Rule2022-05568
Passenger Vessel Financial Responsibility
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
March 17, 2022
Effective
April 18, 2022
Issuing agencies
Federal Maritime Commission
Abstract
The Federal Maritime Commission (Commission) is issuing this final rule to adopt regulatory changes to its passenger vessel operator financial responsibility requirements. The Commission is defining when nonperformance of transportation has occurred and establishing 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. In the August 25, 2021, Notice of proposed rulemaking, the Commission proposed to modify regulations to revise the definition of Unearned Passenger Revenue, adopt a definition of nonperformance of transportation, and detail the process for obtaining refunds under the PVOs' financial responsibility instruments filed with the Commission. Based on the comments received on the proposed rule, this final rule also clarifies that passengers must wait until the PVO refund period has ended as outlined in the PVO's claims procedure before making a claim against the financial instrument, or the claim has been denied by the PVO. Also, this final rule confirms that claims may be resolved between the passenger and the PVO as an alternative form of compensation. Finally, it creates a small business accommodation by delaying implementation of the new unearned passenger revenue definition by two years for small entities.
Full Text
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[Federal Register Volume 87, Number 52 (Thursday, March 17, 2022)]
[Rules and Regulations]
[Pages 15125-15137]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-05568]
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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: Final rule.
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SUMMARY: The Federal Maritime Commission (Commission) is issuing this
final rule to adopt regulatory changes to its passenger vessel operator
financial responsibility requirements. The Commission is defining when
nonperformance of transportation has occurred and establishing uniform
[[Page 15126]]
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. In the August 25, 2021, Notice of proposed rulemaking,
the Commission proposed to modify regulations to revise the definition
of Unearned Passenger Revenue, adopt a definition of nonperformance of
transportation, and detail the process for obtaining refunds under the
PVOs' financial responsibility instruments filed with the Commission.
Based on the comments received on the proposed rule, this final rule
also clarifies that passengers must wait until the PVO refund period
has ended as outlined in the PVO's claims procedure before making a
claim against the financial instrument, or the claim has been denied by
the PVO. Also, this final rule confirms that claims may be resolved
between the passenger and the PVO as an alternative form of
compensation. Finally, it creates a small business accommodation by
delaying implementation of the new unearned passenger revenue
definition by two years for small entities.
DATES:
Effective date: This rule is effective April 18, 2022.
Compliance date: For businesses that meet the criteria in the
revised 46 CFR 540.2(i), the compliance date is March 17, 2024.
ADDRESSES: Docket: To view 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: William Cody, Secretary, Phone: 202-
523-5725, Email: <a href="/cdn-cgi/l/email-protection#9be8fef8e9feeffae9e2dbfdf6f8b5fcf4ed"><span class="__cf_email__" data-cfemail="9deef8feeff8e9fcefe4ddfbf0feb3faf2eb">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Regulatory History: ANPRM and NPRM Summary
III. Discussion of Changes and Public Comments
A. Substantive Changes to the Proposed Rule
1. Process for Obtaining Refunds from PVO Financial Instruments
for Nonperformance of Transportation
2. Definition of Nonperformance
3. Definition of Unearned Passenger Revenue
4. Publishing Information on How To Obtain Refunds
5. Mutually-Agreed Settlements
6. Small Business Accommodation
B. Other Comments
1. Passenger Declaration With Refund Application
2. Legal Authority
3. Sureties' Discretion To Require Final Court Judgement
4. Passengers' Own Cancellation
IV. Regulatory Analyses
I. Introduction
The Federal Maritime Commission has broad authority pursuant to 46
U.S.C. Ch. 44101 et seq. to establish rules pertaining to PVOs'
financial responsibility instruments filed with the Commission. 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. Fact
Finding 30: Covid-19 Impact on Cruise Industry, Interim Report: Refund
Policy (July 27, 2020). This rulemaking was based on recommendations in
an Interim Report issued by the Fact Finding Officer. The Commission
has carefully considered all the comments it has received in an Advance
Notice of Proposed Rulemaking (ANPRM), 85 FR 65020 (October 29, 2020)
and a Notice of Proposed Rulemaking (NPRM), 86 FR 47441 (August 25,
2021), prior to issuing this Final Rule (FR). The NPRM contains a
detailed background of this rule. See 86 FR at 47442.
