Board of Local Inspectors of the Panama Canal Commission. This investigation basically and almost exclusively deals with the factual and navigational situation leading up to the casualty. The Board then prepares findings and conclusions indicating fault but they, at least in our e~perience, do not apportion liability. Damages are thereafter submitted to and reviewed by the Claims Branch of the Panama Canal Commission. Then, with re spect to claims arising from "in lock" casualties and "outside the locks" claims under $120,000, the claimants and Commission attempt to reach an amicable settlement. Failing in which the claimant in "in lock"' claims is afforded a judicial remedy. However with respect to "out of locks~' claims exceeding $120,000, the Com mission is not empowered to settle such claims but, rather a special report is prepared by the Commission _and submitted to the Congress w h ich is then required to deal with the claims. With respect to "out of locks" claims at no time other tha n during the initial in vestigation does the claimant have the right to participate in the procedure, to argue or urge its pqsition -or even to know what issues are being considered as rele-

PAGE 91

87 vant or determinative. I do not mean to impugn in any way the good faith of anyone associated with the Panama Canal Commission, but rather to call attention to the fact that the system currently utilized is alien to the American system of jurisprudence . The current statute, therefore, lacks essential fairness because it differentiates between "in lock" claims and "out of locks" claims. With respect to the former an administratiye and judicial remedy to resolve those claims is provided while as to the latter the Panama Canal Commission is stripped of its decision making function and no judicial remedy is afforded. Although the Board of Local Inspectors performs the same function in both types of claims, the elimination of settlement authority and judicial review in "out of locks" claims prevents a claimant from presenting all relevant evidence to the Panama Canal Commission to allow a full and fair evaluation of the claim, which results in a lack of procedural due process, the claimant is deprived of any judicial remedy. When the special report from the Commission gets to Congress, the method of handling it, at least to me, despite the reserch I've done, is unclear. It is entirely probable that in most cases the report of the Commission will differ from what the claimant considers fair and equitable, especially given their lack of input into many of ~he ciritical steps leading to the report findings and recommendation~. Congreess, with innumerable pressing problems both foreign and domestic should not be made judge and jury on these routine claims although they are of immense importance to the individual claimants. I submit that common fairness dictates that the normal judicial process be enlist ed to determine and evaluate the "out of locks" claims in the same manner as now mandated for ."in lock" claims. Furthermore, to encourage the amicable resolution of claims the Panama Canal Commission should be given settlement authority for all claims involving 'its employees' actions. If the: claim cannot be settled, jurisdiction should be vested in the United States District Court, our traditional admiralty court, whose experience and capability is clear. This could easily be done by amend-. ing the Panama Canal Act of 1979. The funds with which to pay such claims should be provided from the tolls paid by the shipowner users of the Canal. I am informed that any tolls collected exceeding the Commission's budget are paid to the Republic of Panama. There is no just reason for doing so until all costs associated with the operation of the Canal, including damages to ships and others caused by the fault of Panama Canal Commission employe es, are included. If the tolls were so utilized the taxpayers of the United States would be the beneficiaries in that the users of the Canal would be paying for the claims through the tolls collected. Any amendment to the current situation should be retroactive so as to encompass the claims arising since passage of the Panama Canal Act of 1979. However," if this is not possible, another possible solution for existing claims would be to submit pending d _isputed claims to the United States Court of Claims under the Congres sional Reference Statute (28 U.S.O. 1492 and 2509) for determination. Although this is not the preferred solution, it would be preferable to the present statute and in large measure would free Congress from the burden of handling those claims. I thank you for the opportunity of addressing you today. If you have any ques tions, I would be pleased to try to answer them. Mr. HUBBARD. Thank you for your excellent presentation. We listened to you with interest knowing your background in admiralty law and as a law_ professor at New York Law School. We have no choice at this point but to stand in recess until about 1:30. [Whereupon, at 12:45 p.m., the subcommittee was recessed, to re convene at 1:30 p.m. this same day.] AFTERNOON SESSION Mr. HUBBARD. We finished the comments of Peter, Ernie, and Harry. It was time for questioning. Mr. Luciano, you state that you recommend the limit should be raised on settling outside-the-lock claimants for the Commission. What do you feel is a realistic limit to put on. these claims before submission to Congress?

PAGE 92

88 Mr. LUCIANO. It would seem to me, Mr. Chairman, that there may not be a need to impose any limit on the size of the claim. The question, I think, is a matter of principle. What works inside the locks should work outside the locks. To differentiate between the two does not seem, in our opinion, to have any basis. Mr. HUBBARD. If Congress does see the need to put a limit on, what do you think would be realistic? Mr. LUCIANO. We have not addressed that issue, Mr. Chairman, with our m embers. I don't know that I could advise you. Given the size of the claims that we have heard discussed this morning, there is .the potential that any limit that might be imposed is one which at some time or other down the road might require the Congress to sit and arbitrate claims, which I think is probably not an efficient use of the process. Mr. HUBBARD. Regarding the present procedure of awarding the Board of Local Inspectors detention damages, what is the average length of time between the marine accident and the board's investi gation? Mr. LUCIANO. I believe it is a relatively short period of time. The investigation itself, I believe, takes no more than about 24 hours on average. However, although that might seem like a small amoupt of time,_-there are two factors which make it reasonable to include those damages in with actual damages: In the first place, we have heard testimony about the increasing size of the ships that are using the canal. The cost of capital, the cost of operating expen ses and so forth and so on can be very substantial even for just 1 day's detention. Added to that, however, is the fact that in some cases, a vessel may be subject to very substantial damages if a cargo is not delivered on time by a certain date. If a date certain is specified in the delivery contract, those damages can be very appreciable in many cases. Mr. LUCIANO. Is that better? Mr. HUBBARD. Right. We may be back to you with more ques tions. Mr. Corrado, in fact be thinking of the answer to this. We won't ask for your answer until Mr. Lent returns. He and I were discussing on the House floor after having_ heard Mr. Gianelli and Mr. McAuliffe and the three of you, just where do you three disagree with Mr. McAuliffe and Gianelli as to what we should do? It was somewhat confusing because we seem to think that you are in agreement much of the time as to what needs to be done as to these outside-the-lock claims. Mr. CORRADO. Would you like me to respond to that? Mr. HUBBARD. I was just passed a note by Robin McClung, the assistant to Mr. Lent, that he is unable to return to the hearing. I would ask any of the three of you to respond to that question. Mr. CORRADO. I don't think there is any difference philosophically between our position and the position of Mr. Gianelli and Mr. McAuliffe. They came at it from a little different direction, but I think we all are in agreement that we would like the system changed back to the way it was; namely, the responsibility-the li ability should rest on the Commission for the negligence of its em ployees. I think that is basically our position and I think that has been our position. I think that is the position of all of us at the

PAGE 93

89 table; and as I understood the testimony of the Commission and government people, it was the same, perhaps stated just a little dif ferently. I do think it is consistent. Mr. LUCIANO. Mr. Chairman, I would agree with Mr. Corrado's comments. Mr. HuBBARn. How about accidents where it would not necessarily be the negligence of the Commission employees? Mr. CORRADO. Inside or outside the lock? Mr. HUBBARD. Outside the lock. Mr. CORRADO. Outside the locks? Under the present system or under the last system? Mr. HUBBARD. Under the present system. For example, Texaco Kentucky, runn~ng into the yacht. Let's assume for the moment that wasn't the fault of the Commission empl oyees. Mr. CORRADO. My recollection of the statutory language is-and I have it here, although I had no chance to look at it-but my recol lection of the statutory language is that there is no Commission lia bility if there is no employee negligence and is diminished by the amount of the negligence of the employee of the Commission. Mr. HUBBARD. Thank you. Again, to Mr. Corrado, one of the major concerns brought out in your testimony is that the ship owners under Public Law 96-70 are unable to exercise the right for judicial review of the Commission's decision of the outside-the-locks claims. Prior to the enactment, however, of this Public Law 96-70, when this judicial review right was exercised on the average, were most of the Commission's deci sions adjusted in favor of the ship owner in settling the claim? Mr. CORRADO. Adjusted, Mr. Chairman, by the courts in the regular judicial review, or by the Commission? Mr. HUBBARD. Yes, adjusted by the courts. Mr. CORRADO. I don't really know because I don't have a record of all of the court's decisions. My guess is that when it went to court-I really can't1 respond to that question, Mr. Chairman, be cause I don't know the decisions in the courts. Maybe somebody else at the table might know some of the court decisions. My guess is, though, that Jwhen it went to the court most of the decisions were favor~ble to th~ ..bip9wner because the Panama Canal Com-pany had settled the ones Javorable to it. Mr. HuBB~RD~ Could you give us a better answer for the record later? Mr. CORRADO. We can attempt to supply that for the record, yes. We have to talk to the Commission and some of the lawyers. But to answer the question you are asking, we really have to get the court decisions over whatever number of years you wold like. Mr. HUBBARD. Near the bottom of page 4 of your statement, Ernie, you state, Since the Panama Canal .pilot is in complete control of the vessel during transit, we do not see any basis for shielding the Commission from liability as is accom plished by the 1979 Act. May we infer from this that if the pilots were ~ade only advisory to the vessel master, that you would not object to the current system?

PAGE 94

90 Mr. CORRADO. Well, I think we would object, Mr. Chairman. First, I am not sure you could impose-you could take away this authority from the pilots; but if you did, I am not sure that would be a very good system. Of course, if you took away the responsibili, ty of the pilot and made him advisory, it would obviously alter the tort aspect of this issue to that extent, but I am not sure that that system would satisfy us. The Panama Canal is a very unique waterway. The question is who would be in charge. The master of the vessel? The master probably is not able to take it through that particular waterway. I don't think the pilots would agree to that. I doubt the Commission would agree to it; and I do not think that it would solve our problem. Mr. HUBBARD. One last question, Ernie: You state in your testimony that the pilot of the Panama Canal is in complete control of the vessel during canal transiting. Is it not true that at least during outside-the-locks transiting, that there are many factors in volved in accidents, sometimes over which the pilots really have no control such as engine trouble, the master not carrying out the order fast enough, et cetera? Mr CORRADO. That is true. That is something else that is different. We are talking about the negligence of the employee of the Panama Canal Company. If there is disregard of orders, or if there are engine difficulties or some malfeasence inherent in the vessel itself, I think we all agree that that is a different situation. Those are mitigating factors impacting on the conduct of the em ployees of the canal and Commission liability. That is really not what we are talking about. Mr. HUBBARD. A question for Mr. Gotimer. Can you tell us what effect, if any, the Panama Canal Act of 1979 may have had on the cost of insurance for vessels transiting the canal? Mr. GOTIMER. I think, Mr. Chairman, I would rather_ defer on that question to Mr. Brown, who represents one of the major insurance companies who will testify next .I think, though, it is too early to say, because the claims that are currently pending have not been resolved. At the current state, we do not know whether the Commission agrees in full with our claims or they agree that the claims are completely unsupportable., Mr. HUBBARD. Mr. Gotimer, why cannot the ships traversing the canal carry insurance that would protect them against any damage inside or outside of the lock? Mr. GOTIMER. Oh, I think they can. Again, I will defer to Mr. Brown for a more detailed answer, only because you are talking about insurance; but basically-and what you are talking about, Mr. Chairman, is the sum and substance, as I understand it, of this testimony-but what you are talking about is a ship owner buying insurance and receiving or paying premiums on the basis of his ex perience. So the more casualties he has, the more he is going to pay in terms not only of premiums, but what is called calls. So what you are effectively doing is making it very much more costly for him to operate. Of course, there are major aspects that are not covered: loss of use, and things like that. Mr. HUBBARD. Would it be also an argument that the shippers are already paying for the damages through tolls?

