Proposed Rule2021-18220
Passenger Vessel Financial Responsibility
Primary source
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Published
August 25, 2021
Issuing agencies
Federal Maritime Commission
Abstract
The Federal Maritime Commission (Commission) is issuing this NPRM to seek comment on potential regulatory changes to its passenger vessel operator financial responsibility requirements. The Commission is proposing to define when nonperformance of transportation has occurred and to establish uniform procedures regarding how and when passengers may make claims for refunds under a passenger vessel operator's financial responsibility instrument when nonperformance occurs. This rulemaking resulted from recommendations in an Interim Report issued by the Fact Finding Officer in Commission Fact Finding Investigation No. 30: COVID-19 Impact on Cruise Industry.
Full Text
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<title>Federal Register, Volume 86 Issue 162 (Wednesday, August 25, 2021)</title>
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[Federal Register Volume 86, Number 162 (Wednesday, August 25, 2021)]
[Proposed Rules]
[Pages 47441-47457]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-18220]
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FEDERAL MARITIME COMMISSION
46 CFR Part 540
[Docket No. 20-15]
RIN 3072-AC82
Passenger Vessel Financial Responsibility
AGENCY: Federal Maritime Commission.
ACTION: Notice of proposed rulemaking (NPRM).
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SUMMARY: The Federal Maritime Commission (Commission) is issuing this
NPRM to seek comment on potential regulatory changes to its passenger
vessel operator financial responsibility requirements. The Commission
is proposing to define when nonperformance of transportation has
occurred and to establish uniform procedures regarding how and when
passengers may make claims for refunds under a passenger vessel
operator's financial responsibility instrument when nonperformance
occurs. This rulemaking resulted from recommendations in an Interim
Report issued by the Fact Finding Officer in Commission Fact Finding
Investigation No. 30: COVID-19 Impact on Cruise Industry.
DATES: Submit comments on or before October 25, 2021.
ADDRESSES: You may submit comments, identified by Docket No. 20-15, by
the following methods:
<bullet> Email: <a href="/cdn-cgi/l/email-protection#87f4e2e4f5e2f3e6f5fec7e1eae4a9e0e8f1"><span class="__cf_email__" data-cfemail="d4a7b1b7a6b1a0b5a6ad94b2b9b7fab3bba2">[email protected]</span></a>. For comments, include in the
subject line: ``Docket No. 20-15, Comments on PVO Financial
Responsibility Rulemaking.'' Comments should be attached to the email
as a Microsoft Word or text-searchable PDF document.
Instructions: For detailed instructions on submitting comments,
including requesting confidential treatment of comments, and additional
information on the rulemaking process, see the Public Participation
heading of the Supplementary Information section of this document. Note
that all comments received will be posted without change to the
Commission's website, unless the commenter has requested confidential
treatment.
Docket: For access to the docket to read background documents or
comments received, go to the Commission's Electronic Reading Room at:
<a href="https://www2.fmc.gov/readingroom/proceeding/20-15/">https://www2.fmc.gov/readingroom/proceeding/20-15/</a>.
FOR FURTHER INFORMATION CONTACT: Rachel E. Dickon, Secretary; Phone:
(202) 523-5725; Email: <a href="/cdn-cgi/l/email-protection#6310060011061702111a23050e004d040c15"><span class="__cf_email__" data-cfemail="582b3d3b2a3d2c392a21183e353b763f372e">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Background
III. ANPRM Proposed Changes and Summary of Comments
A. Defining Nonperformance of Transportation
[[Page 47442]]
B. Process for Obtaining Refunds From PVO Financial Instruments
After Nonperformance of Transportation
1. General
2. Deadline for Submitting Refund Requests Under the Financial
Instrument
3. Deadline for Refund Payment Under the Financial Instrument
4. Form of Refund Payment Under the Financial Instrument
5. Defining Unearned Passenger Revenue (UPR)
6. Publishing Information on How To Obtain Refunds
C. Passenger Cancellations
IV. Discussion & NPRM Proposal
A. Definition of Nonperformance of Transportation
B. Process for Obtaining Refunds From PVO Financial Instruments
for Nonperformance of Transportation
C. Definition of Unearned Passenger Revenue (UPR)
D. Publishing Information on How To Obtain Refunds
V. Public Participation
VI. Rulemaking Analyses and Notices
VII. Proposed Regulatory Language
I. Introduction
On October 29, 2020, the Federal Maritime Commission (Commission)
issued an Advance Notice of Proposed Rulemaking \1\ (ANPRM) to obtain
comments on potential regulatory changes recommended in the Fact
Finding 30 Interim Report on passenger vessel operator (PVO) refund
policies.\2\ The proposed changes are intended to provide a clear and
consistent policy toward vessel passenger ticket refunds, from the
PVOs' financial responsibility instruments filed with the Commission,
in the case of nonperformance by the vessel operator. Specifically, the
Commission recommended modifying regulations in 46 CFR part 540 to (1)
adopt a definition of nonperformance of transportation, and (2) detail
the process for obtaining refunds under the PVOs' financial
responsibility instruments filed with the Commission. In response to
the ANPRM, the Commission received four sets of comments from
interested parties. These parties are Cruise Lines International
Association (CLIA); Passenger Vessel Association (PVA); The Surety &
Fidelity Association of America (SFAA); and Kacie Didier. Under this
Notice of Proposed Rulemaking (NPRM), the Commission addresses the
comments to the ANPRM and seeks further public comments on the proposed
modifications to its regulations in part 540.
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\1\ Docket No. 20-15, Passenger Vessel Financial Responsibility,
85 FR 65020 (October 29, 2020).
\2\ Fact Finding Investigation No. 30: COVID-19 Impact on Cruise
Industry, Interim Report: Refund Policy, at 11-13 (July 27, 2020)
(Fact Finding 30 Interim Report or Interim Report).
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II. Background
On November 6, 1966, Congress enacted Public Law 89-777. Section 2
of the statute (codified at 46 U.S.C. 44103) requires owners and
charterers of vessels having berth or stateroom accommodations for 50
or more passengers, and embarking passengers at United States ports, to
establish financial responsibility to meet any liability incurred for
death or injury to passengers or other persons on voyages to or from
United States ports. Section 2 is commonly known as the ``Casualty''
section. Section 3 of the statute (codified at 46 U.S.C. 44102)
requires persons arranging, offering, advertising, or providing
transportation on such vessels to establish evidence of financial
responsibility to indemnify passengers for nonperformance of the
transportation. Section 3 is commonly known as the ``Performance''
section. The Commission published implementing regulations at 46 CFR
part 540 in 1967.\3\
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\3\ 32 FR 3986 (Mar. 11, 1967) (establishing regulations
governing nonperformance coverage); 32 FR 7282 (May 16, 1967)
(establishing regulations governing casualty coverage).
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Under this program, the Commission issues two types of certificates
to PVOs of vessels that: (1) Have berths for 50 or more passengers; and
(2) embark passengers from U.S. ports. The first type of Certificate
(Performance) is issued by the Commission when a PVO provides the
Commission with acceptable evidence of coverage to satisfy liability
incurred for nonperformance of transportation up to the amount of
unearned passenger revenue (UPR) held by the PVO or the monetary cap
set in the Commission's regulation. Such coverage may be in the form of
insurance, a guaranty, a surety bond, or escrow agreement (collectively
referred to as financial responsibility instruments).\4\ The coverage
is used to reimburse passengers when the PVO fails to perform cruises
as contracted and has taken no further actions to refund passengers.\5\
The second type of Certificate (Casualty) is issued by the Commission
when a PVO provides the Commission with acceptable evidence of coverage
to satisfy any liability incurred for death or injury during a voyage,
as provided in the regulations and statute.
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\4\ The Commission's regulations also permit smaller PVOs to
request to substitute alternative forms of financial protection as
evidence of financial responsibility. See 46 CFR 540.9(l).
\5\ In practice, passengers generally receive refunds for
canceled cruises from the PVOs directly or, if the passenger paid by
credit card, from the credit card issuer. Refund payments under the
PVO financial responsibility instruments are rare and usually only
occur if the PVO ceases operations or declares bankruptcy.
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There have been few changes to the regulations in part 540 since
its inception. Changes have included several increases to the monetary
cap for required performance coverage under section 44102, the
elimination of the self-insurance option for PVOs, some limitations on
the types of entities acceptable as guarantors, and the elimination of
certain sliding-scale provisions as to the amount of coverage required.
Most recently, the Commission increased the cap on required performance
coverage in two annual steps, from $15 million to $22 million in 2014,
and then from $22 million to $30 million in 2015.\6\ Since 2015, the
cap has been adjusted for inflation every two years based upon the U.S.
Bureau of Labor Statistics' Consumer Price Index. The current cap is
$32 million.\7\
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\6\ 46 CFR 540.9(j); Final Rule: Passenger Financial
Responsibility Requirements for Nonperformance of Transportation, 78
FR 13268 (Feb. 27, 2013).
\7\ Notice: Financial Responsibility for Indemnification of
Passengers for Nonperformance of Transportation--Cap Adjustment, 84
FR 17410 (June 24, 2019). An increase of $1 million (from $32
million to $33 million), based on the 2020 Consumer Price Index, is
pending as of April 1, 2021.
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In March of 2020, following the arrival of COVID-19 in the U.S.,
the Centers for Disease Control and Prevention (CDC) issued a ``No Sail
Order and Suspension of Further Embarkation,'' (CDC No Sail Order)
causing most PVOs to cease operations. As a consequence, questions
arose concerning future cruises and passengers' ability to obtain
refunds of monies paid for transportation disrupted by COVID-19. Fact
Finding 30 was initiated on April 30, 2020, to investigate the impact
of COVID-19 and identify commercial solutions to COVID-19 related
issues that interfered with the operation of the cruise industry. The
Fact Finding Officer issued an Interim Report on PVO Refund Policies on
July 27, 2020, concluding that clearer guidance is needed in
determining whether a passenger is entitled to obtain a refund if a PVO
cancels a voyage, makes a significant schedule change, or significantly
delays a voyage.\8\ The Fact Finding Officer proposed recommending
certain regulatory changes in order to provide a clear interpretation
of nonperformance of transportation, and to modify the
[[Page 47443]]
appropriate provisions of the Commission's PVO regulations to make
clear how passengers may obtain refunds under the PVOs' financial
responsibility instruments filed with the Commission. The Commission
voted on August 10, 2020, to initiate a rulemaking to implement the
recommended changes. The Advance Notice of Proposed Rulemaking (ANPRM)
Docket No. 20-15 Passenger Vessel Financial Responsibility was
published in the Federal Register on October 14, 2020, seeking comments
on potential regulatory changes to implement the recommendations in the
Interim Report.
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\8\ Fact Finding 30: Covid-19 Impact on Cruise Industry, Interim
Report: Refund Policy (July 27, 2020).
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III. ANPRM Proposed Changes and Summary of Comments
The Fact Finding Officer proposed, among other things, that the
Commission provide a clear interpretation of nonperformance of
transportation and modify the appropriate provisions of the
Commission's PVO regulations in part 540 to make clear how passengers
may obtain refunds under the PVOs' financial instruments filed with the
Commission. These recommendations were as follows:
Therefore, it is proposed that the Commission: (1) Interpret
``nonperformance of transportation'' to include cancelling a sailing
or delaying passenger boarding by twenty-four (24) hours or more;
and (2) modify the appropriate provisions of the Commission's PVO
regulations to make clear how passengers may obtain refunds under
the PVOs' financial instruments:
1. When a sailing is cancelled or consumer boarding is delayed
by twenty-four (24) hours or more for any reason other than due to a
government order or declaration in paragraph 2 below, full refunds
must be paid within sixty (60) days following a passenger refund
request.
2. When a sailing is cancelled or consumer boarding is delayed
by twenty-four (24) hours or more due to a governmental order or
declaration, full refunds must be paid within one hundred eighty
(180) days following a passenger refund request. This includes all
consumers who, at their own discretion, cancelled their booking
within sixty (60) days prior to said governmental action and
commensurate cancelled or delayed sailing.
3. If, following a declaration of a public health emergency, any
consumer cancels a cruise booking of a sailing that may be affected
by such emergency after the PVO's refund deadline, but the sailing
is not cancelled, the PVO will provide a credit for a future cruise
equal to the consumer's amount of deposit. In all other cases in
which a consumer cancels and embarkation and sailing occur within
the prescribed timeline, the cruise line's rules for cancellation
will apply.
