BEFORE THE 

· · COMMITTEE ON 

/OUTER CONTINENTAL SHELF 

OF THE 

COMMITTEE ON 

MERCHANT MARW]J AND" FISHERIES 

HOUSE OF REPRESENTATIVES 

NINETY-SEVENTH CONGRESS 

SECOND SESSION 

ON 

THE AMENDING. OF THE PANAMA CANAL ACT OF 1979 CONCERNING 

THE PANAMA CANAL COMMISSION'S AUTHORITY TO ADJUST ANDPAY CLAIMS FOR VESSEL DAMAGE; THE COMMISSION'S ACCOUNTING 

METHODS IN SETTING ASIDE TOLL REVENUES TO PAY CLAIMS,; AND 

THE STATUS OF PENDING VESSEL DAMAGE CLAIMS · 

DECE.MBER 2, 1982 

Serial No. 97-46 

Printed for the use of the Committee on Merchant Marine and Fisheries 

12-978 

U.S. GOVERNMENT PRINTING OFFICE · 

WAS~INGTON : 1982 
I/ 

COMMITIEE ON MERCHANT MARINE i\ D .F-I.SljERIES : ., /. 

'~ ·t - rF'~ 

WALTER B. JONES, North Carolina, Cna· man .- _,,,/ 

MARIO BIAGGI, New York GENE SNYDER, Kentucky 

GLENN M. ANDERSON, California PAUL N. McCLOSKEY, JR., California 

JOHN B. BREAUX, Louisiana EDWIN B. FORSYTHE, New Jersey 

GERRY E. STUDDS, Massachusetts JOEL PRITCHARD, Washington 

DAVID R. BOWEN, Mississippi DON YOUNG, Alaska 

CARROLL HUBBARD, JR., Kentucky NORMAN F. LENT, New York 

DON BONKER, Washington DAVID F. EMERY, Maine 

NORMAN E. D'AMOURS, New Hampshire THOMAS B. EVANS, JR., Delaware 

JAMES L. OBERSTAR, Minnesota ROBERT W. DAVIS, Michigan 

WILLIAM J. HUGHES, New Jersey WILLIAM CARNEY, New York 

BARBARA A. MIKULSKI, Maryland CHARLES F. DOUGHERTY, Pennsylvania 

EARL HUTTO, Florida NORMAND. SHUMWAY, California 

BRIAN J. DONNELLY, Massachusetts JACK FIELDS, Texas 

W. J. (BILLY) TAUZIN, Louisiana CLAUDINE SCHNEIDER, Rhode Island 

THOMAS M. FOGLIETTA, Pennsylvania JEANS. ASHBROOK, Ohio 

WILLIAM N. PATMAN, Texas 

FOFO I. F. SUNIA, American Samoa 

DENNIS M. HERTEL, Michigan 

ROY DYSON, Maryland 

JOSEPH F. SMITH, Pennsylvania 

EDMUND B. WELCH, Chief Counsel 

MICHAEL J. TOOHEY, Minority Staff Director 

SUBCOMMITTEE ON PANAMA CANAL/OUTER CONTINENTAL SHELF 

CARROLL HUBBARD, JR., Kentucky 

JOHN B. BREAUX, Louisiana NORMAN F. LENT, New York · 

DAVID R. BOWEN, Mississippi EDWIN B. FORSYTHE, New Jersey 

THOMAS M. FOGLIETTA, Pennsylvania DON YOUNG, Alaska 

GLENN M. ANDERSON, California DAVID F. EMERY, Maine 

BARBARA A. MIKULSKI, Maryland WILLIAM CARNEY, New York 

W. J. (BILLY) TAUZIN, Louisiana JACK FIELDS, Texas 

JOSEPH F. SMITH, Pennsylvania GENE SNYDER, Kentucky 

WALTER B. JONES, North Carolina (Ex Officio) 

(Ex Officio) 

JANIE LAWSON, Staff Director 

JANA RuE OAKLEY, Clerk 

ROBIN. McCLUNG, Minority Professional Staff 

Bun DRAGO, Minority . Counsel 

(II) 
CONTENTS .. · 

Page 

· Hearing held December 2, 1982 ............................................................................ : ... -.. ~-.. .. · --1--

Statement of: 

American Hull Insurance Syndicate (prepared statement) ............................. 114 

Beale, Almer W., II, Esq., Toole, Taylor, Moseley & Joyner, representing 

the Maritime Law Association of the United States..................................... 101 

Prepared statement.......................................................................................... 104 

Brown, Richard H., Jr., Esq., Kirlin, Campbell & Keating, representing 

the American Steamship Owners Mutual Protection & Indemnity Association, Inc............................................................................................................. 96 

Prepared statement.......................................................................................... 97 

Burke, Raymond, Jr., Esq., Burke & Parsons..................................................... 72 · Corrado, Ernest, vice president, American Institute of Merchant Shipping 72 

Prepared statement.......................................................................................... 82 

Gianelli, William R., Assistant Secretary of the Army (Civil Works), and 

Chairman of the Board of Directors, Panama Canal Commission.............. 9 

Gotimer, Harry, Esq., Kirlin, Campbell & Keating ..................................... ~..... 72 

Prepared statement···············.···········................................................................. 86 

Jones, Hon. Walter B., chairman, Merchant Marine and Fisheries Committee...................................................................................................................... 2 

Kujawa, Leonard J., partner, Arthur Andersen & Co...................................... 64 

Prepared statement.......................................................................................... 67 

Luciano, Peter, executive director, Transportation Institute.......................... 72 · McAuliffe, Dennis P., Administrator, Panam~ Canal Commission ............... 9, 108 

Prep~red statement.......................................................................................... 12 

Phillips, Bob, Esq., Texaco...................................................................................... 7~ 

Smith, Waller B., Risk Manager to the Panama Canal Commission (prepared statement) .............................. .-...... !····························································· 112 · U.S. General Accounting Office, International Division (prepared statement) ............................................................................................ .-.......................... 110 

Additional material supplied: ·Jones, Hon. Walter B.: Subcommittee staff memorandum to members of 

~he S~bcom~ittee on Panama Canal/Outer Continental Shelf regarding this hearing..................................................................................................... 3 

Kujawa, Leonard J.: Questions submitted by Mr. H:ubbard and the answers ....................................... ~ ................................................ ~.............................. 108 

Panama Canal Commission: 

Questions submitted by Mr. Hubbard and the answers .................... .-....... 16 

Questions submitted by Mr. Lent and the answers................................... 53 

Status of claims against the Panama Canal Commission arising from 

vessel accidents occurring after September .30, 1979 ............................. 38 

Status of claims against the Panama Canal Company for fiscal years 

1977-79 ......................................................... ~.................................................. 25 

Transportation Institute: 

Comparative print-Title 22........................................................................... 76 

Proposed amendment to Title 22, United States Code.............................. 75 

Communication submitted: 

Beale, Almer W., II: Letter of December 10, 1982, to Hon. Carroll Hubbard ............. -................................................................................................... -....... 109 

um 

PAN AMA CANAL ACT OF 1979 

THURSDAY, DECEMBER 2, 1982 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON PANAMA CANAL/ . OUTER CONTINENTAL SHELF, 

COMMITTEE ON MERCHANT MARINE AND FISHERIES,. 

Washington, D.C. 

The subcommittee met, pursuant to call, at 10:30 a.m., in room 

1334, Longworth House Office Building, Hon. Carroll Hubbard, Jr. 

(chairman of the subcommittee) presiding. 

Present: Representatives Hubbard, Anderson, Tauzin, Sunia, 

Lent, and Carney. 

Also present: Jana Oakley, Janie· Lawson, John Long, Robin 

McClung, and Ed Welch. . Mr. HUBBARD. The Subcommittee on Panama Canal and Outer 

Continental Shelf will come to order. . We do have three members present, .all .on the majority side. We 

still do not have any representation from the minority side. However, I have been advised that none of theni will object to our proceeding. 

Congressman Anderson, Congressman Tauzin and I welcome our 

distinguished colleague, Mr. Sunia, who sits in witness today. He is 

a member of the full committee. We appreciate him very much for 

being here for our subcommittee hearing. 

Mr. SuNIA. Thank you. 

Mr. HUBBARD. The subcommittee has scheduled an oversight 

hearing for this morning to receive testimony from various interested parties on the possibility of amending the Panama Canal Act 

of 1979 concerning the Panama Canal Commission's authority to 

adjust and pay claims for vessel damage. Also to be discussed are 

the Commission's accounting methods in setting aside toll revenues 

to pay claims, and the status of pending vessel damage claims outside the locks exceeding $120,000. 

Briefly .summarizing the current law, the Panama Canal Act of 

1979 directs the Panama Canal Commission to "adjust and pay" 

claims -on any vessel for damage which occurs while transiting the 

Panama Canal. The act divides these claims into two categoriesinside the locks and outside the locks. If a vessel is damaged inside 

the locks, there is no limit on the amount the Commission may 

award. If a vessel is damaged outside the locks, the Commission 

may pay only those claims not exceeding $120,000. Any claims for 

outside-the-locks damage greater than $120,000 must be submitted 

by the Commission to Congress along with a report stating the 

facts behind the claim and the Commission's recommendation for 

(1) 
2 

settlement. For the first time two claims exceeding the $120,000 

limit were submitted to Congress on November 10 of this year. 

A briefing memo was made available to subcommittee members 

earlier this week and is in the members' folders. The memo details 

the information about the current law and prior law for adjusting 

and paying these claims. 

This subcommittee has been contacted about this issue by several 

interested parties, some of whom are testifying before us today. 

We appreciate your taking the time from your schedules to 

appear before us this morning, and we look forward to receiving 

your remarks. 

We do have a statement for the record on behalf of the full committee chairman, the Honorable Walter B. Jones. Without objection, the full statement of Chairman Jones will be entered into the 

record. 

[The statement of Walter B. Jones follows:] 

STATEMENT OF HON. WALTER B. JONES, CHAIRMAN, MERCHANT MARINE AND 

FISHERIES COMMITTEE 

By way of introduction to the issues we will consider today, let me mention briefly 

some of the background of this hearing. During the Panama Canal Commission authorization process last year, the committee became aware-after meetings with 

commission financial staff-that approximately $12 million per year in toll revenue 

is earmarked for the payment of vessel damage claims. Of that amount, the Commission allocates $6 million for the payment of claims for damage that occurs outside the canal locks where the claim exceeds $120,000. The committee questioned 

whether this $6 million annual set-aside was appropriate in view of the fact that 

section 1415(b) of the Panama Canal Act of 1979, 22 U.S.C. 3775, specifically prohibits the Commission from adjusting or paying any such claims. Under that section, 

claims for outside-the-locks damage exceeding $120,000 must be referred to Congress. 

The Commission argued that while the law precluded their paying any of these 

claims, it did not bar collecting tolls for that purpose. Doing so, they asserted, was 

simply a prudent business practice since the cl~ims forwarded to Congress would, in 

all probability, eventually be paid out of Commission funds. The Commission felt 

that Congress would not, and under the 1979 Panama Canal Act arguably could not, 

pay such claims from the General Fund of the Treasury. 

One reason for this hearing, therefore, is to inquire into whose interpretation of 

the Panama Canal Act of 1979 is more accurate, and having examined that question, to determine whether any changes in the law are needed. The Commission 

may not disobey the law simply because it disagrees. On the other hand, Congress 

should not unnecessariy mandate adherence to rules of operation that are illogical 

or will be detrimental to the efficient and economical operation of the canal. 

The other primary motivation for this hearing is the complaint by some canal 

users that the Panama Canal Act of 1979 unfairly restricts the rights of vessel 

damage claimants. Under sections 1412 and 1416 of the act, 22 U.S.C. 3772 and 3776, 

the Panama Canal Commission has no power to settle claims for outside-the-locks 

damage exceeding $120,000, and in no case may a claimant sue on any non-locks 

claim. Thus, the Commission may pay non-locks claims under $120,000 but the 

award cannot be appealed to court. Similar claims over $120,000 must be settled by 

Congress, and again, cannot be taken to court. We meet today to consider various 

options relating to this claims situation. 

Mr. Chairman, at this point I would ask unanimous consent that the staff background memorandum on these matters be included in the hearing record immediately following my statement. The memorandum elaborates on the issues we will 

discuss here today and puts them in historical perspective. I think it will helpful to 

those interested in these proceedings. 
TO: 

3 

11.~. J,o~e of P.epresentatibt~ 

~ommittet on 

fflmbant .marine anb jf isbeties 

ltoom 1334, 'i.angtuortb J,ou.ut 6ffice ,Suilbing 

aa.ubington. a.~. 20515 

November 30, 1982 

M E M O R A N D U M 

FROM: 

Members, Subcommittee on Panama Canal/Outer Continental Shelf 

Subcommittee Staff 

RE: Hearing on Vessel Damage Claims Against the Panama Canal 

Commission, December 2, 1982 

INTRODUCTION 

On Thursday, December 2, 1982, at 10:00 am, in 1334 Longworth, the 

Panama Canai/outer Continental Shelf Subcommittee will hold a hearing 

on vessel damage claims against the Panama Canal Commission. The 

hearing will focus primarily on three areas_: · 

(1) The status of pending vessel damage claims exceeding $120,000; 

(2) The Commission's accounting methods in setting aside toll 

revenues to pay vessel damage claims; and 

(3) The possible amendment of the Panama Canal Act of 1979 to 

change t~e Commiss1ofi's authority to pay claims. 

CURRENT LAW 

The Panama Canal Act of 1979 (the Act1 ., Public Law 96-70, di~ec~s 

the Panama Canal Commission (the Commission) to nadjust and pay" 

claims for damage to any vessel, its cargo, crew, or passengers that 

occurs while the vessel is passing through the P~nama Canal. The Act 

divides· these claims into two categories -- inside ·the locks and 

outside the locks. 

Under section 1411 of the Act, 22 u;s.c. 3771, if a vessel is 

damaged while inside the locks, there is no limit on the amount the 

Commission may award, although the award must be reduced in proportion 

to the contributory negligence of the vessel master, crew, or 

passengers.· However, since Commission employees exercise virtually 

total control over a vessel while it is inside the locks, the 

Commission is essentially an insurer of all claims for damage arising 
4 

inside the locks. If an inside-the-locks claimant disagrees with the 

amount offered by the Commission, he or she may ~~eon the claim in 

the United States District Court for the Eastern District of 

Louisiana. 

Section 1412 of the Act, 22 u.s.c. 3772, provides that if a vessel 

is damaged outside the locks, the Commission must adjust and pay those 

claims not exceeding $120,000, and again, the award must be reduced by 

the contributory negligence of the vessel or its crew. Any claims for 

outside-the-locks damage greater than $120,000 must be submitted by 

the Commission to Congress, along with a report stating the facts 

behind the claim and the Commission's recommendation for settlement. 

The Act does not permit outside-the-locks claimants to sue if they are 

dissatisfied with the Commission's award--the award is final. 

Claims in both categories are barred unless, before leaving the 

canal, the damage is called to the Commission's attention and the 

Commisson's Board of Local Inspectors (BLI) conducts an investigation. 

The Act empowers the BLI to summon witnesses, administer oaths, and 

require the production of necessary documentation. The BLI hearing 

transcript and findings are admissible evidence in court actions on claims. 

PRIOR LAW 

From 1912 to 1951, an apprnpriated fund agency known simply as the 

Panama Canal operated all aspects of the canal except for the 

railroad, which was operated by the Panama Railroad Company. During 

this period, the liability for inside-the-locks damage to vessels, 

cargo, crew, and passengers was the same as it is now. The agency had 

authority to pay all claims, without limitation, for damage occurring 

inside the locks, and essentially insured all such claims. As for 

outside-the-locks damage, from 1912 until -1940 the Panama Canal had no liability whatsoever--no claims could be filed and sovereign immunity 

blocked any legal action for injuries sustained. In 1940, Congress 

partially waived sovereign immunity outside the locks, establishing 

basically the same scheme that now exists. The Panama Canal was 

authorized to pay outside-the-locks claims not exceeding $69,000, and 

those over $60,000 had to be submitted to Congress. Still, no suits 

could be brought on claims for damage outside the locks. This a~pect 

of sovereign immunity did not change. Apparentl1, no claims ove~ 

$60,000 were ever filed during this period, sd none was ever sent to 

Congress. 

In 1951, the Panama Canal Company, a federal corporation, took 

over operation of the canal. Since control of the canal was changing 

from a federal agency to a corporation, Congress felt that the 

company's liability for damages should be comparable to other 

corporations. It removed any restrictions on the company's ability to 

settle claims and on the company's amenability to suit. Thus, from 

1951 to 1979 the Panama Canal Company could settle and pay any claims 

agairist it, sue, and be sued ·lik~ every other corp6ration. 
5 

With passage of the Panama Canal Act of 1979, canal operations 

returned to the control of an appropriated fund · fediral agency. 

Consequently, Congress readopted the scheme of liability that had 

existed from 1940 to 1951, but increased the amount above which 

outside-the-locks claims had to be sent to Congress -- from $60,000 to 

$120,000. As with the pre-1951 scheme, claimants for damage outside 

the locks may not sue on their claim in court. The settlement of the 

Commission is final. 

ISSUES AND OPTIONS 

A. Status of Pending Claims 

The Committee is aware that at least 11 claims for damage outside 

the locks exceeding $120,000 have been filed against the Commission 

since October 1, 1979 (the effective date of the Panama Canal Act of 

1979). Only two of these claims have been forwarded to Congress, and 

those were sent on November 10 of this year. One of the issues to be 

addressed at the hearing is the cause of the delay in processing these 

claims and submitting them to Congress. It may be that the claims 

procedure, at ·least with respect to this type of claim, is unduly 

cumbersome and in need of adjμstment. Another possibility is that 

part of the delay is attributable to claimants. If this is true, and 

if these delays are causing problems for the Commission, perhaps the 

imposition of a statute of limitations on the filing of claims should 

be considered. 

B. Claims Accounting Methods 

Section 1602(b) of the Act, 22 u.s.c. 3792(b), requires canal 

tolls to cover all costs of canal operation. Since the payment of 

claims is a cost of canal operation, the canal toll base includes an 

amount for claims. Each year, $12 million in tolls is set aside for 

the eventual payment of claims. Of this amount, the Commission 

allocates $6 million t6 pay claims for d3mage inside the locks and to 

pay outside-the-locks damage where the claim is less than $120,000. 

There is no question about the propriety of this practice, since the 

Commission clearly has authority to pay _these claims. 