PAGE 95

91 Mr. GOTIMER. Yes, it is. As a matter of fact, if I might digress perhaps a little bit, I wonder what would happen in the case of a Navy ship which runs aground or gets in a collision where the tax payer, through paying tolls for the Government ship has contributed to a big fund to pay those claims; and because of nonliability, it comes to Congress, and Congress either agrees and says yes, pay it, in which case the taxpayer is paying a second time, or they say don't pay it, and then it goes and is paid out of the Department of Navy's budget. In either event, I think the taxpayer gets hit twice there if you are are talking about a Government ship involved in the same situation as opposed to spreading the risk out by virtue of the $6 million fund for outside-the-lock claims. Mr. LUCIANO. Mr. Chairman, may I address that question as well?" Mr. HUBBARD. Sure. Mr. LUCIANO. I think. there is, in addition, a question of equity here. That is, the kinds of claims we are talking about are claims that are the result of failure on the .part of Commission employees. To ask a vessel owner to bear the cost of insuring his vessel for eventsthat are under someone else's control and are, in fact, the fault of someone else raises a serious question of equity. Mr. HUBBARD. Thank you. Mr. Gotimer, on page 3 of your testimony you state. The elimination of settlement autho;ity and judicial review in out-of-locks claims prevents a claimant from presenting all relevant evidence to the Panama Canal to allow a f~ll and fair evaluation of the claim. Should not this "relevant evidence" be submitted to the Panama Canal prior to their submission of the claim to the Congress? Mr. GOTIMER. Mr. Chairman, the problem is-and this i~ no criti cism of the Panama Canal Commission-representing a ship owner we have no way of knowing what is relevant. We do participate in the board of local inspectors' investigation. We know what issue they consider relevant. They then come out with a report which has findings of fact and conclusions; and the conclusions are, for instance, fault: The pilot was going too fast; the ship had a fault in that their automatic engine logger did not record a certain bell. They do not apportion liability. What considerations go into that liability and the amount of liability that would be apportioned to either side we have no knowledge of. As to what is done with the damages that are submitted, what is considered provable and not consider provable, we have no input at all into that. All we do is send the damage claim and supporting documentation to the Commission; it is analyzed; the Commission then sends back and asks for whatever additional information they want. Only after the report is issued by the-Panama Canal, it goes through 0MB and gets in Congress, and Congress releases it, does the ship owner or his attorney have any idea what is in that report. When we have a case in court, we know what the issues are, we can brief the issues, we can address the issues. We are operating in a vacuum here with respect to most of the issues other than the initial board of local inspectors' investigation.

PAGE 96

92 If I might add, Mr. Chairman, I think not speaking for the Com mission, but I think their position has to be that all the consider ations that are going on since it is a special report to Congress is something that is being done and it is not final yet; therefore, they can't release it. Mr. HUBBARD. Thank you very much. , Are there any other comments from Mr. Corrado, Mr. Luciano, or Mr. Gotimer? Let me ask, say it would be a real pleasure to hear from those two rather shy fellows, Raymond Burke and Bob Phillips. Mr. PHILLIPS. I would like to make a brief comment, if I may, Mr. Chairman. Mr. HUBBARD. Being an attorney myself, I can understand why you want to say something. Mr. PHILLIPS. This is directed at one of the more important topics raised this morning, the Texaco Kentucky. Mr. HUBBARD. Maybe I shouldn't have asked for your comment. Mr. PHILLIPS. I would just like to say, Mr. Chairman, representing Texaco, despite the not always positive comments made about the Ken, tucky performance this morning, I would like to assure you over the years she has performed in a fashion that you, yourself, and your constituents would be most proud of. Mr. HUBBARD. I think it was the sight of that yacht that excited it. Mr. PHILLIPS. I think as shipowners sometimes say, Mr. Chairman, it is amazing how fixed objects like piers or in this case an chored boats have a tendency to move in front of the moving ves sels. Mr. HUBBARD. Sounds very possible. Mr. Burke? Mr. BURKE. Not to be outdone, Mr. Chairman, I rep~esent the Overseas New York, the other vessel whose name was taken in vain this morning. I would like to make a few comments. You ask~d information about the cost of detention damages-the cost to the shipowner for delays awaiting the BLI investigation. My experience has been that for some of our client's larger ships detention damages have been as high as $25,000 a day. In discussing this last week with Mr. Gotimer, I learned that on one of his vessels, detention was as high as $45,000 a day. Our experience has been that most of the delays have been approximately 24 hours. There have been times when ships have been delayed longer than that. Generally, if the ship is delayed longer, it is because the board of investigation is busy handling another investigation; they just didn't have the manpower to speed it up. Just one other item: You asked Mr. Corrado about the effect of the judicial review andhow often courts disagreed with the findings of the BLI and the Panama Canal Company. I think it would be nearly impossible to document that. However, one of the effects of having judicial review is that if initially the parties are unable to come to an agreement with the Panama Canal authorities, the existence of judicial review acts as an incentive to settle cases before going to trial. In addition, there have been some signficant decisions by what had been the district court for the Canal Zone which from time to time disagreed with the findings and conclu-

PAGE 97

93 sions of the BLI and claims branch and were of great benefit in protec .ting the rights of the users of the Panama Canal. Mr. HUBBARD. Thank you very much, Raymond Burke and Bob Phillips. Any other comments? Mr. CORRADO. I have yet to see a shy lawyer, Mr. Chairman. I would like to make one request, if I may, Mr. Chairman. In the questioning of the Commission witnesses, the issue of a statute of limitations arose. If you really seriously entertain that idea, I wish that we might have input into that, because it is not so simple, and it is not clear from the record the way it is right now whether the statute of limitations would run from the time of the incident or from the time of filing the claim or how it would relate to the pro. duction of documents after filing the claim or now it would relate to judical review, if it imposed for outside-the-locks claims. So if, in fact, you should seriously entertain the idea of the imposition of a statute of limitations, we would like to be able to discuss it with the members of the staff, or whomever appropriate, to make sure that we are adequately protected. I know the period of 2 years was mentioned, but I think we would like something a little longer. The statute of limitations in the Canal Zone Code was 3 years, for exam pl~. ___ --_ ___ __ _ _ _ ___ Mr. HUBBARD. Three years from the date of the incident? Mr. CORRADO. My recollection is 3 years from the date of the inci dent. I would also like to mention the personal injury legislation which came out of this committee several years ago. That had a 3-year statute of limitations. Mr. HUBBARD. Why that long a time? Why is that needed? Thinking back on tort claims in my home State, where 1 year was the statute of limitations, why 3 years for these types of accidents? Mr. CORRADO. For personal injury or for the--Mr. HUBBARD. Either. Mr. CORRADO. By the time that the claim is filed and the documentation comes in there is a substantial lag-the documentation is slow coming in. Mr. HUBBARD. That slow? Mr. CORRADO. I think it is. We have claims right now on damages that are a couple years old and additional information is still being requested and re quired. The processing of these claims is inordinately long, personal injury or property damage. I think it takes quite a bit of time. Mr. GOTIMER. Mr. Chairman, may I address that issue? I do think I can speak to it. With respect to a vessel that is damaged substantially i o that it has to be .repaired immediately, repairs can take as long as 3 or 4 months. After that, finalizing the shipyard repair cost is often a matter of negotiation and the first bill given by the shipyard is not necessarily the final bill taken. It is quite conceivable a time of almost a year will elapse before the repair. costs of the vessel is known. In addition to that, or casualties which do not require that the vessel be taken out of service such as accident in the side or a bow that is damaged, the ship may still be in seryice for the. next 14 or 15 or 16 months before it goes in the shipyard for repairs. The reason for that is if the ship were put in the shipyard immedi-

PAGE 98

94 ately for repairs, there would be no recovery for loss of use and the shipowner would lose a substantial amount of revenue. Therefore, the time for the repairs in many of these cases does not even begin for over a year after the casualty. In addition to that, if you were talking about a judicial review, I think you would like to have the repairs and the damage claim finalized sufficiently in advance so that negotiations could take place before litigation is begun. Mr. HUBBARD. It seems as though 2 years would be a--Mr. GOTIMER. In our experience, 2 years is often very, very diffi cult. Mr. BURKE. Mr. Chairman, if I may address that? Mr. HUBBARD. Yes. Mr. BURKE. Mr. Beale, who will testify after this panel finishes, reminded me that there is a uniform act providing for a maritime personal injury statute of limitations of 3 years. Mr. HUBBARD. Thank you. If a vessel is damaged in the canal and is repaired before the claim is settled, who pays for the repairs? Mr. BURKE. In the first instance, the owner and the owner's hull underwriters pay for the repairs. Then the bill is submitted to the Panama Canal Commission. Mr. HUBBARD. Thank you. We would like to ask that written questions be submitted by the members of the subcommittee to the witnesses for answers for the record. I know Mr. Lent, Mr. Tauzin, and Mr. Carney would have had some questions if they were here right now. They were tied up on other matters this afternoon, either on the House floor or in their offices. So we would send those to you later, if they do, indeed, have questions. Thank you so much. Mr. GOTIMER. Thank you. Mr. LUCIANO. Thank you, Mr. Chairman. Mr. CORRADO. Thank you. Mr. HUBBARD. We will now hear from Mr. Brown and Mr. Beale-and if it wouldn't be too much out of line, I would ask Mr. McAuliffe to be considering the possibility after brief comment at the conclusion to counter or give a different viewpoint as to what_ has been said since the time that you and Mr. Gianelli testified. I know many things have been said and that you have sat there and been silent; but at the very end we would give you the chance, if you would like, to take 5 minutes or so to counter. If one of the other witnesses wishes to add one more comment such as Ernie Corrado or Peter Luciano or someone else, we would permit that. We are happy to have Mr. Richard H. Brown, Jr., attorney with the law firm of Kirlin, Campbell & Keating, the same law firm Harry Gotimer is with, with offices in New York and Washtngton. Mr. Brown represents the American Steamship Owners Mutual Protection & Indemnity Association, Inc.; Mr. Almer W. Beale, II, will be next. We will hear first from Mr. Brown and then from Mr. Beale, an attorney with the Toole; Taylor. Moseley & Joyner law firm in Jacksonville, Fla. They represent the Maritime Law Association of the United States.