II. Regulatory History: ANPRM and NPRM Summary
On October 29, 2020, the Commission issued an Advance Notice of
Proposed Rulemaking (ANPRM) to obtain comments on potential regulatory
changes recommended in the Fact Finding 30 Interim Report on PVO refund
policies. The proposed changes were intended to provide a clear and
consistent policy toward passenger vessel ticket refunds 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. Subsequent to the ANPRM, the
Commission received 4 sets of comments; these were from Cruise Lines
International Association (CLIA); Passenger Vessel Association (PVA);
The Surety & Fidelity Association of America (SFAA); and Kacie Didier.
The Commission took these comments into consideration in developing
recommendations which were included in the Notice of Proposed
Rulemaking (NPRM).
The Commission considered the comments it received in response to
the ANPRM and adjusted the proposed regulations published on August 25,
2021. In response to the NPRM, the Commission received 82 comments from
interested parties. Of the comments received, six recommended changes
to the proposed regulatory text and are discussed below. The 76
remaining comments detailed individual disputes between passengers and
passenger vessel owners or operators but do not directly request
changes to the proposed regulatory text. The Commission appreciates the
examples provided and encourages passengers that have commented to
utilize the tools the Commission provides in this final rule. The six
comments recommending changes to the proposed rule text were filed by
Alaskan Dream Cruises (ADC), CLIA, PVA, Roanoke, SFAA, and Fredric
Lazarus. These comments are addressed in the discussion below.
III. Discussion of Changes and Public Comments
The Commission's current regulations provide that ``[n]o person in
the United States may arrange, offer, advertise or provide passage on a
vessel unless a Certificate (Performance) has been issued to or covers
such person.'' 46 CFR 540.3. Such persons must apply for a Certificate
pursuant to Section 540.4, and, per Section 540.5, provide financial
responsibility ``in an amount determined by the Commission to be no
less than 110 percent of the unearned passenger revenue of the [PVO]
applicant'' for the two immediately preceding fiscal years that reflect
the greatest amount of unearned passenger revenue. The amount of
required financial responsibility, however, is currently capped at $32
million. 46 CFR 540.9(j). This Final Rule will revise the current
regulations to include the following: (1) Implementation of the process
for obtaining refunds from PVO financial responsibility instruments for
nonperformance of transportation, (2) addition of the definition of
nonperformance and reporting requirement for instances of
nonperformance of transportation, (3) revision of the definition of
unearned passenger revenue, (4) publishing information on how to obtain
refunds, (5) acknowledgement of mutually-agreed settlements, and (6)
accommodation for PVOs that fall into the small business category.
The sample surety bond, guaranty, and escrow agreement that are set
forth
[[Page 15127]]
in the Commission's regulations are also amended. They are included in
the Appendix to this final rule.
A. Substantive Changes to the Proposed Rule
1. Process for Obtaining Refunds From PVO Financial Instruments for
Nonperformance of Transportation
The Commission's regulations do not currently prescribe how long
passengers have after nonperformance to seek a refund from a PVO's
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. Fact Finding 30
Interim Report at 12. The Commission proposed: (1) The passenger makes
a request for a 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 responsibility instrument
will be available after written notification to the Principal and (2)
If the passenger is unable to resolve the claim within 180 days after
nonperformance, as defined in 46 CFR 540.2, the passenger may submit a
claim against the financial responsibility instrument per the
instructions on the Commission website. The claim may include a copy of
the boarding pass, proof and amount of payment, cancellation notice,
and dated proof of the properly filed claim against the Principal. All
documentation submitted must clearly display the vessel and voyage with
the 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 the claim to the financial instrument provider.
In its submitted comments, CLIA requested that the Commission
change the proposed text of 46 CFR 540.9(f)(1) and (2) to read: (1) The
passenger must make a written request for a refund from the PVO in
accordance with the respective PVO's claims procedures; (2) In the
event the passenger is unable to resolve the claim within 180 days, or
such shorter refund notice period for which the PVOs claims procedure
provides, 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
Commission has considered the proposed changes submitted by CLIA and
has adopted the proposed changes with some modification. These changes
will clarify that passengers must wait until (1) the PVO refund period
has ended as outlined in the PVOs claims procedure before making a
claim against the financial instrument, or (2) the claim has been
denied by the PVO. With this minor change, the Commission adopts CLIA's
recommendation.
CLIA also proposed to revise numbered paragraphs (1) and (2) of the
Commission's proposed forms FMC-132(A), FMC-133(A) and ``Appendix A of
Escrow Agreement,'' changing the language to similarly match what they
proposed for 46 CFR 540.9(f)(1) and (2). The Commission concurs and
makes the corresponding changes to the forms.