The other $6 million annually is allocated to outside-the-locks 

claims exceeding $l20,000. The issue is whether the Commission s~ould 

be collecting $6 million a year in tolls . to pay these claims when 

section 1415(b) of the Act, 22 u.s.c. 3775(b), specifically prohibits 

the Commission from adjusting or paying them. Section 1415(b) states: 

"(b) The Commission shall not adjust and pay any clai~s for 

damages for injuries arising by reason of the presence of the 

vessel in the Panama Canal or adjacent waters outside the 

locks where the . amount of the claim exceeds. $120,000 but 

shall submit the claim to ·the congress in a special . report 

containing the material facts and the recommendation of the 

Commission thereon." 
6 

The Commission states that it is simply follo~ing prudent business 

practice in establishing and maintainirtg a reserv~ to pay these claims 

even though it does not now have the authority to pay them. The 

Commission assumes that Congress, after reviewing the claims submitted 

to it and perhaps making adjustments, will direct the Commission to 

pay the claim out of Commission funds. It is unreasonable to expect, 

the Commission asserts, that Congress either will decide no~ to pay 

the claim at all or will vote to pay the claim out of the general. 

treasury. The Commission, therefore, must have the money available to 

pay these claims when directed to do so, and must be setting aside 

that money in the meantime~ 

The problem with this approach is that the clear statutory 

language prohibits the Commission from adjusting or paying any 

outside-the-locks claims exceeding $120,000. If the Commission has no 

authority to pay such claims, it is arguable whether it has the 

authority to collect money to pay them. Furthermore, the Commission's 

assumptions about how Congress will dispose of claims forwarded to it 

are conjecture. If Congress chooses to disallow or reduce one or all 

of these claims, then the Commission has overcharged its customers to 

that extent. Because of the doctrine of sovereign immunity, if 

Congress rejects a claim, the claimant would not be able to sue on it. 

~, -~, Compagnie Generale Transatlantique v. Governor of the 

Panama Canal, 90 F.2d 225 (5th Cir. 1934). 

c. Possible Amendments 

The first option with regard to the claims issue, of course, is 

not to make any change. The current statutory scheme is essentially 

the same as that in plac~ form 1940 to 1951. Inside-the-locks claims, 

those for which the Commission has the clearest liability, are treated · 

under the current law as they have been since 1912. The Commission 

has full authority to settle these claims without monetary limit and 

the dissatisfied claimant may sue on the claim in federal court. 

Outside-the-locks claims exceeding $120,000 are subject to 

Congressional approval, not a new idea, but one that has not yet been 

put to practical test. The current law is silent as to how Congress 

should handle these claims, bμt this silence should not create 

insurmountable problems. 

Another option is to make the Commission imm4ne from any cla~ms, 

or, more narrowly, from all , outside-the-locks claims. This latter 

option would be a return to the pre-1940 status quo, when vessels we~e 

deemed to assume the risk of passage through the canal outside the 

locks, and had no basis for any claim or legal action for damage 

sustained there. Vessels using the canal would not be unprotected, 

however, since insurance exists--and is currently in use by many 

vessels--to cover such damage. This option would get the Commission 

out of the insurance business, and the ·amounts now . included in the 

toll base for pay~ent of claims co~ld be used for other purposes or . 

eliminated and tolls reduced. 
7 

An option that probably will . be advocated ·by ~everal witnesses at 

the hearing is to return to the scheme in place from 1951 to 1979. 

That is, allow the Commission to pay all claims without limit. This 

option could promote faster settlements, although at the expense of 

keeping the Commission involved as an insurer and maintaining higher 

tolls. Also, the main reason for allowing the Panama Canal Company to 

settle all claims from 1951 to 1979 was its corporate structure. 

Congress felt it should have the same rights and responsibilities as 

other corporations. Now, of course, control of the canal once again 

rests with a federal agency, not a corporation. The corporate 

rationale, therefor~, no ~onger applies. 

It is also possible to leave the claims structure as presently 

constituted, but raise the monetary threshold for claims that are 

required to be sent to Congress. The H~use report qn the bill that 

became the 1979 Act includes a letter from the then Governor of the 

Canal Zone which indicates that, based on the consumer price index, 

the $60,000 cut-off established in 1940 would be over $300,000 in 

1978, owing to inflation. H. Rep. No. 98, Part I, 96th Cong. 1st 

Sess. 100-01 (1979).With the high cost of vessel repair nowadays, the 

$120,000 limit on the Commission's power to settle outside-the-locks 

claims may be unreasonably low. If Congress wishes to retain the 

power to approve large outside-the-locks claims, it can still do so, 

but perhaps a higher threshold amount is in order. 

Another option centers on ~he vessel pilots who guide ships 

through the canal. These pilots are Commission employees and have 

final authori.ty over the movement of each ship they command. Sinc·e 

the Commission pilot has the final word, legal liability for vessel 

damage rests with him and, hence, with the Commission. If the pilots' 

status were changed to an advisory role, then the ship's master would 

retain final authority over the vessel's movement and would be 

primarily liable for any damages. This option would probably be 

difficult to implement with respect to inside-the-locks damage but 

could be feasible for outside-the-locks damage. 

A final option is to place a limitation on the time in which 

claims may be filed. In 1979, - the Senate version of what became ~he 

Act contained a two-year statute ·of limitations for the filing of 

claims, with any legal actions on those claims r~quired to be fi~ed 

within one year of the Commission's final disposition of the claim. 

See S. Rep. No. 255, 96th Cong., 1st Sess. 20-21(1979). Obviously, if 

a claim may not be filed after a certain time, the Commission need not 

carry a reserve for that claim indefinitely. Once the filing time for 

the claim expi~es, the money set aside to pay that claim can be 

dedicated to other purposes, including the payment of other claims, 

which helps keep down tolls. 

One general consideration concerning all the options should be 

kpet in mind. Whatever course Congress takes may serve as a precedent 

for how ~anama will manage the canal after the year 2000. Obviously, 

however, Panama will not be bound after 2000 by the way the United 

States operates the canal until then. 
8 

Mr. HUBBARD. We will now hear from our distinguished ranking · minority member, Norman Lent of New York. 

Mr. LENT. Thank you, Mr. Chairman, for scheduling these hearings today to hear testimony on vessel damage -claims, particularly 

those in excess of $120,000 involving accidents outside the locks in 

Panama Canal waters. Several issues appear to be involved: The 

time it takes to resolve these claims is said to be excessive, and the 

procedures unwieldly; the lack of judicial review and the propriety 

of the $120,000 limit applied to claims which the Commission must 

adjust and pay; and the accounting procedures by which the Commission sets aside certain funds to meet potential liabilities. 

The provisions in Public Law 96-70 governing vessel damage 

claims have been in effect since October 1, 1979. They are patterned after the procedures which were applicable when the 

Panama Canal previously had been operated as an appropriated 

fund agency, as it is today. In order to further examine the liability 

issues raised, we will need to have the relevant facts on how vessel 

damage claims were handled during the years immediately preced- . ing implementation of the Panama Canal Treaty, as well as f?ince 

the 1977 treaties took force. Pertinent facts will include the dates 

of accidents occurring outside the locks and resulting in claims for 

damages in . excess of $120,000 each, the date the claim was filed 

and in what amount, as well as the date and amount of the final 

settlement. This information should clarify -the issues and help us 

determine if there is any need to amend the Panama Canal Act. 

Without further adieu, Mr. Chairman, I look forward to hearing 

from our witnesses this morning on these issues involving vessel 

damage claims. 

Mr. HUBBARD. Thank you very much, Mr. Lent. 

We will now call on Congressman Glenn Anderson of California 

for any opening comments. · Mr. ANDERSON. No comments, Mr. Chairman. 

Mr. HUBBARD. Congressman Tauzin? 

Mr. TAUZIN. Thank you, Mr. Chairman. As l understand it, according to the act we are dealing with, section 1411 of 22 U.S.C. 

3711, if the vessel is damaged within the locks, the Commission is 

virtually the self-insurer since it has control of the vessel inside the 

lock. Outside the locks is where the problem arises. As I understand the problem, the Commission cannot settle the claim outside 

the locks ove.r $120,000. It must submit that claim to Congress. 

Wh~n the claim is finally settl~d, it is final. There is no judicial 

review. 

· Mr. Chairman, I want to express some concern about that procedure at the onset of these hearings. It seems to me that asking 

Congress to be in the business of arbitrating issues of contributory 

negligence between masters and crew members of passengers even 

of vessels outside the locks in cases involving $120,000 or more 

places this Congress in a rather strange position. We can't get 

through our business as it is with the pressing matte~s of budget 

and appropriations every year. If we have to sit as a panel of arbitration in issues involving the very technical and complicated 

issues of contributory negligence on t4e seas, we probably are 

never going to get any work done. It seems to me this is a judicial 

matter: We ought to provide some mechanism for the Commission 
9 

to recommend settlements and perhaps some court to approve or 

disapprove of that settlement; some court that is not only authorized to do that kind of work, empowered to make that kind of judgment, but manned with the right personnel, equipment, and expertise· to do a good job. I am not sure this Congress can do it. 

· Mr. Chairman, I w3:nt to commend you for c~lling these hearings 

and for calling this very serious problem to our attention. I hope ·as 

a result of these hearings, we can come up with some new system 

of settling these claims that will involve the Commission and the 

courts rather than the Congress .. Thank you for the time. 

Mr. HUBBARD. Thank you very much, Congressman Tauzin. 

Mr. Sunia, do you have any remarks you would like to make at 

this time? We again express our appreciation to you for being with 

us. . . 

Mr. SuNIA. I have nothing to say. I just thought I would stop by 

and see what you all are doing. 

Mr. TAUZIN. Somebody ought to. 

Mr. SuNIA. I appreciate your allowing me to sit with you this 

morning. · 

Mr. HUBBARD. Thank you again. 

We would now ask our first witnesses to come forward. 

Bill Gianelli, we will ask you to please go first. 

STATEMENTS OF WILLIAM R. GIANELLI, ASSISTANT SECRETARY 

OF THE ARMY (CIYIL WORKS), CHAIRM~N OF THE BOARD OF 

DIRECTORS-PANAMA CANAL COMMISSION; AND DENNIS . P. 

McAULIFFE, ADMINISTRATOR-PANAMA CANAL COMMISSION 

Mr. GIANELEI. Thank you very much, Mr. Chairman, members of 

the subcommittee. For the record, I am William R .. Gia:p.elli, Assistant Secretary of the Army for Civil Works and Chairman of the 

Board of the Panama Canal Commission. At the table with me 

today is Mr. Dennis P. McAuliffe, Administrator of the Panama 

Canal Commission. General McAuliffe is on the site and runs the 

canal on a day-to-day basis. 

It is a pleasure for me to appear before you today as you receive · testimony on the possibility of amending the Panama Canal Act of 

1979 concerning the Panama Carial Commission's authority to 

adjust and pay claims for vessel damage. I think the dialog that · has taken place, Mr. Chairman, by you and your subcommittee · members indicated the nature of the problem. 

My statement is very short. I would like to submit it for . the 

record. Following that, Mr. McAuliffe will elaborate further. 

Mr. HUBBARD. Fine. 

Mr. GIANELLI. Concern has been expressed by various sourcesthe Panama Canal Commission, by the· Office of Management and 

Budget, by . the U.S. General Accounting Office, by international 

shipping, as well as by the Congress itself-relative· to the liability 

of the Commission for ship accidents which occur outside the 

Panama Canal locks where the damages sustained are in excess of · $120,000. A definite need exists to clarify this matter for all parties 

involved. Accordingly, I welcome your efforts in this regard today. 
I 

10 

Public Law 96-70 has removed from the Commission the authority, which resided in the canal for over 25 years, to adjust and pay 

these claims and requires instead that they be submitted to the 

Congress of the United States. Confusion has arisen since the law 

is not explicit as to congressional intent on who· is to bear the ultimate financial responsibility for these claims. While the law is ambiguous on the point, we have taken the position that the Commission, in the final analysis, will be required to pay these claims. 

Therefore, we are accruing reserves to fund these liabilities on the 

assumption that Congress will assign the Commission responsibility 

for their payment. This action, I might say, is in full accord with 

the clear intent that the canal be operated on a . self-sufficient basis, 

without cost to the U.S. taxpayer. 

The fact that we are charging shipping for the costs of these accidents-through inclusion of a factor in the toll bases-makes it imperative that the situation be clarified, one way or the other. If the 

law is amended to reflect no liability on the part of the United 

States for these accidents, then the Commission can cease the assessment of this cost which, in effect; constitutes an insurance premium. Also, moneys collected to date for this purpose could be returned to shipping · prospectively through the tolls process. If, on 

the other hand, the Congress wishes to have the Commission bear 

this cost, there will be no added cost to shipping since, as I have 

just stated, the toll base presently contemplates that situation. 

Mr. Chairman, in closing, I would like to ~eiterate my appreciation to you and the subcommittee for the opportunity to appear 

before you today. I have asked Mr. McAuliffe to follow me and 

present to this committee a more detailed analysis of the claims 

situation. We will be available to respond to any questions which 

the subcommittee might have with regard to our testimony. Thank 

you for your attention. 

Mr. HUBBARD. Naturally, we look forward to your answers to our 

questions. 

Now, we ask for Mr. McAuliffe to please address the subcommittee. 

STATEMENT OF DENNIS P. McAULIFFE, ADMINISTRATORp AN AMA CANAL COMMISSION 

Mr. McAuLIFFE. Thank you, Mr. Chairman, members of the subcommittee. I am Dennis P. McAuliffe, the Adminstrator of the 

Panama Canal. I am pleased to appear before you today regarding 

claims procedures for vessel damage as they currently exist in the 

Panama Canal. 

Mr. Gianelli has asked me to expand on his testimony. I propose 

to summarize my full statement which I request be made part of 

the record of this hearing-. . Before turning to the points which I have been asked to address, 

I would like to say a few words about vessel accidents at the canal 

in general. The Panama Canal poses perhaps the most difficult 

challenge of its kind to safe navigation ~nywhere in the world. For 

that reason, the safety of vessels passing through the waterway 

must always be foremost in the minds of our pilots, tugmasters, 

locks operators, and the other hundreds of persons involved in. the 
11 

transit function. That we are succeeding is borne out by our safety 

record. Over the 3 fiscal years which ·ended this past October, we 

have averaged one accident for just over every 261 oceangoing 

transits, which reflects a downward trend. I might also point out 

that this figure includes those accidents which are due to steering < or engine failure aboard the vessel or to other causes not attributable to Commission employees or equipment. With the canal operating day and night and the number of vessels with beams of 80 to 

106 feet using the canal increasing almost daily, we feel we can be 

very proud of this recor9. 

With regard to the specific provisions of law which govern the 

Commission's liability for marine accidents, I am concerned that 

confusion exists concerning that liability for accidents occurring in 

the Panama canal outside the locks, where damages exceed 

$120,000. This is a matter of financial importance both to the canal 

and its users and we welcome the opportunity to explain the situation as it currently exists. . · This ambiguity in the law required the Commission to determine, at the outset of the treaty period, whether this category of 

marine accident would become a liability of this agency so as to re- . quire the inclusion of an expense provision in the tolls base. A decision on this question was particularly important in view of the requirement-which is clear both in the statute and from its legislative history-that the canal be operated on a self-sustaining basisthat is, at no.cost to the U.S. taxpayer. · From the statute's requirement that nonlocks claims of over 

$120,000 be submitted to the ·Congress with a special report con~ 

taining the Commission's recommendations, it appeared· to the 

agency more likely than not that meritorious claims would be honored-with the Commission's ultimately being directed to make the 

payments. The General Accounting Office was consulted on the 

question and agreed with the conclusion that the Commission 

should recognize in its books the liability for such accidents. On 

that basis, the Commission has included · in the tolls base a provi- ~ sion to recover costs of all marine accidents which occur ·at the 

canal, regardless of whether they occur inside or outside the locks 

and regardless of their amount. By so doing, the agency has set 

aside in the Panama Canal fund, moneys sufficient to cover its estimated liability for nonlocks vessel accidents in excess of $120,000. 

It would be extremely helpful if the Congress acted now to 

remove this ambiguity which has existed in the law since October 

1979. 

Turning to another aspect of the vessel-accident provisions of the 

Panama Canal Act, . there exists a gap which the subcommittee 

may, as a part of this amendatory process, wish to fill. It is presently unclear if there is a statute of limitations which governs court 

actions brought against the Commission on claims arising out of 

vessel accidents occurring in the canal locks. In addition, there currently is no statutory limitation on the time in which vessel accident claims-whether .they arise out of locks or nonlocks casualties-must be presented to the Commission. 

If the subcommittee considers that a statute of limitations would 

be meritorious, the Commission would be prepared to work with 

the subcommittee in perparing necessary legislative language. A 
12 

prov1s10n could be drafted in such a way that it would have the 

effect of prohibiting stale claims while, at the same time, allowing 

the majority of timely claims to be settled without the need of 

trial. 

The final subject which the subcommittee has asked to be addressed is the status of those vessel damage claims awaiting submission to the Congress under section 1415 of the Panama Canal 

Act, that is, nonlocks cases where the amount of the claim exceeds 

$120,000. Let me preface my remarks here by ·stating that the first 

two such claims (involving the vessels Swan Arrow and Texaco 

Connecticut were forwarded to the Office of Management and 

Budget [0MB] earlier this year. Clearance by that agency was obtained last month and those claims, along with the .Commission's 

report and recommendations concerning them, are now before the 

Congress. 

In addition to those two, the Commission has received 13 more 

claims for vessel damage sustained outside the canal locks in which 

more than the statutory limit of $120,000 has been demanded. 

Three of these appear to have been adequately documented and are 

undergoing review in the agency. We expect that review to be completed soon and the claims · to be forwarded to the Congress, · through 0MB, in the near future. The remaining 10 claims did not 

contain the ne~essary supporting documentation required to be 

submitted to the agency by the Panama Canal Act. The owners 

have been requested to provide the missing evidentiary material 

and, upon its receipt, the claim-analysis process will· be resumed. 

Since the Comm~ssion cannot predict when the necessary documentation will be provided, we cannot estimate when these claims will 

b_e ready for transmittal to the Congress. 

In closing, Mr. Chairman, I would like to state that if this com-. mittee favors amending the Panama Canal Act to provide that the ·commission will adjust and pay all meritorious claims against it 

for vessel acc~dents at the canal, regardles~ of where they occur or 

of the amount of the damages, we would be prepared to provide appropriate legislative language after consultation with other concerned agencies. Such a system was in affect between 1951 and 

1979 and was considered to be a just and equitable one. 

Mr. Chairman, I thank you for the opportunity to appear before 

you today to address this important subject. If you or the other 

members of the subcommittee have any questions, I would . be 

pleased to answer them at this time. 