PAGE 99

95 STAT.EMENT OF RICHARD H. BROWN, JR., ESQ., KIRLIN, CAMP BELL, & KEATING, REPRESENTING THE AMERICAN STEAMSHIP OWNERS MUTUAL PROTECTION, & INDEMNITY ASSOCIATION, INC. Mr. HUBBARD. Mr. Brown, we have already had several questions pile up for you. Before the questions, we look forward to hearing your testimony and both you and Mr. Beale can know that if you do summarize, your full text will be entered in the record. Mr. BROWN. Thank you, Mr. Chairman. I will summarize my comments and thank you for the opportunity of being here today. I represent the American P & I Association, which has insurance coverage for P & I risks which .are essentially nonhull risks. They include personal injury, cargo damage, pollution, things of that sort. On the subject of insurance which has been mentioned several times earlier today, there are several things to bear in mind. First of all, both hull and P & I insurance involve substantial de ductibles on the part of the shipowner. The reason for the deducti bles is to keep the premium costs down and it is not infrequent that the deductibles are $25,000 or $50,000 per occurrence. So there is in those regards a substantial uninsured risk on the shipowner's part. In addition, ordinarily loss of use of the vessel is not insured. Loss of use of a vessel and the substantial casualty may run to several hundred thous~nd dollars which is usually an uninsured risk. As to risks which are insured and covered by an insurance com pany, just as in our own automobile insurance, if we have a bad loss or a bad loss experience, our premiums go up. The same is true for shipowners. If they have a bad loss record, _their premiums go up. Therefore, it is a very important point for shipowners and under writers that when a casualty occurs that is the responsibility of some party not insured or not the shipowner, that a recovery be made against the party who is negligent or whose servant was negligent. I think it goes beyond the mere question of insurance and who pays. I think it is a basic American principle and sound public policy that a party injured by the negligence of another be compensated by the negligent party for that injury and that is true with regard to the United States under the Federal Tort Claims Act, the Suits in Admiralty Act, and so forth. In connection with Panama Canal operations, it is especially important, as a matter of principle, that the Panama Canal Commis sion be liable for the negligence of a Panama Canal pilot for one reason which has been mentioned here before: No. 1, almost unique in the world's waterways, the Panama Canal pilot is a control pilot, not merely an adviser to the master. He has control of the vessel from the time he takes it over. There is a second feature which has not been mentioned which is that if a pilot is in charge of a vessel, even. though not employed by the owner and that. pilot is negligent, the vessel itself is liable to third parties; so, for example, if ship A and ship B are passing through the Panama Caal and ship A has a Panama Canal pilot on board who is negligent, causing a collision with ship B, if there is no re-

PAGE 100

96 course against the Panama Canal Commission, the owner of ship A not only pays his own damages but he can be liable for the dam ages to the other ship, even though his own servants, the master and crew, were not negligent. The unfairness of a result like that I think is obvious. We have listed in our written testimony really three specific criticisms of the existing Panama Canal Act of 1979. The first is that the Commission's settlement authority is limited to daims not exceeding $120,000. A great many claims exceed that amount. As is usually the case, in these matters, the parties can agree on settling claims without adjudication or a resort to any third party to decide the case. Now settlement happens much more often than not, and when that does .occur, the claims are resolved at minimum expense and inconvenience to everybody. The limitation on the Canal Commission's settlment authority severely inhibits that settlement procedure and we think it ought to be eliminated. Our specific remedial proposal is to delete the limitation of $120,000 in the first sentence of section 1412 and delete section 1415(b)" altogether. That is the section that refers over-$120,000 matters to Congress. Our second concrete criticism is that the present act makes no provision for an aggrieved claimant for injuries occurring outside the locks to bring-an action in court against the Commission. It has already been pointed out that for claims outside the locks up to $120,000, the Panama Canal Commission is the court of last resort. That is a party which is a party to the dispute is the one that decides it. I think that is clearly an improper way to handle things. For claims over $120,000, it seems to us the proper forum for adju dication or determination of issues the parties cannot resolve them-. selves is the. court rather than Congress. I think the courts are far better suited for that. It is a judicial function. Congress is a legislative body. And if I may say so, I think Congress has more important things to do these days than resolve specific claims for specific damage incidents. Our third specific criticism is that section 1414, item (6) thereof bars a claim for any delay due to an investigation of marine acci, dents by the Panama Canal authorities. These delays can be rather substantial, and it seems unfair to penalize a shipowner where the accident has been caused by the negligence of the pilot. We point out one off-spin of this. This is that section 1417 pro vides that a claim may not be considered unless there has been an investigation. There are cases where the damages are comparative ly minor, maybe only, say, $50,000, $75,000, or $100,000; and a shipowner would be very hesitant to delay an expensive ship at a cost of, say, $25,000 a day for an investigation if he knows that cost cannot be reimbursed. So that puts unfair pressure on the shipowner to waive an other. wise valid claim by waiving, not attending, the investigation and leaving the Canal. Our remedy for that is to delete item 6 of section 1414. Going back to our second point, our remedy for lack of judicial review, is to authorize a claimant for all injuries, outside the locks as well as

PAGE 101

97 in the locks, to bring an action in an appropriate district court of the United States. We think the foregoing proposals would, in effect, restore the fair and equitable procedures that existed immediately prior to the pas sage of the act in 1979 and would be helpful to the American merchant marine as well as others. We respectfully request these pro posals be given favorable consideration. Thank you, Mr. Chairman. [The statement of Mr. Brown follows:] PREPARED STATEMENT OF RICHARD H. BROWN, JR., ON BEHALF OF THE AMERICAN STEAMSHIP OWNERS MUTUAL PROTECTION AND INDEMNITY ASSOCIATION, INC. Mr. Chairman, my name is Richard H. Brown, Jr. I am a member of the law firm of Kirlin, Campbell & Keating of New York. The firm (and I in particular) act as Counsel to the American Steamship Owners Mutual Protection and Indemnity Asso ciation, Inc. I am testifying today on behalf of that Association. On its behalf, and my own, I wish to thank you for giving me the opportunity to appear before you today. The Association and its members support certain revisions to the claims procedure under the Panama Canal Act of 1979. The Association currently has 34 members shipowning companies, the great majority of which are American, owning ves sels aggregating over 4,500,000 gross tons. It is a mutual insurance association insuring its members against risks which essentially are not covered by hull underwriters. These Protection and Indemnity (or "P and I") risks include, among other things, members' liabilities for personal injuries, cargo damage, damage to fixed structures, and oil pollution. The foregoing insurance coverages are subject to deductibles, which are often substantial. To the extent of such deductibles the shipowner is uninsured. In addition, a shipowner ordinarily does not carry insurance covering loss of use of its vessel. Thus, in the eve:t of a collision, if a ship were required to go out of service for colli sion repairs, her owner's loss of profit while she was out of service would not be covered by insurance. Such uninsured losses can be very large. To cover its members' liabilities the Association (like other P and I associations) charges each member an annual renewal premium and additional assessments during the insurance year to provide adequate reserves for payment of claims. The premiums and assessments, of course, must' be large enough to cover payment of all claims and related costs. The larger the member's liabilities, the worse will be its loss record and the larger will be the premiums it must pay. One very important way of reducing liabilities and losses (and a resultant increase in premium) is to make recoveries therefor against the party whose negligence caused the accident. Thus, shipowners and their underwriters have a significant financial interest in being able to make recovery against negligent parties through a fair and efficient procedure for resolving claims. Most importantly, it is a basic American principle of justice and sound public policy that a party injured by the negligence of another should be entitled to obtain compensation from the negligent party. In this century Congress has granted that right widely, wisely and fairly with respect to claims against the United States arising from negligence-thereby largely abrogating the inequitable earlier doctrine of sovereign immunity. See, e.g., the Federal Tort Claims Act and the Suits in Admi-ralty Act. Such right to just compensation from the negligent party is peculiarly necessary with regard to claims against the Panama Canal Commission for negligence of its pilots because (1), a Panama Canal pilot (perhaps unique among pilots) has control of the vessel rather than merely being an advisor to the master and (2) a vessel is liable in rem for the negligence of the persons controlling or navigating her (whether employed by the owner or not), so that the owner of a vessel can be held liable for the negligence of a Panama Canal pilot over whom he has no control. Thus, if a collision between Ship A and Ship B occurs in the Panama Canal and is solely due to negligence of the Panama Canal pilot on Ship A, Ship A's owner not only would make no recovery of damages against Ship B but would be liable to pay Ship B's damages, unless the Panama Canal Commission were held liable for the pilot's neg ligence. The unfairness of such a result is obvious. The Panama Canal Act of 1979 provides generally adequate procedures and machinery for handling claims in the locks in that the Commission has authority to

