Mr. MORSE. Yes. As I recall, the values were about 160 percent. The courts awarded about 160 percent of the just-compensation values established by the War Shipping Administration, but the General Accounting Office values were less than the War Shipping Administration values, so that there was a greater spread.

I might also say that, as I recall, there were less than 5 percent of the owners who rejected the stated valuation in World War II and sued for just compensation.

Mr. KLUCZYNSKI. The reason I asked that is that I see in Senate Report 1954 on page 10: "Just compensation cases decided by the courts *** March 15, 1956," on line 9, "Do Na Aurora," that the owners' claim was $1,960,000. Just compensation determined by WSA was $1,333,333.33 and then the just compensation determined by the court was $2,082,000, or $122,000 more than the owners claimed. Would that be a printer's error?

Mr. MORSE. No; I am sure that was not a printing error. I would assume that, during the litigation, the owner revised upward his original just-compensation value.

Mr. KLUCZYNSKI. I have no further questions.

Mr. BONNER. Mr. Van Pelt.

Mr. VAN PELT I have no questions.

Mr. BONNER. Mr. Ray.

Mr. RAY. No questions

Mr. BONNER. Mr. Mailliard.

Mr. MAILLIARD. I have no questions.

Mr. BONNER. Mr. Zincke.

Mr. ZINCKE. Under this bill, taking our hypothetical $100,000 valuation, if the owner rejects that valuation he continues to pay the premium on $100,000. When the loss occurs, he gets $75,000 and sues for an additional amount.

Mr. MORSE. Yes, sir.

Mr. ZINCKE. In the meantime he has been paying a premium on the $100,000. The bill does not provide for any declaration by him of value at the time he rejects your valuation does it?

Mr. MORSE. It does not.

Mr. ZINCKE. Is there any variety of commercial insurance that you know of where an insured can sue for a larger amount than that on which he has been paying a premium?

Mr. MORSE. No, sir. On the other hand, the owner and the insurer agree on the valuation to be contained in the policy.

Mr. ZINCKE. Not necessarily. I said any other commercial insurance; for example, fire insurance on your house. You can take out four $5,000 policies on your $10,000 house and you will be paying premiums on $20,000.

Mr. MORSE. And collect it.

Mr. ZINCKE. When you suffer a loss you only collect $10,000.

Mr. MORSE. You only collect the fair value of the house, but that is contrary to the principle in marine insurance.

In marine insurance, whatever the agreed value is is paid by the underwriter irrespective of the value of the vessel.

Mr. ZINCKE. Is there any reason that you know of offhand why the owner of the vessel should not declare a valuation at the time that he rejects your value, and then pay a premium on his valuation? Mr. MORSE. No; I don't see any reason.

Mr. ZINCKE. Would that be reasonable?

Mr. MORSE. I think that would be feasible, but that might be some recognition by us that his declared value was a fair value. Bear in mind that the bill provides that, in the event he sues for just compensation and an award is made which is in excess of the stated value, the $100,000 value, his premiums is adjusted to the amount of the ultimate award. In other words, if he gets a $200,000 just-compensation award, he pays a premium based on a $200,000 value.

Mr. ZINCKE. But he does get his $200,000 value in spite of the fact that up to that time he has been playing premium on only $100,000.

Mr. MORSE. Up to that time, but at the time of the award, the additional premium is collected.

Mr. ZINCKE. I think you will agree that after a loss any of us would be glad to pay an additional premium based on a payment, would we not?

Mr. MORSE. Yes, sir. If we would provide him the higher value at the inception, he would be willing to pay a premium on that. I am sure of that. That would be on an agreed-value basis.

Mr. ZINCKE. As a practical matter, is there any particular reason why every shipowner should not reject your valuation at the time you offer it?

Mr. MORSE. Surely there are practical reasons why they will not. Mr. ZINCKE. Why?

Mr. MORSE. Experience in the last war was that 95 percent of them did accept the stated value.

Mr. ZINCKE. What do they have to lose by rejecting?

Mr. MORSE. Lawyer's fees, delays, litigation.

Mr. ZINCKE. They get 75 percent of the amount to begin with.

Mr. MORSE. They don't build up their good will with the agency that they are doing business with over the years.

Mr. ZINCKE. Well, experience has shown that that is not a deterring factor. The very company or at least one of the very companies that disputed you on value is now actively negotiating with you for further operations.

Mr. MORSE. That is correct.

Mr. BONNER. Are there any other questions?

Thank you, Mr. Morse.

Mr. MORSE. Thank you very much, Mr. Bonner.

Mr. BONNER. That will conclude the public hearing today.