[The full statement of Dennis McAuliffe follows:] 

PREPARED STATEMENT OF DENNIS P. MCAULIFFE, ADMINISTRATOR, PANAMA CANAL 

COMMISSION 

INTRODUCTION 

Mr. Chairman, members of_ the subcommittee, I am Dennis P. McAuliffe, the ad- . ministrator of the Panama Canal Commission. I am pleased to appear before you 

today regarding claims procedures for vessel damage as they currently exist in the , Panama Canal. - · · 

Mr. Gianelli has asked me to expand on his testimony, but before turning to the 

points which I have been asked to address, I would like to say a few words about 

vessel accidents at the canal in general. With its three .sets of locks and its narrow, 

twisting, rock-lined channels, the Panama Canal po~es perhaps the most difficult 

challenge of its kind to safe navigation anywhere in the world. For that reason, the 
13 . 

safety of vessels passing through the waterway must always be foremost in the 

minds of our pilots, tugmasters, locks operators, and the other hundreds of persons 

involved in the transit function. That we are succeeding is borne out by our safety 

record. Over the three fiscal years which ended this past October, we have averaged 

one accident for just over every 261 oceangoing transits, which reflects a downward 

tend. I might also point out that this figure includes those accidents which are due , to steering or engine failure aboard the vessel or to other causes not attributable to 

commission employees or equipment. With the canal operating day an,d night and 

the number of vessels with beams of 80 to 106 feet using the canal increasing almost 

daily, we feel we can be very proud of this record. 

With regard to the specific provisions of law which govern the Commission's liability for marine accidents, I am concerned that confusion exists concerning that liability for accidents occurring in the Panama Canal outside the locks. This is a 

matter of financial importance both to the canal and its users and we welcome the 

opportunity to explain the situation as it currently exists. 

PROVISIONS OF PU.BLIC LAW 96-70 

Section 1411 of Public Law 96-70 prescribes the extent of the Commission's liability to pay damages as a result of accid~nts to vessels which occur while they are 

passing through the canal locks. There is no statutory limit on the amount·of liability which the agency m:iy incur in these cases, and claimants who are not satisfied 

with an award offered by the Commission may bring suit on their claims in New 

Orleans. That provision is abundantly clear. 

Section 1412, which is the provision governing the agency's liability for vessel accidents occurring outside the locks, is quite different, however, and it is with respect 

to that section that some confusion exists. Section 1412 limits the Commission's authority to adjust and· pay claims for injuries occurring outside the locks to those not 

exceeding $120,000. Claims in excess of that amount must be submitted to the Congress with a special report containing the material facts and the recommendation of 

the Commission concerning them. Unlike the situation where damage is sustained 

in the locks, claimants in non-locks cases have no recourse to the courts, regardless 

of the amount of their· claims. Because the law does-not specify whether the Congress will honor such claims, it leaves an open question as to whether legitimate 

claims will be paid. Hence, the eventual liability of the United States with respect 

to them is unclear. An outside consultant who has looked at the question for the 

Commission has been unable to give a definitive opinion · as_ to how that liability 

should be determined in light. of the statutory provision. 

This ambiguity in the law required the Commission to determine, at the outset of 

the treaty period, whether this category of marine accident would become a liability .of this agency so as to require the inclusion of an expense provision in the tolls 

base. A decision on this question was particularly important in view of the requirement-which is clear both in the statute and from its legislative history_:...that the 

canal be operated on a .self-sustaining basis (that is, at no cost to the U.S. taxpayer). 

From the statute's requirement that non-locks claims of over $120,000 be submitted to the Congress with a special report containing the Commission's recommendations, it appeared to the agency more likely than not that meritorious claims would 

be honored-with the Commission's ultimately being directed to make the payments. The General Accounting Office was consulted on the question and agreed 

with the conclusion that the Commission should recognize 'in its books the liability 

for such accidents. On that basis, the Commission has included in the tolls base a 

provision to recover costs of all marine accidents which occur at the canal, regardless of whether they occur jnside or outside the locks and Fegat_dless of their 

amount. By so doing, the agency has set aside in the Panama Canal Commission 

fund, moneys sufficient to cover its estimated liability for non-locks vessel accidents 

in excess of $120,000. 

It would be extremely helpful if the Congress acted now to r,~move this ambiguity 

which has existed in the law now since October 1979. 

Before moving to my next point, I would like to spend a few moments on our accounting procedure. . · Recovery of marine .accident costs from tolls poses a special problem because both 

the occurrence and the severity of accidents will vary from year to year. For example, marine-accident costs in 1979 approximated $15 million, as compared with $6 

million the previous year and $11 million in 1980. To accommodate these annual 

cost fluctuations in the tolls process, the Commission has established a reserve to 

provide for the normalization of marine-accident costs over several accounting periods. In this process; actual accident costs are charged against the reserve as they 

1 2- 978 - 0 - 2 
14 

are incurred, while the reserve itself is maintained through an annual expense provision calculated to approximate the yearly cost over time. 

Aside from normalizing marine-accident costs, the reserve procedure provides the 

basis for ensuring that integrity over the use of funds collected for this purpose is 

maintained with canal users. If the reserve balance indicates over a period of time 

that costs have been less than collections, the overrecovery is returned to shipping 

prospectively through the tolls-setting process, that is, if the Congress determines 

that these claims will not be honored-the Commission has in place an accounting 

procedure whereby the moneys collected can and will be returned to shipping prospectively through the deferment or minimization of future toll increases. 

The result of these procedures is that the canal is self-insured against the. risks 

normally associated with recurring and reasonably predictable marine casualties. 

One consultant has advised the agency, however, that there is clear and distinct 

possibility that an accident of catastrophic proportions could occur under circumstances which would make the Commission liable. Such an eventuality could entail 

the multi-million dollar loss of the vessel, its cargo, and/ or the loss of multiple lives 

which could produce claims far beyond the self-financing capability of the canal. He 

concludes that it would be appropriate to consider the purchase of catastrophe insurance to cover the risk of such an eventuality. The Commission is in accord with 

that recommendation but recognizes that authorization for it to acquire such insurance would have to be set forth in statute. 

Turning to another aspect of the vessel-accident provisions of the Panama Canal 

Act, there exists a gap which the subcommittee may, as a part of this amendatory 

process, wish to fill. It is presently unclear if there is a statute-of-limitations which 

governs court actions brought against the Commission on claims arising out of 

vessel accidents occurring in the canal locks. In addition, there currently is no statutory limitation on the time in which vessel accident claims-whether they arise 

out of locks or non-locks casualties-must be presented to the Commission. 

If the subcommittee considers that a statute-of-limitations, which addresses both 

the time in which an administrative claim may be filed with the agency, as well as 

the period in which suit may be brought in those cases where judicial review is permitted to be meritorious, the Commission would be prepared to work with the subcommittee in preparing necessary legislative language. A provision could be drafted 

in such a way that it would have the effect of prohibiting stale claims while, at the 

same time, allowing that the majority of timely claims be settled without the need 

of trial. 

The final subject which the subcommittee has asked to be addressed is the status 

of those vessel damage claims awaiting submission to ·the Congress under section 

1415 of the Panama Canal Act, that is, non-locks cases where the amount of the 

claim exceeds $120,000. Let me preface my remarks here by stating that the first 

two such claims (involving the vessels Swan Arrow and Texaco Connecticut) were 

forwarded to the Office of Management and Budget (0MB) earlier this year. Clearance by that agen9y was obtained last month and those claims, 3:long with the Commission's rep0rt and recommendation concerning them, are now before the Congress. · 

In addition to these two, the Commission has received 13 more claims for vessel 

damage sustained outside the canal locks in which more than the statutory limit of 

$120,000 has been demanded. Three of these appear to have been adequately documented and are undergoing review in the agency. We expect that review to be completed soon and the claims to be forwarded to the Congress, through 0MB, in the 

near future. The remaining ten claims did not contain the necessary supporting documentations required to be submitted to the agency by the Panama Canal Act. The 

owners have been requested to provide the missing evidentiary material and, upon 

its receipt, the claim-analysis process will be resumed. Since the Commission cannot 

predict when the necessary documentation will be provided, we cannot estimate 

when these claims will be ready for transmittal to the Congress. 

Although we have not yet received claims concerning them, there have been 21 

more vessel accidents outside the locks where we consider that the agency may have 

some fault for damages which are estimated to be more than $120,000. 

As a related matter, it is our understanding that there has been .concern expressed by some shipping interests that settlement by the Commission of vessel-accident claims is a time-consuming affair. While we make every effort to .process these 

claims expeditiously, vessel-accident claims, by their nature, are generally not susceptible of prompt settlement and payment. This is· so because, except in the .most 

serious cases, vessel owners will ordinarily defer repairing damages sustained at the 

canal until the period of their ship's next regularly scheduled drydocking, which 

may be months or years after the accident. The collection and presentation of docu--
15 

mentary support for related, recoverable elements of these claims (such as drydocking costs, charges for marine surveys, and loss of use) take more time. · These built-in delays notwithstanding, the Commission is constantly seeking ways 

to improve all of its services to world shipping, and the field of claims settlement is 

no exception. We would welcome any suggestions from the shipping community as 

to how, within the parameters of the statutes under which we must operate, our 

services in this area might be improved. I do feel, however, that we are presently 

doing a good job here and we will continue to do so. 

In closing, Mr. Chairman, I would like to state that if this committee favors 

amending the Panama Canal Act to provide that the Commission will adjust and 

pay all meritorious claims against it for vessel accidents at the canal, regardless of 

where they occur or of the amount of the damages, we would be prepared to provide 

appropriate legislative language after consultation with other concerned agencies. 

Such a system was in effect between 1951 and 1979 and was considered to be a just 

and equitable one. 

Mr. Chairman, I thank you for the opportunity to appear before you today to address this important subject. If you or the other members of the subcommittee have 

any questions, I would be pleased to answer them at this time. 

Mr. HUBBARD. Thank you very much. 

This first question is to both or either of you: according to Commission accounting procedures, $6 million dollars per year is collected in a reserve fund to pay for the· locks claims exceeding 

$120,000. Could you · please inform the subcommittee on the lowering effect of the tolls should the $6 million dollars not be collected 

or how would this lower the tolls? 

Mr. · McAuLIFFE. All told, the amount of money set aside for accidents amounts to approximately 3.7 percent of the. total revenues 

collected; so, therefore, a savings of about one-half of that might be 

passed on if that class of accident were not collected for. 

Mr. HUBBARD. Mr. Gianelli, do you have anything to add? 

Mr. GIANELLI. No. 

Mr. HUBBARD. When the Panama Canal Ag.ency was the appropriated fund agency from 1912 to 1951, did the agency have a reserve fund even though no claims over $60,000 were submitted to 

Congress during that time? 

Mr. McAuLIFFE. No, sir, there was not such a fund. 

Mr. HUBBARD. What, prior to the enactment of Public Law 96-70, 

was the average time lapse for claims over $120,000 from the date 

of accident until the settlement of the claim? 

Mr. GIANELLI. Mr. Chairman, we do not have the precise averages for the types of claims you have indicated. There are so many 

imponderables relating to claims that it is difficult to j~dge precisely how rapidly a claim can be completed after all of the review 

process. Having spent a considerable amount of time going over 

claims as well as the procedures that we use for the processing of 

claims, it is my opinion t4at the time for processing claims now is 

substantially the same as it was prior to the treaty. 

Mr. McAuLIFFE . Mr. Chairman, may I add a little bit to that? 

One of the problems with respect to processing the claims is that 

there is such a wide variation in the way that the facts are presented. For example, a number of ships that might have some sort 

of claim will not actually file the claim, the final claim with all the 

documentation for example, until such time as the ship might be 

serviced for other reasons. So you might have a considerable period 

of time before you can really get an exact handle on what the 

amount of the damage would be. 
16 

So there is a wide variation, much of it beyond the control of the 

Commission, but tied into, for e~ample, how much time it takes a 

claimant to get his documentation together to support the claim. 

Mr. HUBBARD. On page 8 of your remarks, you state there have 

been 21 incidents in the Commission's estimates that its liability 

may exceed $120,000, but no claim has yet been filed. How many of 

these claims would now be barred if a 2-year statute of limitations 

on the filing of claims had been in effect since 1979? 

Mr. GIANELLI. Mr. Chairman, we will have to furnish you that 

information. We don't have it now. We .could get it rapidly. 

[The information follows:] 

Of the 21 ma~ine accidents for which no claims have been received, 4 would have 

been time-barred by Dec. 1, 1982, if a 2"7year statute-of-limitations on the filing of 

claims had been in effect since Oct. 1, 1979. 

[The following was received for the record:] 

Mr. HUBBARD. What is your opinion about the possible imposition of such a statute of limitations? 

Mr. GIANELLI. Speaking from my standpoint, it seems it would be 

extremely helpful to have such a statute apply. How reasonable it 

will be viewed in terms of the shipping people who have, for example, certain time constraints on them by virtue of when they may 

tie up a ship for various purposes, they may have a different viewpoint. Certainly, from the standpoint of administering the claims 

program, I thi:Qk such a statute would be helpful. 

Mr. HUBBARD. Last, what would you recommend as the time 

limit? 

Mr. GIANELLI. We might want to take a look at that and see if 

we have specific recommendatio.ns for you, Mr. Chairman. I don't 

think we have fully addressed that question. 

QUESTIONS SUBMITTED BY MR. HUBBARD AND ANSWERED BY PANAMA CANAL 

- COMMISSION 

Question 1. Have you experienced any problems with the shippers not submitting 

claims to you within a reasonable time frame? (and) What do you feel is a reasonable time frame? 

Answer. In admiralty law, a shipowner whose vessel is involved in a marine acGident is under a duty to mitigate his damages. Accordingly, unless the vessel is so 

badly damaged as to render it unseaworthy, the owner will ordinarily defer repairs 

until her next regularly-scheduled drydocking, when she will be out of commission 

anyway. On the average, regular drydockings are now being scheduled about once 

every two years, and that fact works to cause delays in the submission to the Commission of most vessel accident claims. Such delays cannot, however, be characterized as "unreasonable". Indeed, the courts have long held that a shipowner who 

elects to drydock and repair his damaged, but still seaworthy, vessel immediately 

after an accident, instead of waiting its next regularly-scheduled drydocking, is the 

only one who has acted unreasonably, and he will not be allowed to recover from 

the tort feasor either his drydocking costs or any amount for loss of use during the re~~~ . . Another problem confronting shipowners is the requirement, contained in section 

1413 of the 1979 Panama Canal Act, to fully document vessel-accident claims 

against the Commission. That requirement ordinarily delays the submission of such 

claims further. The need for full documentation is, however, a real one, and protects 

the Commission against spurious or inflated claims. The requirement for full documentation has existed pursuant to law or E~ecutive Order since 1918 and, while it 

may delay somewhat the submission of these claims to the agency, it does not do so 

unreasonably. . 

In addition to the foregoing delays (which, as noted, are inherent in the system) . the Canal has, at times, received claims for vessel damage four or five years after 

an accident has occurred and, in some instances, even later. Before the treaty en-
17 

tered into force and the Panama Canal Act of 1979 became effective, these presented no problem since section 42 of Title 5 of the Canal Zone Code, 76A Stat. 281, 

provided a 3-year statute-of-limitations on actions against the agency based on such 

claims. Claims received after that period were denied. Since it has been in existence 

only since October 1979, it is still to early to tell whether the Commission, like its 

predecessor, will also receive some unreasonably late claims, but we have no reason 

to believe that it will not. Our suggestions concerning a statute-of-limitations designed to deal with stale .claims a:re set out in response to question No. 3, below. 

Question 2. Prior to the enactment of P.L. 96-70, what was the average time lapse 

for claims over $120,000 from the date of the accident until the settlement of the 

claim? · 

Answer. It is understood that this question has now been revised to request certain data on vessel accidents occurring in fiscal years 1977 through 1979. Those data 

are being compiled and will be provided separately. 

Question 3. On page 8 of your remarks you state that there have been 21 out-oflock vessel accidents in which the Commission estimates that its liability inay 

exceed $120,000 although no claims have yet been filed. How many of these claims 

would not be barred if a two-year statute of limitations on the filing of claims had 

been in effect since 1979? What is you opinion about the possible imposition of such 

a statute of limitations? What would you recommend as the time limits? · Answer. Of the potential claims arising out of the 21 marine accidents to which I 

referred in my testimony,. four would have been time barred by December 1, 1982 if 

there were a two-year statute of limitations on the filing of such claims now in 

effect. · 

The Commission favors the establishment of a limitation on vessel damage claims 

and upon lfl.wsuits in those cases in which judicial review is permitted. We envision 

a provision, patterned after the one contained_ in the Federal Tort Claims Act, 

which would forever bar a vessel accident claim against the Commission (1) unless it 

is presente~ in writing to the agency within two years after it accrues and, (2), in 

those cases where recourse . to the courts is permitted, unless an action is begun 

within one year after the Commission makes its final decision with respect to the 

claim. Such a statute would have a dual benefit of preventing stale claims while, at 

the same time, allowing the .Parties as much time as they require for negotiation. 

That latter feature should result in the compromise and settlement of the vast majority of these claims, and should avoid time-consuming and expensive litigation in 

New Orleans, in those cases where the agency is subject. to suit. 

Question 4. What problems do you foresee with the possibility of requesting a supplemental appropriation to pay for the claims in excess of $120,000 should there not 

be the $6 million in the "reserve fund"? . Answer. The first problem that exists for the Commission in submitting a supplemental appropriation is authority. Public Law 96-70 specifically precludes the Commission from making payment of these outside-the-locks accidents in excess of 

$120,000. Prior to requesting a supplemental appropriation, Congress would have to 

first grant the Commission, through appropriate legislative action, authority to pay 

these claims. Our accounting treatment of these claims, to date, has been predicated 

on the assumption that this authority was forthcoming from Congress. 

The Commission's second problem is ensuring that sufficient funds are on deposit 

in the Panama Canal Commission Fund. Without the reserve fund, the costs of 

these claims would not be reflected in the Commission's accounting records until 

after the supplemental appropriation was requested. This could result in the Commission not being . able to demonstrate it had adequate resources in the Panama 

Canal Commission Fund to finance such claims. The Commission would also be 

placed in a "catch-up" situation to recover· the costs of ~uch claims from Canal users 

in the future instead of during the time they are incurred. The Commission is mandated by law to recover all costs of maintaining and operating the Panama Canal. 

By utilizing the reserve method, the Commission is better able to match (normalize) 

operating expenses with revenues and thus establish the appropriate tolls rates for 

the users of the Canal. 