PAGE 102

98 settle such claims without limit (Public Law 96-70, Title I, 1411 and 1415) and a party aggrieved by the Commission's determination has a right to bring an action in court( 1416). However, for injuries arising outside the locks, we respectfully submit that the present statute is inadequate in the following respects, which should, in our view, be remedied in the manner proposed below: (a) Criticism: The Commission~ settlement authority is limited to claims not ex ceeding $120,000 ( 1412 and 1415(b)).-Many claims exceed that amount. When, as is usually the case, parties can agree to settle claims without adjudication or a similar determination, each party should have the authority necessary to settle, thereby disposing of the claim expeditiously, efficiently, and at minimal expense. Remedial proposal.-Delete the limitation of $120,000 in the first sentence of 1412 and delete 1415(b) 1 altogether. (b) Criticism: There is no provision for an aggrieved claimant for injuries arising outside the locks to bring an action in court against the Commission. -For such claims of $120,000 or less, an aggrieved claimant has no remedy whatever [even by means of a report to Congress] apart from the Commission's determination (see 1412, 1415(b), and 1416). For claims exceeding $120,000 the Commission, under 1415(b), must submit the claim to Congress in a special report containing the ma te.rial facts and the Commission's recommendation. While this section does provide a Congressional remedy (the precise form of which is somewhat uncertain), we re spectfully submit that it would be better to provide for a judicial remedy (where Commission and claimant disagree) rather than referring the matter to Congress. The claims usually arise from collisions or groundings. Proper resolution of the liabilities of the pilot or others depends on analysis of detailed oral and documentary evidence as to the vessels' navigation in a particular situation, with attendant technical calculations, evaluation of fact witnesses, and frequent use of expert wit nesses. This is a process for which our efforts were created and for which they are very well suited. In short, it is a judicial function. I believe that Congress, by reason of both its structure and legislative function, is less suitable for such a task. And, if I may say so, Congress has more important ways to use its time than deciding the merits of particular claims. Remedial proposal. -Provide that, for all injuries outside the locks, an aggrieved claimant may bring an action in a District Court of the United States.2 (c) Criticism: Section 1414 [Item (6)] bars a claim for any delay due to an investiga tion of marine accidents by the Panama Canal authorities. -Such delays can be substantial, and it is unfair that the Commission should not be held liable when the accident causing the investigation was due to the negligence of the Commission's own employee (the Panama Canal pilot). Moreover, Section 1417 pr9vides that a claim may not be considered unless there has been an investigation by the competent authorities of the accident before the vessel leaves the Panama Canal. In the case of smaller claims, a shipowner may be unwilling to delay his vessel due to the presently unrecoverable expense of delay and may thus be economically forced to waive an otherwise just claim. Remedial proposal.-Delete item (6) of 1414. We understand that payment of claims would be funded by the Panama Ca:q.al tolls, which can be adjusted to provide monies to pay for all liabilities. We believe that properly drafted legislation to implement the foregoing proposed amendments to the Panama Canal Act of 1979 would provide an efficient and fair means of resolving claims of vessels in the Panama Canal and would be in the best interests of the American merchant marine. The foregoing proposals would, in effect; restore the equitable procedures for handling Panama Canal claims which existed immediately before the Act of 1979 went into effect. See: 2 C.Z. Code 291 and 292, [76A Stat. 23] and 294, 295 and 296 [76A Stat. 24] and 297 [76A Stat. 25]. For all of the foregoing reasons we respectfully request that the above-described proposals be given favorable consideration. Mr. HUBBARD. Thank you very much, Mr. Brown. This question we did ask Mr. Gotimer: Can you tell us what effect, if any, the Panama Canal Act of 1979 may have had on the cost of insurance for vessels transiting the canal? .In other words, were insurance premiums or deductibles adjusted as a result of the 1 A similar proposal would be appropriate for 1401, which.has a $50,000 limit. 2 A similar proposal might be made with regard to claims u .nder 1401 (see 1401(d) and 1417).

PAGE 103

99 Panama Canal Commission's inability to pay the claim for damages in excess of $120;000? Mr. BROWN. I really don't think there is any way of saying there has been an increase or not. First of all, I think most shipowners are under the 'impression that they still have a valid claim against the Panama Canal Commission for negligence of pilots, even though the format has been changed so that now they would have to go to Congress for these claims outside the locks. So I think shipowners and their underwriters still now think that recoveries will be made where recoveries are warranted. So there is no change there. Secondly, in handling insurance, I don't think there is a review of risks as specific and _unusual as this; what really happens is a shipowner's loss experience is examined when he reduces insurance each year. His loss experience for the last several years, actu ally, is examined. Part of that loss experience where it includes claims that have not yet been resolved will depend upon reserves or estimates but on the claim which is again based on a forecast of what the result of recovery attempts will be. As I have said, I think most shipowners at present think there will be recoveries with respect to cases in which the Panama Canal pilot has been negligent; not through the same means as before, but still recoveries. So, in short, there is no real way of saying there has been an in crease. If there is a situation in which recoveries are not made which should have been made, that in the long run has to increase premiums and losses . Mr. HUBBARD. Mr. Gotimer answered this in part; could you add to what he said to this question: Why could not the ships using the canal carry insurance that would fully protect them against any damages inside or outside the locks? Mr. _BROWN. All ships, all large ships at least, using the canal do carry insurance. Mr. HUBBARD. Sure. Mr. BlWWN. It.protects them against damage to th~ vessel itself; it protects them against damage and liabilities for damage to others. The issue here really is that where the canal pilot has been negligent, if the shipowner does not make a proper recovery against the Can.al Commission, his loss experience will be worse and the cost of that insurance will be increased. Unfairly, in our judgment. Mr. HUBBARD. Would it be more expensive for shippers to-have the higher insurance premium if the tolls could be lowered sub. stantially across the board for all the ships? Mr. BROWN. Again that is very hard to say. I guess in pure theory-in pure theory-if the tolls covered liabilities of canal per sonnel, the ships using the canal would pay those extra costs, and the ships that did not use th_ e canal would reap a benefit in having lower insurance premiums. If insurance losses were charged across the board to all ships because the Panama Canal Commission did not respond in damages, presumably that would raise the insurance premiums of all ships generally.

PAGE 104

100 Mr. HUBBARD. Are you aware of any actual instances in the Panama Canal where, as a result of pilot negligence on, say, ship A, a second ship has been struck and damaged? Mr. BROWN. Yes. Any time you have a collision between two ships in the canal, ordinarily there is damage to the other ship. Mr. HUBBARD. But this is not always the result of pilot negli gence? Mr. BROWN. Oh, no. It may be due to pilot negligence. It may be due to other forms of negligence. I might say, however, ordinarily, as a realistic matter, responsibility for ship collision rests upon the person in charge of the ship's navigation. That person in the Panama Canal is generally the pilot. There may be other features that come into it--Mr. HUBBARD. Like defects in the ship? Mr. BROWN. Defects in the ship. There might be negligence on the part of the ship's personnel. For those defects and negligence on the part of the ship's personnel, the shipowner would be liable. If there were negligence on the part of both pilot and shipowner, that negligence would be apportioned; so each party would pick up its proportion. Mr. HUBBARD. At the bottom of page 1, Mr. Brown, you note that most vessels are uninsured to the extent of their deductibles and are not insured against loss of use. Could these vessels be so insured if the owner wanted them to be? Mr. BROWN. I suppose it is theoretically possible that they could be. There is a question of premium charge. If you eliminate--Mr. HUBBARD. A question of what? Mr. BROWN. The premium charge. I think you can buy insurance for just about anything if you are ready to pay the premium for it. I know as a matter of practice that most-well, I have been in this business about 28 years now. I have never known a case _where a shipowner has been insured for a loss of use of his vessel as a result of the collision. That is a shipowner's risk ordinarily. Mr. HUBBARD. This last question: Obviously, to the extent that vessels can recover money damages from the Panama Canal Com mission their insurance rates will go down and vice versa. What would be helpful for the committee to know is how much insurance, rates will change if, for example, all authority of the Commission to pay claims were removed or if the Commission were given au-thority to pay all claims? Mr. BROWN. I think, Mr. Chairman, that would be an extraordinarily difficult calculation to make. I don't know if it can be made. I think it can be said that there would be an increase in insurance costs to some extent. Mr. HUBBARD. What would you say to the argument of some that private insurance premiums would change very little if the Com mission simply got out of the insurance business altogether? Mr. BROWN. I don't know the degree of the change. You know, it would be hard to make that calculation. I think what would happen would be that if a shipowner were taking a ship through the canal and had a heavy casualty, that shipowners' premiums would go up very heavily if he could no~ make a legitimate recovery from the canal.

PAGE 105

101 In other words, the impact of the canal going out of the insurance business as one might put it would fall on shipowners who happens to sustain heavy casualties in the canal. I think it would fall on them unfairly. I think it is a matter of principle; he who is negligent should pay for his negligence. Mr. HUBBARD. Mr. Beale, let's hear from you. STATEMENT OF ALMER W. BEALE II, ESQ., TOOLE, TAYLOR, MOSELEY & JOYNER, REPRESENTING THE MARITIME LAW AS SOCIATION OF THE UNITED STATES Mr. BEALE. Initially, I would like to thank the subcommittee for this opportunity to appear and make .known the sentiments of the Maritime Law Association of the United States on the need for an amendment to the Panama Canal Act of 1979 addressing vessel accident claims. My full-ti'me devotion is the practice of admiralty law in Jacksonville, Fla., as a partner in the firm of Toole, Taylor, Moseley & Joyner. I also serve as a member of the Committee on Maritime Legislation of the Maritime Law Association of the United States. Particularly, I have the pleasure of being the chairman of the subcommittee therein appointed to study the need for a change in procedure in handling vessel accident claims involving the Panama Canal Commission. The Maritime Law Association of the United States is a national bar association founded in 1899. The association has a nationwide membership of more than 3,000 practicing admiralty attorneys, Federal judges, professors of admiralty law and others interested in the development and improvement of maritime law. The association's attorney members represent the full range of maritime in terest: Shipowners, cargo owners, seamen, passengers, stevedores, shipbuilders and repairers, insurance underwriters, the U.S. Government and a number of State and local governments. Furthermore, because the association is a constituent member of the Comite Maritime International, which is the international organization of national maritime law associations, it has a direct interest in the need for certainty in international shipping and com merce. With that preface, may I say that the president of our association has designated me to have the honor of expressing to you our support for a vessel accident claims amendment to the 1979 Panama Canal Act. The general membership of the Maritime Law Association, at its fall meeting on November 5, 1982, unanimously adopted the following resolution: Resolved That the Maritime Law Association of the United States supports the enactment of Legislation (1) to vest the Panama Canal Commission with authority to com promise all claims against it arising from casual ties occurring outside the locks of the Panama Canal; (2) to grant jurisdiction to a district court of the United States to hear and determine such claims; and (3) to restore the liability of the Com mission for detention of vessels by the Commission during the time necessary for investigation of marine accidents for which the Commission is liable; and the President of this association is authorized to designate a representative of the association to make this resolution known to and facilitate its implementation by the appropriate committees of the Congress . Today there has been much discussion about certain limitations under the 1979 act. No one today has addressed the actual reason 12-9 78 0 7

