Section 308.-Cleanup Costs and Damages

This section provides for unlimited liability for cleanup costs, and limited liability for damages, to be borne by the owners and operators of offshore facilities and vessels.

Subsection (a) holds the owner and operator of an offshore facility or vessel which discharges oil to be jointly and severally liable, without regard to fault, for the full costs of cleaning up the discharge.

A similar requirement currently exists in Interior Department regulations (30 C.F.R. 250.43). It would extend that requirement of unlimited cleanup liability to vessels while in OCS waters. The oil industry has indicated its intention to clean up spills immediately, and has established cleanup cooperatives to keep cleanup equipment near offshore drilling sites. If any Federal, State, or local official or agency acts to clean up an oilspill, the owner and operator will be required to pay all such cleanup costs. Any cleanup costs incurred by third parties would be considered damages under section 307 and an owner and operator would be liable for such damages in accordance with subsection (c) of this section.

Subsections (b), (c) and (d) provide that the owner and operator of an offshore facility or vessel are jointly and severally liable, with limited exceptions, for damages resulting from a discharge. Such liability is absolute unless the owner or operator can prove, and show to what extent, the spill resulted from (1), an act of war; or (2), the negligent or intentional act of a third party, including a government entity.

The liability of owner and operator of an offshore facility for damages is to include interest from the date of filing of a claim and is except for interest, limited to $35 million and the liability of an owner and operator of a vessel for damages includes interest and, except for interest, is limited to $150 per gross registered ton of the vessel. Liability limits specifically do not apply to interest costs.

These limits are to be increased in accordance with the rate of inflation. These limits do not apply if (1), the damages resulted from gross negligence or willful misconduct within the privity and knowledge of the owner, operator, or person in charge; or (2), if the discharge resulted from a violation of applicable safety, construction or operating standards or regulations.

The intent of these subsections is to require the owner and operator to pay up to the stated amounts in damages caused by the discharge. In cases of gross negligence or willful misconduct, or violation of applicable regulations, the owner and operator would be liable for all damages associated with the spill. If a consortium or group of companies owns or operates an offshore facility or vessel, the liability limit would apply to the consortium or group. The liability of each member would be in proportion to each member's participation in the consortium or group.

The committee views the provision regarding unlimited liability for damages in certain cases as an important part of this section and a significant improvement upon existing oil spill liability law. Both the Federal Water Pollution Control Act (section 311(f), 33 U.S.C. 1321 (f)) and the Deepwater Port Act (section 18 (d), 33 U.S.C. 1515 (d) and (e)) deny the spiller the right to limit his liability if the

spill resulted from gross negligence or willful misconduct within the privity and knowledge of the owner or operator.

This section strengthens previous provisions in two ways. First, it extends the gross negligence and willful misconduct standard directly to the person in charge. Although gross negligence or willful misconduct must still be proven, it need no longer be traced to the owner or operator. When gross negligence or willful misconduct actually causes spills, the person in charge is much more likely than the owner or operator to have been responsible for, or at least knowledgeable of, such behavior. Second, the section denies limitation of liability if the discharge results from a violation of applicable safety, construction, or operating standards or regulations. The intent of this provision is to encourage owners and operators of offshore facilities to comply with such standards and regulations. The imposition of unlimited liability in cases where spills result from safety violations is designed to assure early compliance with various standards and regulations, and thus reduce administrative expense.

Subsection (e) deals with subrogation. If an owner or operator of an offshore facility is held liable for the costs of a spill caused by the unseaworthiness of a vessel or the negligence of the owner, operator, or person in charge of a vessel, the owner or operator of the facility is subrogated to the rights of any person entitled to recover damages from the owner, operator or person in charge of the vessel. The owner or operator of the facility can assume the legal rights of someone who is injured by the vessel's owner, operator, or person in charge.

Similarly, when the owner or operator of a vessel is held liable for the costs of a spill caused by the negligence of the owner, operator, or person in charge of an offshore facility, the vessel's owner or operator is subrogated to the rights of any person entitled to recover damages from the owner, operator, or person in charge of the facility. The owner or operator of the vessel can sue the owner or operator of the facility.