Question 5. You stated in the hearing that from 1912 to 1951, when· the Panama 

Canal was operated by an appropriated U.S. Agency, that there was no .reserve fund 

to handle the claims. What method of accounting was used and how did you pay for 

the claims? 
18 

Answer. Between 1912 and 1951, when the Panama Canal was operated as an appropriated fund agency of the United States Government, marine accidents were accounted for by charging the cost of each ship accident directly to expense as the 

accident occurred. The actual payment of the claim was made from the appropriated funds of the Agency at an amount agreed to between the Agency and the shipowner (or his agent). If the case was litigated, payment was made at the amount of 

judgement awarded by the United States Court. 

From 1940 through 1950, the Agency's liability for sett.lement of accidents which 

occurred outside the locks was limited to $60,000 per ship, per accident. Claims iri 

excess of $60,000 were to be submitted to Congress for adjudication and payment. 

Canal records indicate that no claims were ever submitted to the Congress under 

this provision-apparently because no claims of that magnitude were ever received . .In fact, it wasn't until the late 1970's, as vessels became increasingly larger and 

more sophisticated, that marine accident costs, both on a per accident and overall 

basis, became significant dollarwise. For example, marine accident costs over the 20-

year period frqm 1952 to 1971 averaged only $164,000 per year and $6,300 per accident. For the two year period 1980 to 1981, marine accident costs averaged 

$10,400,000 per year and $220,000 per accident. it is because of this sharp price differential that it became necessary to adopt the present reserve method of accounting for marine accidents. 

Question 6. In your opinion, would eliminating canal pilots or changing them to 

only an advisory role make canal transits less safe? If your answer is yes, to what 

extent, if any, does the vessel master's superior knowledge of the way his vessel 

handles offset the danger of having the canal pilots in only an advisory role? · Answer. Eliminating canal pilots from transiting ships totally, or changing their 

status to advisory, would be extremely detrimental to the safe passage of ships 

through the waterway. That is, Commission pilots are in absolute control ·of transiting vessels of all descriptions and handling characteristics and are continuously 

faced with the challenge of maneuvering those vessels in extremely restricted 

waters within close proximity to the Canal banks, Locks structures, and to other 

transiting vessels. To allow ship Masters, who are unfamiliar with Canal operations, 

to have complete or partial control over the movement of their vessels in Canal 

waters would increase the potential for serious marine accidents. It takes some 8112 

years of intensified training and experience on top of strenuous entrance requirements for a Canal Pilot to obtain full qualifications to handle any ship passing 

through the Canal. Although Masters may have greater knowledge over their particular vessel, the majority of those Masters have little or no experience in handling 

them in restricted waters. With regard to placing a Pilot in an advisory control 

status, the Pilot would be subject to questions and/ or improper actions on the part 

of the Master, which could contribute to or cause a marine accident. In summary, 

68 years of experience have proven that Control Pilots are far better suited for 

moving vessels through the Canal, from both the customer's and the Commission's 

viewpoint. · 

Question 7. Is there any difference between the way claims for damage inside the 

locks and claims for damage outside the locks are investigated by the Board of Local 

Inspectors and processed thereafter by the Commission? If so, what differences and 

why? 

Answer. There are no differences between the manner in which the Commission's 

Board of Local Inspectors investigates vessel accidents occurring in the Canal locks 

and the manner in which it investigates marine casualties occurring outside those 

locks. For the procedures followed by the Board in the conduct of its investigations 

of marine accidents occurring at the Canal, see Part 117 of Title 35, Code of Federal 

Regulations. (Attached) . Claims presented to the Commission for damage sustained by a vessel in the 

Canal locks are e;xamined by ·the agency under section 1413 of Public Law 96-70. 1 

That statutory provision sets out the items of damage which the Commission may 

pay and those which it may not, and contains the requirements regarding the shipower's responsibility to fully document its claim. When the total amount of the· allowable damages have been calculated, the agency's legal office examines the facts 

surrounding the accident (relying largely upon the Board of Local Inspector's report 

of investigations) to determine whether and to what extent the accident was caused 

or contributed to by the negligence or fault of the vessel herself, or her master, crew 

or passengers. (See section 1411, which makes the Commission a virtual insurer in 

this type of vessel accident, except where such vessel fault has . occurred.) The 

damage award then offered to the shipowner is the amount of the allowable dam1 The remainder of the citations in this Answer are also to Public Law 96-70. 
19 

ages, reduced by the percentage of vessel fault as is deemed by the agency to have 

been a factor in the accident. If the shipowner is not satisfied with the findings determination or award of the Commission, section 1416 provides that he may bring 

suit on the claim in the U.S. District Court for the Eastern District of Louisiana, 

where the Department of Justice will represent the Commission. Any amounts paid 

to the shipowner either in settlement or as a result of such a court action are, as 

provided in section 1415(a) and 1416, paid out of Commission appropriations. 

Claims for $120,000 or less for damage sustained by a vessel in Canal waters outside the locks are also examined under section 1413 to determine which items of 

damage claimed are legally payable, and to insure that all necessary supporting documentation has been provided. When that has been accomplished, the Commission's 

attorneys, again relying mainly on the Board's accident report, make a determination as to whether, and to what extent, the accident was caused or contributed to by 

the negligence or fault of an employee of the Commission acting in the scope of his 

employment in connection with the operation of the waterway. Also, as is the case 

in locks cases, the facts are examined to see whether, and to what extent, the vessel, 

or her master, crew or. passengers contributed to the accident. See section 1412. The 

agency will then offer an award to the shipower of that proportion of its allowable 

damages which is attributable to Commission negligence or fault; however, any such 

award will be reduced in proportion to contributory vessel fault. Here, the vessel 

owner has no recourse to the courts on his claim. This is so because the agency's 

sovereign immunity has not been waived as, under section 1416, it has with respect 

to accidents occurring in the Canal locks. Any settlements of these claims are paid 

by the Commission, as provided in section 1415(a), out of its appropriations. 

When the Commission receives a claim for more than $120,000 for damages sustained by a vessel in· Canel waters outside the locks, this same procedure is followed 

in processing the claim, except that no offer is made to the shipower. Instead,, as is 

required by section 1415(b), the agency submits the claim to the Congress in a special report containing the material facts and its recommendations with respect to it. 

The differences in the manner in which vessel-accident claims are processed by 

the Commission are soley attributable to the differing statutory requirements, as 

outlined above, which govern .the agency's liability with respect to them. 

Question 8. What specific events might haye required the doubling of the monthly 

reserve during the first year of Canal operations under the 1977 Panama Canal 

Treaties? Does the one million dollars per month reflect actual monthly accident 

costs or potential liability? In other words is it the Commission's policy tO" set aside 

for insurance against all possible risks in Canal operation? 

Answer. For fiscal year 1980, the first year under the treaty, it was calculated 

that a $6.0 million reserve would be adequate to cover marine accident costs that 

the Commission was authorized to settle. After reconsideration and consultation 

with the General Accounting Office, the Commission believed it was appropriate to 

provide for all marine accident costs sustained even those outside of the locks with 

claims in excess of $120,000. All accident costs in 1980 amounted to $11.3 million, 

and· accordingly, the accrual for marine accidents was adjusted in the_latter part of 

FY 1980. The total accrual for FY 1980 was $10.5 million. The reserve accrual for 

marine accidents was increased to $12.0 million in 1981 and 1982. · The Commission does not reserve for all possible risks in Canal operation. The $1 

million accrual each month establishes a "reserve" to account for the normal costs 

arising from marine accidents only. Under this method of accounting, a reserve is 

built up to cover normal losses from marine accidents by charging operating expenses with a uniform :,imount each month. This normalizes the operating expense. 

When accidents occur, the resultant losses are charged to the reserve rather than to 

operations. It should be emphasized that the accrual is for "normal" accident costs. 

It does not provide for accidents of a catastrophic nature for which the "reserve" 

would be grossly inadequate. 
Chapter I-Panama Canal Regulations 

§ 115.2Cc). When the Marine Director 

is so designated, the Deputy Administ.rator or such other official as the. Administrator may designate in his stead, 

shall serve as Supervising Inspector. 

[46 FR 63187, Dec. 30, 1981] 

§ 115.2 Compostio·n of the Board. 

< a) The Board of Local Inspectors, 

ref erred to in this Part as "the 

Board," shall, except as otherwise prorided in paragraphs (b) and (c) of this 

section, consist of the following ·officials who shall serve in tne capacities 

stated: 

< 1) Chairman, Board of Local Inspectors. 

(2) Chief, Navigation Division, · as · 

member. 

(3) Senior Canal Port Captain, as 

member. 

(b) Where 'the subject matter of circumstances of a particular accident 

warrant such action, the Supervising 

Inspector may designate the Chief, Industrial Division to s·erve, ·ex officio, as 

member of the Board in place of the 

members listed in paragra.ph (a)(2) or 

< 3 > of this section. In the absence of 

the Chairman, the Supervising Inspec- ·tor will appoint· a member to act as 

Chairman. 

(c) If . the Supervising Inspector 

deems it appropriate in a particular in-

\"Cstigation, he may designate an alternate to replace any officiaf regularly 

serving on the Board. If he himself 

serves as such an alternate, he shall 

serve as Chairman of the Board. 

Cd) Any accident investigation or 

other proceeding may, in the discretion of the Supervising Inspector, be 

conducted by one or more officials of 

the Board .. The report of any -such investigation or proceeding is subject, 

however, to the requirements of Part · 117 of this subchapter. 

[35 FR 1227t July 31, 1970, as amended at 

•6 FR 63187, Dec. 30, 1981] 

, 115.3 Employ;nent of inspectors and examiners. 

The Board may employ or assign s 'JCh inspectors and examiners as it 

~ay require in the inspection of ves- ! •_· ls and in the classification and li-

~e~ing of pilots, masters, mates, and 

"':ig-ineers. 

20 

§ 115.4 Recorder of Board; duties. 

There shall '. be a Recorder of the 

Board, whose .duty it shall be to keep a . 

record of its proceedings; of all applications for licenses; of those issued or 

refused; suspended, extended, or. modified; together with the name, grade, 

and serial number of all such licenses; 

and of all casualties, collisions, founderings, sinkings, fires and other disasters or matters of interest that may 

come before the Board. Under the direction of the Chairman he shall prepare, submit, and. register all licenses 

and certificates of inspection, and the 

reports mentioned in, this part or in 

Part 117, 119, or 121 of this chapter, 

and shall perform such other duties as 

may be directed by the Chairman. 

§ 115.5 Recorder may administer oaths. 

The Recorder is authorized to administer the oaths required for the 

completion of official documents of, or 

which are presented to, the Board. 

CROSS REFERENCE: For authority of. the 

Board to administer oaths, see 2 C.Z.C. 1101, 

76A Stat. 38. 

§ 115.6 Assistance of owners or operators 

and masters. 

Owners or operators and masters of 

vessels shall render all requested assistance to the Board in its investigations and inspections, and shall, when 

requested, put machinery and gear in 

operation when necessary to demonstrate the efficiency of the machinery, 

equipment, appliances or other gear. 

§ 115.7 Inspection of records of B~ard. 

All official records and documents in 

the office of t"he Board, after official 

action thereon has been concluded,· shall be open to public inspection and . examination in the office ol; the 

Board. 

P.~RT t 17-MARINE ACCIDENTS: INVESTIGAlilONS; CONTROL; RESPONSIBl'LITY -- -. 

Sec. 

117 .1 Investigation of marine accidents. 

117.la Scheduling of investigations. 

117.lb Rights of party in interest. 

117 .2 Change in physical status of property affected by accident forbidden. 

119 
21 -

§ 117.1 

Sec. 

117.3 Reports by Board to the Administrator. 

iI 7.4 Reports of accidents by officer in 

command to Board. 

117.5 . Control of wrecked, injured, or burning vessels. 

117.6 Liability of vessel for injury to Canal 

structures or equipment. 

AUTHORITY: Issued under authority vested 

in the President by sec. 1417, 1418, Pub. L. 

96-70, 93 Stat. 487; EO 12215, 45 FR 36043. 

SouRcE: 46 FR 63188, Dec. 30, 1981, unless 

otherwise noted. 

§ 117.1 Investigation of marine accidents. 

(a) Whenever, within Panama Canal 

waters, including . the locks of the 

Canal, a vessel, or its cargo, crew. or 

passenger, meets with a serious marine 

accident, or whenever, within the harbors, anchorages, and areas adjacent . thereto,. including the ports of Balboa 

and Cristobal, there is a serious 

marine accident involving Commission 

personnel or equipment, the Bo?,rd of 

Local Inspectors shall promptly investigate in detail the conditions and circumstances under which such accident 

occurred. . · 

(b) Any other marine accident occur: 

ri.ng in such waters may be investigated by the Board at the discretion of 

the Supervising Inspector. · 

(c) The Master of a vessel involved 

in a marine· accident may request an 

investigation of an accident not considered by the Board to fall within 

paragraph (a) of this section. The re_: 

quest must be addressed to the Supervising Inspector or the Chairman of 

the Board, and must be in writing. If 

the Master do.es not so request such an 

investigation in writing, he shall · be 

deemed to have waived all rights to 

the investigation called for by section 

1417, Pub. L. 96-70; 93 Stat. 487, which 

provides that a claim may not be considered by the Panama Canal Commission, or an action for damag_es- lie 

thereon, unless, prior to the departure 

from the Panama Canal of the vessel 

involved: 

( 1 > The investigation by the competent authorities of the accident or · injury giving rise to the . claim has 

been completed; and, 

C2) The basis for the claim has been 

laid before the Commission. 

Title 35-Panama Cana{~ 

(d) For the purpose of this sectfo~"'::/ 

the term "serious marine accident" fn.4:··· eludes: . :</}' < 1) Any accident involving substan{f:l 

tial damage to any structure, plant, rir~~- equ ipment of the Panama Canal Co~( 

mission or the United States; and · .::·.~ 

(2) Any accident (i) involving dea~"!. 

or resulting in personal injury that re:~~- quires admission of a person to a hos;~ 

pital as a bed patient; or (ii) resultinct: 

in damages to a ·vessel . which reqw.re:.'! 

the making of repairs prior to the ves::..: . - ~, 

se.l's departure from the Canal; Pro;._;: 

vided that the Supervising Inspector/ .. or his designee has ·reason to believe·~: 

that personnel or equipment of. the./ 

Panama Canal Commission were then·:;' 

aboard or v.~ere assisting the vessel ~ --=- valved in the accident or were situatecf> 

(aboard another vessel, ashore or oth;_~:_ erwise) so. as to have been a factor m·:-~- the accident. . · ~ .:~; '. . ,;. .; 

CRoss REFERENCE: . Compelling attend~·:· . 

and testimony of witnesses and productlozi::... 

of books and papers by Eoard, s~e sectlOll·~· 

1418, Pub. L. 96-70, 93 Stat. 487. .":.·:{±·· 

§ 117.la -Scheduliitg of investigations.: ::!~[ 

(a) Marine-accident investigations·::, 

shall be · scheduled so as to afford;· pilots and other parties in ipterest ,; 

period of time not less than that ·PI'0".2 .· 

vide"d below for rest and consultation - prior to the commencement of an f;I-_.. vestigatiqn: · 

Relief time Time of investigation 

.-.. ,>· ... . OOOO-D400 .. _ ..... ~ ..... 1400-i SOO (12 hours minimum) ·r-~.:.;. 

0400--0800 ···········-· 1600-~~ooo (12 hours minimum) rt 0800-1200 ···········-· 1800-2200 (10 ho\,lrs minimum) -~~,.~ 

1200-1600 ·····-···-· 0800 Next Day. · ,.,., 

1600-2000 ......... _ 1000 Next Day. . -.~/.,:~f .._a 2000-24QO .•..•.... _ 1000 Next Day. . . ~ 

. . ,.,.-~ 

(b) The column "Relief Time{~~- out in paragraph (a) of this section.~ 

dicates the period during which .~ - pilot or other party 'in interest ~· pleted the transit during which an~ 

cident occurred or the time at wi 

he was relieved of duty following ·~ ~-: 

occurrence of an accident. The col . ~-- . 

"Time of Investigation", set out:, 

paragraph Ca> of this section, In~ 

the earliest time at which the in . 

gation may be scheduled. In ~~ 

tional cases a departure from ~,..= 

120 
. 22 

Chapter I-Panama Canal Regulations 

!-Cl)edule may be made, as for example 

ln the case of warships or other· vessels 

th.at have an imperative· need to 

rr·sume .the . voyage as soon as possible. 

Unless a · pilot or other party in interrst requests the time provided in this 

s-chedule, the hearing may be set for 

an earlier hour. 

[32 FR 3836\ Mar. 8, 19671 

§ '117.lb Riih,ts of party in interest. 

Any .Panama Canal pilot or other indi ridual who is a party in interest at a 

marine-accident investigation may 

obtain counsel of his own choosing, 

testify in his own ·behalf, cross-examine witnesses, call witnesses, and introduce any relevant evidence. The Board 

shall. advise all parties in interest of 

such rights. 

§ 117.2 Change in physical status of property affected by accident forbidden. 

In the event of a marine accident or 

casualty affecting any property in 

Panama Canal ··waters, or waters. adjacent thereto, or any property owned or 

operated by the Panama Canal Commission or the United States, which 

imposes on the Board sin obligation to 

im·estigate, no -change in the physical 

status of .the property affected by the 

accident or casualty may be made or 

permitted prior to inspection by properly constituted authority; unless such 

change in status be imperative in 

order to preserve life or property. 

§ 117 .3 Reports _ by Board to the Administrator. 

The Board shall make reports forthwith in detail to the Administrator of · all marine-accident investigations conducted by it, setting forth the facts 

and circumstances surrounding the accident and bearing upon its proximate 

causation, the nature and extent of 

the injury and the amount. of damage~, if any, occasioned by such injury. 

The reports shall include a transcript 

of the record of the Board's investigation, _together with its findings · and 

opinions respecting the accident. All 

findings and opinions of the Board 

shall be rendered by a full Board after 

a review of the entire transcript, even 

though the hearing may have been 

canducted by a single member of the 

§ 117.6 

Board or by a two-man Board. Reports 

to the Administrator shall be forwarded in duplicate through the Supervising Inspector, who may place thereon 

such endorsement as he may see fit. 

§ 117 .4 Reports of accidents by officer in 

command to Board. · 

The Master or other officer in command of a vessel shall, prio;r to the vessel ~s departure from Panama Canal 

waters, report in \\Titing to the Board 

any accident jnvolving his vessel in 

Canal waters that resulted in loss of 

life or serious personal injury or in 

substantial damage to property. 

§ 117.5 Control of- wrecked, injured, or 

burning vessels. 

