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The probabilities are that the cost would be sufficiently low to preclude continued
assumption of a risk of such large proportions. A program could be devised which
would assess current and future insurance market conditions, and utilize the opti-
mum combination of continued retention by the Commission of recurring and pre-
dictable risks with insurance for catastrophic losses. This utilization would explore
what insurance company services (Loss Control, Claims Handling, Legal Defense,
etc.) could be obtained for the risk transfer premium.
From the standpoint of sound Risk Management, a coordinated, well determined
self-insurance plan for predictable risks would be supplemented by an umbrella
plan for catastrophe insurance.
3. What effect does Public Law 96-70 have on the categories of risk set forth in 1
and 2 above?
This study does not purport to render legal opinions or provide answers to legal
questions, but rather to point out the existence of such questions.
As to Public Law 96-70 the first question is what liabilities are accepted by it,
what limitations on liability are imposed by it?
From a lay standpoint, there appears to be lack of clarity between assumption of
liability and delegation of authority to the Commission to settle claims. Similarly,
there is a lack of clarity as to what, if any, limits of liability apply.
It appears that unlimited liability is accepted on claims arising within the locks,
with no strictures on the Commission authority to settle. As to claims arising out-
side the locks, there appears to be assumption of unlimited liability, but the Com-
mission's authority to settle is limited to $120,000, and Congress must settle claims
in excess of that amount.
The total impact of Chapter 4 seems to be:
a. It raises a serious question as to the Commission's power to insure the neces-
sary areas, i.e. large claims, hence divesting Congress of its settlement rights over
$120,000.
b. The uncertainty of liability and limits would pose serious underwriting prob-
lems if insurance were to be purchased.
It is felt that no sound insurance program could be developed until Chapter 4
were rewritten to eliminate areas of uncertainty and to clearly permit the use of
excess or catastrophe insurance.
4. What steps to abate or finance risks are available and what advantages do they
offer?
Under existing conditions, the first step would be to undertake a detailed risk
management study of the physical risks, coupled with an analysis of past claims.
Such a study would have as its objective, the following:
a. To what degree and at what expense could an engineered loss control program
reduce current costs and future risk?
b. What are reasonable cost projections of all risks (basically claims for damage or
injury, destruction of or damage to, property of the Commission) and what are the
optimum levels of self-assumption?
c. Could the liability of the Commission be limited to a degree which would pre-
clude the need for excess insurance? A device widely used in the private sector is by
contractual agreement, where the owner of property to be placed in the hands of
another agrees to limit the liability of the bailee. As applied to the Canal, it might
be possible to create a situation wherein the owner of a vessel might contractually
agree, as a condition of passage, to limit the liability of the Commission to a readily
fundable level. Or, by published tariffs, a limitation of liability might be incorporat-
ed as a part of the financial conditions of passage. As a practical matter, it would
appear unwise to substitute any contractual arrangement for the statutory condi-
tions of Public Law 96-70. Further, since contractual arrangements at the Canal
could only be consummated with the master of the vessel, it is doubtful that he
would have authority to bind owners, much less the shippers or passengers.
b. Should Congress be asked to amend Public Law 96-70 to limit the liability of
the Commission to readily fundable levels? There are obviously political consider-
ations in such a step which we are in no position to evaluate. Form a purely prag-
matic standpoint, it would appear rational to first evaluate the availability and cost
of financing full liability through the medium of insurance. It might be argued that
the present arrangement creates a cost pulication in that the vessel owners and
shippers are paying premium to insure their property for all risks, including pas-
sage through the Canal.
It is my opinion that the existence of full, or limited liability of the Commission
would have no noticeable effect on the insurance premiums of vessel owners or ship-
pers, since this risk is such a small part of the annual exposure.