The liability provisions of this Title do not affect or limit the rights of an owner or operator of an offshore facility or vessel, or the fund, may have against any third party who caused, whether solely, or partially, an oil discharge. An owner, operator, or the fund, can proceed against a third party when the owner, operator or the fund pays the costs of a spill which was actually caused by the third party. The extent of the third party's liability would depend on whether he had solely caused the spill or whether he had contributed to its taking place.

The intention of title III is to protect domestic interests. To provide for payment to foreign countries of non-U.S. residents without a reciprocal arrangement in the foreign country would be unfair. Thus, subsection (f) provides that cleanup costs or damages are not to be awarded to a foreign country or a non-U.S. resident unless there is a treaty or executive agreement authorizing payment or an equivalent or similar remedy for U.S. claimants for discharges off that foreign country's shelf.

Section 309.-Disbursements from the Revolving Account

Money from the revolving account in the Treasury to the Fund is available only for (1) administrative and personal expenses; (2)

for public costs incurred in cleaning up an oil discharge, whether pursuant to this title or any State or local law, (3) private cleanup costs of an owner or operator when the discharge is caused solely by an act of war or by negligence on the part of the Federal Government in establishing and maintaining aids to navigation and (4) for all damages not paid by the owner or operator pursuant to this title. The fund would compensate claimants for damages if the owner and operator denies liability or that the spill was from their facility or vessel, if the owner or operator is exempt from liability because of an act of war; or intentional or negligent acts of third parties, if the owner or operator has not reached a settlement with the claimant; or if the owner or operator has reached the liability limit. In addition, the fund would provide compensation in cases where the spiller has not been identified. It is the intent of the committee that the fund provide full and complete compensation for all damages caused by oil discharges from offshore facilities and vessels.

However, the fund is not liable or responsible for any of the costs of or damages to a claimant which were negligently or intentionally caused by such claimant. Whenever the fund compensates a claimant, it acquires all legal rights of the claimant to recover cleanup costs and damages from the person responsible for the discharge. For example, if the owner and operator cannot reach a settlement with the claimant within 60 days pursuant to section 313 of this title, and the fund then reaches a settlement with the claimant, the fund acquires the claimant's right to recover damages from the owner and operator. Subsection (b) explicitly directs the fund to diligently pursue recovery for any such subrogated rights.

In any claim or action by the fund against an owner, operator, or other person providing financial responsibility for an owner or operator, as for example in the case where the fund has compensated a claimant for damages caused by a spill for which an owner and operator are liable, and the fund then seeks reimbursement from the owner and operator, the fund is to recover both the full amount it has paid to the claimant or to a government entity which undertook cleanup operations, and interest on that amount, except for those amounts for which there is a valid defense. Interest is to be computed at the existing commercial interest rate, and the Coast Guard in administering the fund is expected to publish guidelines for the computation of such rate. Interest is to be charged from the date upon which the request for reimbursement was issued from the fund to the owner, operator, or person providing financial responsibility, to the date upon which the amount is actually paid by the owner, operator, or other person to the fund. The imposition of an interest charge upon delayed reimbursement will encourage the owners and operators of offshore facilities and vessels, and their insurers to arrange expeditious settlements with the fund. Experience with the pollution fund, established pursuant to the Federal Water Pollution Control Act, indicates that, in the absence of such an incentive, the Government gets involved in lengthy, costly and sometimes frivolous negotiations and litigation with the liable parties.

A later section states that the revolving account for the fund is to be financed by an initial appropriation and then a 3 cents per barrel

fee. The fee need only be collected until $100 million to $200 million is in the account. Normally, the fund would maintain an account balance sufficient to cover most spills. However, it may be possible that an extensive catastrophic spill might occur that would involve costs and damages beyond the amounts in the account. In such a situation, either while the account is being built up, or if the $100 to $200 million amount is insufficient, the fund may borrow all necessary amounts to pay any cleanup costs and damages for which the fund is liable; up to $500 million at any one time.

The fund may issue notes or other obligations to the Secretary of the Treasury, according to terms and conditions prescribed by the Secretary of the Treasury. Borrowed monies are to be deposited in the revolving account, and redemptions of notes or other obligations issued to the fund are to be made from the revolving account.