When a vessel in the Panama Canal 

waters goes aground, or is wrecked, or 

is so injured that it is liable to become 

an obstruction in such waters, or is on 

fire, the Canal authorities shall have 

the· right to supervise and direct, or to 

take complete charge of and conduct, 

all operations which may be necessary 

to float the vessel, to clear the wreckage, to remove the injured vessel to a 

safe location, or to extinguish the fire, 

as the case may be. The Canal authorities may, when necessary, take 

such action without awaiting the permission of the oVvner or agent of the 

vessel, and may require the Master of 

the vessel and all persons under his supervision and· control to place the 

vessel, and all equipment on board, at 

the disposal of the Canal authorities 

without costs to the Commission. 

Unless· the Panam_a Canal Commission 

is subsequently found or determined 

to be responsible for the accident or 

the condition necessitating action by 

the Canal authorities, the necessary 

expenses incurred by the Comntlssion 

in carrying out the provisions of this 

section shall be a proper charge 

against such vessel. her owners and 

her operators. 

§ 117 .6 Liability of vessel for injury to 

Canal structures or eq_uipment. · 

A vessel, or her owner or operator, 

shall be held liable for any injury to 

any structure, plant, or equipment of 

or pertaining to the Canal, the 

P~ama Canal Commission or· the 

121 
23 

§ 119.1 

United States when the injury ls 

proximately caused by the negligence 

or fault of the vessel or its master or 

crew. No vessel shall make fast, or run 

any line, to any marker, buoy, beacon, 

or other aid to navigation; and a vessel 

shall so navigate as not to strike such 

aids in passing. 

- . 

PART 119;.....LICENSING OF OFFICERS 

Subpart A-General Provisions 

Sec. 

119.1 License defined; classification and licensing of Masters, mates, engineers, 

pilots, and motorboat operators. 

119.2 Term of licenses. 

119.3 Appeal from action refusing license. 

119.5 Revocation for parting with llcense. 

119.6· Employment of licensed officers. 

119. 7 Original Ucense defined. 

119.8 Application form. 

119.9 Service records.and endorsements. 

119.10 Age and literacy requirements. · 

119.11 Knowledge of first aid. 

119.12 Physical and . experience requirements. , 

119.13 Burden of establishing qualifications. --

119.14 Applicant to appear for examination. 

119.15 Reexamination. 

119.16 Raise of grade. 

119.17 Renewal of license. 

119.18 Sea service as member of armed 

forces of the United States or the Republic of Panama or on vessels owned by 

either nation. 

119.19 Evaluation of equivalent experience. 

119.20 Increase in scope of license; removal 

of limitations. 

119.21 Written statement of reasons for 

denying license. 

119.23 Limitations on license. 

119.24 Oath of licensee. 

119.25 Duplicate license. 

Subpart B-Ma,ten 

119.61 Master, steam and motor vessels; ex- perience required. 

119.63 Master. non-self-propelled floating 

equipment; experience. 

Subpart C-Mates 

119.101 Mate, non-self-propelled floating 

equipment: eXl)erience required. 

119.103 Mate, steam or motor; experience 

required. · 

·_ .. ,. . ;; 

Title 35-Panama··~ 

·-.h'.2 Sec. 

Subpart D-Pilots . ·.;~ .(.: ··: --~) ... ~:;r 

119.1.41 Pilot, Panama Canal; q~., 

t1ons. -.,,:r..l/=·.' 

119.143 Pilot, United States Gov~ 

local vessel; employment requl.reni~,£ .. 

. . ~;:~~~-

Subpart E-MoJorboat Ope,rato~ ri~~ 

::::~~{u1~::: ~::::ge .) 

119.221 Grade and type of epgineef~ censes ·-·, ;-.. ~ ... 

119.222 · chief. engineer, st~am. v~:;~=-

perience required. · . ... t~ 

119.223 Chief engineer, motor vessels;~. perience required. . . . r::;z: 

119.224 Assistant engineer, steam vesRlc 

experience required. _ ;.~--

119.225 Assistant engineer, motor v~·· experience required. · :,- · '~· 

119.227 Chief and . assistant e~·~: 

steam and motor vessels. ·· ... ~~ . . : -~ ........ , ... 

AUTHORITY: Issued under authority V~ 

in the President by sec. 1801, Pub~ L. 96-'lA. 

93 Stat. 492, EO 12215, 45 FR 36043. · . ., -·. 

SoURcE: 46 FR 63189, Dec. 30, 1981, un1esi'-' 

otherwise noted. '-·' . ,.. 

Subpart A-General Provision~-.\~~, ~ ... ./ .. 

§ 119.1 License defined; c1assification· ad 

licensing . of Masters, mates, engin~-

pilots, and motorboat operators. ·· . · ~ ~) 

(a) · The word license when used: ~in' 

this part means a Panama Canal CoIJh 

mission license unless specifically id~~ 

tified as one from another issuing a~ 

thority. ·, . · :~ ~~ 

Cb) The Board of Local Inspect<>~ 

shall recommend the classification c( 

Masters, mates and engineers of stem 

and motor vessels owned and operated~ 

by the Panama Canal Commisslo~ 

and of operators of U.S. Governm~ 

motorboats operating in Panam&i 

Canal waters, excluding pleasure cratt;j and of Panama Canal pilots, and upoDJ 

such recommendation licenses may. be} 

issued by the Supervising Inspector. ~ 

by such other officer as he may desili 

nate. No person shall act or serve as a'.. pilot, Master, mate or engineer, or 01>-~ 

erate said motorboats, unless he· holds~ 

a valid license to do so. - '-

122 
24 

Mr. HUBBARD. Thank you. When we come back, Mr. Lent will 

begin the questioning and other members, of course, will be called 

on for their questions. 

[Recess.] 

Mr. HUBBARD. We will now reconvene and ask Mr. Lent for his 

questions. 

Mr. LENT. I want to welcome you gentlemen back to the subcom- · mittee and to Washington_. As I said in my opening remarks, I believe that in order to examine thoroughly the issues and alleged 

delays surrounding current vessel damage claim procedures, we 

ought to compare the Commission's experience with those of the 

Panama Canal Company concerning accident claims and the time 

it takes to settle them. · 

I am aware that the committee has received a listing of the 

status of claims against the Commission since the treaties took 

force. Have any statistics been developed that you are aware of regarding pretreaty accident claims and how long it might have 

taken from 1977 to 1979? 

Mr. GIANELLI. I am informed, Mr. Lent, the staff is working on 

t~ose statistics now. They were not ready at the moment. 

Mr. LENT. You will provide the record with a similar listing of 

canal accidents· then between 1977 and 1979? 

Mr. GIANELLI. Yes. 

Mr. LENT. It will show the name of the vessel, the date of the 

accident, whether it was in or out of the locks, the date and 

amount of the claim, and the settlement date and amount? 

Mr. GIANELLI. Yes. 

[The following was received for the record:] . 
STATUS OF CLAIMS AGAINS'r THE PANAMA CANAL COMPANY FOR FISCAL YEARS 1977, 1978 AND 1979 

Please note that the unusually large number of lawsuits filed during 1978 and the first nine months of 1979 were occasioned by the 1977 treaty 

with Panama which provided that the United States District Court for the District of the Canal Zone (which was the only court with jurisdiction 

over suits against the Panama Canal Company for ve~sel damage sustained at the ca~al) could not accept any new cases after October 1, 1979. 

BLI 00. VESSEL 

1-77 OORLD MEDAL 

2-77 TRADE ENDEAVOR 

3-77 TRADE ENDEAVOR 

4-77 OONA IDRI'EOCIA 

5-77 MOI'OR BOAT No. 3459 

6-77 Yacht GLORIA MARIS 

7-77 AXEL MAERSK 

8- 77 SUECIA 

9-77 SELLINIS 

:1.0-77 BENEI'NASCH 

11-77 CHE.VIDN GENOA 

12-77 SINGAPURA KEDUA 

DATE 

OF 

ACCIDENI' 

10/03/76 

DATE 

OF 

CLAIM 

03/28/78 

10/06/76 03/06/79 

10/08/76 03/06/79 

10/17/76 12/30/77 

10/17/76 

10/24/76 11/04/76 

10/30/76 

11/17/76 

12/13/76 

12/17/76 10/06/78 

12/20/76 05/02/77 

12/21/76 06/20/77 

BrATUS OF CLAIMS AGAINsr THE 

PANAMA CANAL mMPANY FDR FY 1977 

l-\110UNT 

OF 

CLAIM BrAWS 

$ 54,977 ~41 Offer to settle for $30,257.76 communicated to owners 11/9/78. Offer rejected 

5/10/79 and suit for $60,000 filed 9/12/79. Settled by Department of Justice for 

$36,000 - 12/3/80. 

512,779.81 Suit for $547,579.81 filed 8/23/79. Additional information received 10/8/80. 

Settled by Department of Justice for $285,937.37 - 5/5/81. 

Both accidents under one claim. 

150,974.53 .A.ciditional information received 4/4/79. Offer to settle for $77,936.28 sent 

to owners on 9/27/79. Settled for $77,936.28 - 6/11/82. 

No claim 

3,100.00 Settled for $1,550 - 4/4/77 

No claim 

No claim 

No 'claim 

29,426.80 Five requests for additional information between 10/9/78 and 4/4/79. Settled 

for $18,444.29 - 9/27/79. 

5,500.00 Settled for $5,500.00 - 5/31/77. 

551,379.65 Six requests for additional information between 7/18/77 and 3/9/78. Referred 

to General Counsel for review 9/11/78. Offer to settle for $497,120.89 - 5/3/79. 

Settled for $497,120.89 - 7/12/79. 
DATE DATE J'IMOUNI' 

OF OF OF 

BLI ID. VESSEL ACCIDENI' CLAIM CLAIM BrATUS 

13-77 MJRMACSUN 12/22/76 11/7/77 $ 83,426.83 Offer to settle on 5/3/78. Revised offer to settle for $26,870.00 on 8/24/79 . 

Settled for $26,870.00 - 9/25/79. 

14~77 BLUE KOBE 12/25/76 No claim 

15-77 BrATENDJ'IM 12/26/76 05/11/79 72,220.79 Five requests rrade for additional information between 5/28/79 and 9/10/79. 

Referred to General Counsel 12/03/79. Limitation periOd for lawsuit expired 

12/26/79, but PCC concluded payment could be made. Offer of $28,130.30 sent 

3/8/82. Settlement at that figure effeeted 5/5/82. 

16-77 AMERICAN LEGION 12/28/76 12/08/77 150.00 Settled for $150.00 - 1/5/78. 

Fl-77 MATNNRA 12/29/76 No claim 

18-77 GOWEN ORGIID 12/29/76 No claim ~ 

O') 

19-77 LEROY AND BARRY 12/29/76 No claim 

20-77 BARON RENFREW 01/01/77 No claim 

21-77 BELCHATOW 01/04/77 07/27/77 31,500.00 Settled for $25,238.66 - 5/9/78. 

22-77 CARIBBEAN TAMANACO 01/06/77 No claim 

23-77 WARSCHAU 01/18/77 No claim 

24-77 ALTHEA 01/19/77 01/23/79 64,000.00 Disallowed on 2/16/79. 

25-77 KING OSCAR 01/27/77 09/25/79 104,650.61 Suit for $104,410.61 filed 9/25/79. Settled by De:partrnent of Justice 

for $1,751.39 - 5/5/81. 

26-77 srAR CARIB:Ea:) 02/06/77 10/23/78 127,322.49 Additional information requested 11/8/78. Suit for $127,322.49 f i led 9/27/79 . Settled by Department of Justice for $79,687.00 - 9/10/80. 

27-77 TM3a.J,A 02/08/77 No claim 
DATE DATE AMOUNr 

OF OF OF 

BLI ID. VESSEL ACCIDENr CLAJM CLA]M srATUS 

28-77 TEXACD TRINIDAD 02/10/77 No claim 

29-77 ATLANTIC OCEAN MAID 02/24/77 02/15/78 $26,865.76 Nine requests sent for additional information between 6/14/78 and 8/14/79. 

Limitation period to sue expired 2/24/80, but PCC later concluded that 

payment could be made. Offer of $11,585.58 sent 2/11/82. 

30-77 ORIENI'AL EDlCATOR 03/10/77 No claim 

31-77 CANADIAN FARMER 03/13/77 No claim 

32-77 Yacht aJATERNION 03/30/77 04/05/77 525.00 Settled for $525.00 - 12/6/77. 

33-77 RIO BALSAS 04/03/77 No claim 

~ 

34-77 SHIGA MARU 04/12/77 No claim -:J 

35-77 DIANNA 04/21/77 No claim 

35-77 (X;[)EN SENffiAL 04/21/77 No claim 

37-77 TOYorA MARU No. 14 05/11/77 04/27/78 459,784.30 Six requests for additional information made between 5/10/78 and 9/10/79. 

Suit for $500,000 filed 9/6/79. Settled by Department of Justice for 

$300,000 - 7/20/81. 

37-77 MAsrER NICDS 05/11/77 05/03/78 665,693.23 Six requests for additional information between 5/11/78 and 5/10/79. Suit for 

$666,000 filed 9/6/79. Settled by Department of Justice for $475,000 on 7/20/81. (Includes accident of 5/16/77). 

38-77 Yacht CHUBASCD 05/13/77 10/24/78 171,628.89 Suit filed 9/24/79. Dismissed 11/10/79 

39-77 MAsrER NICDS 05/16/77 05/03/78 6,339.70 See accident of 5/11/77. 

40-77 CHEPO 05/27/77 No claim 

41-77 IMME OLDENOORFF 06/04/77 No claim · 
BLI 00. VESSEL 

42-77 SI'RAAT IDNG KONG 

42-77 

45-77 

47-77 

49-77 

50-77 

ORIENI'AL CCMMANDER 

JANITA 

MARINE CHJ;MISI' 

SANI'A ELENA 

SHIN3 ON 

51-77 Y.AMA'ID 

51-77 PAC BARONES 

52-77 · PWD 

52-77 SUSANNE SKOU 

53-77 

54-77 

55-77 

55-77 

Yacht SHUSMA 

CHEPO 

MEIKO MARU 

SOPHIA II 

DATE DATE 

OF OF 

ACCIDENI' CLAIM 

06/07/77 11/16/78 

06/07/77 

06/19/77 08/27/79 

07/09/77 03/05/79 

07/15/77 

07/13/77 08/07/78 

07/21/77 

07/21/77 

08/01/77 

08/01/77 

08/02/77 09/08/78 

08/09/77 07/05/78 

08/10/77 07/17/78 

08/10/77 10/06/?8 

J.MOUNI' 

OF 

CLAIM SI'ATUS 

$118,366.93 Additional information provided 2/13/79. Suit for $118,366.93 filed - 9/11/79. Offer 

to settle for $52,736.80 communicated to owners 10/30/79. Settled by Department of 

Justice for $94,736.80 - 9/22/81. 

No claim 

407,575.33 Suit for $398,579.57 filed 9/27/79. Additional information received 5/12/80. Settled 

by Department of Justice for $210,923.33 - 6/15/81 

I 

452,589.16 Additional information received 3/12/80. Settled for $47,700.32 - 10/29/81. 

No claim 

248,020.30 Suit filed for $280,000 - 9/12/79. Additional information received 5/13/80. 

Settled by Department of·Justice for $160,000 - 6/24/81. 

No claim 

No claim 

No claim 

No claim 

425.00 Settled for $425.00 - 12/6/78. 

37,484.00 Additional information received on 10/23/78. Offer to settle for $2,736.92 

communicated to owners 3/01/79. Suit filed for $32,808.59 - 9/19/79. Settled 

by Department of Justice for $5,0oo· - 11/14/80. 

749,204.24 Additional information received 4/4/79. Settled for $564,707.16 - 9/28/79. 

440,273.55 Suit filed for $764,631.34 - 9/12/79 • .Aqditional information received 2/7/80. Settled 

by Department of Justice for $406,877.18 - 3/5/81. 
0 

w 

56-77 

57-77 

58-77 

59-77 

60-77 

60-77 

61-77 

61-77 

62-77 

63-77 

63-77 

64-77 

64-77 

VESSEL 

JAPAN CARRYALL 

KAI PI~ 

PUNI'A SOLE 

ATHENIAN VICTORY 

CDNI'INENI'AL PIONEER 

GRErA THOLIN 

VISHVA TIRI'H 

KYC'JiJA MARU No. 18 

ACE HERO 

EL BUEY GRANDE 

MR. PAT 

DADE 

LIMA 

LFS 12/2/82 

DATE 

OF 

ACCIDENI' 

DATE 

OF 

CLAIM 

AMOUNT 

OF 

CIAIM 8rATUS 

08/18/77 09/13/78 $81,832.04 Additional information received 11/9/78 . Suit filed for $81,832.04 - 9/20/79 ~ Settled 

by Department of Justice ·for $40,530.97 - 8/27/80. 

08/20/77 

08/30/77 

09/02/77 

. 09/05/77 

09/05/77 

09/14/77 06/04/79 

09/14/77 

09/21/77 09/28/79 

09/25/77 03/27/78 

09/25/77 

09/30/77 12/30/78 

09/30/77 12/4/78 

No claim 

No claim 

No claim 

No claim 

No claim 

8,102.01 Additional information received 10/30/79. Offer to settle for $6,879.19 - 6/11/80. 

Settled for $6,879.19 - 9/11/80. 

No claim 

45,000.00 Suit for $75,000 filed 9/27/79. Additional information received 12/30/80. Settled 

by Dep.3rtment of Justice for $20,700 - 5/15/81. 

57,475.33 .Additional information received 4/13/78. Offer to settle for $42,000 - 3/20/79. 

Settled for $42,000 - 6/12/79. 

No claim 

243,309.92 .Additional information requested on six occasions between 3/2/79 and 11/30/79; 

information received 12/4/79. Suit filed for $243,309.92 - 8/16/79. Settled by 

Dep.3rtrnent of Justice $186,000 - 10/22/80 

462,844.54 Additional information requested on twelve occasions between 12/26/78 and 1/9/80; 

information received 1/18/80. Suit filed for $462,844.54 - 9/13/79. Settled by 

Dep.3rtment of Justice for $315,000 - 10/22/80 
BLI 00. 

1-78 

1-78 

2-78 

3-78 

4-78 

5-78 

8-78 

9-78 

10-78 

14-78 

15-78 

VESSEL 

AMERICAN CHALLENGER 

CALYPSO 

OONI'INENI'AL HIGHWAY 

PENNSYLVANIA SUN 

Sl'AR CARIBJO 

OVERSEAS ALASKA 

OONA HORI'El'CIA 

WORLD CCM1ANDER 

HOEGH .MALLARD 

ORIENI'AL LFADER 

WJRLD LEADER 

DATE 

OF 

ACCIDENI' 

10/05/77 

10/05/ 77 

10/11/77 

DATE 

OF 

CLAIM 

AMOUNI' 

OF 

CLAIM 

Sl'ATUS OF CLAIMS AGAINSI' THE 

PANAMA CANAL CDMPANY EDR E:Y 1978 

Sl'ATUS 

No Claim 

No Claim 

No Claim 

10/21/77 08/ 07/78 $ 129,361.28 Five requests for additional information between 8/9/78 and 10/23/78. Information 

received 11/29/78. Referred to Gen~ral Counsel for review 12/9/78. Offer to settle 

for $95,502.87 conununicated to owners 3/20/79. Settled for $98,073.29 - 7/23/80. 

