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WAR RISK INSURANCE

MONDAY, JUNE 18, 1956

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON MERCHANT MARINE, OF THE

COMMITTEE ON MERCHANT MARINE AND FISHERIES,

Washington, D. C. The subcommittee met at 10:50 a. m., pursuant to call, in room 219, Old House Office Building, Hon. Herbert C. Bonner (chairman) presiding.

Mr. BONNER. The committee will come to order.

The committee will consider S. 1833, to amend the Merchant Marine Act of 1936, as amended.

(The bill referred to and a letter from the Comptroller General follow :)

[S. 1833, 84th Cong., 2d sess.]

AN ACT To amend the Merchant Marine Act of 1936, as amended

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 1209 (a) of the Merchant Marine Act, 1936, as amended (U. S. C., title 46, sec. 1289 (a)), is amended to read as follows:

"(a) (1) The Secretary, in the administration of this title, may issue such policies, rules, and regulations as he deems proper and may adjust and pay losses, compromise and settle claims, whether in favor of or against the United States and pay the amount of any judgment rendered against the United States in any suit, or the amount of any settlement agreed upon, in respect of any claim under insurance authorized by this title.

"(2) In respect of hull insurance, the valuation in the policy for actual or constructive total loss of the vessel insured shall be a stated valuation determined by the Secretary which shall not exceed the amount that would be payable if the vessel had been requisitioned for title under section 902 (a) at the time of the attachment of the insurance under said policy: Provided, however, That in the case of a construction-subsidized vessel, the valuation so determined shall be reduced by such proportion as the amount of construction subsidy paid with respect to the vessel bears to the entire construction cost and capital improvements thereof (excluding the cost of national defense features): Provided further, That the insured shall have the right within sixty days after the attachment of the insurance under said policy, or within sixty days after determination of such valuation by the Secretary, whichever is later, to reject such valuation, but shall continue to pay premiums upon such valuation at the rate provided for in said policy. In the event of the actual or constructive total loss of the vessel, if the insured has not rejected such valuation the amount of any claim therefor which is adjusted, compromised, settled, adjudged, or paid shall not exceed such stated amount, but if the insured has so rejected such valuation, the insured shall be paid as a tentative advance only, 75 per centum of such valuation so determined by the Secretary and shall be entitled to sue the United

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States in a court having jurisdiction of such claims to recover such valuation as would be equal to the just compensation which such court determines would have been payable if the vessel had been requisitioned for title under section 902 (a) at the time of the attachment of the insurance under said policy: Provided, however, That in the case of a construction-subsidized vessel, the valuation determined by the court as such just compensation shall be reduced by such proportion as the amount of construction subsidy paid with respect to the vessel bears to the entire construction cost and capital improvements thereof (excluding the cost of national defense features): And provided further, That in the event of an election by the insured to reject the stated valuation fixed by the Secretary and to sue in the courts, the amount of the judgment will be payable without regard to the limitations contained in the twelfth paragraph under the heading Maritime Activities in title I of the Department of Commerce and Related Agencies Appropriation Act, 1956, in the tenth paragraph under the heading Maritime Activities in title III of the Department of State, Justice, and Commerce, and the United States Information Agency Appropriation Act, 1955, in the eleventh paragraph under the heading 'MARITIME ACTIVITIES' in title III of the Department of Justice, State, and Commerce Appropriation Act, 1954, the tenth paragraph under the heading 'OPERATING DIFFERENTIAL SUBSIDIES' in title II of the Independent Offices Appropriation Act, 1953, the corresponding paragraphs of the Independent Offices Appropriation Act, 1952, and the Third Supplemental Appropriation Act, 1951, although the excess of any amounts advanced on account of just compensation over the amount of the court judgment will be required to be refunded. In the event of such court determination, premiums under the policy shall be adjusted on the basis of the valuation as finally determined and of the rate provided for in said policy."

SEC. 2. Section 902 (c) of the Merchant Marine Act, 1936, as amended (U. S. C., title 46, sec. 1242 (c)), is amended to read as follows:

"(c) If any property is taken and used under authority of this section, but the ownership thereof is not required by the United States, the Commission, at the time of the taking or as soon thereafter as the exigencies of the situation may permit, shall transmit to the person entitled to the possession of such property a charter setting forth the terms which, in the Commission's judgment, should govern the relationships between the United States and such person and a statement of the rate of hire which, in the Commission's judgment, will be just compensation for the use of such property and for the services required under the terms of such charter. If such person does not execute and deliver such charter and accept such rate of hire, the Commission shall pay to such person as a tentative advance only, on account of such just compensation a sum equal to 75 per centum of such rate of hire as the same may from time to time be due under the terms of the charter so tendered, and such person shall be entitled to sue the United States in a court having jurisdiction of such claims to recover such amounts as would be equal to just compensation for the use of the property and for the services required in connection with such use: Provided, however, That in the event of an election by such person to reject the rate of hire fixed by the Commission and to sue in the courts, the excess of any amounts advanced on account of just compensation over the amount of the court judgment will be required to be refunded. In the event of loss or damage to such property, due to operation of a risk assumed by the United States under the terms of a charter prescribed in this subsection, but no valuation of such vessel or other property or mode of compensation has been agreed to, the United States shall pay just compensation for such loss or damage, to the extent the person entitled thereto is not reimbursed therefor through policies of insurance against such loss or damage."