4. A PVO may set a reasonable deadline for a consumer entitled
to a refund to request the refund which shall not be less than 6
months after the scheduled voyage.
5. Refunds should include all fees paid to carrier by consumer
to include all ancillary fees remitted to the carrier by the
consumer.
6. Refunds to be given in same fashion as monies were originally
remitted to the carrier. The PVO will be deemed to have made a
refund payment if the deposited revenue as to a passenger requesting
a refund is remitted by the PVO in the same manner as the
passenger's original payment, by: (1) Mailing a check payable in
immediately available funds to the passenger at an address furnished
by the passenger, (2) issuing an electronic funds transfer,
including wire transfer, automated clearinghouse (ACH) or other
electronic means, in immediately available funds, or (3) posting of
a credit to the credit card processor for the benefit of the credit
card account used by passenger to make payments to the applicant.
The refund will be deemed timely notwithstanding that passenger may
not immediately have access to the transferred funds in its account
or any credit card account due to rules and processes of any third-
party services provider.
7. Nothing in this rulemaking shall be interpreted to preclude
the consumer and the PVO from entering into an alternative form of
compensation in full satisfaction of a required refund, such as a
future cruise credit.\9\
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\9\ Fact Finding 30 Interim Report at 11-12.
The Fact Finding Officer also recommended the Commission mandate
that: (1) PVOs provide on their websites clear instructions on how
passengers may obtain refunds; and (2) PVOs submit current web
addresses showing their refund instructions to the Commission for
publication on the Commission's website.\10\
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\10\ Id. at 12.
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A. Defining Nonperformance of Transportation
As outlined in Section II above, 46 U.S.C. 44102 requires that PVOs
file with the Commission evidence of financial responsibility to
indemnify passenger for nonperformance of transportation. The
Commission's regulations in 46 CFR part 540 do not expressly define
what constitutes nonperformance of transportation, but the substantive
provisions and required financial responsibility instrument terms
indicate that it means the PVO's failure to provide transportation or
other accommodations and services subject to part 540, subpart A,\11\
in accordance with the terms of the ticket contract between the PVO and
passenger.\12\
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\11\ The scope of the transportation, accommodations, and
services covered is described in the definition of ``unearned
passenger revenue'' in Sec. 540.2 and includes water transportation
and all other accommodations, services, and facilities relating
thereto, but excludes air transportation, hotel accommodations, or
tour excursions. 46 CFR 540.2(i).
\12\ See 46 CFR 540.1(a) (stating that PVOs must file evidence
of financial responsibility or a bond or other security for
obligations under the terms of ticket contracts to indemnify
passengers for nonperformance of transportation to which they would
be entitled; Form FMC-132A to Subpart A of Part 540 (stating that:
(1) The purpose of the bond is to ensure financial responsibility
and the supplying of transportation and other services subject to
Subpart A of part 540, in accordance with the ticket contract
between the PVO and the passenger; and (2) the scope of the surety's
liability is for refunds due under ticket contracts made by the PVO
for the supplying of transportation and other services).
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As discussed in the ANPRM, the Commission sought comment on
adopting a definition of nonperformance of transportation. The
Commission anticipated that implementing this change would involve
amending the regulations in part 540, subpart A, to include the
definition and revising the language of the forms for financial
responsibility instruments (surety bonds, guaranties, and escrow
agreements) to reflect coverage in situations under the definition.\13\
To that end, the Commission included in the ANPRM the following draft
definition:
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\13\ These forms include Form FMC-132A, Passenger Vessel Surety
Bond (Performance); Form FMC-133A, Guaranty in Respect of Liability
for Nonperformance, Section 3 of the Act; Appendix A, Example of
Escrow Agreement for Use Under 46 CFR 540.5(b)). There is no
required or optional form for insurance, which must meet the
requirement in Sec. 540.5(a).
Nonperformance of transportation means: (1) Canceling a voyage;
or (2) delaying the boarding of passengers by more than twenty-four
(24) hours if the passenger elects not to embark on the substitute
or delayed voyage.
Summary of Comments
Passenger Vessel Association (PVA)
PVA maintains that the regulatory changes proposed in the ANPRM are
outside the Commission's jurisdiction and believes that while the
statutory provision at 46 U.S.C. 44102 imposes duties upon a covered
PVO to file with the Commission evidence of financial responsibility to
indemnify passengers for nonperformance of transport, it does not grant
legal authority to the Commission to address the matter of what
constitutes nonperformance. Nevertheless, PVA urges that if the
Commission elects to go forward with the proposed rule, it should
eliminate any reference to delayed sailing in its definition of
nonperformance of transportation, and failing that, the time threshold
should be a delay of at least 48 hours. PVA is concerned that the
proposed definition of nonperformance could provide incentive for a PVO
to begin a cruise despite potentially unsafe
[[Page 47444]]
conditions, such as bad weather, in an effort to avoid a delay being
deemed as nonperformance. PVA remarks that the proposal for a 24 hour
delay to constitute nonperformance appears to be based on a U.S.
Department of Transportation policy regarding delays in scheduled
commercial airline transportation and is not an appropriate standard to
apply to a scheduled cruise.
The Surety & Fidelity Association of America (SFAA)
SFAA believes the proposed definition of nonperformance is ``overly
stringent and will increase the number of claims against this
obligation, thereby increasing the likelihood of exposure under the
surety bond.'' SFAA further states that a standard of requiring refunds
if boarding is delayed by 24 hours would add a significant burden to
PVOs in terms of an increase in full refunds issued, as well as
compliance costs to operationalize procedures to process refunds based
on a 24-hour delay to the voyage. SFAA contends the 24-hour delay
standard for nonperformance would increase ``nuisance'' claims against
PVOs, which would impact how sureties underwrite the obligation. SFAA
believes the proposed definition of nonperformance would cause sureties
to require PVOs to have more cash on hand or larger lines of credit,
and ultimately decrease the number of PVOs eligible to receive a surety
bond. SFAA recommends changing the definition of nonperformance to a
minimum of 72 hours.
SFAA also expresses concern over uncertainty about what is covered
under the bond in response to a claim based on the new definition of
nonperformance. Specifically, SFAA argues that a passenger's unilateral
cancellation should be excluded from coverage under the bond. SFAA also
requests clarity as to what passenger expenses are covered as a result
of PVO nonperformance.
B. Process for Obtaining Refunds From PVO Instruments for
Nonperformance of Transportation
1. General
Although the Commission regulations require certain coverage and
terms to be included in financial responsibility instruments, the
regulations do not include uniform procedures regarding how and when
passengers may make claims for refunds against the various financial
responsibility instruments. The Fact Finding 30 Interim Report
recommended that the Commission revise its regulations to make clear
how passengers may obtain refunds under these instruments and include
specific provisions related to such claims and the timing of refund
payments.\14\
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\14\ Fact Finding 30 Interim Report at 11-12.
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Neither part 540 nor the financial responsibility instrument forms
provide specific instructions on how or when passengers may obtain
refunds under a PVO's financial responsibility instrument. For example,
the Guaranty Form (Form FMC-133A) provides that Guarantor will make
refund payments to passengers when: (1) The PVO and passenger enter
into settlement agreement, approved by the Guarantor; or (2) the
passenger obtains a final judgment against the PVO and the PVO does not
make payment within 21 days. Similarly, the suggested language for
Escrow Agreements in Appendix A states that an Escrow Agent will make
refund payments to passengers when either: (1) The PVO provides written
instructions to the Escrow Agent to make such payment; or (2) the
passenger obtains a final judgment against the PVO, the PVO does not
make payment within 21 days, and the Escrow Agent receives a certified
copy of the court order.
The Fact Finding 30 Interim Report recommended and the ANPRM
requested comments on the following general procedure: (1) The
passenger makes a request for a refund from a PVO financial
responsibility instrument when nonperformance has occurred; and (2) the
refund payment is made within a certain period, depending on certain
conditions.\15\ The Commission anticipates that implementing these
changes would involve amending the regulations in part 540, Subpart A
and the language of the financial responsibility instruments forms to
reflect the new procedure.
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\15\ Fact Finding 30 Interim Report at 11-12.
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Summary of Comments
Passenger Vessel Association (PVA)
PVA comments that while there is a business relationship between a
PVO and its financial responsibility instrument provider, no comparable
relationship exists between the provider and the cruise ship passenger.
PVA believes the Commission should not attempt to create or force such
a relationship. Instead, should the Commission go forward with
establishing a process for a passenger to claim a refund for
nonperformance of transportation, it should specify that the passenger
must submit the refund claim directly to the PVO. The PVO would then be
responsible to submit the claim to the financial responsibility
instrument provider, if the PVO agrees that nonperformance of
transportation has occurred and that satisfaction of a claim is
warranted.
The Surety & Fidelity Association of America (SFAA)
SFAA ``strongly believes'' that the PVO should continue to serve as
the primary party designated to receive and handle claims submitted by
passengers. In a case of liquidation of the PVO, or if there is no
response from the PVO, then claims could be submitted to the surety.
SFAA maintains that sureties do not generally have the claims handling
capability to process individual claims against the financial
responsibility instrument. SFAA believes that implementing a system
that allows a direct right of action against the surety bond without
requiring a judgment will make claim handling more involved, expensive,
and tedious. Further, SFAA asserts that if sureties are designated as
the direct claims handling entity with an investigatory requirement
under the new regulatory regime, many will likely exit the market. SFAA
believes that the net effect of the proposed changes would increase the
cost of a surety bond, or a lack of availability of surety bonds. SFAA
recommends two alternative approaches to the proposed process:
(1) Claims be submitted directly to the Federal Maritime
Commission as the obligee and beneficiary of said surety bonds, and
the FMC may then submit verified requests for payment to the
sureties based on its review of the claim; or
(2) Claimants be required to obtain adjudication of its claim
before submitting their claims to the surety.
2. Deadline for Submitting Refund Requests Under the Financial
Instrument
Commission regulations do not currently prescribe how long
passengers have after a scheduled voyage to seek a refund from a PVO
financial responsibility instrument. The Fact Finding 30 Interim Report
recommended that the Commission specify that a PVO may set a reasonable
deadline for passenger refund requests, but the deadline may not be
less than six months after the scheduled voyage.\16\ The Commission
included the following draft provision to reflect this recommendation:
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\16\ Fact Finding 30 Interim Report at 12.
A passenger must submit a request for refund no later than 180
days \17\ after
[[Page 47445]]
nonperformance occurs unless the ticket contract or other passenger
vessel operator policy allows a longer period of time for such
requests.
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\17\ For clarity and ease of calculation, the Commission
contemplates using a deadline of 180 days rather than six months.
The Commission could include this provision in part 540 and require
that the financial responsibility instrument specify the time period
for passengers to file refund requests.
Summary of Comments
No comments were received which specifically address the submission
of refund requests.
3. Deadline for Refund Payment Under the Financial Instrument
Commission regulations do not currently specify a time period
within which passengers must receive a refund under a PVO financial
responsibility instrument. The Fact Finding 30 Interim Report
recommended that the Commission specify two different timeframes for
payment depending on whether nonperformance was due to ``a governmental
order or declaration'': (1) When nonperformance is due to a
governmental order or declaration, full refund payments must be made
within 180 days after the passenger requests a refund; and (2) in all
other cases, full refund payments must be made within 60 days after the
passenger requests a refund.\18\ The Interim Report also recommended
that a refund payment be deemed timely notwithstanding that the
passenger may not immediately have access to the funds due to the rules
and processes of any third party services provider.\19\
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\18\ Fact Finding Interim Report at 11.
\19\ Id. at 12.
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The Commission requested comment on prescribing a deadline for
payment of refunds from financial responsibility instruments providers
as a general matter. The ANPRM proposed two different timeframes for
payment depending on whether nonperformance is due to a governmental
order or declaration, and the ANPRM adopted the deadlines recommended
in the Interim Report (180 days when there is a governmental order or
declaration; 60 days in all other cases).
Summary of Comments
Passenger Vessel Association (PVA)
It is PVA's position that the Commission's proposed bifurcated time
frame for refunds, which varies depending on the reason for the
cancellation, is potentially confusing and unfair. PVA poses the
question of how the regulation would be applied in the case of a
governmental order to cancel sailings that applies to some PVOs that
are regulated by the Commission, but not all. PVA states that in such a
case, smaller PVOs, that may not be subject to a No Sail Order but that
voluntarily choose to cancel a cruise in the interest of passenger and
crew health and safety, would have to provide requested refunds in a
shorter time period than larger PVOs. PVA believes this is an unfair
policy distinction and recommends that a period of payment of the
refund be no more than 180 days after the customer's claim is
submitted, no matter the reason for the nonperformance of
transportation.