11/11/77 10/23/78 

11/23/ 77 07/05/78 

12/21/77 

01/05/78 01/05/ 79 

01/06/78 09/27/79 

01/17/78 11/09/79 

01/26/78 

127,322.49 Additional information requested 11/8/78. Suit for $127,322.49 filed 9/27/79. Settled 

by Department of Justice for $79,687.00 - 9/10/80. (Includes accident of 2/6/77). 

228,535.59 Three requests for additional information between 7/25/78 and 10/13/78. Additional 

information received 11/6/78. Referred to General Counsel for review 1/24/79. Offer to 

·settle for $83 . 017.72 - 3/20/79. Suit for $214 , 807.88 filed 9/14/79. Settled by 

~partment of Justice for $274,977.00 - 8/4/81 . (Includes accidents of 2/17/78 and .3/ 9/78). 

No Claim 

164,939.09 Three requests for additional information between 2/20/79 anci 5/14/79. Information 

received 5/15/79. Referred to General Counsel for review 7/ 10/79. Suit for $164,939.09 

filed 8/28/79. Settled by Department of Justice for $45,200.00 - 6/13/80 . 

63,658.22 Suit for $75,000 filed 9/27/79. Additional information requested 10/25/79 and 3/18/80 . 

Settled by Department of Justice for $60,000.00 - 5/5/81 . · 

517 , 918.43 Additional information requested 11/20/79 and 01/30/80 . Information received 6/3/80 

Referred to General Counsel for review 6/26/80. Suit for $557,912.43 filed 1/16/81 . 

Settlement agreement for $345,000.00 reached 11/24/82. Payment being processed currently. 

No Claim 
VESSEL· 

16-78 UNION 

17-78 WASHIN:nON TFADER 

19-78 YACHI' TARAVANA 

20-78 FERN VALLEY, 

21-78 CHRYSOVALANIX)U DYO 

23-78 DIAKAN MASKOI' 

23-78 CELTA ROSE 

24-78 OORI' CAROLINE 

25-78 OVERSEAS ALA.SKA 

DATE 

OF 

ACCIDENr 

01/27/78 

01/29/78 

02/03/78 

02/06/78 

02/07/78 

02/10/78 

02/10/78 

02/16/78 

02/17/78 

27-78 TEXAO) PENNSYLVANIA 02/18/78 

27-78 GLENPARK 

28-78 HOffiH TFADER 

29-78 MORANI' 

02/18/78 

02/24/78 

02/27/78 

/ 

DATE 

OF 

CLAIM 

PMOUNI' 

OF 

CLAIM srATUS 

12/28/78 $ 196,708~19 Three requests for additional information between 2/5/79 and 5/10/79. Suit for 

$178,185.20 filed 9/18/79. Offer to settle for $96,593.36 communicated to owners 

9/29/79. Settled by Department of Justice for $176,492.84 - 11/25/80. 

10/13/79 

09/19/78 

04/24/80 

09/07/79 

8/28/78 

01/09/79 

07/30/79 

22,844.04 Suit for $100,000.00 filed 9/27/79. Additional information requested 10/25/79 . Settled 

by Department of Justice for $72,165.~l - 5/l/8i. (InclUdes accident of 6/23/78). 

No Claim 

No Claim 

118,871.49 Five requests for additional information between 10/5/78 and 9/1/79. Suit for 

$118,871.49 filed 9/18/79. Settled by Depaftment of Justice for $98,000.00 - 12/23/80. 

206,067.44 Referred to General Counsel for review 7/28/80. Settled for $152,909.50 - 10/14/80. 

No Claim 

321,514.60 Suit for $85,000.00 filed 9/11/79. Additional information requested 10/16/79. 

.Additional information received 1/18/80. Settled by Department of Justice for 

$264,727.03 - 3/5/81. 

158,333.05 Suit for $149,059.69 'filed 9/14/79. See accident of 11/23/77. 

No Claim 

148,836.71 Suit for $132,000.24 filed 9/13/79. Four requests for additional inforIMtion between 

10/29/79 and 9/8/80. Additional information received 9/22/80. Settled by Department of 

Justice for $107,983.00 - 6/15/80. 

No Claim 

1~1,860.91 Five requests for additional information between 8/14/79 and 2/1/80. - Suit for 

$191,860.91 filed 7/30/79. Additional information received 2/4/80. ·Settled by 

Department of Justice for $53,608.64 - 8/28/80. · 
VESSEL 

30-78 SAGE 

31-78 TEX.ACX) IDAID 

32-78 OVERSEAS ALASKA 

33-78 PAN DYNASTY 

33-78 TARPON SEALANE 

34-78 OVERSEAS OHIO 

35-78 TOHBEI MARU 

36-78 TIBURON 

37-38 MOUNT WASHI~N 

41-78 IDNI'UE 

41-78 TAURUS 

42-78 OGDEN IDIRE 

43-78 BARGE CHEPO 

DATE 

OF 

ACCIDENT 

02/25/78 

03/06/78 

03/09/78 

03/16/78 

03/16/78 

04/07/78 

04/17/78 

04/21/78 

04/29/78 

05/24/78 

05/24/78 

05/25/78 

05/27/78 

DATE 

OF 

CLAIM 

AMOUNT 

OF 

CLAIM srATUS 

No Claim 

No Claim 

10/13/78 $ 117,492.52 Suit for $457,777.08 filed 9/14/79. See accident of 11/23/77. 

04/04/79 222,247.49 S1x requests for additional inforrration between 4/16/79 and 6/6/80 . Suit for $222,247.49 

filed 9/11/79. Claim sUbsequently increased to include $640,000 as indemnification of 

cargo interests. Total claim of $862,247.49 settled by Department of Justice for 

$536,232.00 - 3/24/81. 

02/08/79 1,528,932.93 Five requests for adaitional information between 2/23/79 and 10/29/79. Suit for 

$1,528,932.93 filed 8/16/79. Information received 12/13/79 . Referred to General Counsel 

2/13/80. Settled by Department of Justice for $1,040,926.00 - 3/24/81. (Includes cargo 

claim). 

09/18/79 

05/03/79 

01/24/79 

09/11/79 

759,077.29 Five requests for additional 1nformat1on between 10/30/79 and 01/30/80. Suit for 

$325,000.00 filed 9/20/79. Additional information received 6/2/80. Settled by 

Department of Justice for $229,891 . 20 - 8/4/81. (Includes accidents of 10/15/78 and 

8/2/79). 

181,795.51 Six requests for additional information between 5/30/79 and 2/1/80. Suit for $181,795.51 

filed 7/30/79. Additional information received 2/14/80. Settled by Department of 

Justice for $71,901.48 - 8/28/80. 

No Claim 

60,268.44 Three requests for additional information betwee~ 2/20/79 and 4/4/79. Information 

received 5/8/79. Offer to settle for $57,002.00 corrrounicated to owners 9/27/79. 

Settlement at that figure effected 10/25/79. 

No Claim 

No Claim 

No Claim 

6,210.00 Suit for $6,210.00 filed 9/24/79 . Four r equests for additional information between 

10/30/79 and 1/31/80 . Settled by,Department of Justice for $3,100 - 11/17/80. 
DATE 

OF 

BLI NO. VESSEL ACCIDENr 

45-78 WASHIN:;'TON TRADER 06/23/78 

47-78 OVERSEAS WASHINJro.N 07/04/78 

48-78 REPUBLICA DEL. EClJAIDR 07/05/78 

50-78 PUNI'A BLANCA 07/27/78 

50-78 PENNSYLVANIA SUN 07/27/78 

51-78 WORLDFINAN:E 07/30/78 

51-78 WORLD FINAN:E (cargo) 07/30/78 

52-78 OVERSEAS NEW YORK 08/09/78 

53-78 DEL SQL 08/20/78 

54-78 GVERSEAS JOYCE 08/29/78 

54-78 PASADENA · 08/29/78 

56-78' ORIENTAL Ca.1MANDER 09/06/78 

57-78 DUGI - Ol'OK 09/30/78 

DATE 

OF 

CLAIM 

AMOUNI' 

OF 

CLAIM STATUS 

07/25/80 $ 58,296.99 See accident of 1/29/78~ 

No Claim 

05/02/79 

01/08/79 

09/17/79 

10/04/79 

12/17/79 

No ciaim 

No Claim 

No Claim 

406,292.92 Nine requests for adoit'ional information between 5/ 2/79 and 9/8/80. Information 

received 9/22/80 . Referred to Gener.al Counsel for review 11/17/80. Settled for 

$322,381.72 ~ 7/24/81. . 

361,216.53 Aciditional information requested 2/5/79 and 8/14/79. Information received 9/1/ 79 . 

Settled for $342,647.19 - 9/21/79. 

86,714.30 Three requests for additional information between 10/30/79 and 1/30/80 . Suit for 

$86,714.30 filed 9/14/79 . Additional information receiveo 8/4/80. Settled by Department 

of Justice for $129,607.89 - 5/19/81. (Includes. accident of 2/13/79). 

No Claim 

No Claim 

No Claim 

14,475.00 Suit for $14,475.00 filed 9/30/79. Seven requests for additional information between 

11/20/79 and 11/26/80. Information received 12/12/80. Settled by Department of Justice 

on 7/19/82 for $17,815.00 (due to accrued interest claimed) . 

404,217.67 Referred to General Counsel for review 2/15/80. Offer to settle for $33,950 . 03 

communicated to owriers 9/24/81. Settlement negotiations in progress. 
DATE 

OF 

BLI NO~ VESSEL ACCIDENI' 

1-79 JEAN 10/02/78 

2-79 BAR:;E EL (X)NJUisrAIX>R 10/06/78 

3-79 MARA 

3-79 SAMOS .SIOR-1 

4-79 OVERSEAS OHIO 

5-79 EIBE OLDENIDRFF 

6-79 OORDHVAL 

7:... 79 OCF.ANIC CONFIDEN'.:E 

7-79 SAN ANDRES 

8-79 HANAU 

None OVERSEAS CHICAOO 

11-79 BORIS ZHEMCHUZHIN 

10/09/78 

10/09/78 

10/15/78 

10/24/78 

11/13/78 

11/21/78 

11/21/78 

11/28/78 

12/02/78 

12/08/78 

DATE 

OF 

CLAIM 

.AM)UNI' 

OF 

CLAIM . 

srATUS OF CLAIMS AGAINST THE 

PANAMA CANAL <XMPANY FDR FY 1979 

BrATUS 

05/31/79 $ 99,618.68 Six requests for additional information between 6/14/79 and 7/14/80 . Suit for 

$100,000.00 filed 9/20/79. Settled by Department of Justice for $45,000.00 - 5/1/81. 

09/18/79 

09/04/79 

11/07/79 

09/18/79 

12/79 

No Claim 

No Claim 

No Clr.iim 

759,077.29 Five requests for additional information between 10/30/79 and 1/30/80. Suit for 

$475,324.72 filed 9/20/79 • .Additional information received 6/2/80. Settled by Department 

of Justice for $229,891.20 - 8/4/81 ~ (Includes accidents of 4/7/78 and 8/2/79). 

53,830.01 Suit for $52,000.00 filed 9/10/79 • .Additional information requested 9/27/79. 

Information received 11/6/79. Settled by Department of Justice for $46,663 . 70 - 12/29/80. 

125,776.60 Three requests for additional information between 11/23/79 and 2/1/80. Information 

received 2/12/80. Referred to General Counsel for review 4/21/80. Offer to settle for 

$80,953.31 communicated to owners on 10/21/81. Settlement at that figure effected 

1/27/82. 

No Claim 

No Claim 

No Claim 

21,580.00 .Suit for $21,580 . 00 filed 9/20/79. Settled by Department of Justice for $8,190.00 -

12/30/80. 

30,709.05 Suit for $150,000 . 00 filed by PCC 12/~/78. Additional information requested 12/6/79. 

Information received 7/23/80. case dismissed 10/27/80. 
VESSEL 

12-79 OVERSEAS NATALIE 

14-79 OVERSEAS AN:OORAGE 

15-79 BrELLA SOLARIS 

16-79 IDRDIC NAVIGA'IDR 

17-79 ORIENI'AL BrATESMAN 

18-79 YACHI' s{JN])AfQ: 

19-79 KEYBrONER 

20-79 · OOLDEN PANAGIA 

20-79 WORLD. AGAMEMNON 

21-79 TIIDS 

DATE 

OF 

ACCIDENI' 

12/09/78 

12/29/78 

12/30/78 

01/02/79 

03/15/79 

01/05/79 

DATE 

OF 

CLAIM 

AMOUNI' 

OF 

CLAlM BrATUS 

09/11/79 $ 25,473.91 Additional information requested 12/6/79 and 1/9/80. Suit for $25 , 473.91 filed 

9/20/79.Information received 1/16/80. Settled by Department of Justice for $54,587.22 -

09/10/79 

6/24/81. (Includes accident of 4/9/79). · 

58,094.44 Three requests for additionai information between 10/30/79 and 6/19/80. Suit for 

$54,094.44 filed 9/20/79. case dismissed 12/11/80. 

09/18/79 2,042,458.58 Six requests for additional information between 10/26/79 and 8/11/80. Suit for 

$2,042,458.00 filed 9/24/79. information received 8/21/80. Settled by Department of 

Justice for $1,651,197.45 - 6/7/82. 

05/03/79 

11/01/79 

77,979.81 Six requests for additional information between 5/10/79 and 1/9/80. Referred to General 

Counsel for review 3/4/80. Offer to settle for $18,558.39 corrrnunicated to owners 5/20/80. 

Counter offer received 7/23/80. Referred to General Counsel for review 11/28/80. Settled 

for $30,515.15 - 12/24/80. 

33,126.10 Four requests for additional information between 11/23/79 and 5/5/80. Information 

received 6/10/80. Referred to General Counsel for review 2/24/81. Settled for 

$29,890.57 - 12/16/81. 

No Claim 

01/31/79 . 09/05/79 88,345.35 Suit for $88,345.35 filed 9/11/79. Settled by Department of Justice for $85,000 . 00 -

3/10/81. 

02/01/79 

02/01/79 

02/05/79 

09/17/79 336,480.78 Three requests for additional informat~on between 10/25/79 and 9/29/80. Sui t for 

$303,797.11 filed 9/18/79. Information received 11/4/80. Settled by Department of 

Justice for $195, 318. 50 - 7 /20/81. 

09/26/79 1,000,000.00 Suit for $1,000,000.00 filed 9/27/79.Additional information requested 10/25/7~ . Revised 

claim sl.i:>mitted for $278,044.91 on 6/20/80. Additional information requested 8/11/80. 

Information received 2/10/81. Settled by Department of Justice for $161,889 . 80 -

7/20/81. 

11/20/80 312,353.72 Suit for $250,000.00 filed 9/27/79. Settled by Department of Justice for $188,083.51 -

6/25/81. 
DATE DATE NvlOUNI' 

OF OF OF 

BL! NO. VESSEL ACCIDENI' CLAIM CLAIM BrATUS 

22-79 OVERSEAS NEW YORK 02/13/79 07/25/80 $ 129,502.92 Suit .for $145,438.42 filed 9/14/79. Settled by Department of Justice for $129,607 . 89 -

5/i9/81. (Includes accident of 8/9/78). 

23-79 ):'ACHI' GYPSIES FIVE 02/ 16/79 No Claim 

24-79 BOBO 02/13/79 No Claim 

25-79 CQVE TRADER 03/26/79 09/24/79 1,091,432.84 Six requests for additional information between 10/30/79 and 12/04/80. Suit for 

$1,128,881.20 filed 9/24/79.Information received 1/16/81. Settled by Department 

of Justice for $1,000,000.00 - 8/10/81. 

26-79 CRESI'BANK 03/28/79 09/79 711.83 Additional information requested 10/25/79. Referred to General Counsel for review 

1/30/80. Settled for $711.00 - 6/2/80. 

28-79 OVERSEAS NATALIE 04/09/79 09/11/79 107,759.95 Suit for $78,071.96 filed 9/20/79. See accident of 12/09/78. ~ 

. 29-79 YACHI' KARDIA 04/09/79 No Claim O') 

30-79 KASTURBA 04/13/79 09/27/79 689,500.00 Additional information requested 10/25/79 and 05/27/80. Suit for $289,000.00 filed 

9/27/79. Settled by Department of Justice for $37,014.00 - 1/7/81. (Includes the vessel 

NlJv1BER FOUR) • 

30-79 NlMBER FDUR 04/13/79 .I0/10/80 49,035.50 Suit for $400,000.00 filed 9/12/79. Settled by Department of Justice. (See vessel 

KABrURBA) 

31-79 SEA SWAN 04/18/79 No Claim 

32-79 JARILLA 04/20/79 09/27/79 252,000.00 Suit for $250,000.00. filed 9/27/79. Four requests for additional information between 

10/26/79 and 1/8/81. Claim amended 2/6/81 to $79,947.11. Settled by Department of 

Justice for $65,693.27 .- 6/15/81. 

33-79 BrAR ALCYONE 04/30/79 07/08/80 27,760.64 Suit for $25,000.00 fileo 9/18/79 . Settled b¥ Department of Justice fqr $27,496.24 -

12/23/80. 

34-79 PENNSYLVANIA SUN 05/11/79-. 09/28/82 24'4, 815. 09 Additional information requested 10/8/82. Information receiveo 11/12/82. Referred to 

Industria~ Division for advice 11/26/82. Analysis in process. 
BLI NO. VESSEL 

36-79 AroSI'OIDS K 

38-79 YACHI' MCX)N RIVER 

39-79 SEATIDE 

39-79 QUIJ1',JEI' 

39-79 QJIDNEr (Cargo) 

40-79 OVERSEAS OHIO 

41-79 CHI GRACE 

42-79 TANAMBI 

43-79 THERMOPYLAE 

44-79 AM.ILLA 

44-79 SI'AR CAPELLA. 