PAGE 106

102 for a change under the 1979 procedure. I would like to address that topic. Although it is not totally clear from the legislative history of the present act, apparently someone believed that an appropriate model for handling vessel accident claims by the new Commission was the procedure followed by the old quasi-autonomous Panama Canal Agency prior to 1951. In 1951, the Congress created the Panama Canal Company to run the Canal. In the earliest days when the Panama Canal Agency made the. decisions about claims handling, but the U.S. Government was responsible for payment, there was a different procedure for vessel accident claims occurring inside the locks from those occuring outside the locks. Congress made this distinction for budgetary reasons. It was assumed that claims arising from accidents occurring inside the locks would almost always be the responsibilty of the Agency, and accordingly, it was given full power to compromise them. However, Congress believed that accidents occurring outside the locks, for example a major collision between two vessels, as dis cussed today, was not necessarily always going to be the Panama Canal's responsibility. For instance, a malfunction of ships equipment may have caused or contributed to the occurrence. Apparently, Congress was concerned .that the Agency in such cases might agree to settle claims for enormous amounts, creating budgetary demands that Congress had not anticipated and about whichit had not previously been warned. This was a valid concern since at that time, unlike the present act, there was no guarantee that the expenditures of the Agency would stay within the budget. What I am saying is those same concerns do not exist today be cause there is a procedure by which the tolls can recapture the cost of operation, including claims. To avoid these problems, prior to 1951 Congress limited the Panama Canal authorit y to settle claims against it arising from casualties outside the locks to $60,000. The Panama Canal Company, without the need for special legislation and witho u t any restriction as to dollar amounts, had full authority to comp r omise claims arising both inside and outside the locks during the period from 1951 to 1979. The apparent reason for that change was not the change from an agency to a corporation, but that the 1950 legislation gave the Canal Company power to es. tablish tolls based on a formula designed to recapture the cost of operation of the canal i ncluding claims. Of course, a similar ar rangemer..: for a tolls recapture is present in the 1979 act. We have heard a lot of testimony today that the recapture provi sion is working just fine. Equally important, under the pre-1979 arrangement with the Canal Company, is the fact that aggrieved par tie~ could sue the Company on all such claims occurring inside or outside the locks, in the U.S. District Court for the Canal Zone I don't need to belabor the actual provisions of today's claims procedure under the act. I think there was sufficient discussion this morning I would like to say that the Maritime Law Associ a t ion feels extremely concerned that no claim, regardless of its size, arising outside tl)e locks, has a forum in which claimants may sue

PAGE 107

103 the Commission, not even the newly created Admiralty Court in the Republic of Panama. In the recent act, the authority of the new quasi-autonomous Panama Canal Commission to settle claims arising from casualties occurring inside the locks is likewise unfettered. Moreover, claimants aggrieved by their inability to conclude what they would regard as a favorable settlement with the Commission may sue it on inside the locks claims in the U.S. District Court for the Eastern District of Louisiana. However, the authority of the Commission to settle claims arising from casualties occurring outside the locks is limited to $120,000. For these claims exceeding $120,000, special congressional review and approval is necessary. And no claim, regardless of size, arising outside the locks has a forum in which claimants may sue the Commission-not even the newly created Admiralty Court of the Republic of Panama. The absence of a forum altogether is, by itself, a cause for much concern. Moreover, procedurally there is no basis today for distin. guishing between claims arising from casualties inside or outside the locks. Unlike claims against the old Panama Canal Agency which were funded by the U.S. Treasury without regard to tolls, claims against the new Panama Canal Commission should be and will be funded out of tolls. Thus, world shipping will bear the cost for such accidents .by surcharging the frequent users of the canal. And a change in the claims procedure, so direly needed, will not remove this underlying equitable premise. Congress is qmch too busy to be burdened with the time consuming examination of liability testimony and damage documentation of these ongoing claims. Moreover, judicial review of tort. claims is all but basic to our democratic system. Because of the heavy usage of the canal by international ship.ping and the involvement of the United States with the operation of the canal until the end of .the century, the need for a change to a more uniform procedure is obvious. A final problem with the 1979 act which needs legislative correction is the provision which shields the Panama Canal Commission from liability for detention of vessels during the time necessary for an investigation by the Commission of marine casualties for which the Commission is ultimately liable. Prior to the 1979 act, the established case law provided that the former Panama C~nal Company was liable for such delays which solely benefitted the Company by affording it an opportunity to construct a defense to such claims, if it could do so. In the shipping business, time is money and it is simply inequita ble for the new Commission to have the power to detain a vessel, not for some general police purpose-:-as in a Coast Guard investigation-but strictly for its own litigation purpos es to defend against a claim. If the Commission needs to delay a vessel to investigate a casualty and later it is determined that the Commission is liable for the casualty, the Commission should compensate the shipowner, as was previously te case under the former practice. Of course, the 1979 act contemplated that. adjustments to the leg islative procedure, such as those addressed today, would be required as time proved necessary. The association appreciates your

PAGE 108

104 close consideration of these matters and we anxiously await your solution to these problems. [The statement of Mr. Beale follows:] PREPARED STATEMENT OF ALMER w. BEALE II, TOOLE, TAYLOR, MOSELEY & JOYNER, REPRESENTING THE MARITIME LAW ASSOCIATION OF THE UNITED STATES Initially, I would like to thank the Subcommittee for this opportunity to appear and make known the sentiments of the Maritime Law Association of the United States on the need for an amendment to the Panama Canal Act of 1979 addressing vessel accident claims. My full-time devotion is the practice of admiralty law in Jacksonville, Florida, as a partner in the firm of Toole, Taylor, Moseley & Joyner. I also serve as a member of the Committee on Maritime Legislation of the Maritime Law Association of the United States. Particularly, I have the pleasure of being the chairman of the subcommittee therein appointed to study the need for a change in procedure in handling vessel accident claims involving the Panama Canal Commis sion. The Maritime Law Association of the United States is a national bar association founded in 1899. The Association has a nationwide membership of more than 3,000 practicing admiralty attorneys, federal judges, professors of admiralty law and others interested in the development and improvement of maritime law. The Association's attorney members represent the full range of maritime interest: Shipowners, cargo owners, seamen, passengers, stevedores, shipbuilders and repairers, insurance underwriters, the United States Government and a number of state and local gov ernt.nen ts' Furthermore, because the Association is a constituent member of the Comite Maritime International, which is the international organization of national maritime law associations, it has a direct interest in the need for certainty in international shipping and commerce. The objectives of the Association as set out in Ar ticles and By-Laws are: "To advance reforms in the Maritime Law of the United States, to facilitate jus tice in its administration and consideration of problems affecting the Maritime Law and its administration, to act with foreign and other Associations in an effort to bring about greater harmony in the Shipping Laws, regulations ~nd practices of different nations.1 With that preface, may I say that the president of our Association hasdesignated me to have the honor of expressing to you our support for a vessel accident claims amendment to the 1979 Panama Canal Act. The general membership of The Maritime Law Association of the United States, at its Fall Meeting on -November 5, 1982, unanimously adopted the following Resolution: "Resolved, That The Maritime Law Association of the United States supports the enactment of Legislation 1) to vest the Panama Canal Commission with authority to compromise all claims against it arising from casualties occurring outside the locks of the Panama Canal; 2) to grant jurisdiction to a district court of the United States to hear and determine such claims; and 3) to restore the liability of the Commission for detention of vessels by the Commission during the time necessary for investigation of marine accidents for which the Commission is liable; and the President of this Association is authorized to designate a representative of the Association to.., make this resolution known to and facilitate its implementation by the appropriate committees of the Congress." As this Subcommittee knows, as a result of the 1977 Panama Canal Treaty, Con gress enacted legislation which provides that until the Republic of Panama assumes full jurisdiction on January 1, 2000, the Canal will be operated by the Panama Canal Commission. 2 Although it is not totally clear from the legislative history of the present Act, apparently someone believed that an appropriate model for handling vessel accident claims by the new Commission was the procedure followed by the old quasi-autono mous Panama Canal [Agency] prior to 1951. 3 In 1951, the Congress created the Panama Canal Company to run the Canal.4 In the earliest days when the Panama Canal [Agency] made the decisions about claims 1 Article II, Articles of A s sociation and By-Laws, Maritime Law Association of the United States; Adopted D ecember 13, 1935, with Amendments to November 6, 1981. 2 22 U S.C. 3601-3871 (1979). 3 Act of Sept. 27, 1979, Pub. L. No. 96-70, 1979 U .S. Code Cong & Ad. News (93. Stat. ) 1034, 1067-70 [hereinafter cited as Legislative History]. 4 Panama Canal Act, ch. 1049, 5, 64 Stat. 1038, 1041 (1950) [hereinafter_ cited as 1950 Act].

PAGE 109

105 handling, but the United States Government was responsible for payment there was a different procedure for vessel accident claims occurring inside-the-locks from those occurring outside-the-locks. 5 Congress made this distinction for budgetary reasons. It was assumed that claims arising from accidents occurring inside-the-locks would almost be the responsibility of the Agency, and accordingly, it was given full power to compromise them.6 However, Congress believed that accidents occurring outside-the-locks, for example a major collision between two vessels due to alleged Canal pilot error, was not necessarily always going to the Panama Canal's responsi bility (for instance, a malfunction of ship equipment may have caused or contribut ed to the occurrence). Apparently, Congress was concerned that the Agency in such cases might agree to settle claims for enormous amounts, creating budgetary demands that Congress had not anticipated and about which it had not previously been warned. This was a valid concern since at that time, unlike the prese:t 1979 Act, there was no guarantee that the expenditures of the Agency would stay within the budget. 7 To avoid these problems, Congress limited the Panama Canal authority to settle claims against it arising from casualties outside-the-locks to $60,000.8 The Panama Canal Company, without the need for special legislation arid without any restriction as to dollar amounts, had full authority to compromise claims aris ing both inside and outside-the-locks during the period from 1951 through 1979.9 The apparent reason for that change was that the 1950 legislation gave the Canal Company power to establish tolls based on a formula designed to recapture the cost of operation of the Canal including claims.10 Of course, a similar arrangement for a tolls recapture is present in the 1979 Act.11 Equally important, under the pre-1979 arrangement with the Canal Company, aggrieved parties could sue the Company on all such claims (occurring inside or outside-the-locks) in the United States District Court for the Canal Zone.12 In the recent Act, the authority of the new quasi-autonomous Panama Canal Commission to settle claims arising from casualties occurring inside-the-locks is like wise unfettered.13 Moreover, claimants aggrieved by their inability to conclude what they would regard as a favorable settlement with the Commission may sue it on inside-the-locks claims in the United States District Court for the Eastern District of Louisiana.14 However, the authority of the Commission to settle claims aris ing from casualties occurring outside-the-locks is limited to $120,000.15 For these claims exceeding $120,000, special congressional review and approval is necessary.16 And no claim, regardless 9f size, arising outside-the-locks has a forum in which claimants may sue the Commission-not even the newly created admiralty court of the Republic of Panama. 1 7 The absence of a forum altogether is, by itself, a cause for much concern. More over, procedurally there is no basis today for distinguishing between claims arising from casualties inside or outside-the-locks. Unlike claims against the old Panama Canal [Agency] which were funded by the United States Treasury without regard to tolls, claims against the new Panama Canal Commission should be and will cost for such accidents by surcharging the frequent users of the Canal. And a change in the claims procedure, so direly needed, will not remove this underlying equitable prem ise. Congress is much too busy to be burdened with the time consuming examination of liability testimony and damage documentation of these ongoing claims. Moreover, judicial review of tort claims is all but basic to our democratic system. Because of the heavy usage of the Canal by international shipping and the involvement of the United States with the operation of the Canal until the end of the Century, the need for a change to a more uniform procedure is obvious. A final problem with the 1979 Act which needs legislative correction is the provi sion which shields the Panama Canal Commission from liability for detention of ves-5 Panama Canal Act, ch. 358, 1, 54 Stat. 387, 388 (1940) [hereinafter cited as 1940 Act]. 6 Legislative History, supra at i067-68; Panama Canal Act, ch. 390. 5, 37 Stat. 560, 563 (1912). 7 Legislative History, supra at 1041; 1040 Act, supra at 388. 8 1940 Act, supra at 388. 9 Act, supra at 1039. 1 0 Legislative History, supra at 1041; 1950 Act, supra at 1042 -43. n 22 U.S.C. 3792(b)(1979). 12 1950 Act, supra at 1040. 13 u .s.c. 3771 (1979). 14 U S.C. 3776 (1979). 15 u.s.c. 3772 (1979). 1s U S.C. 3775(b) (1979) 17 Panama Canal Treaty, Sept. 7, 1977, United States-Panama, Art. III, sub-para. 2.