2. Definition of Nonperformance
Congress requires that PVOs file with the Commission evidence of
financial responsibility to indemnify passengers for nonperformance of
transportation. 46 U.S.C. 44102. The Commission's regulations in 46 CFR
540 do not expressly define what constitutes nonperformance of
transportation, but the substantive provisions and required financial
responsibility instrument terms indicate that it means a PVO's failure
to provide transportation or other accommodations and services subject
to part 540, subpart A,\1\ in accordance with the terms of the ticket
contract between the PVO and passenger. See 46 CFR 540.1(a).
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\1\ 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).
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As discussed in the ANPRM and NPRM, the Commission sought comment
on adopting a definition of nonperformance of transportation. In the
ANPRM, the Commission include the following draft definition:
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.
After considering the comments received in the ANPRM to this
definition, which are discussed in the NPRM, the Commission revised the
proposed definition of nonperformance of transportation as follows:
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.
The Commission also proposed revising the language of the forms for
financial responsibility instruments (surety bonds, guaranties, and
escrow agreements) to reflect coverage in situations that meet the
added definition.\2\
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\2\ 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; and 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).
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PVA concurs with the Commission's change to the definition in the
proposed rule from delaying the boarding of passengers by more than 24
hours to delaying the voyage by three or more calendar days because it
does not believe that a 24-hour delay in sailing should constitute
nonperformance of transportation. It states that the proposed rule
embraces a more reasonable standard: a delay in sailing by three (3) or
more calendar days, if the passenger elects not to embark on the
delayed voyage or a substitute voyage.
The PVA also agrees with the change in the proposed rule excluding
from the definition of ``nonperformance of transportation'' a scenario
in which a passenger voluntarily cancels a booking at any time in
advance of the scheduled sailing. It states that if the PVO's vessel in
fact sails, there is no ``nonperformance of transportation.'' PVA
believes that the proposed definition of ``nonperformance''
satisfactorily addresses this potential problem.
The Alaska Catamaran, LLC dba Alaskan Dream Cruises (ADC) also
concurs with revised definition of nonperformance of transportation in
the proposed rule because it does not believe that a 24-hour delay in
sailing should constitute nonperformance of transportation. The ADC
concurs with the updated definition in the proposed rule of ``a delay
in sailing by three (3) or more calendar days, if the passenger elects
not to embark on the delayed voyage or a substitute voyage.'' ADC
encourages the Commission to resist suggestion to compress this
standard.
The Commission took into consideration the comments of the various
interested parties, and adopts a new definition of nonperformance of
transportation in 46 CFR 540.2.
The adoption of the definition of nonperformance of transportation
led the Commission to require PVOs to report nonperformance of
transportation events to the Commission semi-
[[Page 15128]]
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 20 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.
Also, this final rule requires all certified PVOs to report to the
Commission, as part of their semi-annual statement, instances of
nonperformance of transportation. The Commission will use the
information to analyze any PVO's nonperformance and monitor the rule's
impact on PVOs and consumers.
3. Definition of Unearned Passenger Revenue
Commission regulations currently state that the PVO financial
responsibility instruments must provide coverage for ``unearned
passenger revenue,'' (UPR) which is defined in 46 CFR 540.2(i) as
passenger revenue received for water transportation and all other
accommodations, services, and facilities relating thereto not yet
performed and includes port fees and taxes paid, but excludes such
items as airfare, hotel accommodations, and tour excursions. In the
NPRM, the Commission proposed redefining 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 includes port fees, taxes, and all
ancillary fees remitted to the PVO by the passenger. The Commission
received comments from CLIA, PVA, The Roanoke Insurance Group Inc.
(Roanoke) and ADC stating their concerns with revising the definition
of unearned passenger revenue.
CLIA proposes that the Commission's proposed definitions of
unearned passenger revenue, at 46 CFR 540.2(i), be revised by adding
the words, ``. . . excluding any non-refundable amounts advanced by the
PVO on behalf of the passenger to unaffiliated providers of goods and
services, such as payments for non-refundable airline tickets provided
to the passenger.'' CLIA believes the definition should exclude from
ancillary fees any non-refundable payments by the PVO, which CLIA says
is acting in good faith as the agent for passengers. With respect to
non-refundable airfares, CLIA maintains under most airlines' policies
the passenger may be able to apply a non-refundable airfare for a
different travel date for the passenger's benefit for up to a year
after the original scheduled flight date. CLIA further claims that
while the PVO cannot legally recoup the airfare payment for the
passenger, the passenger may use the ticket.