Should the Commission choose to retain a specific refund process in
the event of nonperformance due to a governmental order or declaration,
PVA maintains that it should be ``very precise'' as to what triggers
this process. PVA believes that, as a general rule, states, counties,
and municipalities have no or very limited authority over vessel safety
and navigation. PVA therefore recommends that only orders and
declarations from federal agencies with ``clear maritime authority'' be
specified as the triggering events for the refund process.
4. Form of Refund Payment Under the Financial Instrument
Commission regulations do not specify in what form refund payments
must be made under PVO financial responsibility instruments.
The Fact Finding 30 Interim Report recommended the Commission
specify that refund payments must be made in the same manner as the
passenger's original payment, e.g., check, electronic funds transfer,
or credit card chargeback.\20\ The ANPRM requested comments on the
recommendation.
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\20\ Fact Finding 30 Interim Report at 11-12.
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Summary of Comments
No comments were received which specifically address the form of
refunds. However, it is the Commission's experience that financial
instrument providers will not likely be able to provide refunds in the
same manner as the passenger's original payment. The Commission
understands refunds provided by financial instruments are typically in
the form of checks that are mailed to the passenger.
5. Defining Unearned Passenger Revenue
Commission regulations provide that the PVO financial
responsibility instruments must provide coverage for ``unearned
passenger revenue,'' which is defined as passenger revenue received for
water transportation and all other accommodations, services, and
facilities relating thereto not yet performed; this includes port fees
and taxes paid, but excludes such items as airfare, hotel
accommodations, and tour excursions.\21\
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\21\ 46 CFR 540.2(i).
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The Fact Finding 30 Interim Report recommended the Commission
specify that refund payments must include all fees, including ancillary
fees, paid to the PVO by the passenger. The Commission requested
comment on whether to expand the definition of unearned passenger
revenue and the scope of the ancillary fees to be included in any
revised definition. The Fact Finding 30 Interim Report discusses the
following types of ancillary charges paid by passengers to PVOs prior
to sailing: Gratuities, shore excursions, pre-cruise onboard purchases,
port fees, and taxes. Of these, the current definition of unearned
passenger revenue expressly includes port fees and taxes and excludes
excursions. The Interim Report does not discuss refunds for airfare or
hotel accommodation.
To facilitate comment, the Commission included the following draft
definition in the ANPRM:
Unearned passenger revenue means that passenger revenue received
for water transportation and all other related accommodations,
services, and facilities relating thereto not yet performed; this
includes port fees, taxes, and all ancillary fees remitted to the
passenger vessel operator by the passenger.
Summary of Comments
Cruise Lines International Association (CLIA)
CLIA urges the Commission to clarify that ``unearned passenger
revenue'' (UPR) should include cruise passage fare and related cruise
lines goods and services amounts collected by the cruise line, such as
port charges and taxes, pre-paid on-board purchases, gratuities, and
shore excursions at the cruise line's own or affiliated destinations.
CLIA argues that UPR should not include deposits for airfare, non-
affiliated shore excursions or other third party provider costs for
which the cruise line is not still holding the passenger's deposit or
is contractually obligated to pay such deposit to a third-party
provider.
CLIA maintains that if a cruise line contracts with an airline,
shore hotel resort, attraction or other unaffiliated ``arm's length''
third party services provider, the cruise line would be acting as an
agent for the passenger in booking such accommodations or activities
for the passenger's benefit.
[[Page 47446]]
If the cruise line has not yet paid or contractually committed any
passenger deposits for such items to the third-party provider, the
cruise line may refund them to the passenger. However, if these funds
have been paid or contractually committed to such third-party
providers, the cruise line will have paid, or will have to pay, those
funds to the third-party provider on behalf of the passengers. CLIA
states that passengers may be entitled to seek funds directly from such
third parties. CLIA believes that statutory law and current Commission
regulations support its interpretation that UPR is limited to the
passenger vessel transportation only and does not extend to other goods
and services for which passengers may make advance payments to the
cruise line. CLIA also notes that most cruise passengers are offered
cancellation insurance arrangements, or other means of protecting such
third-party refunds, at time of booking.
6. Publishing Information on How To Obtain Refunds
The Fact Finding 30 Interim Report recommended the Commission
mandate that: (1) PVOs provide on their websites clear instructions on
how passengers may obtain refunds; and (2) PVOs submit current website
addresses for their refund instructions to the Commission for
publication on the Commission's website.\22\ The ANPRM envisioned that
this recommendation could be implemented by: (1) Revising the Form FMC-
131, Application for Certificate of Financial Responsibility, to
require PVOs to provide the uniform resource locator (URL) for their
refund instructions; and (2) amending Sec. 540.4 to require PVOs to
amend their application if the URL changes. The Commission requested
comment on this potential change.
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\22\ Fact Finding 30 Interim Report at 12.
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C. Passenger Cancellations
In addition to recommendations related to passenger refunds in the
event of nonperformance of transportation, the Fact Finding 30 Interim
Report also proposed that the Commission amend its regulations to
ensure PVO financial responsibility in the event passengers cancel
their booking with a PVO prior to or following certain governmental
orders or declarations. Specifically, the Fact Finding 30 Interim
Report recommended that: (1) A passenger be entitled to a refund if
they cancel their booking no more than 60 days prior to a governmental
order or declaration that results in the PVO canceling the voyage or
delaying boarding of passengers by more than 24 hours; and (2) a
passenger be entitled to a future cruise credit if they cancel their
booking following the declaration of a public health emergency and the
voyage occurs as scheduled.
The ANPRM requested comments on the recommendation regarding
passenger refunds when the passenger cancels their booking, and the
voyage is subsequently canceled as a result of governmental orders or
declarations.
The ANPRM also requested comments on the recommendation regarding
the provision of future cruise credit when the passenger cancels their
booking following declaration of a public health emergency, but the
voyage occurs as scheduled.
Summary of Comments
Cruise Lines International Association (CLIA)
CLIA commented on the provision of the proposed rule which entitles
passengers to a full refund when the passenger themselves canceled
their booking within 60 days prior to a governmental order or
declaration and the commensurate cancelled or delayed sailing (so-
called ``lookback'' refunds). It is CLIA's recommendation that the
proposed rule should apply only in cases of:
(i) A declaration by the Secretary of Health and Human Services
of a nationwide Public Health Emergency that
(ii) Results from events that were public knowledge prior to the
passenger's cancellation.
CLIA maintains the correct standard for the type of emergency that
would trigger the rulemaking is a federal nationwide ``Public Health
Emergency'' declaration which affects most or all of the country and
the cruise industry, such as the COVID-19 pandemic. CLIA also
distinguishes an emergency such as the current pandemic, which was
slow-developing and uncertain, from a local or regional event such as
storm, which may develop quickly. Cruise line cancellations in the case
of a local event give rise to a refund for passengers who were booked
on the scheduled sailing, but do not lead to anticipatory passenger
cancellations as much as 60 days before the sailing date. CLIA also
asserts that state and local authorities have jurisdiction over only
localized or regional situations that tend to be more limited in
geographic scope, such as a highway obstruction that temporarily
disrupts traffic to a cruise port. CLIA believes that the inclusion of
emergencies that do not at some point directly require cancellation
would allow subjective interpretations as to whether the passengers
were acting reasonably when they cancelled bookings due to the advent
of the situation. Further, CLIA believes this would create incentives
for passengers who had terminated bookings for personal reasons to try
to capitalize on later cancellation rationales that had no bearing on
their decision to cancel.
CLIA also believes that declarations from international
organizations should not qualify as governmental declarations for this
provision. CLIA contends that cruise lines are not likely to cancel
U.S. sailings based on a multinational organizations' warnings unless
the U.S. government also decides to issue an order. Further, even if a
foreign government took action to prevent embarking passengers at U.S.
ports from calling in their jurisdiction, cruise lines could change
their itineraries or omit foreign calls, and this would not likely
result in either cancellation of the sailing or anticipatory passenger
cancellations.
Passenger Vessel Association (PVA)
PVA asks the Commission to refrain from imposing a refund policy to
include a situation in which a passenger voluntarily cancels a booking
following the declaration of a public health emergency, but the voyage
nevertheless occurs as scheduled. PVA believes that the proposed rule
would go beyond the problem of nonperformance of transportation, as in
this case there is no ``nonperformance of transportation'' as
envisioned by 46 U.S.C. 44102. PVA further poses the question of by
whom is the public health emergency to be declared (whether a federal,
state, or local official). PVA maintains that this type of situation is
best handled in the context of the commercial relationship between the
cruise operator and the customer. PVA states that while the vessel
operator may wish to provide a refund or cruise credit as a matter of
company policy, it should not be required to do so by the Commission.
PVA also requests the Commission to make clear that the term
``public health emergency'' includes only events such as the
coronavirus pandemic, in which the gathering of persons on a vessel has
the potential to worsen the emergency.
IV. Discussion & NPRM Proposal
A. Definition of Nonperformance
The Commission believes that adding a definition for nonperformance
to 46 CFR part 540 would provide clarity to passengers, PVOs, and the
participating financial institutions as to when nonperformance has
occurred. The Commission has also taken into
[[Page 47447]]
consideration the potential negative effects of the proposed definition
of nonperformance raised by the commenters, particularly the period of
time a vessel is delayed as it relates to the definition of
nonperformance of transportation. SFAA proposed the definition of
nonperformance to be a period of time greater than 24 hours, a minimum
of 72 hours, to ensure PVOs are not inundated with claims. The
Commission proposes to define nonperformance as when a passenger vessel
operator cancels or delays a voyage by three or more calendar days, if
the passenger elects not to embark on the delayed or a substitute
voyage offered by the PVO. Adoption of the proposed definition will
require corresponding changes to all financial instruments.
Due to the proposed definition of nonperformance of transportation
and to ensure that passengers are indemnified for nonperformance of
transportation, the Commission is proposing a change to require PVOs to
report nonperformance of transportation events to the Commission semi-
annually. This reporting is necessary in order for the Commission to be
responsive to the public and to provide adequate monitoring and
statistical information on occurrences of nonperformance.
Nonperformance of transportation events occurring between January 1 and
June 30 would be reported no later than July 30 of the same calendar
year, and events occurring between July 1 and December 31 would be
reported no later than January 31 of the following calendar year.
B. Process for Obtaining Refunds From PVO Financial Instruments for
Nonperformance of Transportation
The Commission reiterates its position on the importance of a clear
and consistent policy toward refunds from financial instruments in the
event of nonperformance of transportation, in an effort to eliminate
uncertainty on the part of passengers. The Commission therefore
proposes changes to 46 CFR part 540 by adding a Process for obtaining
refunds from the financial instrument in the event of nonperformance by
a PVO. This process would apply in a situation where the PVO claims
procedure provides less than 180 days for submission of claims after
nonperformance of transportation, and the passenger wishes to submit a
claim after the PVO's deadline for submission has passed, the passenger
may still seek reimbursement from the financial instrument after
providing written notification to the PVO. This provides the passenger
with up to 180 days to submit their claim, first to the PVO or,
secondarily, to the financial instrument provider. If proper
documentation is provided, the refund payment shall be issued within 90
days of submission of the claim to the financial instrument provider.
The Commission elected the period of 90 days for the refund payment
considering PVA's comments which stated that smaller PVOs may be
unfairly treated under the ANPRM language. They cited an example
wherein smaller PVOs were not subject to Centers for Disease Control
and Prevention's (CDC) No Sail Orders, but nonetheless they chose to
voluntarily cancel planned cruises for safety reasons. In this example,
smaller PVOs would be required to provide refunds in a shorter time
period (60 days) relative to larger PVOs (180 days). To address this
concern, the NPRM proposes a refund payment, under a PVO financial
responsibility instrument, to be made within 90 days of submission of
claims to the financial responsibility provider, regardless of the
reason for nonperformance.