(Whereupon, at 11:45 a. m., the hearing was recessed subject to the call of the Chair.)

WAR RISK INSURANCE

TUESDAY, JUNE 19, 1956

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON MERCHANT MARINE OF THE

COMMITTEE ON MERCHANT MARINE AND FISHERIES,

Washington, D. C.

The subcommittee met, at 10 a. m., in the committee room of the House Committee on Merchant Marine and Fisheries, Hon. Herbert C. Bonner (chairman of the subcommittee) presiding.

Mr. BONNER. The subcommittee will come to order.

This morning we will continue our hearings on S. 1833, to amend the Merchant Marine Act of 1936, as amended (war risk insurance). The first witness is Mr. Hugh Williamson of the Association of American Ship Owners.

STATEMENT OF HUGH S. WILLIAMSON, VICE PRESIDENT,
ASSOCIATION OF AMERICAN SHIP OWNERS

Mr. WILLIAMSON. Mr. Chairman and gentlemen of the committee, my name is Hugh S. Williamson. I am an attorney at law and vice president of the Association of American Ship Owners, which has offices at 76 Beaver Street, New York, N. Y., and at 1317 F Street NW., here in Washington.

This bill is intended to correct serious defects in the present warrisk insurance law. The bill as originally introduced in the Senate was identical to S. 1878, (last Congress), in the same form in which it passed the Senate in April 1954. It was fully endorsed by the General Accounting Office.

The Senate amended S. 1833 in two principal respects: First, it has made certain amendments applicable to vessels built with a construction subsidy. Inasmuch as none of our members owns vessels built with a construction subsidy, we have no special interest in these amendments. Secondly, the bill incorporates an amendment recommended by the Maritime Administration providing that the valuation in the policy shall be "a stated valuation."

The previous war-risk-insurance law, which was a subtitle to title II of the Merchant Marine Act, 1936, was repealed in 1947. That law was availed of extensively by the Government to ensure the continued. operations of the American merchant marine during World War II. It was especially useful in the early years of that war, when the Maritime Commission preferred the practice of chartering vessels from their owners rather than requisitioning them.

Under that practice, the owner was tendered a written charter together with a war-risk policy which provided for two alternative

17

vessel valuations: first, a stated dollar value determined by the Maritime Commission and, secondly, a just compensation value determined in accordance with section 902 of the 1936 act in the event the owner was dissatisfied with the stated dollar value. Under that law an owner who was dissatisfied with the Commission's estimate of his vessel's value had the right to reject that value and to have its value judicially determined under the just compensation standards provided in section 902 of the 1936 act. This right to just compensation gave the owner cooperating with the Maritime Commission on the chartering program the same protection as an owner of vessels which were requisitioned.

When the present war-risk-insurance law was enacted in 1950 during the Korean emergency, as title XII of the 1936 act, Congress acting on advice of the Maritime Administration made certain changes in the language of the former law. These changes appear to have denied to the owner of an insured vessel the right to have its value determined in accordance with the just compensation standards of section 902.

Further, as things now stand, it appears that by reason of several riders attached to appropriation acts, payment of even a court judgment may not be in excess of the GAO's interpretation of just compensation.

The effect of these provisions of the present law and the appropriation act riders is that vessel war-risk-insurance valuations are an unacceptable alternative to outright requisition. S. 1833 will correct these defects by specifically providing that a shipowner may have a right to reject an administrative determination of a vessel's insurance value and to have such value determined by a court in accordance with the just-compensation standards provided in section 902 and without regard to the appropriation act riders. Moreover, this bill makes this judicial review procedure a "two-way street." That is, in the event that the amount paid to the shipowner by the Maritime Administration is determined by the reviewing court to exceed just compensation, the Government may recover the excess from the ship

owner.

We respectfully submit that the changes proposed by this bill are in the public interest. As the Senate committee said of the bill:

The bill, as a whole, is the springboard from which an efficient and workable war-risk-insurance program can be launched and such a program is of the highest importance to the United States in case of war.

Mr. BONNER. Mr. Allen?

Mr. ALLEN. Mr. Chairman.

Mr. Williamson, I believe that Mr. Morse said that the stated value would be paid in connection with maritime insurance but only the actual values would be paid customarily in the usual private-insurance policies. Would that be because when there is a total loss at sea there is no way of determining the value? What is the reason that the stated value is paid?

Mr. WILLIAMSON. I am not too sure I am qualified to answer that, but if I do understand you, the stated value might be paid and a person might receive what he considered to be perhaps 75 percent of what he is entitled to, but at least he would have that to work with while he went on to contest the other 25 percent he was claiming.