The PVA continues to urge the Commission not to amend the
definition of UPR. PVA believes that broadening the definition will
cause the UPR of a PVO to go up and thereby increase how much financial
responsibility must be demonstrated but that it will have no
consequence for a PVO that can currently take advantage of the
regulatory ``cap'' for financial responsibility (now at $32 million).
PVA asserts that for smaller PVOs for which the ``cap'' does not come
into play, it will increase their costs for obtaining instruments
attesting to their financial responsibility. More specifically, PVA
states, this change will increase the costs of the five PVOs that
operate ``small ship'' U.S.-flagged overnight cruise vessels.
The PVA further states that travel providers that offer land-based
package trips with advance collection of fees for airfare, hotel
accommodations, and third-party tours will not be subject to this
requirement and the land-based travel companies often compete directly
with ``small ship'' U.S-flagged PVOs in Alaska and elsewhere. PVA
claims that in the rare instances of ``nonperformance of
transportation,'' the passengers are not without remedies--the PVO is
likely to provide voluntary refunds (or if the customer agrees, credits
for future travel) or the customer can obtain reimbursement from a
credit card company.
Roanoke believes that the expanded definition of UPR may likely
cause surety companies to be more reluctant to provide larger bonds to
PVOs or make them available on pricing and/or collateral terms more
expensive than they would be for a smaller bond amount. The revision
will cause the calculation of UPR to be a higher amount than it would
be under the current rule. This higher amount means that bond, if not
already at the cap, would be for a larger amount. The financial
structure of the PVO, however, would remain unchanged or could be more
leveraged.
Roanoke further states that the financial structure and business
nature of the cruise industry requires large dollar fixed assets, large
dollar capitalization (often debt many times greater than equity), and
meaningful current liabilities (unearned passenger revenue) since
cruises are often booked over a year in advance. This high leverage
business model makes bonding expensive or difficult to obtain unless
adequate collateral security is posted with the surety. In Roanoke's
experience, increasing to larger bond amounts would typically mean the
surety would require a higher amount of collateral and charge a higher
premium than is required by smaller bond amounts under the current
rule.
ADC is a member of PVA, and a portion of their submitted comments
echoed exactly the comments submitted by PVA and discussed above. ADC
believes that broadening the definition will cause the UPR to go up and
thereby increase how much financial responsibility must be
demonstrated. ADC believes this will have no consequence for a PVO that
can take advantage of the regulatory ``cap'' for financial
responsibility (now at $32 million). The ADC asserts that for smaller
PVOs, the cap does not come into play, and it will increase their costs
for obtaining instruments attesting to financial responsibility, at a
time when they are receiving great pressure from their bonding company
to reduce their bond exposure through all steps necessary.
The ADC further claims that travel providers that offer land-based
package trips with advance collection of fees for airfare, hotel
accommodations, and third-party tours will not be subject to this
requirement; these land-based travel companies often compete directly
with ``small ship'' U.S.-flagged PVOs. According to ADC, in the rare
instances of ``nonperformance of transportation,'' the passengers are
not without remedies as demonstrated by ADC work during 2020 when they
either refunded passengers or the passengers volunteered to move their
travel to a future year.
In addition, ADC stated that it is under contract with their credit
card processor to hold funds received to use in the event the company
is unable to refund passengers. During the COVID-19 pandemic, their
credit card company increased ADC's cash on deposit from $300,000 to $2
million. ADC believes that the UPR definition in the proposed rule
would significantly damage the company's ability to meet its financial
obligations.
The Commission adopts the definition of 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
[[Page 15129]]
port fees, taxes and all ancillary fees submitted to the PVO by the
passenger. The Commission, therefore, continues to believe that to
provide better protection to passengers, and because PVOs have the
existing relationship with the providers of ancillary services, the
PVOs should be responsible for refunding all monies collected by the
PVOs for all services not yet performed.
4. Publishing Information on How To Obtain Refunds
The Commission received one comment in reference to publishing
information on how to obtain refunds. The PVA commented that it agrees
with the Commission's suggestion of developing a template to place on
its website with instructions for how a passenger might file a claim
asserting ``nonperformance of transportation.''
In this final rule, the Commission is revising part 540.9 to
include a new paragraph (f) describing the process a passenger can use
to obtain a refund in the event of nonperformance. Also, a new
paragraph (i) will require PVOs to provide clear instructions on their
websites for how passengers may obtain refunds in the event of
nonperformance. The Commission believes that asking PVOs to provide
this type of information on their websites will provide passengers with
clear and concise instructions to follow when requesting refunds for
nonperformance of transportation.