SEC. 3. The first sentence of section 902 (d) of the Merchant Marine Act, 1936, as amended (U. S. C., title 46, sec. 1242 (d)) is amended to read as follows: "(d) In all cases, the just compensation authorized by this section shall be determined and paid by the Commission as soon as practicable, but if the amount of just compensation determined by the Commission is unsatisfactory to the person entitled thereto, such person shall be paid, as a tentative advance only, 75 per centum of the amount so determined and shall be entitled to sue the United States to recover such amount as would equal just compensation therefor, in the manner provided for by section 24, paragraph 20, and section 145 of the Judicial Code (U. S. C., 1946 edition, title 28, secs. 41 (20) and 250): Provided, however, That in the event of an election to reject the amount determined by the Commission and to sue in the courts, the excess of any amounts

advanced on account of just compensation over the amount of the court judgment will be required to be refunded."

SEC. 4. All war-risk insurance issued under title XII of the Merchant Marine Act, 1936, which is in force on the date of the enactment of this Act shall, as of the beginning of such date, be demed to have been amended to conform to the requirements of section 1209 of the Merchant Marine Act, 1936, as amended by this Act unless the insured, within ten days after such date, objects to such amendment.

SEC. 5. The first sentence of section 1206 of the Merchant Marine Act, 1936, as amended (46 U. S. C. 1286), is amended by striking out the words "during any time the United States is at war or during any period of emergency declared to exist by the President of the United States."

Passed the Senate May 9 (legislative day, May 7), 1956.
Attest:

FELTON M. JOHNSON, Secretary.

Hon. HERBERT C. BONNER,

COMPTROLLER GENERAL OF THE UNITED STATES,
Washington, June 19, 1956.

Chairman, Committee on Merchant Marine and Fisheries,

House of Representatives.

DEAR MR. CHAIRMAN: Reference is made to your letter of May 15, 1956, enclosing copies of S. 1833, 84th Congress, 2d session, entitled "An act to amend the Merchant Marine Act of 1936, as amended" and inviting our views and recommendations thereon.

S. 1833, as presently constituted, is an amended version of the bill as it was reintroduced in the Senate. As reintroduced in this Congress, S. 1833 was identical to S. 1878, 83d Congress, a substitute bill proposed by us. A representative of our Office testified before this committee on S. 1878, 83d Congress, on August 5, 1954, and recommended its adoption. However, there was also testimony offered by representatives of the American Merchant Marine Institute and the Pacific American Steamship Association urging certain amendments to S. 1878, 83d Congress, which were designed to provide that vessels on which constructiondifferential subsidies had been granted should be treated the same as all other vessels, insofar as war-risk-insurance evaluations are concerned, for so long as they continued in private operations. Amendments designed to accomplish this were incorporated into S. 1833.

Inasmuch as we have recommended favorable consideration of S. 1878, 83d Congress (or S. 1833, 84th Cong., as originally introduced), our comments will be limited to the subsequent amendments as now contained in S. 1833.

S. 1878 provided that hull insurance coverage "shall not exceed the amount that would be payable if the vessel had been requisitioned for title under section 902 at the time of the attachment of the insurance under said policy." As a consequence of the provision in section 902 (b) that the value upon taking by the Government of a vessel upon which a construction-differential subsidy had been paid shall be determined as provided in section 802 of the 1936 act (depreciated construction cost), the amount of war-risk insurance coverage on such vessels was limited. The operators of such vessels urge that this limitation upon the war-risk-insurance coverage available to them is inequitable. They contend that while they recognize that section 802 limitations are applicable in the event of the Government's requisitioning of such vessels for title or use, that is not a valid reason for limiting their war-risk-insurance coverage from the time when war-risk-insurance attaches to the time when the Government determines that its need requires requisitioning of the vessels. In other words, we understand them to urge that for so long as their vessels continue in private operations (prior to requisitioning for title or use), they should be afforded the same coverage as all other operators to the extent of their investments in the vessels. The formula proposed would permit them to realize any appreciated value on their investments in the vessels, as is now available to nonsubsidized vessel owners. Considering that the justification for war-risk-insurance has been stated to be that national interest requires the Government to assure continuous operation of privately owned vessels during periods prior to Government acquisition but when commercial war-risk- insurance is not obtainable, and that the absence of sufficient insurance coverage during that period may serve as a deterrent to that objective, we offer no objection to the amend

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