Subsequent to receiving formal comments to the ANPRM, the
Commission engaged in additional discussions regarding cost and
availability of PVO financial instruments with representatives of
financial instrument providers. It was indicated there likely would be
an abandonment of the PVO program by many of the financial instrument
providers due to the possible direct interaction with passengers and
the lack of a formal judgement. The NPRM proposes passengers first seek
refunds from the PVO in order to minimize the direct interaction
between passengers and financial instrument providers, and that the
financial instrument providers would be permitted to require a formal
court judgement.
The Commission is interested in receiving comments from industry
stakeholders regarding the potential availability of financial
instruments resulting from the proposed change to the definition of
nonperformance, and on the proposed process of obtaining refunds from
the financial instrument. As discussed in this NPRM, comments received
in response to the ANPRM indicate a concern by some stakeholders that
the proposed regulatory changes will constrain the current providers of
financial instruments from continuing to provide such instruments to
PVOs. Commenters have stated that surety companies would be largely
unwilling to act as the direct claims handling entity in cases of
alleged nonperformance. The Commission is also aware of a concern that
banks may view the new regulations as too burdensome and choose not to
offer PVOs the option of an escrow account to satisfy PVOs' financial
responsibility requirement. In addition, the increased claims activity
of commercial providers of travel insurance during the pandemic may
influence their determination whether to offer financial instruments to
PVOs. Subsequent to receiving formal comments to the ANPRM, the
Commission had additional discussions regarding cost and availability
of PVO financial instruments with SFAA and Allianz Partners, the
largest U.S. travel insurance provider. SFAA reiterated many of the
comments received in response to the ANPRM including the likely
abandonment of the PVO program by many, if not all, of the surety
participants due to the possible direct interaction of passengers with
the surety companies and the lack of a court judgement. Further
discussion revealed the lack of a court judgement seemed to be the
largest obstacle to continued participation. The Commission also spoke
with Allianz Partners in an attempt to determine the availability and
cost of insurance to fill the void left by the potential abandonment of
other financial instruments. It was surprising to learn that Allianz,
and likely other travel insurance providers, would have little interest
in providing financial coverage to PVOs in the event of nonperformance.
The lack of interest appears to be due to the hesitancy of travel
insurance providers to broaden their exposure in the cruise sector due
to the impact of the pandemic. The Commission seeks further comment on
these and any other anticipated effects on the availability of
financial instruments, should the proposed regulations take effect. The
NPRM proposes that: (1) The passenger makes a request for refund from
the Principal in accordance with the ticket contract. If the ticket
contract refund procedure provides less than 180 days to submit a
claim, the financial instrument will be available after written
notification to Principal; (2) If the passenger is unable to resolve
the claim within 180 days after nonperformance, as defined in 46 CFR
540.2, occurs, the passenger may submit a claim against the financial
instrument as per instructions on the Commission website. The claim
must include a copy of the boarding pass, proof and amount of payment,
cancellation notice, and dated proof of properly filed claim against
the Principal. All documentation must clearly display the vessel and
voyage
[[Page 47448]]
with scheduled and actual date of sailing. At the discretion of the
financial instrument provider a judgment may be required prior to
resolving the claim; and (3) valid claims must be paid within 90 days
of submission of claim to the financial instrument provider.
Additionally, the Commission decided not to propose a refund
process that would apply in a situation when the passenger unilaterally
cancels their cruise, which is supported by the ANPRM comments
questioning whether those cancellations are nonperformance.
C. Definition of Unearned Passenger Revenue (UPR)
The Commission proposes defining Unearned Passenger Revenue as
passenger revenue received for water transportation and all other
accommodations, services and facilities that have not been performed by
the PVO. Passenger revenue will include port fees, taxes and all
ancillary fees submitted to the PVO by the passenger. CLIA recommended
to modify the definition to exclude such items as airfare, non-
affiliated shore excursions, or other third-party provider costs for
which the PVO is no longer holding the passenger's deposit or is
contractually obligated to pay such deposit to a third-party provider.
In order to provide better protection to the consumer, and because PVOs
have the existing relationship with the providers of ancillary
services, the Commission believes PVOs should be responsible for
refunding all monies collected by the PVOs for all services, and
facilities not yet performed.
D. Publishing Information on How To Obtain Refunds
The Commission proposes:
(1) PVOs provide on their websites clear and precise
instructions on how passengers may obtain refunds in the event of
nonperformance of transportation; and
(2) PVOs shall submit an active web page address with their
refund instructions for nonperformance of transportation to the
Commission for publication on the Commission's website.
(3) Form FMC-131 ``Application for Certificate of Financial
Responsibility'' will include a required field for PVOs to provide
the web page address of their refund instructions for nonperformance
of transportation.
The Commission seeks further comment on whether the Commission
should provide an example web page with refund instructions in Part 540
and if so, what it should include.
V. Public Participation
How do I prepare and submit comments?
Your comments must be written and in English. To ensure that your
comments are correctly filed in the docket, please include the docket
number of this document in your comments.
You may submit your comments via email to the email address listed
above under ADDRESSES. Please include the docket number associated with
this notice and the subject matter in the subject line of the email.
Comments should be attached to the email as a Microsoft Word or text-
searchable PDF document.
How do I submit confidential business information?
The Commission will provide confidential treatment for identified
confidential information to the extent allowed by law. If your comments
contain confidential information, you must submit the following by
email to the address listed above under ADDRESSES:
<bullet> A transmittal letter requesting confidential treatment
that identifies the specific information in the comments for which
protection is sought and demonstrates that the information is a trade
secret or other confidential research, development, or commercial
information.
<bullet> A confidential copy of your comments, consisting of the
complete filing with a cover page marked ``Confidential-Restricted,''
and the confidential material clearly marked on each page.
<bullet> A public version of your comments with the confidential
information excluded. The public version must state ``Public Version--
confidential materials excluded'' on the cover page and on each
affected page, and must clearly indicate any information withheld.
Will the Commission consider late comments?
The Commission will consider all comments received before the close
of business on the comment closing date indicated above under DATES. To
the extent possible, we will also consider comments received after that
date.
How can I read comments submitted by other people?
You may read the comments received by the Commission at the
Commission's Electronic Reading Room at the address listed above under
ADDRESSES.
VI. Rulemaking Analyses and Notices
Regulatory Flexibility Act
Initial Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act (RFA), whenever an agency is
required to publish general notice of proposed rulemaking, the agency
must prepare and make available for public comments an initial
regulatory flexibility analysis (IRFA) describing the impact of the
proposed rule on small entities, which in this case are PVOs.\23\ 5
U.S.C. 603. As discussed below in more detail, the Commission does not
collect performance data from small PVOs, nor is such specific
information published. Therefore, in this analysis, the Commission has
used industry-wide published data as a proxy to estimate the impact of
the proposed rule on both small and larger PVOs with a comparative
assessment as recommended in the RFA guide of the Small Business
Administration (SBA).\24\ The Commission encourages comments on its
analysis from interested parties with supporting data and information.
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\23\ Under 5 U.S.C. 601, the term small entity is defined as a
small business, a not-for-profit enterprise which is independently
owned and operated and is not dominant in its field, or a
governmental jurisdiction with a population of less than 50,000. A
small business is defined as a small business concern under section
3 of the Small Business Act. The Small Business Administration
interprets the meaning of business concern as a business entity
organized for profit, with a place of business located in the U.S.,
and which operates primarily within the U.S. or which makes a
significant contribution to the U.S. economy through payment of
taxes or use of American products, materials, or labor. 13 CFR
121.105(a)(1).
\24\ Office of Advocacy, U.S. Small Business Administration, A
Guide for Government Agencies How to Comply with the Regulatory
Flexibility Act (August 2017), p. 37.
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The requirements for preparing an IRFA of a proposed rule are set
forth in 5 U.S.C. 603 and direct federal agencies to address the
following topics:
Why the Commission Is Considering the Proposed Rule
The proposed rule stems from the Commission's Fact Finding
Investigation No. 30: COVID-19 Impact on Cruise Industry, which
concluded that clearer guidance is needed in determining whether a
passenger is entitled to obtain a refund if a PVO cancels a voyage,
makes a significant schedule change, or significantly delays a voyage.
Objectives and Legal Basis for the Proposed Rule
As discussed in the background section, 46 U.S.C. 44102 requires
certain persons arranging, offering, advertising, or providing
transportation on vessels to
[[Page 47449]]
establish financial responsibility for indemnification of passengers
for nonperformance of transportation. The proposed rule seeks to
provide a clear and consistent policy toward vessel passenger ticket
refunds from the PVOs' financial responsibility instruments filed with
the Commission, in the case of nonperformance by the vessel operator.
The proposed rule primarily does this by defining nonperformance. The
proposed rule would add a definition of nonperformance for which
passengers would be entitled to a refund of their prepaid fares where
voyages are canceled or delayed for three or more days and the
passenger does not opt to accept an alternative voyage. Additionally,
the proposed rule changes the definition of UPR to remove the language
``excludes such items as airfare, hotel accommodations, and tour
excursions,'' to include such items in the definition of UPR, if the
PVO offers and collects money from the passenger for such items.
Determine and Estimate the Number of Small Entities to Which the New
Rule Will Apply
As part of this analysis, 5 U.S.C. 603(b)(3) requires a description
of and, where feasible, an estimate of the number of small entities to
which the proposed rule will apply. The SBA has established regulations
to determine whether businesses qualify as small entities. 13 CFR part
121. The regulations use the North American Industry Classification
System (NAICS) with codes and descriptions to classify businesses and
measure their size by either annual receipts (gross annual revenue) or
number of employees.\25\ The calculation of total annual receipts or
number of employees for the purpose of determining the size of a
business includes those of the business itself plus those of its
domestic and foreign affiliates.\26\
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\25\ See 13 CFR subpart A--Size Eligibility Provisions and
Standards (January 1, 2020).
\26\ See 13 CFR 121.104 and 121.106.
---------------------------------------------------------------------------
As discussed, the proposed rule would modify the regulations in 46
CFR Subpart A of part 540 governing evidence of PVOs financial
responsibility for nonperformance of transportation. The regulated
businesses that the proposed rule applies to are PVOs. At present,
there are a total of 43 PVOs with certificates of financial
responsibility for nonperformance issued by the Commission. Pursuant to
the SBA regulations in 13 CFR 121.201, PVOs fall under the
classification of NAICS code 483112, Deep Sea Passenger Transportation,
and under this classification, businesses with a total number of 1,500
employees or less qualify as small. Accordingly, the Commission
estimates that 14 out of the 43 certified PVOs (or 33 percent) qualify
as small businesses under the size standard of the SBA. While there may
be PVOs that report employees of less than 1,500, lines that are
subsidiaries of much larger companies would not qualify as small
entities for the intent of receiving regulatory relief under the RFA.
See 13 CFR 121.106(b).
In terms of the economic impact on small PVOs, the proposed rule
would add a definition of nonperformance for which passengers would be
entitled to a refund of their prepaid fares where voyages are canceled
or delayed for three or more days and the passenger does not opt to
accept an alternative voyage. This new definition would potentially
increase the number of claims for refunds, which in turn may affect the
cost and method used by a PVO to cover the passengers' prepaid fares.
In effect, under the proposed definition, PVOs that perform well and on
time as scheduled would be less impacted than PVOs that perform poorly.
The Commission has no data or information on the performance of the 14
small PVOs (per the specifics of the proposed definition) by which to
gauge which ones would be more significantly impacted by the proposed
rule, and no such information is published. The proposed rule would
require that all certified PVOs semi-annually report instances of non-
performance by which the Commission could make this determination in
the future. Therefore, the Commission assumes that all of the 14 small
PVOs would be impacted by the proposed rule by varying degrees
depending on their performance and other factors affecting their
performance. The Commission seeks public comments on its assumption and
the economic impact of the proposed rule on small PVOs supported by
performance data on the cancelation or delay of voyages, as per the
proposed definition of nonperformance.
Projected Reporting, Record Keeping, and Other Compliance Requirements
of the New Rule
Cost to Government
The Commission estimates the total annual cost of this proposed
rule to the Federal government to be $145,356, offset by the collection
of $64,482 in filing fees, for a net annual cost of $80,874.
Record Keeping and File Costs to PVOs
The proposed rule would require that PVOs submit additional semi-
annual reports on their instances of nonperformance. The estimated
annual cost of the additional reports would be $41,670.