The Commission will also include the PVOs' active web page address
to the Commission's own website. Additionally, Form FMC-131
``Application for Certificate of Financial Responsibility'' will be
updated to provide a required field for PVOs to provide the web page
address of their refund instructions for nonperformance of
transportation.
5. Mutually-Agreed Settlements
Mutually-agreed settlements were not specifically discussed in the
NPRM. However, CLIA requested as part of their comments that the
Commission add a new paragraph reading, ``Nothing in this rule shall be
interpreted to preclude the passenger and the PVO from entering into an
alternative form of compensation in full satisfaction of a required
refund, such as a future cruise credit.'' The Commission agrees with
CLIA that the added paragraph makes it clear that claims may be
resolved between the passenger and the PVO as an alternative form of
compensation. The Commission's proposed definition of nonperformance
does not preclude alternative forms of compensation, such as a future
cruise credit. Thus, the Commission adopts CLIA's suggestion.
6. Small Business Accommodations
The Regulatory Flexibility Act analysis below suggests that the
rule may have a substantial economic impact on small PVOs. The
Commission has elected to delay the implementation of this rule with
respect to small entities. This accommodation for small businesses will
be discussed in depth in Section V, Regulatory Analyses.
B. Other Comments
1. Passenger Declaration With Refund Application
CLIA recommends that passengers applying for refunds sign and
submit with the application a declaration that they have not received
compensation from an alternative party. CLIA believes that the
following statement should be included, ``Under penalty of perjury,
that the passenger, to the best of his/her/their knowledge, is due the
refund sought and has not recovered and will not recover any portion of
the refund sought from the cruise line or any other source, such as
cancellation insurance or a credit card refund, and the passenger has
not accepted an alternative form of compensation from the PVO, such as
a future cruise credit, in full satisfaction of the refund.'' The
Commission understands CLIA's concerns for possible duplicative refund
claims by passengers. The Commission, however, does not regulate
financial instrument providers. Financial instrument providers may
follow their own claim procedure, and it is up to them whether to
require the suggested declaration from passengers submitting claims.
2. Legal Authority
PVA restated that it does not believe the Commission has legal
authority to issue a rule on nonperformance of transportation and
refund policy. PVA claims that 46 U.S.C. 44102 does not grant legal
authority to the Commission to address the matter of what constitutes
nonperformance. PVA further asserts the Commission lacks the legal
authority to issue a rule mandating when and how passenger refunds are
payable in the event of nonperformance of transportation.
The statute requires PVOs to file with the Commission evidence of
financial responsibility to indemnify passengers for nonperformance of
transportation. 46 U.S.C. 44102. The statute states that satisfactory
evidence includes the information the Commission considers necessary
and must be filed in the forms required by the Commission's regulation.
46 U.S.C. 44102 (a)-(b). Further, the Commission has broad authority to
``prescribe regulations to carry out its duties and powers.'' 46 U.S.C.
46105(a).
To satisfy the statutory mandate of protecting passengers from
nonperformance of transportation, the Commission believes that it must
clarify what constitutes nonperformance and what is UPR. Without clear
definitions of those terms, the cruise industry and passengers may
continue to experience confusion as to when and how to indemnify
passengers for nonperformance under the submitted financial
responsibility instruments. This final rule does not regulate PVOs' own
practice or policy of indemnifying passengers for nonperformance.
Rather, the Commission clarifies when and how nonperformance may be
covered under the financial responsibility instruments that must be
submitted to the Commission by PVOs. The Commission has the statutory
authority to implement these changes.
3. Sureties' Discretion To Require a Final Court Judgment
SFAA recommends that the Commission add to the rule the surety's
authority to require a ``final court judgment'' prior to paying a
claim. SFAA recommends that the provision providing that authority be
included in the new proposed bond form. It recommends that Commission
add that authority to the Commission's regulations to make clear that
only judgments finally adjudicated by a court are acceptable.
The Commission does not adopt SFAA's recommendation. The Commission
believes that it is better to allow the sureties establish their own
claim procedures satisfying their obligation under the surety bonds
submitted to the Commission.
4. Passengers' Own Cancellation
The Commission received a comment from Mr. Fredric Lazarus who
stated that refunds should take place when (a) the passenger cancels a
booking after the declaration by the Secretary of Health and Human
Services of a nationwide Public Health Emergency and (b) the scheduled
sailing is ultimately delayed or cancelled by the passenger vessel
operator (PVO).