PAGE 110

106 sels during the time necessary for an investigation by the Commission of marine casualties for which the Commission is ultimately liable.18 Prior to the 1979 Act, the established case law provided that the former Panama Canal Company was liable for such delays which solely benefited the Company by affording it an opportunity to construct a defense to such claims if it could do so. 19 In the shipping business, time is money and it is simply inequitable for the new Commission to have the power to detain a vessel, not for some general police purpose-as in a Coast Guard investigation-but strictly for its own litigation purposes to defend against a claim. If the Commission needs to delay a vessel to investigate a casualty and later it is determined that the Commission is liable for the casualty, the Commission should compensate the shipowner, as was previously the case under the former practice. Of course, the 1979 Act cont~mplated that adjustments to the legislative proce dure, such as those addressed today, would be required as time proved necessary.20 The Association appreciates your close consideration of these matters and we anx iously await your solution to these problems. Mr. HUBBARD. Thank you very much, Almer Beale. Let me take this opportunity to say that much of the assistance provided the chairman and other members today has come from Ed Welch, to my extreme right your left the counsel for the full Merchant Marine and Fisheries Committee, and to my right also, closer to me, John Long, assistant counsel for the full Merchant Marine and Fisheries Committee; from Janie Lawson, on my far left, the staff director for our subcommittee; from Jana Oakley to my right, staff as~istant; and Robin McClung to my left, minority staff assistant. They are very helpful. . You say the Federal Government now need not worry about paying a portion of a claim because the canal, by law, must be financed by tolls solely. What would -happen if a large claim surpassed the cumulative reserve? Mr. BEALE. Mr. Chairman, during the interim time the claim is being processed, if the Canal Commission kriew about it, there would have to be immediate adjustments in the toll rates to pro spectively take care of the claim. Otherwise, Congress would have to go ahead and advance the money through appropriations and then recapture it by with adjusting the toll base. In Mr. Kujawa's testimony he proved the reserve mechanism for claims does work. The Commission mentioned something about buying some catastrophic insurance. I think that is an alternative that could be considered which that would avoid a need for any immediate adjustment in the toll base and it is one way it could be handled. Mr. HUBBARD. Would a successful claimant be willing to wait for his money until a higher toll structure could be put in place to replenish the reserve or would he insist on immediate payment from the General Treasury? Mr. BEALE. J.. can't subjectively answer that question. I think it would have to be the individual shipowner's choice. Ideally, of course, he would want to be able to satisfy the claim immediately or satisfy his judgment immediately. If you had catastrophic insurance which the Canal Commission had secured, that would obviate the need for any waiting period. 18 22 U S.C. 3777, 3774(6) (1979) 19 Gulf Oil C orp v. Panama Canal Co., 481 .F2d 561 (5th Cir. 1973). 2 0 22 u.s.c. 3602(d)(3) (1979).

PAGE 111

107 Mr. HUBBARD. I have only three more questions. Could you elabo rate on your statement that the pre-1951 distinction between inside-and outside-the-locks claims was based oh budgetary consid eration? Mr. BEALE. In my paper, Mr. Chairman, there are a number of annotations. I went through the legislative history. I have cited the U.S. Code Congressional and Administrative New. The reference material demonstrates that reasoning. Furthermore, I would like to cite the subcommittee some other references which discussed the 1951 legislation. Grace Lines v. the Panama Canal Company, 243 F2d, 844. This is a decision of the U.S. Court of Appeals for the Second Circuit. There was further discussion in a U.S. Supreme Court decision, which points up congressional reasoning. The offiqial citation to the Supreme Court case is 356 U.S. 309. Those Federal courts go into great depth to explain why there was the need to make the tolls provision mandatorily cover the operation of the canal. Those cases, -of course, talk about claims. It is clear that one of the reasons Congress passed the legislation that went into effect in 1951 was to grant the Canal Company the budgetary means to pro vide a recapture in the toll system and pay all costs of operations including claims. Mr. HUBBARD. I must leave now for a vote . We will recess for about 10 minutes. [Recess.] Mr. HUBBARD. The subcommittee will now reconvene. Mr. Beale, you state that Congress in 1951 gave the Panama Canal Company full authority to compromise claims because the cost of this could be recovered in tolls. Isn't it also possible to deduce from the legislative history that the full authority to pay claims in the 1951 law derived from the corporate structure of the Panama Canal Company and Congress believed that a government corporation should be able to sue and be sued likeother corporations? . Mr. BEALE. Mr. Chairman, that is partially correct. However, one has to look beyond to why Congress made the canal operation a corporation. In the legislative history, and the cases cited, the history shows President Truman was contemplating a toll increase in 1948-49. Congress asked the President to delay the increase so it could study the entire structure. There were a number of hearings and a lot of statistical analysis was disclosed therein. The net result was Congress decided to make the canal self-sus taining. This was the reason Congress .put the entire operation into one corporation, both the agency and the railroad company func tions. So in a short answer to your questio n, I think the reason the canal was organized as a corporation was notso it could sue or be sued; it was so it would be self-sustaining But as a result of the canal operation becoming self-sustaining, Congress allowed the canal to be sued on all vessel accident claims. Mr. HUBBARD. Thank you very much. You did want to make a closing statement? Mr. BEALE. Just one short thing. I think it is very important for the subcommittee and .all of Congress to consider that whatever

PAGE 112

108 Congress ultimately does with this claims procedure, most likely the Republic of Panama, after the year 2000, will follow suit. The basis for this comment is the Panamanian Maritime Tribunal, recently created in the Republic of Panama, has adopted many of the admiralty procedures now followed in our U.S . district courts. They look to us for guidance. It is reasonable for us to believe that whatever Congress does with this claims procedure, hopefully changing it-and we, of course, urge Congress to change it-that the Republic of Panama will adopt the same procedure after the year 2000. The procedure you formulate will govern shipping interests, including the American merchant marine, into the future even after the United States has totally divested itself of the canal. Thank you. Mr. HUBBARD. Mr. Brown, do you have a final comment? Mr. BROWN. I guess, one other. That is, I mentioned the increase of premium where losses are sustained by a shipowner. I should have said that that increase in premium is very substantial. It can be as high as paying back the loss over a period of 5 years. That is, if there is $1 million loss, the underwriter will pay the loss, but he will collect it back in premium over the next 5 years at $200,900 a year. So it would fall very heavily on an individual ship owner. Mr. HuBBAR~. Thank you for that information. We do ask Mr. McAuliffe to come back. We will hear you one more time for 5 minutes or less. STATEMENT OF HON. DENNIS P. McAULIFFE, ADMINISTRATOR, PAN AMA CANAL COMMISSION Mr. McAuLIFFE. Mr. Chairman, we have no substantial disagreement with any of the testimony today. All witnesses have testified concerning the confusion or uncertainty arising from the presenting legislation and the need for amendments with respect to the claims procedures. Incidentally, we have not had the opportunity to review the pro posed legislative changes submitted by certain witnesses and would welcome an opportunity to comment on these and any others submitted to the subcommittee. In addition, we stand on our own testimony concerning the need for a statute of limitations and for authorization for catastrophe insurance. We do very much appreciate the opportunity to appear before this subcommittee tod~y and to address this very important subject. Thank you! Mr. HuBBARn. Thank you very much, Mr. McAuliffe. The hearing now stands adjourned. [The following was received for the record:] QUESTIONS SUBMITTED BY MR. HUBBARD AND ANSWERED BY LEONARD J. KUJAWA On page 7 of your statement, in quoting your 1973 report, you state that the cost of the marine accident reserve is "comparable to the insurance expense which would be incurred if the company were permitted to obtain outside insurance cover age.'' Question 1. Do you have an opinion on whether or not insurance coverage for vessel damage claims is something the current Commission should consider?