Other Costs to PVOs
The definition of nonperformance under the proposed rule would
likely increase instances of non-performance by PVOs and thus
obligations on financial instruments filed with the Commission. The
obligations on financial instruments may occur when a cruise has been
delayed by more than three days or canceled and the passenger desires a
refund instead of a credit on a future cruise. In turn, the change in
the definition of UPR to include other items in addition to cruise fare
(plus fees and taxes) offered and collected by the PVO could increase
the amount of the refund and the cost to the PVO or discourage PVOs
from offering such items to passengers. Prior to the proposed rule, the
passenger vessel program focused on when PVOs ceased operations and
canceled remaining cruises. Existing policies regarding cancelations
and refunds vary by PVO. In general, most PVOs provide refunds or
credits for cancelled voyages or partial refunds for voyages that are
forced to end early, but it is unclear whether PVOs may provide refunds
for delayed voyages.
In response to the ANPRM, the Surety and Fidelity Association of
America noted that because of the likely increase of instances of
nonperformance ``sureties likely will require PVOs to have stronger
balance sheets, specifically more cash on hand or larger lines of
credit, thereby narrowing the universe of PVOs eligible to receive a
surety bond guaranteeing this obligation.'' Also, they claimed that the
required amount or value of collateral could be increased.
The increased costs to the PVOs would be from three factors. First,
the increased cost of financial instruments to cover UPR because of
possible increases in non-performance and issue more credits or refunds
for certain delayed voyages now defined as nonperformance under this
NPRM. Second, PVOs would have to refund additional purchases by
passengers such as airfare and third-party excursions that were
previously excluded from the definition of UPR before the proposed
rule. Third, for PVOs using escrow accounts, the opportunity cost of
having to hold additional cash on hand that is
[[Page 47450]]
unable to be deployed as capital elsewhere.
To estimate the total cost to the industry, the Commission would
need to know:
<bullet> The estimated rate of nonperformance by PVOs;
<bullet> The likelihood that passengers would request refunds
instead of opting for future cruise credits;
<bullet> The impact of the prior two items on the cost of financial
instruments;
<bullet> Whether or not companies offering financial instruments
would leave the market, or if PVOs could meet the requirements to
obtain financial instruments; and
<bullet> Estimated changes to UPR by removing the exclusion of
``such items as airfare, hotel accommodations, and tour excursions''
from the definition of UPR, to the extent offered and collected by
PVOs.
The Commission believes it has an estimate for historical rates of
nonperformance. The Commission is not certain on the likelihood that
consumers would request refunds instead of receiving credits, nor the
size of increase the proposed rule would have on premiums and the
ability of PVOs to obtain financial instruments. The lack of data on
these items makes it difficult to provide an accurate cost estimate.
The Commission seeks public comments on the aforementioned items from
interested parties supported by data and additional information.
The Cruise Line International Association (CLIA) publishes data on
significant operational incidents that can be used to estimate past
nonperformance by PVOs. Significant operational incidents are defined
as delays of more than 24 hours to published itinerary, fatalities
occurring to either passengers or crew, and serious injury occurring to
either passengers or crew.\27\
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\27\ See Report on Operational Incidents 2009 to 2019, Cruise
Line International Association, <a href="https://cruising.org/en/news-and-research/research/2020/may/report-on-operational-incidents-2009-to-2019">https://cruising.org/en/news-and-research/research/2020/may/report-on-operational-incidents-2009-to-2019</a>.
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It is difficult to separate out all the significant operational
incidents to know for certain which ones would meet the definition of
nonperformance under the proposed rule. However, the total number of
significant operational incidents reported by CLIA sets an upper bound
limit for how often instances of nonperformance, as defined by the
proposed rule, have occurred in the past.
Between 2009 and 2019, there were 195 significant operational
incidents for an average of 17.7 annually. The data for significant
operational incidents is reported globally so the number of instances
occurring from U.S. embarkations would be lower. To estimate the number
of incidents in the U.S., the ratio of global incidents to global
number of passengers was applied to the number of passengers embarking
from the U.S. on an annual basis. The estimated number of annual
incidents for the U.S. is 8.4.
As previously stated, this estimate serves as an upper bound of how
many instances of nonperformance may occur under the proposed rule.
U.S. per capita incident rates may vary from the global per capita
incident rates. Additionally, CLIA reports that incidents appear to be
trending downward.
----------------------------------------------------------------------------------------------------------------
Significant Global U.S. Estimated U.S.
Year incidents passengers embarkations incidents
----------------------------------------------------------------------------------------------------------------
2009............................................ 21 17,800,000 8,900,000 10.5
2010............................................ 27 19,100,000 9,690,000 13.7
2011............................................ 15 20,500,000 9,840,000 7.2
2012............................................ 18 20,900,000 10,090,000 8.7
2013............................................ 21 21,300,000 9,960,000 9.8
2014............................................ 16 22,340,000 11,060,000 7.9
2015............................................ 21 26,060,000 10,920,000 8.8
2016............................................ 16 25,155,000 11,660,000 7.4
2017............................................ 13 26,716,000 12,200,000 5.9
2018............................................ 14 28,515,000 12,680,000 6.2
2019............................................ 13 29,673,000 13,790,000 6.0
----------------------------------------------------------------------------------------------------------------
Data on significant incidents compiled from CLIA's Report on Operational Incidents 2009 to 2019. Data on global
passengers compiled from CLIA's annual reports. Data on U.S. embarkations compiled from CLIA's Economic
Contribution of the International Cruise Industry in the United States publications.
Using significant operational incidents as a proxy for
nonperformance, the next step in this analysis is to compare it to how
many instances of nonperformance occur under the existing program.
Under its program, the Commission records when PVOs cease their
operations. Since September 2000, 16 PVOs covered by the Commission's
program have ceased operations and another company declared bankruptcy
but successfully restarted operations later.\28\ There have been 17
PVOs over the last 21 years that ceased operations for an average of
0.81 incidents per year, where a company either declared bankruptcy or
ceased operations.
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\28\ The PVOs that ceased operations are: Premier Cruise
Operations Ltd. (Premier), New Commodore Cruise Lines Limited (New
Commodore), Cape Canaveral Cruise Lines, Inc., MP Ferrymar, Inc.,
American Classic Voyages Company (American Classic), Royal Olympic,
Regal Cruises, Ocean Club Cruise Line, Society Expeditions, Scotia
Prince, Glacier Bay, Great American Rivers, RiverBarge Excursion
Lines, Inc., Majestic America Line, and West Travel, Inc. d/b/a
Cruise West, and French American Lines. Most of these incidents
occurred in the 2000s with only one company ceasing operations in
the last decade. At least one additional company, Haimark Line Ltd,
declared bankruptcy and emerged successfully from it to continue
operations.
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Significant operational incidents occur much more frequently than
incidents where PVOs cease operations or declare bankruptcy. The
estimated number of significant operational incidents is 8.4 annually
compared to a rate of 0.81 under the Commission's current program.
Adding the average incident rate of a company ceasing operations or
declaring bankruptcy to the rate of significant operation incidents
would equate to a rate of 9.21 incidents per year where a PVOs
financial instrument may be impacted or a 10-fold increase from the
current incident rate of nonperformance, when PVOs cease operating.
However, this impact is mitigated by the fact that many PVOs on their
own terms, including those determined to be small under the SBA
guidelines, already provide refunds of prepaid fares to passengers in
the case of voyage cancellations. The Commission seeks public comments
from interested parties on the above methodology for incidents of
nonperformance, other estimates of PVO nonperformance, and the impact
the rate of nonperformance would have on surety bond premiums and other
[[Page 47451]]
PVO financial instruments, with supporting data and information.
For these reasons, the Commission believes that the proposed rule
could increase the cost of UPR coverage to PVOs by 25 percent. Based on
the investigation in Fact Finding No. 30 and its own research, the
Commission estimates the cost of UPR coverage to range from $75,000 for
the smallest of PVOs to around $600,000 for the largest. The total cost
of current UPR coverage is estimated to be around $9,830,000. Assuming
a 25 percent increase, the cost would rise by $2,457,500 to a total of
$12,287,500. However, there is uncertainty about how much the cost
would rise given the variance in the rate of incidents of
nonperformance for each PVO. Breaking down the costs increases by size
of PVOs, the total increase for small PVOs would be $425,000 for a
total cost of $2,125,000 and for large PVOs would be $2,032,500 for a
total cost of $10,162,500.
The removal of the language ``excludes such items as airfare, hotel
accommodations, and tour excursions'' from the definition of unearned
passenger revenue might also increase the amount of refunds to
passengers (and the cost to the PVO) and the amount of UPR held by
PVOs, to the extent that PVOs offered and collected money for such
items. Currently, 22 companies' UPR exceeds the $32 million coverage
cap set by the Commission and pegged to inflation and thus would be
unaffected by rising UPR. For the remaining 21 companies, their UPR
would likely rise causing their premiums or money held in escrow to
increase. This change may disproportionately impact smaller PVOs since
their UPR is below the current coverage cap. The Commission seeks
comments on how the change in the definition would increase the amount
of refunds to passengers and UPR for PVOs.
Alternatives for Small Entities
The RFA requires agencies to consider significant alternatives for
small businesses. The Commission has demonstrated flexibility during
the rulemaking process by publishing an ANPRM and taking into
consideration the comments from parties impacted by the proposed rule.
The Commission responded to comments about the definition of
nonperformance by changing the timing element in the proposed
definition of nonperformance from 24 hours to three calendar days.
Other Possible Alternatives Are Discussed
Exempt Small Entities From the Proposed Rule
Exempting small entities from the proposed rule would likely keep
costs of obtaining certification the same as they are now for small
entities. The commission could move forward with the definition of
nonperformance and expanded UPR for entities above a specific revenue
threshold. However, exempting small entities would mean the consumer
protections from the proposed rule would not apply to passengers
booking cruises on small PVOs. Therefore, simply exempting small
entities would not meet the consumer protection objectives of the
proposed rule.
Delayed Compliance of the Proposed for Small Entities
In comments in response to the ANPRM, the Commission has received
feedback that there is uncertainty regarding how financial institutions
will respond to the proposed rule with respect to the financial
instruments they offer. In the most extreme scenario, some surety
companies may leave the market entirely and certain PVOs would be
forced to switch to escrow accounts or other forms of financial
instruments. Delaying the compliance deadline of the proposed rule for
small PVOs would allow for the market for financial instruments to
adjust to the new conditions resulting from the proposed rule and
potentially new financial instruments to emerge. The transition costs
of the proposal would be mainly borne by large PVOs. Companies offering
financial instruments would have additional time to study the impacts
of the proposed rule on small entities. The Commission requests
comments on whether a delay for small PVOs would be beneficial and how
long of a delay to allow the market for financial instruments to
adjust.
Longer Period Before Nonperformance for Small Entities
The proposed rule could be amended to allow for a longer period of
delay before a cruise is defined as nonperforming. For small PVOs, the
proposed rule could allow 4 or 5-day delay of scheduled departure. This
would reduce the cost to small entities as they would have a lower
likelihood of nonperformance. The drawback to this alternative is that
it would create a two-tier structure of refund policies for consumers.
One of the main objectives of the proposed rule is to provide clarity
to consumers on refunds by creating a standard policy. A separate
definition of noncompliance for small entities would lessen consumer
protections and go against the objectives of the proposed rule by
straying from a standard refund policy.
Relevant Federal Rules That May Duplicate, Overlap, or Conflict With
the Proposed Rule
The Commission is not aware of any other federal rules that
duplicate, overlap, or conflict with the proposed rule.
National Environmental Policy Act
The Commission's regulations categorically exclude certain
rulemakings from any requirement to prepare an environmental assessment
or an environmental impact statement because they do not increase or
decrease air, water or noise pollution or the use of fossil fuels,
recyclables, or energy. 46 CFR 504.4. The NPRM discusses potential
amendments to Commission's program for certifying the financial
responsibility of PVOs. This rulemaking thus falls within the
categorical exclusion for ``[c]ertification of financial responsibility
of passenger vessels'' under 46 CFR 504.4(a)(2). Therefore, no
environmental assessment or environmental impact statement is required.
Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA)
requires an agency to seek and receive approval from the Office of
Management and Budget (OMB) before collecting information from the
public. 44 U.S.C. 3507. The agency must submit collections of
information in proposed rules to OMB in conjunction with the
publication of the notice of proposed rulemaking. 5 CFR 1320.11.
The information collection requirements associated with the
Application for Certificate of Financial Responsibility filing
requirements in part 540 are currently authorized under OMB Control
Number 3072-0012. In compliance with the PRA, the Commission has
submitted the proposed revised information collection to the Office of
Management and Budget and is requesting comment on the proposed
revision.