The Secretary of the Treasury is to determine an appropriate interest rate, based upon the current average market yield on outstanding marketable obligations of the United States of comparable maturities during the month preceding the borrowing. The Secretary of the Treasury is authorized to purchase the fund's notes on other obligations by using as a public debt transaction the proceeds from the sale of any securities issued under the Second Liberty Bond Act. The purposes for which securities may be issued under that act are extended for this purpose. In addition, the Secretary of the Treasury may sell any notes or other obligations which he purchased pursuant to this section. All purchases, redemptions, and sales of such notes or other obligations are to be treated as public debt transactions of the United States.

This borrowing provision enables the fund to pay all costs and damages as soon as possible. The concept of authorizing the fund to borrow money in such cases in order to provide unlimited coverage was first introduced in the Deepwater Port Act, section 18(f) (3) (33 U.S.C. 1517(f) (3)). This section improves upon that provision by outlining the borrowing procedures in greater detail.

Section 310.-Fee Collection; Deposits in Revolving Account

This section provides for the collection of a fee to establish and maintain the fund and the deposit of any amounts collected by the fund. The Secretary of Transportation is to levy and collect a fee not to exceed 3 cents per barrell from the owners of OCS oil when produced.

The fee is to be collected until the balance in the revolving account reaches at least $100 million. Afterwards, the Secretary is to maintain the account at a level between $100 million and $200 million. To do so, he may suspend and reinstate the fee from time to time, or he may periodically modify the amount of the fee, but not to exceed 3 cents per barrel.

All fees, reimbursements, fines, penalties, investments, and judgments pursuant to this title are to be deposited in the revolving account, and are to be included in the calculation of the amount in the account. If the amount in the account exceeds $200 million, all sums in excess are to be deposited in the U.S. Treasury and credited to miscellaneous receipts.

Any money not needed for the purposes of the fund and its administration are to be prudently invested in income-producing securities issued by the United States. The Secretary of the Treasury must approve such investments. It is expected that such investments will be made on a short-term basis, in order to provide the fund with maximum liquidity in order to respond effectively to any unexpectedly large or any unexpectedly high frequency of oil spills.

Section 311.-Financial Responsibility

This section requires owners or operators of offshore facilities and vessels to demonstrate adequate financial responsibility so to be able to cover the liability requirements of this title.

The owner or operator of an offshore facility is to establish and maintain evidence of financial responsibility based on the capacity of the facility and "other relevant factors". Such factors should include, although need not be limited to, liability requirements, the frequency with which the facility handles OCS oil, the previous experience of the facility with regard to oil discharges, and the size and assets of companies and corporations affiliated with the owner or operator. The President is to establish rules and regulations governing the establishment and maintenance of evidence of financial responsibility shown by insurance, surety bonds, self-insurance, or other methods.

The owner or operator of a vessel is to provide evidence of financial responsibility to the Federal Maritime Commission. Financial responsibility must be based upon liability requirements and the tonnage of the vessel. An owner or operator who owns, operates or charters more than one vessel need only provide evidence of financial responsibility for the largest of his vessels. Financial responsibility may be proven with insurance, surety bonds, self-insurance, or other methods.

Offshore facilities are not presently required to demonstrate financial responsibility for liability expenses. However, under the Federal Water Pollution Control Act, the President has designated the Federal Maritime Commission to administer the financial responsibility requirement for vessels. It is expected that the President will also designate the Maritime Commission to administer the financial responsibility requirement for offshore facilities pursuant to this section, as the Commission has gained considerable experience in working with private insurance organizations. If the President or the Federal Maritime Commission determine that another agency could administer this section more effectively, however, it would still be consistent with this section of this title.

The purpose of this section is to extend the existing requirement for evidence of financial responsibility to offshore facilities, in addition to vessels. The requirement was initially imposed upon vessels in the Federal Water Pollution Control Act because vessels might spill oil and then sail beyond U.S. jurisdiction. Furthermore, many vessel owners incorporate each vessel separately and, if the vessel is seriously damaged or destroyed in an incident, the vessel owner would lack sufficient assets to meet legal liabilities. The effect of the Federal Water Pollution Control Act requirement for proof of financial responsibility has been to expand the pollution coverage offered by the

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