PAGE 113

109 Answer. There are two possible objectives served by insurance coverage for the Commission: 1. Management of risk; and 2. Administration of claims. Regarding management of risk, it is the policy of the U.S. Government to selfinsure for all risk, including catastrophies. I am not aware of any special circumstances of the Panama Canal Commission which would justify a variation from the policy of the U.S. Government generally. The administration of claims is a complex and time consuming matter. Whether ~n insurance company could perform this function in a more cost effective manner would require a special study to determine. We have performed no such study. Question 2. How would the costs compare nowadays? Would it cost $12 million a year or more in insurance premiums to cover current claims? Answer. It is not possible to quantify the cost of insurance with the current cost provision of $12 million annually. If the Commission pu:r:chases insurance, the premiums would reflect the actual accident experience of the Panama Canal plus the cost of administering claims. Only if an insurance company could administer the claims in a more cost effective manner would the cost be less than that being incurred by the Commission. Question 3. Do you have any information on how the cost of the marine accident reserve compares with the purchase by individual vessels of sufficient insurance to cover their possible accidents? Answer. The insurance coverage of vessels currently does not jnclude the cost of accidents in the Panama Canal. If such coverage were to be obtained by vessels, quite obviously the premium to the vessels would be higher than currently incurred. Congressman CARROLL HUBBARD, TOOLE, TAYLOR, MOSELEY & JOYNER, Jacksonville, Fla., 32202, December 10, 1982. Chairman, Subcommittee on Panama Canal/Outer Continental Shelf, Committee on Merchant Marine and Fisheries, House of Representatives, Washington, D.C. DEAR CONGRESSMAN HUBBARD: Thank you very much for the honor and pleasure of appearing before your Subcommittee on Thursday of last week about a matter of great importance to uniformity and equity in the maritime law. During the course of the hearing, you had invited any of the witnesses present to provide written re sponses to any of the questions posed by members of the subcommittee. I appreciate your offer to make these written responses part of the record. There was an important question posed by Congressman Tauzin, which deserves a more thorough response. Essentially the question was: Under the present procedure, will the Canal Commission be responsibile for payment of claims regardless of fault, unless it is shown that the negligence of the ship, its crew, etc., caused or contributed to the accident? As I perceive the question, essentially Congressman Tauzin wanted to know whether the Canal Commission is strictly liable for these vessel accident claims to the extent of being an insurer? The basic short answer is the Canal Commission is not serving as an insurer of the vessel for either inside or outside-the-locks claim. The difference between the Commission's liability on inside-the-locks and outside-the-locks claims is simply a difference in the burden of proof of a claim. Under 22 U.S.C. 3771 [inside-the locks ], the Commission will be required to pay the claim unless it can affirmatively show that the accident was caused by the negilgence of the ship, its crew, passen gers, etc. On the other hand, if the accident occurs outside-the-locks [22 U.S.C. 3772] the shipowner, crewmember, etc., have the burden to prove that negligence of the Canal or its employees caused the injuries. In both cases, the shipowner, crewmember, etc., may not recover for their damages if the injury was proximately caused by the negligence or fault of the vessel, master, crew or passengers. In both instances partial negligence or fault of the vessel, master, crew: or passengers will reduce the award of damages in proportion to the percentage of negligence or fault on the part of the vessel, master, crew or passengers. Both the inside and outside the-locks accidents totally rest on fault principles which are basic to the American tort system. In no event is the Canal Commission absolutely liable as an insurer. The reason for the burden of proof distinction between the inside and outside-the locks claims is the degree of control the Canal Commission exercises over the vessel during its transit. When the vessel is in the locks, its movement is in the absolute control of the Comrpission and its employees. The vessel is assisted in. entering the locks by tugboats. After the first line is attached to the vessel, theship rarely uses its own propulsion. The vessel is guided into the locks with the use of the Canal's locomotives. The practical effect of the Canal's close control over the vessel while in the locks is in almost every instance if a vessel accident occurs, it will be due to improper or negligent handling on the part of the Canal. However, if the Commission can dem-

PAGE 114

110 onstrate that the accident was caused thro~gh fault of the vessel or its crew, it will be relieved of liability. for instance, the Canal is not going to be responsible in the very unlikely event that the crew of the vessel independently decides to move the ship. Furthermore, the Canal is not going to be responsible for any type of personal injuries caused by a malfunction of ship's gear, for which ~he Canal has no involve ment. Once the ship leaves the locks, although it is still under the total navigational control of the Panama Canal pilot, it is under its own propulsion. Thus, there is a greater likelihood that the ship's equipment will cause a collision, grounding or alli sion. The differences in the quantum of responsibility of the Canal have been reflected with the shift of the burden of proof between the Canal and the shipowner. This doctrine dates back to the very early times in the operation of the Canal. This same differential of responsibility, handled by the fault doctrines of the burden of proof, have remained the same through the present. The 1979 Act did not change the basic fault principles which ::1pply in these vessel accident claims. At no times since claims were allowed both for inside and outside-the-locks, has the Canal faced strict liability to a shipowner making it an insurer of these claims. Since the Canal has virtual control of the operation of the ship when it is in the locks, those persons involved in the claims handling for the vessel accidents have developed a ''term of art'' stating that the Canal is the ''virtual insurer'' of the vessel when it is in the locks. However, this is merely a term of art to describe the total control the Canal has over the vessel. In the strict legal sense, the Canal is not an insurer of the vessel, but as described above, fault principles apply. None of the witnesses advocated any change in the fault doctrines that have ap plied to these accidents for almost half a century. We simply urge providing an efficient meaningful claims procedure for outside-the-locks claims, with a forum for ju dici~l review. No one seeks to increase the Canal's responsibility to make it an insurer for the shipowners. Everyone wishes to have the system of fault applicable to both parties. This is true Jrom the shipowners standpoint as well as the Commission. If the vessel is at fault in an accident causing damage to the Canal, it, of course, is expected to respond for the damages it causes. And, of course, the converse is true. It is apparent neither the Commission nor the users of the Canal wish to change this system. What parties of all concern expressed at the hearing is the need for an effective, efficient and thorough procedure for handling .these outside-the-locks claims. Thus, the Maritime Law Association of the United States respectfully request that the claims procedure return to the system that effectively worked for twenty-eight (28) years during the period 1951-1979. We hope this answers Congressman Tauzin's query. By copy of this letter to him we sincerely thank Congressman Tauzin for his intense interest in the problem with the present procedure. We stand ready to answer any further inquiries from any of the members of the Committee. Respectfully, ALMER w. BEALE II. PREPARED STATEMENT BY THE INTERNATIONAL DIVISION, U.S. GENERAL ACCOUNTING OFFICE Mr. Chairman and members of the committee, we are. pleased to present our views on the Panama Canal Commission's accounting procedures for setting aside reserves for marine accidents. MARINE ACCIDENT RESERVE From time to time, ships transiting the Canal are involved in accidents: Ship accidents are viewed as a normal and expected part of doing business in the Panama Canal. The Commission's marine accident reserve to pay for vessel damage claims is, in effect, a way of insuring against this normal business risk and spreading the cost evenly over time. The reserve is charged to current operations and is not unlike other business practices of charging insurance premiums against current operations. However in this case, rather than paying premiums to an outsider, an amount is collected from each Canal user to pay for ship accident claims which occtir (part of the tolls rate). Specifically, each month the Commission records, as an expense, onetwelfth the annual estimate needed to pay for marine acciq.ents . Currently, the Commission is estimating an annual need of $12 million, so the monthly expense is

PAGE 115

111 $1 million. When an accident does occur, the Commission estimates the cost it will be responsible for paying and sets up an account payable for that amount. The amount of the reserve is reduced by the amount of the payable. In our opinion, the practice of setting up such a reserve accomplishes a matching of cost and revenues by charging users each year with their share of the cost of accidents that will occur. Additionally, the reserve process described above normalizes or levels out cost fluctuations. The Commission is required by its implementing legislation to recover all costs of operating and maintaining the Canal. Tolls are to be increased or decreased as these costs fluctuate. If reserves were not employed, the tolls rate would need to rise each time there was a major accident and lowered as soon as the co~t of the accident were recovered. The tolls adjustment mechanism would not be that responsive-an increase in the tolls rate takes 6 months. Additionally, although unrecover ed costs can be made up from future tolls revenues, excess recovery becomes a profit and, under the Treaty and Act, the first $10 million in profits is payable to the Republic of Panama. RESERVE COVERAGE The reserve described above provides for all marine accidents within the Canal. That is, it includes the estimated cost of claims for damages arising from marine accidents which may occur: within the Canal locks, outside the Canal locks with an estimated liability of $120,000 or less, and outside the Canal locks with an estimated liability of more than $120,000. The Commission has the authority to adjust and pay the first two categories of claims. Sections 1411 and 1412 of the Panama Canal Act direct the Commission to promptly adjust and pay all claims arising. from accidents within the locks and all. those outside the locks where the claim or estimated liability is $120,000 or less. These are to be paid for appropriations for operating and maintaining the Canal. The Commission, however, has no authority to adjust or pay claims in the third category-that is, claims arising from accidents which occur outside the locks and where the claim or estimated liability exceeds $120,000. Rather, section 1415 of the Act requires the Commission to submit this category of claims to the Congress with a special report on the accident containing the ~aterial facts and the Commission's recommendation. The Act is sile .nt as to what the Congress will do upon receipt of these reports. Some question whether the Commission should consider this last category of claims in its reserve for marine accidents when it has no authority to pay such claims. We believe reserves should continue for this category of claims; collected as a part of tolls and deposited in the Panama Canal Commission Fund. However, authorization and appropriation from the Fund to pay such claims now must await the action of the Congress on the reports rendered by the Congress. The Act is clear that the Panama Canal is to be self-supporting and none of the cost of operation and maintenance should be borne by the U.S. taxpayer. The Com mission's decision to include all cl:;1ims in its reserve is in recognition of this requirement to be self-supporting. It also assumes that the Congress will not deny a valid claim arising from an ~ccident caused by the negligence or fault of an officer or employee of the United States acting within the scope of his employment and in the line of duty. We agree with the self-support concept. CONCLUSION In short, we believe the Commission's marine accident reserve reflects prudent financial management under the rule$ for operating and maintaining the Canal. It allows for a reasonable accommodation in that it allows for matching revenues with expenses, assuring self-support through cost recovery, and providing for a reason ably stable toll rate. We recently approved the Commission's statement of accounting principles and standards which include the marine accident reserve. Additionally, we hav~ com pleted our examination of the Commission's financial statements for fiscal years 1980 and 1981. We discussed the Commission's marine accident reserve in our 1980 report, but we did not challenge either its concept or coverage.