Presently, PVOs are required to file with the Commission evidence
of financial responsibility to indemnify passengers for nonperformance
of transportation. 46 U.S.C. 44102. The adopted definition of
nonperformance also provides that it means cancellation
[[Page 15130]]
or significant delay of voyages by PVOs. Passengers' own cancellation
does not constitute a nonperformance by PVOs that should be covered by
the PVOs financial responsibility instruments for nonperformance.
IV. Rulemaking Analyses
Regulatory Flexibility Act
Final Regulatory Flexibility Analysis
Under the Regulatory Flexibility Act (RFA), whenever an agency
promulgates a final rule after being required to publish a proposed
rulemaking under the Administrative Procedure Act (5 U.S.C. 553), the
agency must prepare and make available a Final Regulatory Flexibility
Analysis (FRFA) describing the impact of the rule on small entities,
unless the head of the agency certifies that the rulemaking will not
have a significant economic impact on a substantial number of small
entities. 5 U.S.C. 604-605. Below is the FRFA for this final rule.
Need for and Objectives of the Passenger Vessel Financial
Responsibility Regulation
This rulemaking stems from the Commission's Fact Finding
Investigation No. 30: COVID-19 Impact on Cruise Industry on PVO refund
policies. Fact Finding 30's Interim Report concluded that clearer
guidance is needed to determine 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. As part of the report, the
Fact-Finding Officer recommended making regulatory changes with respect
to the definition of nonperformance and to make clear how passengers
may obtain refunds under the PVOs' financial responsibility instruments
filed with the Commission.
This final rule establishes when passengers are entitled to a
refund for nonperformance of transportation. First, the rule
establishes a timeline for when a refund request can occur and requires
PVOs to provide clear and precise instructions on how passengers may
request refunds in the event of nonperformance. Second, it clarifies
that nothing in the rulemaking precludes the passenger and PVO from
entering into a mutually agreed settlement such as a future cruise
credit. Third, it creates a small business accommodation by delaying
implementation of the new UPR definition by two years for small
entities. Fourth, it adds a definition of nonperformance which entitles
passengers to a refund of their prepaid fares when voyages are canceled
or delayed for three or more calendar days and the passenger does not
opt to accept an alternative voyage. Finally, it changes the definition
of UPR to include ancillary fees such as airfare, hotel accommodations,
and tour excursions if the PVO offers and collects monies from the
passenger for such services.
Significant Comments in Response to the IRFA
The Commission discussed comments received in response to the NPRM
in Section IV above. Two commenters touched on issues related to the
Initial Regulatory Flexibility Analysis (IRFA), and the commenters
either are or represent small PVOs. The PVA believes that small PVOs
may be disproportionately impacted by the regulation based on the
regulation's broadening definition of UPR. PVA argues that by including
ancillary fees for services collected by the PVO in the definition of
UPR, UPR will increase. PVA states that large PVOs will not have to
demonstrate any additional financial responsibility because of the cap
on coverage demonstrating financial responsibility for UPR. The cap is
currently set at $32 million and many large PVOs likely exceed the cap
while small PVOs likely do not. PVA contends that UPR should not
include ancillary fees collected by PVOs and expresses concerns
companies offering financial instruments may leave the market because
of the regulation. The SFAA also expressed concerns that some of the
proposed changes in the regulation may reduce the number of surety
companies offering financial responsibility instruments to PVOs. ADC
expressed similar concerns regarding UPR. ADC believes the increased
costs of instruments to demonstrate financial responsibility for UPR
could be as high as $1-$1.5 million for the small family-owned
business. Both PVA and ADC asked for the rule to not be adopted.
As part of the IRFA, the Commission considered alternatives for
small entities including exemption from the rule, delayed compliance
with the rule, and an alternative definition of nonperformance. The
Commission ultimately decided the best way to balance the need for
consumer protections while minimizing the impact on small entities was
to delay the new definition of UPR for small entities. Therefore, the
new definition of UPR created by this rulemaking will apply to small
entities two years after the effective date of the regulation for all
other PVOs. During this two-year period, the existing definition of UPR
prior to this proposed rulemaking will remain in effect for small
entities. The Commission believes the delay will lessen potentially
disproportionate impacts of the regulation on small PVOs.
The Commission defines and identifies small entities according to
the Small Business Administration (SBA) regulations in 13 CFR 121.201.