• 

DATE 

OF 

ACCIDEN1' 

06/11/79 

06/11/79 

07/29/79 

07/29/79 

07/29/79 

08/02/79 

08/13/79 

08/22/79 

08/28/79 

08/29/79 

08/29/79 

44-79 SI'AR CAPELLA (Cargo) 08/29/79 

46-79 OVERSEAS WASHINGI'ON 09/05/79 

48-79 MIRENE 09/09/79 

49-79 D'AI.BERI'IS 09/13/79 

50-79 SI'OLT SPAN 09/17/79 

DATE 

OF 

CLAIM 

AMOUNI' 

OF 

CLAIM SI'ATUS 

No Claim 

No Claim 

09/25/79 $ 609,612.06 Suit for $609,612.06 filed 9/25/79. Settlement agreement reached whereby the vessel 

owners and the government would absorb their own losses. Each of the three parties 

would also participate in paying the owner of the cargo aboard the QUIDNEI'. 

09/10/79 1,500,000.00 Suit for $1,500,000.00 filed 9/14/79. Settlement agreerr~nt reached whereby the vessel 

owners ana the government would absorb their own losses. Each of the three parties would 

also participate in paying the owner of the cargo· aboard the QUIDNEI'. 

09/19/79 

09/18/79 

09/26/79 

09/26/79 

350,000.00 Suit for $350,000.00 filed 9/30/79. Settled by Department of Justice for $100,000.00 -

8/4/81. 

see accident of 10/15/78. 

No Claim 

No Claim 

20,000.00 Suit for $35,000.00 filed 9/27/79. Settled by Department of Justice for $35,000.00 -

3/25/81. 

1,741,970.00 Suit for $1,741,970.00 filed 9/26/79. Additional information requested 11/7/79 and 

9/10/80. Information received 5/13/81. Settled by Department of Justice for 

$850,447.99 - 9/8/81. 

09/28/79 1,000,000.00 Suit for $4,000,000.00 filed 9/27/79. Five requests for additional information between 

10/25/79 and 9/4/80. Information received 2/27/81. Settled by Department of Justice for 

$1,209,631.86 - 9/8/81. (Includes cargo claim) . 

09/28/79 4,000,000.00 Suit for $1,000,000.00 filed 9/30/7~. Consolidated with vessel damage suit. 

09/26/79 $ 123,927.74 Suit for $123,927.74 filed 9/25/79. Six requests for additional information between 

10/25/79 and 12/29/80. Information received 1/12/81. Settled oy Department of Justice 

for $32,160.16 - 5/19/81. 

11/18/80 

09/25/79 

08/19/81 

219,179.54 Suit for $90,000.00 filed 9/30/79. Additional information requested 12/18/80. 

Settled for $208,604.77 - 8/27/82. 

19, 444·. 32 Additional information requested 1/29/80 and 3/13/80. -Information received 8/22/80 . 

Referred to General Counsel for review 10/2/80. Settled for $1 9 -· ~. 32 - ·12/10/80. 

92,185.66 Three requests for additional information between 9/ 10/ 81 ana 

received 2/23/82. Referred to General Counsel for review 5/ 1. 

Information 

nalysis in process. 
srATUS OF CLAIMS AGAINsr THE Pl\NllMA CANAL CXMMISSION 

ARISIN:; Fl01 VESSEL ACCIDENI.'S OCQJRRIN:; AFTER SEI!I'EMBER 30, 1979 

DATE IN OR DATE N/OUNI' 

OF our OF OF OF 

BL! N). VESSEL ACCIDEN1' LOCKS CIAIM CIAIM srATUS 

1-80 PN1PUS 10/02/79 I $ No Claim {Personal Injury) 

2-80 Tug the POLARIS 10/08/79 0 No Claim 

3-80 QVERSEAS VALDEZ 10/18/79 l 03/17/80 166,068.63 Settled 10/29/82 for $129,477.00 (Note: 1st offer on ii/16/81 was .not accepted and 

additional information was slbmitted on 3/8/82) 

3-80 Yacht AI.ASMAR 10/18/79 I 04/07/80 419.60 Additional information requested 9/81 {Previously in General Coun~el for advice) 

3-80 Yacht AGUIIA 10/18/79 I 02/26/80 147.00 Additional information requested 9/81 (Previously in General Counsel for advice) 

3-80 Yacht FREVEN 10/18/79 I 02/25/80 205.95 Additional information requested 9/81 {Previously in General Counsel for advice) c~ 

3-80 Yacht FRIENDSHIP lQ/18/79 I 01/24/80 375.00 Additional information requested 9f81 {Previously in General Counsel for advice) 00 

3-80 Yacht SILVER HEEIS 10/18/79 I 01/18/80 530.00 Additional information requested· 9/81 {Previously in General Counsel for advice) 

4-80 OVERSEAS AIASKA 10/24/79 I 11/04/82 Indemnity action based upon personal injury. Under reviews by General Counsel 

5-80 OVERSEAS NEW YORK 10/25/79 I 03/17/80 137,878.66 Settled 12/14/81 - $67,849.52 {Partial claim slbmitted on 3/17/80, additional 

documents SU)mitted 1/9/81) 

6-80 OVERSEAS NEW YORK 10/30/79 I 03/17/80 120,870.57 Settled 12/14/81 - $52,026.42 {Partial claim sl.i:>mitted on 3/17/80, balance of claim 

filed 8/19/80) 

7-80. MA!P() II 11/01/79 0 No Claim 

8-80 MESSINIAKI AVGI 11/13/79 I No Claim {Personal Injury) 

9-80 &"WAN ARIOl 11/08/79 0 07/29/80 367,066.12 Sl.i:>mitted to a.m on 3/8/82; forwarded to Congress 11/9/82 (Four requests for · additional information were necessary before analysis could be made) 
DATE IN OR DATE AMOUNI' 

OF our OF OF OF 

BLI 00. VESSEL / ACCIDENr LOCKS CLAIM CIAJM srATUS 

10-80 ATHENA 11/13/?9 0 $ No Claim 

11-80 ~ VENI'URE / 11/20/79 0 01/27/81 282,709.32 Mditional information requested 9/27/82 (7th request) 

12-80 CARIB FREEZE 11/21/79 0 No Claim 

13-80 Wl\SHIOOTON TRADER 11/24/79 I 06/26/81 1'48,955.30 Settled on 3/30/82 - $139,155.56 

14.:.00 ~ 'IDBi\ 12/03/79 I 01/30/81 27,042.62 Settled 1/14/82 - $23,696.52 

15-80 Yacht CREDEN:E 12/08/79 I 04/18/80 388.70 Settled on 5/5/82 for $135.00 (Offers of settlement made since 6/13/80) 

16-80 GOLDEN SABRE 12/19/79 I No Claim 

17-80 ~ WASHltUI'ON 12/21/79 I 05/06/80 80,743.07 Settl~ 12/17/81 - $39,908.50 (Additional information requested 1/13/81) ~ 

(,0 

18-80 HOLsrENKcxx.; 12/25/79 I 07/28/80 18,594.59 Settled 11/18/81 - $14,903.65 (Additional information requested 11/26/80) 

19-80 B.l\R3E EL REY 12/30/79 I No Claim (Personal Injury) 

20-80 BUNKO MARU . 01/02/80 0 No Claim 

21-80 T(X; SIDNEY ross 01/24/80 0 No Claim (Personal Injury) 

22-80 srAR ROODIAN 02/06/80 I 02/11/82 10,698.04 Referred to General Counsel for revi~ 10/6/82 (Additiona~ information 

requested 6/15/82) 

23~80 BARGE GLEr.MAR 02/07/80 0 No Claim 

23-80 l3AR3E SUBLIEI' 02/07/80 0 No Claim 

24-80 OVERSEAS ALASKA 02/10/80 I 06/10/80 20,695.72 .Disallowed 11/10 /8 O 

25-80 CRENNA 02/12/80 I No Claim 
DATE IN OR DATE AMOUNr 

OF our oF OF OF 

BLI 00. VESSEL ACCIDENI' W.:::KS CIAIM CIAIM STATUS 

27-80 ZIM TOKYO 03/01/80 I $ No Claim (Personal Injury) 

28-80 WASHINGIDN TAADER 03/03/ 80 0 06/26/81 101,511.38 Settled on 7/22/82 for $52,274.37 (Offer of settlement made on 1/25/82 and 

accepted on 7/21/82) 

29-80 ISABEL cnm 03/09/80 0 No Claim 

29-80 RIO ARIMAO 03/ 09/80 0 No Claim 

30-80 ·IAOO HUALAIHUE 03/10/80 0 No Claim 

30-80 SAPF0:00 OLYMPICS 03/10/80 0 No Claim 

31-80 OVERSEAS AN2HORAGE 03/23/80 I 06/24/80 4,805.42 Disallowed 11/12/80 

32-80 Yacht SPICE 03/25/80 I No Claim ~ 

0 

33-80 KEYSIONER 03/27/80 0 No Claim 

33-80 MING SHINE 03/27/80 0 No Claim 

34-80 ANNA 04/10/80 I 08/10/80 446,982.76 Referred to General Counsel for review 10/28/82 (Note: Four requests for 

additional information necessary before analysis could be made) 

35-80 ESSO NASSAU 04/10/80 0 04/07/82 391,.855. 77 Additional information requested 5/5/82 and traced 11/1/8~ 

35-80 ESSO GUAM 04/10/80 · 0 04/07/82 889,369.38 Additional information requested 5/14/82 and traced 9/2/82 

36-80 OVERSEAS ALASKA 04/13/80 I 05/09/80 114,524.86 Settled on 1/24/82 - $69,858.87 (Additional information received 8/26/81) 

37-80 ALTAVIA 04/13/80 0 12/11/80 63,450.00 Settled 2/19/82 for $33,797.39 {Additional information received 6/15/81) 

38-80 Yacht WILLIN:; MIND 04/03/80 I No Claim 
DATE IN OR DATE .AMOUNI' 

OF our OF OF OF 

BLI 00. VFSSEL ACCIDENI' LOCKS CLAIM CLAIM BrATUS 

39-80 EASl'ERN H)RNEI' 04/22/80 0 $ No Claim 

39-80 OORYFDOOS 04/22/80 0 No Claim 

40-80 CAPE GRENVILLE 05/01/80 0 No Claim 

40-8Q Yacht INDIAN Sllw1MER 05/01/80 0 06/30/80 102,223.10 Settled on 3/6/81 for $57,626.08 (Additional information received 9/15/80) 

41-80 AGIOS NTI<OLAS 05/25/80 0 No Claim 

42-80 I.AOJN 06/01/80 0 10/01/82 196,648.04 Additional information requested 11/5/82 

43-80 DANUBE SEA 06/01/80 0 No Claim 

43-80 BAHIA DE OXHIIDS 06/01/80 0 No Claim ~ 

44-80 BrEFAN DRESCHER 05/20/80 0 No Claim ..... 

44-80 Yacht ffiRINI'HIAN 05/20/80 0 No Claim 

44-80 ·Yacht PH)ENIX 05/20/80 0 No Claim 

45-80 TEXP!D ffiNNECI'IaJI' 06/07/80 0 05/18/81 2,488,433.14 Submitted to a.1B on 3/8/82; forwarded to Congress on 11/9/82 

46-80 OONUBE SEA 06/08/80 0 No Claim 

47-80 AI..SATIA 06/25/80 0 No Claim 

48-80 LLOYD LIVERRX>L 06/30/80 0 No Claim 

48-80 OPAL 06/30/8,0 0 No Claim 

49-80 KOREAN LEADER 07/06/80 0 04/23/81 1,202,972.74 Referred to General Counsel for review 10/14/82 (Additional inforlTldtion 

received in Septerrber 1982) 

J 
~ 

50-80 

51-80 

52-80 

53-80 

54-80 

55-80 

56-80 

57-80 

58-80 

59/80 

60-80 

61-80 

62-80, 

T 

\ 

VFSSEL 

TEXACD IOME 

ESSO CDRAL GABLES 

DATE 

OF 

ACCIDENr 

07/06/80 

07/10/80 

OVERSEAS WASHINJION 07/11/80 

OVERSFAS OOIO 07/21/80 

-ATHENA 07/23/80 

AULICA 08/03/80 

CMG.r\ 08/02/80 

OLYMPIAN REEFER 08/10/80 

BAK;E BELCHER 101 09/02/80 

EXXON WASHINJION 09/08/80 

FAIR REEFER 09/12/80 

SEIRYU 09/18/80 

OVERSFAS ALEUI'IAN 09/23/80 

IN OR 

our OF 

LOCKS 

0 

0 

I 

I 

0 

0 

0 

I 

0 

0 

0 

I 

I 

DATE AMOUNI' 

OF OF 

CLAlM CIAJM srATUS 

$ No CLaim 

No Claim 

12/11/80 37,000.71 Settled on 8/21/82 - $35,000.00 (Claim disallowed 1/16/81. Claim increased to 

$75,QOO and suit filed in 7/81) 

12/11/80 88,068.86 Settled 3/2/82 - $43,085.45 (Note: Suit had been filed and dismissed for 

administrative settlement on 11/9/81) 

03/26/82 70,000.00 Referred to General Counsel for review 9/30/82 

09/27/82 332,268.03 Additional information requested 09/29/82 and traced 10/21/82 

No Claim 

04/13/82 99,115.74 Offer of settlement made on 11/17/82 (Additional ~ information received 7/16/82) ~ 

No Claim 

11/01/82 581,592.23 Additional information requested 11/9/82 

No Claim 

No Claim 

12/11/80 89,173.51 Additional information provided by shipowner on 2/11/81 and 7/23/81. 

Referred to General Counsel for advice on 9/10/81. Additional information provided 

by shipowner on 12/28/81. To date, shipowners have adequately documented $150 in 

damages 
DATE IN OR DATE AMOUNI' 

OF our OF OF OF 

BLI NJ. VESSEL ACCIDENI' LOCKS CLAIM CIAIM BrATUS 

1-81 AMERICAN APOLID 10/01/80 0 11/18/81 $5,620,095.67 Additional information requested 12/7/81, 2/12/82, and 7/6/82. Revised claim 

filed on 10/22/82. Additional information requested 11/2/82 

2-81 OONA - PAZ 10/06/80 0 No Claim 

3-81 MING CC~ 10/07/80 0 No Claim 

4-81 AMYNr'PS 10/15/80 0 No Claim 

4-81 ..SIL~ Sl'AR 10/15/90 0 No Claim 

5-81 HELLESFONI' CDURAGE 10/27/80 0 10/07/82 148,139.30 Additional information requested 10/20/80 

5-81 CCE'.AN VIP 10/27/80 0 10/04/82 12,831.62 Referred to Industrial Division for advice 11/2/82 

6-81 IONI'UE 11/02/80 I 10/05/81 13,106-.24 Settled 3/5/82 for $12,045.41 ~ 

CA, 

7-81 MORM.r\CSUN 11/03/80 I 03/23/82 71,374.68 Referred to General counsel for review on 11/15/82 

8-81 Launch SANI'A RITA 11/01/80 0 03/11/81 39,652.00 In Claims for analysis (Supporting documents slbmitted 9/10/82. Received from 

official translator 11/12/82) 

9-81 PUERro PRIOCESA 11/12/80 0 No Claim 

9-81 OII SI'AR 11/12/80 0 No Claim 

10-81 OCEANIS 11/18/80 0 No Claim 

10-81 ·ZIM GEN'.JI/A 11/18/80 0 No Claim 

11-81 M)tJNI' VERroN VICTORY 11/19/80 I No Claim 

12-81 OODEN OjllMPION 11/21/80 I No Claim 

13-81 KORF.AN OONIS SUN 12/01/80 0 08/27/81 2,957,098.50 Suit involving cargo interests and another yessel filed in N8'1 York. Commission 

tendered defense 5/6/82. Tender rejected 5/24/82 
DATE IN OR DATE TM-OUNI' 

OF our OF OF OF 

BLI. 00. VESSEL ACCIDENI' LCCKS CLAIM CLAIM BrATUS 

14-81 OONICA 12/26/80 I 07/29/81 $ 9,500.00 Settled on 5/19/82 for $9,500.00 

15-;-81 ~DEN WILI.JlMETI'E 01/06/81 I 10/19/82 116 ,·157. 94 Referred to Industrial Division for advice 10/25/82 

16-81 I.ADY NINA 01/08/82 0 No Claim 

16-81 OOASrAL CALIFORNIA 01/08/81 0 No Claim 

17-81 OCF.AN RAN:;ER 01/10/81 0 No Claim 

18-81 N-ICIDI.J\S G. PAPALIOS 01/11/81 I No Claim 

19-81 .AMERICAN AC.UARTI!S 01/12/81 0 07/07/82 539,818.27 .Additional information requested 09/8/82 

20-81 BARGE YRTM 32 01/16/81 0 04/23/81 46,513.75 Additional information rec:::eived 9/9/81. Settled 3/17/82 for $29,913.75 ~ 

21-81 BARGE YR1B 32 01/20/81 . 0 04/23/81 (Both accidents under one ciaim) ~ 

23-81 NYK TUG BAYAN:> 02/03/81 0 No Claim 

24-81 REPUBLICA DEL EQJAOOR 02/13/81 I No Claim 

25-81 C. K. APOLID 03/0l/8i I No Claim 

26-81 NEDI'IS 03/05/81 0 No Claim 

27-81 f\(JJAFAITH 03/06/81 I 10/19/82 1,055,224.51 Additional information requested 10/28/82 

28-81 LWYD MARSEIBA 03/09/81 I No Claim 

29-81 MONI'ERREY 03/15/81 I No Claim 

30-.81 OVERSEAS JOYCE 03/23/81 o , 02/16/82 61,248.13 Referred to GC for review on 11/15/82 
~ 

N 

I 

w 

-...J 

co 

DATE IN OR DATE AMOUNr 

OF OUT OF OF OF 0 

~ VESSEL ACCIDENT U:X:KS CLAIM CLAIM STATUS 

+ 31-81 l'4)UNT WASHIN.;'ION 04/07/81, I 01/25/82 $ 81,159.63 Additional information received 7/6/82. Referred to General Counsel for 

review 8/10/82 

33-81 FORI' KAMIOOPS 04/17/81 I No Claim 

34-81 cx:;oEN WABASH 05/04/81 I No Claim 

35-81 Yacht GI-DST II 05/04/81 I 10/19/81 · 316,698. 70 Settled 6/28/82 for $165,000.00 

36-81 UNIQJE FDRI'UNE 05/07/81 0 No Claim 

36-81 CHOKO MARU 05/07/81 0 No Claim 

37-81 LUIS BANCHERO 05/18/81 No Claim ~ 

C1' 

38-81 OCEAN EVER 05/25/8i 0 02/01/82 685,104.10 Forwarded to Con:3ress December 3, 1982 

39-81 NAI NOEMI 05/26/81 0 No Claim 

39-81 Tug SAN BLAS 05/26/81 0 No Claim 

40-81 CABO PILAR 05/25/81 I No Claim 

41-81 CABO PILAR 05/25/81 0 No Claim 

42-81 OVERSEAS ALEUTIAN 05/29/81 I No claim 

43-81 WESTERN SUN 06/05/81 I No Claim 

44-81 TELFAIR PIONEER 06/07/81 I No Claim 

45-81 WASHIN.;'ION TFADER 06/13/81 0 No Claim 

46-81 OVERSEAS WASHINGION 06/22/81 0 No Claim 
DATE IN OR DATE /IMOUNI' 

OF our OF OF OF 

BLI 00. VESSEL ACCIDENr r..cx::KS CLAIM CLAIM STATUS 

46-81 PALTIC NEPI'UNE 06/22/81 0 $ No Claim 

47-81 CDLDITZ 07/02/81 0 No Claim (Personal Injury) 

48-81 IMPERIAL 07/05/81 0 No Claim 

49-81 CDRDIALITY 07/12/81 0 No Claim 

50-81 GULF FARMER 07/12/81 I No claim 

51-81 . Yacht THEI'IS III 07/10/81 I No Claim ~ O') . 