Title: 46 CFR part 540--Application for Certificate of Financial
Responsibility.
OMB Control Number: 3072-0012.
Abstract: 46 U.S.C. 44102, 44103 and 46 CFR part 540 require
passenger vessel operators to file unearned passenger revenue reports
confidentially with the Commission.
[[Page 47452]]
Current Action: The proposed rule would amend (1) the Application
for Certificate of Financial Responsibility filing requirements adding
the website and (2) unearned passenger revenue reports by PVOs adding
nonperformance of transportation occurrences. Currently, part 540
requires that passenger vessel operators file unearned passenger
revenue only, on a semiannual basis.
Type of Request: Revision of a previously approved collection.
Needs and Uses: The Commission issues certificates (Performance and
Casualty) to PVOs for the Indemnification of Passengers for
Nonperformance of Transportation and Financial Responsibility to Meet
Liability Incurred for Death or Injury to Passengers or Other Persons
under Public Law 89-777 (codified as 46 U.S.C. 44102 and 44103).
Frequency: Filings are submitted to the Commission on a semiannual
basis.
Type of Respondents: Passenger vessel operators or their duly
appointed agents are required to file applications and unearned
passenger revenue reports with the Commission.
Number of Annual Respondents: The Commission does not anticipate
that the proposed revisions would affect the number of respondents. As
a general matter, however, the number of respondents has decreased
since the last revision to the information collection. The Commission
estimates an annual respondent universe of 48 passenger vessel
operators.
Estimated Time per Response: The Commission does not anticipate
that the proposed revisions would affect the estimated time per
response, which would continue to be 8 person-hours for reporting and
recordkeeping requirements contained in the regulations and for
completing Form-131.
Total Annual Burden: The Commission does not anticipate that the
proposed revisions would affect the number of applications or unearned
passenger revenue reports filed, however there will be an increase in
the burden associated with each filing and would in fact affect the
total annual burden. Due to the increase in the amount of information
being collected since the last revision, the Commission expects that
the total annual burden will increase. The Commission estimates the
total person-hour burden at 2,087 person-hours.
Comments are invited on:
<bullet> Whether the collection of information is necessary for the
proper performance of the functions of the Commission, including
whether the information will have practical utility;
<bullet> Whether the Commission's estimate for the burden of the
information collection is accurate;
<bullet> Ways to enhance the quality, utility, and clarity of the
information to be collected; and
<bullet> Ways to minimize the burden of the collection of
information on respondents, including the use of automated collection
techniques or other forms of information technology.
Please submit any comments, identified by the docket number in the
heading of this document, by the methods described in the ADDRESSES
section of this document.
Executive Order 12988 (Civil Justice Reform)
The Commission will ensure that any proposed or final rule issued
in this proceeding meets the applicable standards in E.O. 12988 titled,
``Civil Justice Reform,'' to minimize litigation, eliminate ambiguity,
and reduce burden.
Regulation Identifier Number
The Commission assigns a regulation identifier number (RIN) to each
regulatory action listed in the Unified Agenda of Federal Regulatory
and Deregulatory Actions (Unified Agenda). The Regulatory Information
Service Center publishes the Unified Agenda in April and October of
each year. You may use the RIN contained in the heading at the
beginning of this document to find this action in the Unified Agenda,
available at <a href="http://www.reginfo.gov/public/do/eAgendaMain">http://www.reginfo.gov/public/do/eAgendaMain</a>.
VII. Proposed Regulatory Language
List of Subjects in 46 CFR Part 540
Insurance, Maritime carriers, Penalties, Reporting and
recordkeeping requirements, Surety bonds.
For the reasons stated in the preamble, the Federal Maritime
Commission proposes to amend part 540 of Title 46 Code of Federal
Regulations as follows:
PART 540--PASSENGER FINANCIAL RESPONSIBILITY
0
1. The authority citation for part 540 continues to read as follows:
Authority: 5 U.S.C. 552, 553; 31 U.S.C. 9701; 46 U.S.C. 305,
44101-44106.
0
2. Amend Sec. 540.2 by revising paragraph (i) and adding paragraph (m)
to read as follows:
Sec. 540.2 Definitions.
* * * * *
(i) Unearned Passenger Revenue means that passenger revenue
received for water transportation and all other accommodations,
services, and facilities that have not been performed by the PVO.
Passenger revenue includes port fees, taxes, and all ancillary fees
remitted to the PVO by the passenger.
* * * * *
(m) Nonperformance of transportation means cancelling or delaying a
voyage by three (3) or more calendar days, if the passenger elects not
to embark on the delayed voyage or a substitute voyage offered by the
passenger vessel operator.
0
3. Amend Sec. 540.9 by revising paragraphs (f), (h), and (i) to read
as follows:
Sec. 540.9 Miscellaneous.
* * * * *
(f) Process for obtaining refunds from the financial instrument in
the event of nonperformance. (1) The passenger must make a written
request for a refund from the PVO in accordance with the respective
PVO's claims procedures. If the PVO claims procedure provides less than
180 days for submission of claims after nonperformance of
transportation, the passenger may seek reimbursement from the financial
instrument provider after providing written notification to the PVO.
(2) In the event the passenger is unable to resolve the claim
within 180 days after nonperformance of transportation occurs or if the
claim is denied by the PVO, the passenger may submit a claim against
the financial instrument as per instructions on the Commission website.
The claim must include a copy of the boarding pass, proof and amount of
payment, the cancellation or delay notice, and dated proof of properly
filed claim against the PVO or written notification as required in
paragraph (1) above. All documentation must clearly display the vessel
and voyage with the scheduled and actual date of sailing.
* * * * *
(h) Every person who has been issued a Certificate (Performance)
must submit to the Commission a semi-annual statement of any changes
with respect to the information contained in the application or
documents submitted in support thereof or a statement that no changes
have occurred. Negative statements are required to indicate no change.
These statements must cover the 6-month period of January through June
and July through December and include a statement of the highest
unearned passenger vessel revenue accrued for each month in the 6-month
reporting period as well as any
[[Page 47453]]
instances of nonperformance of transportation. Such statements will be
due within 30 days after the close of every such 6-month period. The
reports required by this paragraph shall be submitted to the Bureau of
Certification and Licensing at its office in Washington by certified
mail, courier service, or electronic submission.
(i) Information on How to Obtain Refunds. (1) PVOs shall provide on
their websites clear instructions on how passengers may obtain refunds
in the event of nonperformance of transportation; and
(2) PVOs shall submit an active web page address with their refund
instructions for nonperformance of transportation to the Commission for
publication on the Commission's website.
(3) Form FMC-131 ``Application for Certificate of Financial
Responsibility'' will include a required field for PVOs to provide the
web page address of their refund instructions for nonperformance of
transportation.
* * * * *
0
4. In subpart A of Part 540, revise Form FMC-132A to read follows:
Form FMC-132A to Subpart A of Part 540
FORM FMC-132A
FEDERAL MARITIME COMMISSION
Passenger Vessel Surety Bond (Performance)
Surety Co. Bond No._____
FMC Certificate No._____
Know all persons by these presents, that we __ (Name of applicant),
of __ (City), __ (State and country), as Principal (hereinafter called
Principal), and __ (Name of Surety), a company created and existing
under the laws of __ (State and country) and authorized to do business
in the United States as Surety (hereinafter called Surety) are held and
firmly bound unto the United States of America in the penal sum of __,
for which payment, well and truly to be made, we bind ourselves and our
heirs, executors, administrators, successors, and assigns, jointly and
severally, firmly by these presents. Whereas the Principal intends to
become a holder of a Certificate (Performance) pursuant to the
provisions of 46 CFR part 540, subpart A, and has elected to file with
the Federal Maritime Commission (Commission) such a bond to insure
financial responsibility and the supplying transportation and other
services subject to 46 CFR part 540, subpart A.
Whereas this bond is written to assure compliance by the Principal
as an authorized holder of a Certificate (Performance) pursuant to
subpart A of part 540 of title 46, Code of Federal Regulations, and
shall inure to the benefit of any and all passengers to whom the
Principal may be held legally liable for any of the damages herein
described. Now, therefore, the condition of this obligation is such
that if the Principal shall pay or cause to be paid to passengers any
sum or sums for which the Principal may be held legally liable by
reason of the Principal's failure faithfully to provide such
transportation and other accommodations and services 46 CFR 540,
subpart A made by the Principal and the passenger while this bond is in
effect for the supplying of transportation and other services pursuant
to and in accordance with the provisions of subpart A of part 540 of
title 46, Code of Federal Regulations, then this obligation shall be
void, otherwise, to remain in full force and effect. Whereas this bond
is written to assure compliance by the Principal as an authorized
holder of a Certificate (Performance) pursuant to 46 CFR part 540,
subpart A, and shall inure to the benefit of any and all passengers to
whom the Principal may be held legally liable for any of the damages
herein described. Now, Therefore, the condition of this obligation is
that the penalty amount of this bond shall be available to pay damages
made pursuant to passenger claims, if:
(1) The passenger makes a request for refund from the Principal in
accordance with the ticket contract. If, the ticket contract refund
procedure provides less than 180 days, this bond shall be available
after written notification to Principal.
(2) If the passenger is unable to resolve the claim within 180 days
after nonperformance, as defined in 46 CFR 540.2, occurs, the passenger
may submit a claim against the bond as per instructions on the
Commission website. The claim must include a copy of the boarding pass,
proof and amount of payment, cancellation notice, and dated proof of
properly filed claim against the Principal. All documentation must
clearly display the vessel and voyage with scheduled and actual date of
sailing. And, Surety reserves the discretion to require a judgement
prior to resolving the claim.
(3) Valid claims must be paid within 90 days of submission to the
Surety.
The liability of the Surety with respect to any passenger shall not
exceed the passage price paid by or on behalf of such passenger. The
liability of the Surety shall not be discharged by any payment or
succession of payments hereunder, unless and until such payment or
payments shall amount in the aggregate to the penalty of the bond, but
in no event shall the Surety's obligation hereunder exceed the amount
of said penalty. The Surety agrees to furnish written notice to the
Federal Maritime Commission forthwith of all suits filed, judgments
rendered, and payments made by said Surety under this bond.
This bond is effective the __ day of __, 20 _, 12:01 a.m., standard
time at the address of the Principal as stated herein and shall
continue in force until terminated as hereinafter provided. The
Principal or the Surety may at any time terminate this bond by written
notice sent by certified mail, courier service, or other electronic
means such as email and fax to the other and to the Federal Maritime
Commission at its office in Washington, DC, such termination to become
effective thirty (30) days after actual receipt of said notice by the
Commission, except that no such termination shall become effective
while a voyage is in progress. The Surety shall not be liable hereunder
for any refunds due under ticket contracts made by the Principal for
the supplying of transportation and other services after the
termination of this bond as herein provided, but such termination shall
not affect the liability of the Surety hereunder for refunds arising
from ticket contracts made by the Principal for the supplying of
transportation and other services prior to the date such termination
becomes effective.
The underwriting Surety will promptly notify the Director, Bureau
of Certification and Licensing, Federal Maritime Commission,
Washington, DC 20573, of any claim(s) or disbursements against this
bond.
In witness whereof, the said Principal and Surety have executed
this instrument on __ day of __, 20_.
Principal
Name-------------------------------------------------------------------
By---------------------------------------------------------------------
(Signature and title)
Witness----------------------------------------------------------------
Surety
[SEAL]
Name-------------------------------------------------------------------
By---------------------------------------------------------------------
(Signature and title)
Witness----------------------------------------------------------------
Only corporations or associations of individual insurers may
qualify to act as Surety, and they must establish to the satisfaction
of the Federal Maritime Commission legal authority to assume
[[Page 47454]]
the obligations of Surety and financial ability to discharge them.