PVOs typically fall under the classification of the North American
Industry Classification System (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. PVOs operating
exclusively on coastal, the Great Lakes, and inland waterways fall
under NAISC codes 483114 and 483212 and qualify as small if they have a
total number of 500 employees or less. Although 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
purpose of receiving regulatory relief under the RFA. See 13 CFR
121.106(b).
As noted above, small PVOs expressed concerns about the regulation
increasing the costs of financial responsibility instruments to
demonstrate financial responsibility for nonperformance. Part of the
concern is the uncertainty around how financial responsibility products
will be priced given the expanded definition of UPR and new definition
of nonperformance. A two-year delay of the new definition of UPR for
small PVOs will allow the market for financial responsibility
instruments to adjust. Providers of such financial responsibility
instruments can analyze how the new definitions of UPR and
nonperformance will impact large PVOs and better price such products
for small PVOs after the delay. Large PVOs are likely better able to
absorb potential costs of the regulation due to larger volume of sales,
likely higher cash reserves, and the monetary cap on the amount of
financial responsibility for nonperformance. The two-year delay will
also allow small PVOs the chance to have two full seasons of operation
to adjust to the coming regulatory changes. Small PVOs will have the
opportunity to evaluate their business practices for potential changes
that may make it less costly to comply with the regulation's
requirements and learn from changes already implemented by large PVOs.
Description and Estimate of the Number of Small Entities Effected
As part of the IRFA, the Commission estimated the number of small
entities, small PVOs, to which the proposed rule would apply. The same
methodology from the IRFA was used for the FRFA.
[[Page 15131]]
The Commission does not believe market conditions have changed to
impact the number of small PVOs nor has the regulation changed enough
between the IRFA and the FRFA that additional small PVOs would be
impacted.
The SBA has established regulations to determine whether businesses
qualify as small entities. 13 CFR part 121. The regulations use the
NAICS with codes and descriptions to classify businesses and measure
their size by either annual receipts (gross annual revenue) or number
of employees. See 13 CFR subpart A--Size Eligibility Provisions and
Standards (January 1, 2020). 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. See 13 CFR 121.104 and 121.106.
The final rule modifies the regulations in 46 CFR part 540
governing evidence of PVOs financial responsibility for nonperformance
of transportation. The regulated businesses that the 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 codes 483112, 483114, and 483212. For Deep Sea
Passenger Transportation, businesses with a total number of 1,500
employees or less qualify as small. For coastal, the Great Lakes, and
inland waters passenger transportation, businesses with a total of 500
employees or less qualify as small. Accordingly, the Commission
estimates that 14 out of the 43 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 or 500 depending on where the
PVO operates, lines that are subsidiaries of much larger companies
would not qualify as small entities for the purpose of receiving
regulatory relief under the RFA. See 13 CFR 121.106(b).
Projected Reporting, Recordkeeping, and Other Compliance Requirements
Cost to Government
The Commission estimates the total annual cost of this final 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.
Recordkeeping and Filing Costs to PVOs
The final 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
As part of the IRFA, the Commission discussed the types of costs
likely to be incurred by PVOs and the challenges associated with
accurately quantifying these costs. The Commission sought comments on
additional data and methods that could help quantify compliance costs.
ADC was the only commenter who responded with an estimate of compliance
cost and believes the increased costs of instruments to demonstrate
financial responsibility for nonperformance could be as high as $1-$1.5
million for their small family-owned business.
In the IRFA, the Commission discussed what it believes to be the
current costs to demonstrate financial responsibility for
nonperformance. Based on interviews with PVOs as part of the
investigation in Fact Finding No. 30 and its additional research, the
Commission estimates the cost of premiums for nonperformance coverage
to range from $75,000 for the smallest of PVOs to around $600,000 for
the largest. The total cost of current nonperformance coverage for all
PVOs is estimated to be around $9,830,000. The Commission believes the
regulation may increase the cost of nonperformance coverage to PVOs by
25 percent due to the change in the definition of nonperformance and
UPR. The Commission estimates the percentage increase in premiums based
on discussions it had with members of the financial services industry.
Assuming a 25 percent increase, nonperformance coverage would increase
by $2,457,500 to a total of $12,287,500. 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.
[GRAPHIC] [TIFF OMITTED] TR17MR22.000
Determining exactly how much premiums will rise as a result of this
regulation is difficult. Several factors impact the cost of premiums
such as the incidence rate of nonperformance, how many customers would
choose refunds over future cruise credits, and the total amount of
ancillary fees collected by PVOs under the new definition of UPR. While
the Commission was able to find data on rates of nonperformance, it was
not able to find the other types of data necessary to fully quantify
the costs of the regulation on PVOs. To minimize potential impacts to
small PVOs, the Commission decided to delay compliance with the
regulation for small PVOs. Based on the delay, the increase in the cost
of premiums for small PVOs may be less than the initially estimated 25
percent increase.