PAGE 116

112 PREPARED STATEMENT OF WALLER B. SMITH, RISK MANAGER TO THE PANAMA CANAL COMMISSION The core issue to be determined by this study is whether the current arrangements of the Panama Canal Commission for handling risks arising out of the operation of the Panama Canal, are adequate and cost effective. In reaching an answer to this question, it appears rational to pursue four subsidi-ary inquiries: 1. Is the present method of self-insuring and self-administering recurring and rea sonably predictable claims the most efficient and cost effective method of financing and handling this level of risk? 2. Are there risks, of a size or nature, that are not provided for, adequately, or at all, by the present program? Is so, are they of such a nature that provisions should be made? What, if any, program should be implemented for such risks? 3. What effect does Public Law 96-70 have on the categories of risk set forth in 1 and 2 above? 4. What steps to abate, or finance risks are available, and what advantages do they off er? It is unlikely that many absolute answers can be supplied, since we are dealing with changed circumstances in a rapidly changing world. The fact that the Canal has been operated for 70 years without a major catastro phe does not guarantee that a loss of major proportions will not occur tomorrow, or next week. To rely on such an assumption would be like assuming that because a building has stood for a like number of years, it is immune to fire, windstorm or earthquake. Once one accepts the possibility that a loss of major proportions can occur, for which the Commission would be responsible, it becomes rational to explore what steps can be taken; what alternatives are available, and what are the relative advantages and disadvantages of those alternatives? At this juncture, it is neither possible nor important to make a quantitative judgment as to the immediacy or enormity of major losses. It is sufficient to accept the fact that the possibility does exist. With such acceptance in mind, let us probe the four questions raised. 1. Is the present method of self-insuring and self-administering recurring and rea sonably predictable claims the most efficient and cost effective method of financing and handling this level of risk? The Commission and its predecessors have traditionally accepted responsibility for damage to vessels while in the care, custody and control of the Commission. The present method is to provide $1 million a month as a reserve for claims for such damage. Settlement is pursuant to Chapter 4 of Public Law 96-70. It would appear that the present methodology for financing the payment of such claims must, in the long range, be the most cost effective method of disposing of the risk of recurring claims. Self insurance as employed by the Commission eliminates any of the overhead and profit add-ons present in insurance. It further provides ultimate cash flow advantages, since no funds leave the government's hands until the claim is paid. The foregoing paragraph does not deal with the advisability of self-administration of claims handling. First impressions argue that the nature of the claims, and the interplay with the Congress is of such a unique nature as to preclude successful del egation. However, the volume of funds expended strongly suggests a claim analysis of a sufficiently large sample to determine if revisions in methods of claims handling (e.g. the use of a professional claims service) would materially reduce costs, and permit more accurate projections of future costs, and areas where less control might be successfully applied. 2. Are there risks, of a size or nature, that are not provided for adequately, or at all, by the present program? If so, are they of such a nature that provisions should be made? What, if any, program should be implemented for such risks? There is no question but that there is a clear and distinct possibility that an accident of catastrophic proportions could occur under circumstances which would make the Commission liable. The loss of a multi-million dollar hull, coupled with the loss of very expensive cargo, and/ or the loss of multiple lives could produce claims in the megamillion dollar category. Financing for such an eventuality is impractical and imprudent, except .through a device which such risk would be shared with many others with similar risks. In the private sector, the Commission would determine the cost of a number of insurance plans; th.en compare the cost against the risk _of remaining uninsured.

PAGE 117

113 The probabilities are that the cost would be sufficiently low to preclude continued assumption of a risk of such large proportions. A program could be devised which would assess current and future insurance market conditions, and utilize the optimum combination of continued retention by the Commission of recurring and pre dictable risks with insurance for catastrophic losses. This utilization would explore what insurance company services (Loss Control, Claims Handling, Legal Defense, etc.) could be obtained for the risk transfer premium. From the standpoint of sound Risk Management, a coordinated, well determined self-insurance plan for predictable risks would be supplemented by an umbrella plan for catastrophe insurance. 3. What effect does Public Law 96-70 have on the categories of risk set forth in 1 and 2 above? This study does not purport to render legal opinions or provide answers to legal questions, but rather to point out the existence of such questions. As to Public Law 96-70 the first question is what liabilities are accepted by it, what limitations on liability are imposed by it? From a lay standpoint, there appears to be lack of clarity between assumption of liability and delegation of authority to the Commission to settle claims. Similarly, there is a lack of clarity as to what, if any, limits of liability apply. It appears that unlimited liability is accepted on claims arising within the locks, with no strictures on the Commission authority to settle. As to claims arising out side the locks, there appears to be assumption of unlimited liability, but the Com mission's authority to settle is limited to $120,000, and Congress must settle claims in excess of that amount. The total impact of Chapter 4 seems to be: a. It raises a serious question as to the Commission's power t~>" insur~ the necessary areas, i.e. large claims, hence divesting Congress of its settlement rights over $120,000. b. The uncertainty of liability and limits would pose serious underwriting prob lems if insurance were to be purchased. It is felt that no sound insurance program could be developed until Chapter 4 were rewritten to eliminate areas of uncertainty and to clearly permit the use of excess or catastrophe insurance. 4. What steps to abate or finance risks are available and what advantages do they offer? Under existing conditions, the first step would be to undertake a detailed risk management study of the physical risks, coupled with an analysis of past claims. Such a study would have as its objective, the following: a. To what degree and at what expense could an engineered loss control program reduce current costs and future-risk? b. What are reasonable cost projections of all risks (basically ciaims for damage or injury, destruction of or damage to, property of the Commission) and what are the optimum levels of self-assumption? c. Could the liability of the Commission be limited to a degree which would pre clude the need for excess insurance? A device widely used in the private sector is by contractual agreement, where the owner of property to be placed in the hands of another agrees to limit the liability of the bailee. As applied to the. Canal, it might be possible to create a situation_ wherein the owner of a vessel might contractually agree, as a condition of passage, to limit the liability of the Commission to a readily fundable level. Or, by published tariffs, a limitation of liability might be incorporat ed as a part of the financial conditions of passage. As a practical matter, it would appear unwise to substitute any contractual arrangement for the statutory condi tions of Public Law 96-70. Further, since contractual arrangements at the Canal could only be consummated with the master of the vessel, it is doubtful that he would have authority to bind owners, much less the shippers or passengers. b. Sho~ld Congress be asked to .amend Public Law 96-70 to limit the liability of the Commission to readily fundable levels? There are obviously political considerations in such a step which we are in no position to evaluate. Form a purely pragmatic standpoint, it would appear rational to first evaluate the availability and cost of financing full liability through the medium of insurance. It might be argued that the present arrangement creates a cost pulication in that the vessel owners and shippers are paying premium to insure their property for all risks, including pas sage through the Canal. It is my opinion that the existence of full, or limited liability of the Commission would have no noticeable effect on the insurance premiums of vessel owners or ship pers, since this risk is such a small part of the annual exposure.

PAGE 118

114 I further believe that the cost of excess insurance would be acceptable, and that the cost thereof could well be absorbed by an insurer-guided loss control program. e. Obtain legal opinions as to the risk impacts of Chapter 4 as now written, and suggested changes to meet risk management objectives. f. Establish long range internal financing plans for all categories of risk. As of this writing, an umbrella policy, excess of negotiated deductibles, is availa:.. ble to blanket all risks of the Canal Commission. Supplemental services could be arranged. The cost could be very materially affected by revisions in Chapter 4 of Public Law 96-70. PREPARED STATEMENT OF THE AMERICAN HULL INSURANCE SYNDICATE The American Hull Insurance. Syndicate was .created in 1920, when Congress, rec ognizing the need for a strong national merchant marine and a stable independent insurance market to support it, included in the Merchant Marine Act of 1920 provi sions encouraging collecitve action between marine insurance companies. This en abled marine insurers in the United States to create a single agency for the underwriting of hull business; to include negotiation of terms and rates, issuance of poli cies, collection of premiums and settlement of claims on behalf of its member com panies. These member companies, called subscribers, today number 58 and consist of major domestic insurance companies and of foreign insurance companies admitted to do business in the United States. Today, in addition to the Syndicate, there is a substantial independent market in this country insuring all types of vessels. The Syndicate insures many shipowners, both domestic and foreign, whose ships use the Panama Canal. Among the former are American Trading and Production Corporation, Central Gulf Lines, Inc., Keystone Shipping Co., Lykes Bros. Steamship Co., Inc., Ogden Marine, Inc., Sea-land Service, Inc., United States Lines, Inc., and Waterman Steamship Corporation. We are submitting this statement for consideration by the subcommittee because of our desire to support those of our assureds who use the Panama Canal in their wish to amend the present procedure for settling damage claims arising out of casu alties that occur outside of the locks. The type of casualties that usually occur outside of the locks., such as groundings, standings and collisions, do, to the extent that they exceed applicable policy deducti bles, result in claims on hull underwriters. These claims are almost always for the cost of repairing the insured vessel's damage and, sometimes, in addition, for the cost of refloating a stranded vessel, or, in the case of a collision, and to the extent the insured vessel is at fault, for the assured's liability for the damage to the other vessel and the cargo thereon. Whereas these claim payments by underwriters reimburse the shipowners for their repair and related costs, they do not make them financially whole. For one thing, the shipowners must bear their uninsured losses themselves (such as loss of use of the vessels during the periods of repair and the amounts of the hull policy deductibles). For another, the claim amounts recovered from hufl underwriters may have a bearing on future hull insurance premiums. The latter statement refers to the fact that hull insurance is experience rated, i:e., the individual shipowner's annual premium cost is affected by his own past loss ex perience, so that the greater this experience is the more premium he must pay and vice-versa. It follows, therefore, that if the shipowner can recover from negligent .third parties the cost of repairing vessel damage caused by them and credit such recoveries to the hull underwriters under the doctrine of subrogation, the ship owner's loss record will be improved to that extent. The point of all of this is .that the shipowner is bound to suffer financial loss, even if insured. Therefore, there should be some fair and effective way for the shipowner to recover all claims for vessel damage caused by the fault of Panama Canal person nel. The current claims procedure requires Congress to make the final decision on claims arising out of casualties occurring outside of the locks in excess of $120,000. It appears to us that Congress has enough to do without this task and that funds for payment of such claims should come out of Panama Canal tolls, i.e., the payment of all claims should be considered a cost of doing business by the Panama Canal Commission. It is our understanding as laymen that as an inducement to the exercise of due care the public policy of the United States calls for parties at fault to bar the cost. This prompts two comments:

PAGE 119

115 1. If the Panama Canal personnel are at fault for vessel damage, the Panama Canal Commission should pay for it, wherever the casualty occurs. 2. In determining -fault our Federal court system is the usual forum in admiralty cases, but this forum is denied shipowners insofar as casualties occurring outside of the locks are concerned. Accordingly, we recommend that the claims procedure for injuries occurring out side of the locks set forth in Sec. 1412 of the Panama Canal Act of 1979 be modified to: 1. Permit the Panama Canal Commission to adjust and pay damages without limitation of amount, and 2. Permit a claimant who considers himself aggrieved by the Commission's determination to bring an action in an appropriate United States District Court. [Whereupon, at 3:20 p.m., the subcommittee adjourned subject to the call of the Chair.] 0

PAGE 120

. 1 1 1111111111~n ~mrn1mr1~ij1 ~1,1111111111 3 1262 08128 004 1 \


xml version 1.0 encoding UTF-8
REPORT xmlns http:www.fcla.edudlsmddaitss xmlns:xsi http:www.w3.org2001XMLSchema-instance xsi:schemaLocation http:www.fcla.edudlsmddaitssdaitssReport.xsd
INGEST IEID EJD4QDNR7_QWUABL INGEST_TIME 2017-06-30T20:42:30Z PACKAGE AA00056837_00001
AGREEMENT_INFO ACCOUNT UF PROJECT UFDC
FILES