0
5. In subpart A of Part 540, revise Form FMC-133A to read follows:
Form FMC-133A to Subpart A of Part 540
FORM FMC-133A
FEDERAL MARITIME COMMISSION
Guaranty in Respect of Liability for Nonperformance
Guaranty No. _____
FMC Certificate No._____
1. Whereas __ (Name of applicant) (Hereinafter referred to as the
``Applicant'') is the Owner or Charterer of the passenger Vessel(s)
specified in the annexed Schedule (``the Vessels''), which are or may
become engaged in voyages to or from United States ports, and the
Applicant desires to establish its financial responsibility in
accordance with 46 CFR part 540, subpart A, provided that the Federal
Maritime Commission (``FMC'') shall have accepted, as sufficient for
that purpose, the Applicant's application, supported by this Guaranty,
and provided that FMC shall issue to the Applicant a Certificate
(Performance) (``Certificate''), the undersigned Guarantor hereby
guarantees to discharge the Applicant's legal liability to indemnify
the passengers of the Vessels for nonperformance of transportation
within the meaning of 46 CFR part 540.2, in the event that:
(1) The passenger makes a request for refund from the Principal in
accordance with the ticket contract. If, the ticket contract refund
procedure provides less than 180 days, this Guaranty shall be available
after written notification to Principal.
(2) If the passenger is unable to resolve the claim within 180 days
after nonperformance, as defined in 46 CFR 540.2, occurs, the passenger
may submit a claim against the Guaranty as per instructions on the
Commission website. The claim must include a copy of the boarding pass,
proof and amount of payment, cancellation notice, and dated proof of
properly filed claim against the Principal. All documentation must
clearly display the vessel and voyage with scheduled and actual date of
sailing. And, Guarantor reserves the discretion to require a judgement
prior to resolving the claim.
(3) Valid claims must be paid within 90 days of submission to the
Guarantor.
2. The Guarantor's liability under this Guaranty in respect to any
passenger shall not exceed the amount paid by such passenger; and the
aggregate amount of the Guarantor's liability under this Guaranty shall
not exceed $ __.
3. The Guarantor's liability under this Guaranty shall attach only
in respect of events giving rise to a cause of action against the
Applicant, in respect of any of the Vessels, for nonperformance of
transportation within the meaning of 46 CFR 540.2, occurring after the
Certificate has been granted to the Applicant, and before the
expiration date of this Guaranty, which shall be the earlier of the
following dates:
(a) The date whereon the Certificate is withdrawn, or for any
reason becomes invalid or ineffective; or
(b) The date 30 days after the date of receipt by FMC of notice in
writing delivered by certified mail, courier service or other
electronic means such as email and fax, that the Guarantor has elected
to terminate this Guaranty except that: (i) If, on the date which would
otherwise have been the expiration date under the foregoing provisions
(a) or (b) of this Clause 3, any of the Vessels is on a voyage whereon
passengers have been embarked at a United States port, then the
expiration date of this Guaranty shall, in respect of such Vessel, be
postponed to the date on which the last passenger on such voyage shall
have finally disembarked; and (ii) Such termination shall not affect
the liability of the Guarantor for refunds arising from ticket
contracts made by the Applicant for the supplying of transportation and
other services prior to the date such termination becomes effective.
4. If, during the currency of this Guaranty, the Applicant requests
that a vessel owned or operated by the Applicant, and not specified in
the annexed Schedule, should become subject to this Guaranty, and if
the Guarantor accedes to such request and so notifies FMC in writing or
other electronic means such as email and fax, then, provided that
within 30 days of receipt of such notice, FMC shall have granted a
Certificate, such Vessel shall thereupon be deemed to be one of the
Vessels included in the said Schedule and subject to this Guaranty.
5. The Guarantor hereby designates __, with offices at __, as the
Guarantor's legal agent for service of process for the purposes of the
Rules of the Federal Maritime Commission, in accordance with 46 CFR
part 540, subpart A
-----------------------------------------------------------------------
(Place and Date of Execution)
-----------------------------------------------------------------------
(Type Name of Guarantor)
-----------------------------------------------------------------------
(Type Address of Guarantor)
By
-----------------------------------------------------------------------
(Signature and Title)
Schedule of Vessels Referred to in Clause 1
Vessels Added to This Schedule in Accordance With Clause 4
[ssquf] 6. In Subpart A of Part 540, revise Appendix A to Subpart A
of Part 540--Example of Escrow Agreement for Use Under 46 CFR 540.5(b)
to read as follows:
Appendix A to Subpart A of Part 540--Example of Escrow Agreement for
Use Under 46 CFR 540.5(b)
Escrow Agreement
This Escrow Agreement, made as of this __day of (month & year),
by and between (Customer), a corporation/company having a place of
business at (``Customer'') __ and (Banking Institution name &
address) a banking corporation, having a place of business at
(``Escrow Agent'').
Witnesseth:
Whereas, Customer wishes to establish an escrow account in order
to provide for the indemnification of passengers in the event of
non-performance of water transportation to which such passengers
would be entitled, and to establish Customer's financial
responsibility therefore; and
Whereas, Escrow Agent wishes to act as Escrow Agent of the
escrow account established hereunder;
Now, Therefore, in consideration of the premises and covenants
contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. Customer has established on (month, & year) (the
``Commencement Date'') an escrow account with the Escrow Agent which
escrow account shall hereafter be governed by the terms of this
Agreement (the ``Escrow Account''). Escrow Agent shall maintain the
Escrow Account in its name, in its capacity as Escrow Agent.
2. Customer will determine, as of the date prior to the
Commencement Date, the amount of unearned passenger revenue,
including any funds to be transferred from any predecessor Escrow
Agent. Escrow Agent shall have no duty to calculate the amount of
unearned passenger revenue. Unearned Passenger Revenues are defined
as that passenger revenue received for water transportation and all
other accommodations, services and facilities relating thereto not
yet performed. 46 CFR 540.2(i).
3. Customer will deposit on the Commencement Date into the
Escrow Account cash in an amount equal to the amount of Unearned
Passenger Revenue determined under Paragraph 2 above plus a cash
amount (``the Fixed Amount'') equal to (10 percent of the Customer's
highest Unearned Passenger Revenue for the prior two fiscal years.
For periods on or after (year of agreement (2009)), the Fixed Amount
shall be determined by the Commission on an
[[Page 47455]]
annual basis, in accordance with 46 CFR part 540.
4. Customer acknowledges and agrees that until such time as a
cruise has been completed and Customer has taken the actions
described herein, Customer shall not be entitled, nor shall it have
any interest in any funds deposited with Escrow Agent to the extent
such funds represent Unearned Passenger Revenue.
5. Customer may, at any time, deposit additional funds
consisting exclusively of Unearned Passenger Revenue and the Fixed
Amount, into the Escrow Account and Escrow Agent shall accept all
such funds for deposit and shall manage all such funds pursuant to
the terms of this Agreement.
6. After the establishment of the Escrow Account, as provided in
Paragraph 1, Customer shall on a weekly basis on each (identify day
of week), or if Customer or Escrow Agent is not open for business on
(identify day of week) then on the next business day that Customer
and Escrow Agent are open for business recompute the amount of
Unearned Passenger Revenue as of the close of business on the
preceding business day (hereinafter referred to as the
``Determination Date'') and deliver a Recomputation Certificate to
Escrow Agent on such date. In each such weekly recomputation
Customer shall calculate the amount by which Unearned Passenger
Revenue has decreased due to (i) the cancellation of reservations
and the corresponding refund of monies from Customer to the persons
or entities canceling such reservations; (ii) the amount which
Customer has earned as revenue as a result of any cancellation fee
charged upon the cancellation of any reservations; (iii) the amount
which Customer has earned due to the completion of cruises; and (iv)
the amount by which Unearned Passenger Revenue has increased due to
receipts from passengers for future water transportation and all
other accommodations, services and facilities relating thereto and
not yet performed.
The amount of Unearned Passenger Revenue as recomputed shall be
compared with the amount of Unearned Passenger Revenue for the
immediately preceding period to determine whether there has been a
net increase or decrease in Unearned Passenger Revenue. If the
balance of the Escrow Account as of the Determination Date exceeds
the sum of the amount of Unearned Passenger Revenue, as recomputed,
plus the Fixed Amount then applicable, then Escrow Agent shall make
any excess funds in the Escrow Account available to Customer. If the
balance in the Escrow Account as of the Determination Date is less
than the sum of the amount of Unearned Passenger Revenue, as
recomputed, plus an amount equal to the Fixed Amount, Customer shall
deposit an amount equal to such deficiency with the Escrow Agent.
Such deposit shall be made in immediately available funds via wire
transfer or by direct transfer from the Customer's U.S. Bank
checking account before the close of business on the next business
day following the day on which the Recomputation Certificate is
received by Escrow Agent. The Escrow Agent shall promptly notify the
Commission within two business days any time a deposit required by a
Recomputation Certificate delivered to the Escrow Agent is not
timely made.
7. Customer shall furnish a Recomputation Certificate, in
substantially the form attached hereto as Annex 1, to the Federal
Maritime Commission (the ``Commission'') and to the Escrow Agent
setting forth the weekly recomputation of Unearned Passenger Revenue
required by the terms of Paragraph 6 above. Customer shall mail or
fax to the Commission and deliver to the Escrow Agent the required
Recomputation Certificate before the close of business on the
business day on which Customer recomputes the amount of Unearned
Passenger Revenue. Notwithstanding any other provision herein to the
contrary, Escrow Agent shall not make any funds available to
Customer out of the Escrow Account because of a decrease in the
amount of Unearned Passenger Revenue or otherwise, until such time
as Escrow Agent receives the above described Recomputation
Certificate from Customer, which Recomputation Certificate shall
include the Customer's verification certification in the form
attached hereto as Annex 1. The copies of each Recomputation
Certificate to be furnished to the Commission shall be mailed to the
Commission at the address provided in Paragraph 25 herein. If copies
are not mailed to the Commission, faxed or emailed copies shall be
treated with the same legal effect as if an original signature was
furnished. No repayment of the Fixed Amount may be made except upon
approval of the Commission.
Within fifteen (15) days after the end of each calendar month,
Escrow Agent shall provide to Customer and to the Commission at the
addresses provided in Paragraph 25 below, a comprehensive statement
of the Escrow Account. Such statement shall provide a list of assets
in the Escrow Account, the balance thereof as of the beginning and
end of the month together with the original cost and current market
value thereof, and shall detail all transactions that took place
with respect to the assets and investments in the Escrow Account
during the preceding month.
8. At the end of each quarter of Customer's fiscal year,
Customer shall cause the independent auditors then acting for it to
conduct an examination in accordance with generally accepted
auditing standards with respect to the weekly Recomputation
Certificates furnished by Customer of the Unearned Passenger
Revenues and the amounts to be deposited in the Escrow Account and
to express their opinion within forty-five (45) days after the end
of such quarter as to whether the calculations at the end of each
fiscal quarter are in accordance with the provisions of Paragraph 6
of this Agreement. The determination of Unearned Passenger Revenue
of such independent auditors shall have control over any computation
of Unearned Passenger Revenue by Customer in the event of any
difference between such determinations. To the extent that the
actual amount of the Escrow Account is less than the amount
determined by such independent auditors to be required to be on
deposit in the Escrow Account, Customer shall immediately deposit an
amount of cash into the Escrow Account sufficient to cause the
balance of the Escrow Account to equal the amount determined to be
so required. Such deposit shall be completed no later than the
business day after receipt by the Escrow Agent of the auditor's
opinion containing the amount of such deficiency.
The opinion of such independent auditors shall be furnished by
such auditors directly to Customer, to the Commission and to the
Escrow Agent at their addresses contained in this Agreement. In the
event that a required deposit to the Escrow Agent is not made within
one Business Day after receipt of an auditor's report or a
Recomputation Certificate, Escrow Agent shall send notification to
the Commission within the next two Business Days.
9. Escrow Agent shall invest the funds in the Escrow Account in
Qualified Investments as directed by Customer in its sole and
absolute discretion. ``Qualified Investments'' means, to the extent
permitted by applicable law:
(a) Government obligations or obligations of any agency or
instrumentality of the United States of America;
(b) Commercial paper issued by a United States company rated in
the two highest numerical ``A'' categories (without regard to
further gradation or refinement of such rating category) by Standard
& Poor's Corporation, or in the two highest numerical ``Prime''
categories (without regard to further gradation or refinement of
such rating) by Moody's Investor Services, Inc.;
(c) Certificates of deposit and money market accounts issued by
any United States bank, savings institution or trust company,
including the Escrow Agent, and time deposits of any bank, savings
institution or trust company, including the Escrow Agent, which are
fully insured by the Federal Deposit Insurance Corporation;
(d) Corporate bonds or obligations which are rated by Standard &
Poor's Corporation or Moody's Investors Service, Inc. in one of
their three highest rating categories (without regard to any
gradation or refinement of such rating category by a numerical or
other modifier); and
(e) Money market funds registered under the Federal Investment
Company Act of 1940, as amended, and whose shares are registered
under the Securities Act of 1933, as amended, and whose shares are
rated ``AAA'', ``AA + '' or ``AA'' by Standard & Poor's Corporation.