[[Page 15132]]
Steps To Minimize Significant Economic Impacts on Small Entities
As part of complying with the RFA, the Commission estimated the
number of small entities that would be impacted by this rulemaking. The
Commission was not able to ascertain that the proposed rule would not
have a significant economic impact on a substantial number of small
entities and thus provided an IRFA in the NPRM. As part of the IRFA,
the Commission considered three alternatives for small entities
including exemption from the regulation, delayed compliance with the
regulation, and a separate definition of nonperformance with a longer
time period. The Commission decided that the best way to minimize the
economic impacts on small entities while maintaining consumer
protections would be to delay for two years the new definition of UPR
in the rulemaking for small entities. Small entities will have two
additional years before they have to comply with the new definition of
UPR during which time they will have the opportunity to better
understand and adjust to how the new definition will impact their
businesses. The Commission believes the delay will lessen potential
impacts stemming from the regulation on small entities.
National Environmental Policy Act
The Commission's regulations categorically exclude certain actions
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 final rule discusses
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 in part 540 are currently
authorized under OMB Control Number 3072-0012. In compliance with the
PRA, the Commission submitted the proposed revised information
collection to the Office of Management and Budget. Notice of the
revised information collections was published in the Federal Register
and public comments were invited. See 86 FR 47441 (Aug. 25, 2021).
No comments specifically addressed the revised information
collection in part 540.
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>.
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 amends 46 CFR part 540 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:
0
a. Revising paragraph (i); and
0
b. Adding Paragraph (m).
The revision and addition read as follows:
Sec. 540.2 Definitions.
* * * * *
(i) Unearned Passenger Revenue means: (1) 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;
(2) From March 17, 2022 through March 17, 2024, for small
businesses that operate in deep sea waters and have 1,500 or fewer
employees or operate exclusively in coastal, Great Lakes, and inland
water ways and have 500 or fewer employees, Unearned Passenger Revenue
means 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.
* * * * *
(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
0
a. Adding paragraph (f);
0
b. Revising paragraph (h); and
0
c. Adding paragraph (i).
The additions and revision 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 procedure.
(2) In the event the passenger is unable to resolve the claim
within 180 days, or such shorter claim resolution period for which the
PVO's claims procedure provides, 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 may 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 (f)(1) of this section. All
documentation must clearly display the vessel and voyage with the
scheduled and actual date of sailing.
(3) Nothing in this rule shall be interpreted to preclude the
consumer and the PVO from entering into an alternative form of
compensation in full
[[Page 15133]]
satisfaction of a required refund, such as a future cruise credit.
* * * * *
(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 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, DC 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. Revise Form FMC-132A to Subpart A of Part 540 to read as 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.
(2) In the event the passenger is unable to resolve the claim
within 180 days, or such shorter claim resolution period for which the
PVO's claims procedure provides, after nonperformance of transportation
occurs or if the claim is denied by the PVO, the passenger may submit a
claim against the bond as per instructions on the Commission's website.
The claim may 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.
[[Page 15134]]
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 the obligations of surety and financial ability to discharge
them.
0
5. Revise Form FMC-133A to Subpart A of Part 540 to read as 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.
(2) In the event the passenger is unable to resolve the claim
within 180 days, or such shorter claim resolution period for which the
PVO's claims procedure provides, after nonperformance of transportation
occurs or if the claim is denied by the PVO, the passenger may submit a
claim against the Guaranty as per instructions on the Commission
website. The claim may 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
0
6. Revise Appendix A to Subpart A of Part 540 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
[[Page 15135]]
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 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,
[[Page 15136]]
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 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.
(2) In the event the passenger is unable to resolve the claim
within 180 days, or such shorter claim resolution period for which
the PVO's claims procedure provides, after nonperformance of
transportation occurs or if the claim is denied by the PVO, the
passenger may submit a claim against the Escrow Account as per
instructions on the Commission website. The claim may 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. 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
[[Page 15137]]
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, 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.
William Cody,
Secretary.
[FR Doc. 2022-05568 Filed 3-16-22; 8:45 am]
BILLING CODE 6730-02-P
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</html>Indexed from Federal Register on March 17, 2022.
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.