10. All interest and other profits earned on the amounts placed
in the Escrow Account shall be credited to Escrow Account.
11. This Agreement has been entered into by the parties hereto,
and the Escrow Account has been established hereunder by Customer,
to establish the financial responsibility of Customer as the owner,
operator or charterer of the passenger vessel(s) (see Exhibit A), in
accordance with 46 CFR part 540, subpart A. The Escrow Account shall
be held by Escrow Agent in accordance with the terms hereof, to be
utilized to discharge Customer's legal liability to indemnify the
passengers of the named vessel(s) for non-performance of
transportation within the meaning of 46 CFR
[[Page 47456]]
540.2(m). The Escrow Agent shall make indemnification payments
pursuant to written instructions from Customer, on which the Escrow
Agent may rely, or in the event that:
(1) The passenger makes a request for refund from the Principal
in accordance with the ticket contract. If, the ticket contract
refund procedure provides less than 180 days, this Escrow Account
shall be available after written notification to Principal.
(2) If the passenger is unable to resolve the claim within 180
days after nonperformance, as defined in 46 CFR 540.2, occurs, the
passenger may submit a claim against the Escrow Account as per
instructions on the Commission website. The claim must include a
copy of the boarding pass, proof and amount of payment, cancellation
notice, and dated proof of properly filed claim against the
Principal. All documentation must clearly display the vessel and
voyage with scheduled and actual date of sailing. And, The Escrow
Agent shall make indemnification payments pursuant to written
instructions from Customer, on which the Escrow Agent may rely, or
in the event that such legal liability has not been discharged by
Customer within twenty-one (21) days after any such passenger has
obtained a final judgment (after appeal, if any) against Customer
from a United States Federal or State Court of competent
jurisdiction the Escrow Agent is authorized to pay funds out of the
Escrow Account, after such twenty-one day period, in accordance with
and pursuant to the terms of an appropriate order of a court of
competent jurisdiction on receipt of a certified copy of such order.
(3) Valid claims must be paid within 90 days of submission to
the Escrow Agent.
As further security for Customer's obligation to provide water
transportation to passengers holding tickets for transportation on
the passenger vessel(s) (see Exhibit A) Customer will pledge to each
passenger who has made full or partial payment for future passage on
the named vessel(s) an interest in the Escrow Account equal to such
payment. Escrow Agent is hereby notified of and acknowledges such
pledges. Customers' instructions to Escrow Agent to release funds
from the Escrow Account as described in this Agreement shall
constitute a certification by Customer of the release of pledge with
respect to such funds due to completed, canceled or terminated
cruises. Furthermore, Escrow Agent agrees to hold funds in the
Escrow Account until directed by Customer or a court order to
release such funds as described in this Agreement. Escrow Agent
shall accept instructions only from Customer, acting on its own
behalf or as agent for its passengers, and shall not have any
obligations at any time to act pursuant to instructions of
Customer's passengers or any other third parties except as expressly
described herein. Escrow Agent hereby waives any right of offset to
which it is or may become entitled with regard to the funds on
deposit in the Escrow Account which constitute Unearned Passenger
Revenue.
12. Customer agrees to provide to the Escrow Agent all
information necessary to facilitate the administration of this
Agreement and the Escrow Agent may rely upon any information so
provided.
13. Customer hereby warrants and represents that it is a
corporation in good standing in its State of organization and that
is qualified to do business in the State of. Customer further
warrants and represents that (i) it possesses full power and
authority to enter into this Agreement and fulfill its obligations
hereunder and (ii) that the execution, delivery and performance of
this Agreement have been authorized and approved by all required
corporate actions.
14. Escrow Agent hereby warrants and represents that it is a
national banking association in good standing. Escrow Agent further
warrants and represents that (i) it has full power and authority to
enter into this Agreement and fulfill its obligations hereunder and
(ii) that the execution, delivery and performance of this Agreement
have been authorized and approved by all required corporate actions.
15. This Agreement shall have a term of one (1) year and shall
be automatically renewed for successive one (1) year terms unless
notice of intent not to renew is delivered to the other party to
this Agreement and to the Commission at least 90 days prior to the
expiration of the current term of this Agreement. Notice shall be
given by certified mail to the parties at the addresses provided in
Paragraph 25 below. Notice shall be given by certified mail to the
Commission at the address specified in this Agreement.
16. (a) Customer hereby agrees to indemnify and hold harmless
Escrow Agent against any and all claims, losses, damages,
liabilities, cost and expenses, including litigation, arising
hereunder, which might be imposed or incurred on Escrow Agent for
any acts or omissions of the Escrow Agent or Customer, not caused by
the negligence or willful misconduct of the Escrow Agent. The
indemnification set forth herein shall survive the resignation or
removal of the Escrow Agent and the termination of this agreement.
(b) In the event of any disagreement between parties which
result in adverse claims with respect to funds on deposit with
Escrow Agent or the threat thereof, Escrow Agent may refuse to
comply with any demands on it with respect thereto as long as such
disagreement shall continue and in so refusing, Escrow Agent need
not make any payment and Escrow Agent shall not be or become liable
in any way to Customer or any third party (whether for direct,
incidental, consequential damages or otherwise) for its failure or
refusal to comply with such demands and it shall be entitled to
continue so to refrain from acting and so refuse to act until such
conflicting or adverse demands shall finally terminate by mutual
written agreement acceptable to Escrow Agent or by a final, non-
appealable order of a court of competent jurisdiction.
17. Escrow Agent shall be entitled to such compensation for its
services hereunder as may be agreed upon from time to time by Escrow
Agent and Customer and which shall initially be set forth in a
separate letter agreement between Escrow Agent and Customer. This
Agreement shall not become effective until such letter agreement has
been executed by both parties hereto and confirmed in writing to the
Commission.
18. Customer may terminate this Agreement and engage a successor
escrow agent, after giving at least 90 days written termination
notice to Escrow Agent prior to terminating Escrow Agent if such
successor agent is a commercial bank whose passbook accounts are
insured by the Federal Deposit Insurance Corporation and such
successor agrees to the terms of this agreement, or if there is a
new agreement then such termination shall not be effective until the
new agreement is approved in writing by the Commission. Upon giving
the written notice to Customer and the Commission, Escrow Agent may
terminate any and all duties and obligations imposed on Escrow Agent
by this Agreement effective as of the date specified in such notice,
which date shall be at least 90 days after the date such notice is
given. All escrowed funds as of the termination date specified in
the notice shall be turned over to the successor escrow agent, or if
no successor escrow agent has been named within 90 days after the
giving of such notice, then all such escrowed funds for sailing
scheduled to commence after the specified termination date shall be
returned to the person who paid such passage fares upon written
approval of the Commission. In the event of any such termination
where the Escrow Agent shall be returning payments to the
passengers, then Escrow Agent shall request from Customer a list of
passenger names, addresses, deposit/fare amounts and other
information needed to make refunds. On receipt of such list, Escrow
Agent shall return all passage fares held in the Escrow Account as
of the date of termination specified in the notice to the
passengers, excepting only amounts Customer is entitled to receive
pursuant to the terms of this Agreement for cruises completed
through the termination date specified in the notice, and all
interest which shall be paid to Customer.
In the event of termination of this Agreement and if alternative
evidence of financial responsibility has been accepted by the
Commission and written evidence satisfactory to Escrow Agent of the
Commission's acceptance is presented to Escrow Agent, then Escrow
Agent shall release to Customer all passage fares held in the Escrow
Account as of the date of termination specified in the notice. In
the event of any such termination where written evidence
satisfactory to Escrow Agent of the Commission's acceptance has not
been presented to Escrow Agent, then Escrow Agent shall request from
Customer a list of passenger names, addresses, deposit/fare amounts
and other information needed to make refunds. On receipt of such
list, Escrow Agent shall return all passage fares held in the Escrow
Account as of the date of termination specified in the notice to the
passengers, excepting only amounts Customer is entitled to receive
pursuant to the terms of this Agreement for cruises completed
through the termination date specified in the notice, and all
interest which shall be paid to Customer. Upon termination, Customer
shall pay all costs and fees previously earned or incurred by Escrow
Agent through the termination date.
19. Neither Customer nor Escrow Agent shall have the right to
sell, pledge,
[[Page 47457]]
hypothecate, assign, transfer or encumber funds or assets in the
Escrow Account except in accordance with the terms of this
Agreement.
20. This Agreement is for the benefit of the parties hereto and,
accordingly, each and every provision hereof shall be enforceable by
any or each or both of them. Additionally, this Agreement shall be
enforceable by the Commission. However, this Agreement shall not be
enforceable by any other party, person or entity whatsoever.
21. (a) No amendments, modifications or other change in the
terms of this Agreement shall be effective for any purpose
whatsoever unless agreed upon in writing by Escrow Agent and
Customer and approved in writing by the Commission.
(b) No party hereto may assign its rights or obligations
hereunder without the prior written consent of the other, and unless
approved in writing by the Commission. The merger of Customer with
another entity or the transfer of a controlling interest in the
stock of Customer shall constitute an assignment hereunder for which
prior written approval of the Commission is required, which approval
shall not be unreasonably withheld.
22. The foregoing provisions shall be binding upon undersigned,
their assigns, successors and personal representative.
23. The Commission shall have the right to inspect the books and
records of the Escrow Agent and those of Customer as related to the
Escrow Account. In addition, the Commission shall have the right to
seek copies of annual audited financial statements and other
financial related information.
24. All investments, securities and assets maintained under the
Escrow Agreement will be physically located in the United States.
25. Notices relating to this Agreement shall be sent to Customer
at (address) and to Escrow Agent at (address) or to such other
address as any party hereto may hereafter designate in writing. Any
communication sent to the Commission or its successor organization
shall be sent to the following address: Bureau of Certification and
Licensing, Federal Maritime Commission, 800 North Capitol NW,
Washington, DC 20573-0001.
26. This agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and
all of which when taken together shall constitute one and the same
instrument.
27. This Agreement is made and delivered in, and shall be
construed in accordance with the laws of the State __ of without
regard to the choice of law rules.
In witness whereof, the undersigned have each caused this
Agreement to be executed on their behalf as of the date first above
written.
By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
By:--------------------------------------------------------------------
Title:-----------------------------------------------------------------
EXHIBIT A
ESCROW AGREEMENT, dated __ by and between (Customer) and (Escrow
Agent).
Passenger Vessels Owned or Chartered
ANNEX 1
RECOMPUTATION CERTIFICATE
To: Federal Maritime Commission
And To: (``Bank'')
The undersigned, the Controller of __ hereby furnishes this
Recomputation Certificate pursuant to the terms of the Escrow
Agreement dated __, between the Customer and (``Bank''). Terms
herein shall have the same definitions as those in such Escrow
Agreement and Federal Maritime Commission regulations.
I. Unearned Passenger Revenue as of (``Date'') was: $__
a. Additions to unearned Passenger Revenue since such date were:
1. Passenger Receipts: $__
2. Other (Specify) $__
3. Total Additions: $__
b. Reductions in Unearned Passenger Revenue since such date
were:
1. Completed Cruises: $__
2. Refunds and Cancellations: $__
3. Other (Specify) $__
4. Total Reductions: $__
II. Unearned Passenger Revenue as of the date of this Recomputation
Certificate is: $__
a. Excess Escrow Amount $__
III. Plus the Required Fixed Amount: $__
IV. Total Required in Escrow: $__
V. Current Balance in Escrow Account: $__
VI. Amount to be Deposited in Escrow Account: $__
VII. Amount of Escrow Account available to Operator: $__
VIII. I declare under penalty of perjury that the above information
is true and correct.
Dated:-----------------------------------------------------------------
(Signature)------------------------------------------------------------
Name:------------------------------------------------------------------
Title:-----------------------------------------------------------------
(Signature)------------------------------------------------------------
Name:------------------------------------------------------------------
Title:-----------------------------------------------------------------
By the Commission.
Rachel Dickon,
Secretary.
[FR Doc. 2021-18220 Filed 8-24-21; 8:45 am]
BILLING CODE 6730-02-P
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</html>Indexed from Federal Register on August 25, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.