52-81 COLlMBUS NEW ZEALAND 08/04/81 0 03/01/82 54,666.93 Mditional information requested 3/11/82 and traced 9/2/82 

54-81 LIDYD MARSELHA 09/15/81 0 i.-io Claim 
DATE IN OR DATE .AMOUNI' 

OF our OF OF OF 

BL! N?· VF.sSEL ACCIDENI' IOCKS CIA1M CLAIM srATUS 

1-82 VALTE1'SI 10/06/81 I $ No Claim 

2-82 SI'OLT OORNESS 10/12/81 0 No Claim 

2-82 ASIAN EXPRESS 10/12/81 0 No Claim 

3-82 ZAMORA 10/19/81 0 07/01/82 1,118,496.15 Mditional information requested 8/9/82 

4-82 LINDENHALL 10/22/81 0 05/28/82 '58,828.45 Mditional information requested 6/7/82 (Partial information received 10/7/82) 

5-82 BARBER 'IDNSBERG 10/24/81 0 No Claim 

6-82 DAISHlli MARU 10/31/81 0 No Claim 

7-82 AQJMEN 10/31/81 I No Claim ~ 

-:J 

8-82 LIDYD AffiENI'INA 11/06/81 0 No Claim 

9-82 ESSO T.AMPA 11/07/81 I No Claim 

10-82 OONI'AIGLE 11/09/81 I 05/27/82 214,41:8.46 Mditional information received 10/25/82 

Referred to Industrial Division for advice 11/4/82 

U-82 TOYOI'A MARIJ No. 16 11/22/81 0 No Claim 

11-82 TI-DR srAR 11/22/81 0 No Claim 

12-82 IEDI\ 12/09/81 0 No Claim 

13-82 ARCO HERITAGE 12/11/81 0 No Claim 

14-82 IEDI\ 12/11/81 0 No Claim 

15-82 SN:M HILL 01/12/82 0 No Claim 
DATE IN OR DATE .AMOUNI' 

OF our OF OF OF 

BLI 00. VESSEL ACCIDENI' LOCKS CLAIM CLAIM srATUS 

16-82 HARrLEY ACE 01/26/82 0 $ No Claim 

16-82 GJLDEN PANAGIA 01/26/82 0 No Claim 

17-82 GOWEN PANAGIA 01/25/82 I · No Claim 

18-82 Yacht I.ru RIDER 01/21/82 I No Claim 

19-82 OLYMR)S 02/03/82 0 No Claim 

20-82 SILVER CI.DUD 02/06/82 0 No Claim 

20-82 LAG) I ZABA.L 02/06/82 ·o No Claim 

21-82 OVERSEAS ALEUTIAN 02/08/82 0 No Claim 

22-82 F.RAN:IS SIN:ER No. 6 02/15/82 I No Claim ~ 

00 

23-82 SANI'A CRUZ 02/16/82 0 No Claim (Personal Injury) 

24-82 ATI.ANl'IS 02/20/82 I No Cl.aim 

25-82 TRINITY NAVIGATOR 03/02/82 0 No Claim 

25-82 COVE SAIIDR 03/02/82 0 No Claim 

26-82 Yacht~ 03/01/82 I No Claim 

27-82 DAPHNE 03/13/82 0 No Claim 

28-82 MOBIL ro-JER 04/12/82 I No Claim 

29-82 OVERSFAS NEW YORK 04/22/82 I No Claim 

30-82 OORITAL 04/25/82 0 No Claim 
DATE IN OR DATE AMOUNI' 

OF our OF OF OF 

BLI-00. VE.5SEL ACCIDENI' ICCKS CIAIM CLAIM STATUS 

31-82 WIGI CASALE 04/27/82 0 $ No Claim 

31-82 OIIMBORAZO 04/27/82 0 08/30/82 153,351.99 Additional information requested 9/20/82 

32-82 SANI'A BARBARA 05/15/82 I No Claim 

33-82 AUsrRALIAN ENDF.AVQR 05/08/82 I No Claim (Personal Injury) 

34-82 Tug EXPIORER 05/20/82 0 No Claim (Personal Injury) 

35-82 CXJVE <XM-1UNICATOR 05/20/82 0 No Claim 

36-82 · EXXON OOSION 05/26/82 0 No Claim 

~ 

37-82 OVERSEAS ALEUI'IAN 06/01/82 0 No Claim co 

37-82 MIYUNHAI 06/01/82 o · No Claim 

38-82 MOUN!' WASHIOOTON 06/19/82 I No Claim 

39-82 COLt.MBUS AMERICA 06/21/82 I , No Claim 

40-82 TEX.AO) NEW YORK 06/25/82 I No Claim 

41-82 GEDffiE S. EMBIRICOS 07/12/82 0 No Claim 

42-82 BALTIMORE TRADER 07/12/82 I No Claim 

43-82 AND:00.S CITY 07/12/82 0 No Claim 

44-82 rsrRIA 07/23/82 I No Claim 

45-82 OVERSEAS ALEurIAN 07/26/82 0 No Claim 

46-82 TEX.AO) KENI'OCKY 07/26/82 0 No Claim 
DATE IN OR DATE /IMOUNI' 

OF our OF OF OF 

~ ~ ACCIDENI' I.OCKS CI.AIM CLAIM Sl'ATUS 

46-82 NYK Tug OON)S() 07/26/82 0 $ No Claim 

46-82 NYK Tug R)RI'OBELID 07/26/82 0 No Claim 

46-82 P.C. Yacht ClLi:> 07/26/82 0 No Claim 

46-82 Yacht MATAf.Xi 07/26/82 0 No Claim 

46-82 Yacht PC<D II 07/26/82 I 11/16/82 4,036.92 Referred to General Counsel for review 11/16/82 

46-82 Yacht OIDSADER 07/26/82 0 No Claim 

46-82 Yacht FREEI01 07/26/82 0 No Claim 

46-82 Yacht WATER NYMPH 07/26/82 0 No Claim 

46-82 Yacht SUNOO~ 07/26/82 0 No Claim 

Qi 

46-82 KErOi GEMINI 07/26/82 0 No Claim 0 

46-82 JUNK RIG CUIBIAN 07/26/82 0. 11/01/82 8,200.00 Referred to General Counsel for review 11/2/82 

46-82 TRI.MARIAN R:X;UE $-JAN 07/26/82 0 No Claim 

47-82 GHIONA 07/30/82 I No Claim 

48-82 'PSIAN FORES!' 08/03/82 0 No Claim 

49-82 JADE III 08/11/82 I No Claim 

50-82 Yacht F.Arna::M 08/18/82 I 10/18/82 6,104.78 Additional information received 11/12/82 

51-82 AUI'AJ 09/02/82 I No Claim 

51-82 ISLAY . 09/02/82 I No Claim 
DATE IN OR DATE N<10UNI' 

OF our OF OF OF 

BL! N:>. VESSEL ACCIDENI' IOCKS CIAIM CIAIM srATUS 

52-82 SHANOON 09/08/82 I $ No Claim 

53-82 P1'MEIA ANN 09/11/82 0 No Claim 

54-82 PAMELA ANN 09/11/82 0 No Claim 

55-82 OUKUZEN MARU 09/22/82 0 NO Claim 
52 

Mr. LENT. I understand that a reading of the board meeting transcripts suggests that both American and Panamanian _ board members believe-or some of them believe-that the Commission ought ·to get out of the insurance business and somehow change their reg- , ulations so shipowners would bear a greater share of the expense 

of casualties. 

The supervisory board's objective appears _to be reduction or preferably elimination of Commission liability for marine accidents 

both outside and inside the locks. Is that the case? · Mr. GIANELLI. Let me say, Mr. Lent, there has been much discussion about this matter as far as the Board is concerned. But as of 

this moment, the only specific action which the Board has taken is 

to direct the Commission .to study alternatives for reducing the cost 

of marine accidents to the agency. Let me say that the situation 

becomes complex because, as you know, at the present time the 

Commission puts pilots on the ships the minute they enter the 

waters for transit through :the canal; and there is some concern 

about whether or not, if we try to, for example, eliminate the liability of the Commission for these claims, whether it might also have 

the effect of changing who, in fact, is in charge of the ships as they 

transit the canal. 

So I think the entire subject is a complicated one. We have 

talked about it at great length; but the Board has come to no conclusions with respect to any changes at this time. 

Mr. LENT. Is it true that shipowners carry insurance? 

Mr. GIANELLI. That is correct, for their purposes; yes. 

Mr. LENT. This question•also should be asked of the other witnesses-what would be the problem with the shipowners' insurance 

being the responsible entity for accidents in or out of the canal 

while a pilot of the Panama Commission is aboard? 

Mr. GIANELLI. I suspect that perhaps you should talk to the shipping people about this. I would expect that, if they feel that their 

insurance is going to cover the transit, then they would want their 

masters in control of the ships. We -have been looking at that problem also; but let me say, Mr. Lent, that because of the precarious 

nature of transiting ships through the canal, I think the history of 

the Commission and its predecessor agencies has shown it to be important that the pilots of the Commission or the canal company, 

before it, take charge of the ships throughout the transit of the 

canal. 

Mr. LENT. I am not suggesting a change in that arrangement. I 

understand and agree with you that the employees of the Panama 

Canal Commission-pilots particularly-are probably the proper 

personnel to escort these ships through the Panama Canal; but 

could not the shipowner assume the responsibility, the liability for 

any damages to the ship while it was under the navigational control of a Panama Canal pilot? It. would seem to me similar to insurance on my automobile. If my wife or my son or a friend drives my 

car and has an accident, I am still covered. 

So, who is at the wheel isn't necessarily the · determinant of liability. 

Mr. GIANELLI. I think you are right. I am not sure the shipowner_s would .agree with your analysis there with respect to an . automobile. I think that is a subject which would be well to disuss 
53 

with the shippers to see whether or not they would agree to what 

you are suggesting. 

As I say, I think our preliminary information is that there may 

be problems under their insurance policies with our pilots controlling the ships during transit. 

Mr. LENT. I understand that in January 1981, the monthly provision for accident reserves was doubled from a half a million dollars 

to a million dollars per month for fiscal year 1981, effective with 

the October 1981 accounts. Is that correct? 

Mt. GIANELLI. I think that information is correct. 

Mr. McAuLIFFE. That is correct. . Mr. LENT. The question I had then was can you tell us how much 

the company set aside for accident reserves in 1979, the last day of 

its operation? The last year of its operation? 

Mr. GIANELLI. Mr. Lent, could we double check those figures and 

present them to you? 

Mr. LENT. Yes. I realize these questions perhaps should have 

been submitted to you in advance. 

Mr. GIANELLI; We will certainly submit responses to those. 

Mr .. LENT. Along that line, I would like to know what specific 

events might have required the doubling of the monthly reserve 

during the first year of canal operations under the 1977 Panama 

Canal treaties and whether or not the $1 million per month reflects actual monthly accident costs or potential liability. 

In other words, is it the Commission's policy to set aside for insurance against all possible risks in the canal operation? 

[The following was received for the record:] 

QUESTIONS SUBMITTED BY MR. LENT AND ANSWERED BY THE PANAMA CANAL 

. COMMISSION 

Question 1. Please tell us how much the Panama Canal Company set aside for 

accident reserves in fiscal year 1979, the last year of its operation? 

Answer. The monthly accrual or reserve for marine accidents in fiscal year 1979 

was $0.5 million for the first three months and somewhat more than $0.9 million for 

the remaining· months, for a total of $10.0 million. The increase in monthly accrual 

was made i~ January based on the high ship accident cost experience for the .first 

quarter of the fiscal year. This increased accrual proved insufficient for current 

year costs and revised estimates for pending claims for prior years and an additional $5.7 million accrual was booked for 1979 to sustain the reserve account balance. 

The total charge to operations in 1979, therefore, was $15.7 million. Compounding 

the inflationary impact on vessel accident costs in 1979 was the occurrence of two 

major marine accident collisions-Quidnet/Seatide and Amilla/ Star Capella. 

Question 2. What specific events required the doubling of the monthly reserve 

during the first year of Canal operation under the 1977 Panama Canal Treaties? 

Answer. For fiscal year 1980, the first year under the treaty it was calculated that 

a $6.0 million reserve would be adequate to .cover marine accident costs that the 

Commission was authorized· to settle. After reconsideration and consultation with 

the General Accounting Office, the Commission believed it was appropriate to provide for all Marine accident costs sustained even those outside of the locks with 

claims in excess of $120,000. All accident costs in 1980 amounted to $11.3 million, 

and accordingly, the accrual for marine accidents was adjusted in the latter part of 

FY 1980. The total accrual for FY 1980 was $10.5 million. The reserve accrual for 

Marine accidents was increased to $12.0 million in 1981 and 1982. 

Question 3. Does the $1 million per month reflect actual monthly accident cos~s or 

potential liability? In other words, is it the Commission's policy to set aside for insurance against all possible risks in the· Canal operation? _ Answer. No, the Commission does not reserve for all possible risks in Canal operation. The $1 million accrual each month establishes a "reserve" to account for the 

normal costs arising· from marine accidents only. Under this method of accounting, 

a reserve is built up to cover normal losses from marine accidents by charging oper-
54 

ating expenses with a uniform amount each month. This normalizes the operating 

expense. When accidents occur, the resultant losses are charged to the reserve 

rather than to operations. It should be emphasized that the accrual is for "normal" 

marine accident costs. It does not provide for accidents of a catastrophic nature. 

Question 4. Section 1414(6) of P.L. 96-70 specifically states that the Commission is 

not responsible and may not consider any claim for demurrage or delays caused by 

time necessary for investigation of marine accidents. I understand that witnesses to 

follow you later today will express concern with the present procedures for awarding the Board of Local Inspection (BLI) damages. Please tell us what procedures are 

followed by the Board of Local Inspectors in conducting accident investigations? 

Answer. The Board of Local Inspectors is now established under authority of the 

President pursuant to section 1418(a) of The Panama Canal Act of 1979, Pub. L. 96-

70. Originally it was an administrative body, first created in 1909 at the direction of 

President Taft. Its accident-investigation procedures have been subject to very little 

change through the years since the Canal was opened in 1914. The Board always 

has performed this function with the objective of conducting a formal inquiry into 

each marine casualty as soon as practicable after the incident occurs. Such a policy 

is advantageous for serveral reasons, including that of enabling the vessel promptly 

to continue its voyage. It is obvious that in some cases a damaged ship will be delayed (irrespective of the investigation) in order to make temporary or permanent 

repairs that are necessary prior to sailing. 

The basic procedures that are followed by the Board and the parties giving evidence or testimony before it are published at Part 117 of Title 35, Code of Federal 

Regulations. It will be noted that provision is made in sectio·n 117.la for scheduling 

the investigation at least 10 hours after the accident. The regulation describes the 

purpose of this rule as that of affording pilots and other parties-in-interest a period 

for rest and consultation before the proceeding begins. This waiting period may be 

waived or shortened in urgent cases. 

It is the Commission's understanding that shipowners and operators are not primarily concerned with, or critical of, the manner in which the Board of Local In- · spectors conducts these inquiries or the time that they require. nather, the affected 

parties are protesting the fact that, when the Commission is liable for damages that 

accrue as a result of an accident, they are precluded from recovery of the expense of 

detention time attributable to the hours spent in Canal waters awaiting and attending the investigation by the Board. As the Subcommittee has noted, however, section 1414(6) of the Panama Canal Act prohibits the Commission from considering 

any claim for that element of an injured party's damages. The Panama Canal Commission is neutral on the question of whether the provisions of this subsection 

should be removed from the law. 

Mr. LENT. Another subject: I understand since October 1, 1980, 

all harbor movements in the ports of Balboa and Cristobal are performed by tugs operating under contract with the National Board 

of Panama. 

My . question would be, is it true that after this date, October 1, 

1980 the Japanese NYK Co., took over Balboa and Cristobal 

Harbor tug operations? 

Mr. McAuLIFFE. Yes. As I recall, that was about the date that 

the National Port Authority of Panama contracted with the Japanese firm to provide tug service in the harbors. · Mr. LENT. Are those vessels involved in harbor ·movements as 

distinct from canal movements required to have Panama Canal 

Commission pilots aboard? · Mr. McAuLIFFE. No, sir, not on the tugs. Our pilots, however, do 

man the vessels themselves that are being maneuvered into the 

two port areas and out of them. 

Mr. LENT. Even though they are not going to transit the canal? 

Mr. McAm:~IFFE. Well, the fact is that they must have a pilot 

aboard in order to traverse even the smaller portions of the canal 

between the ports and the open seas.~ Mr. LENT. So that. the Panama Canal Commission, as opposed to 

the Port Authority of Panama, continues to have liability for any 
55 

accidents that might occur in those waters in either of those two 

cities? · 

Mr. McAuLIFFE. That is correct, Mr. Lent, to the extent that liability can be shown to rest with the Commission because of the actions of our employee, namely the pilot or someone of that nature. 

For if an accident occurring in the harbor should be attributed to, 

let us say, the Japanese tugboat, then obviously the Commission 

would not be at fault. 

Mr. LENT. So if there is no one from the Commission aboard the 

vessel, pilot or otherwise, there is no question there is no liability 

on the part of the Commission, is there? 

Mr. McAuLIFFE. That is correct, Mr. Lent. 

Mr. LENT. So if there is someone from the Commission aboard a 

vessel and an accident occurs, then it is possible that · the Commission might be liable but only if there is negligence demonstrated on 

the part of the personnel of the Commission? 

Mr. McAuLIFFE. That is substantially correct, Mr. Lent.' There 

are other reasons than negligence as it is defined in the law. A 

judgment call, let us say, on the part of a pilot that would not necessarily be negligent but would be perhaps an unwise decision at 

the point; there are many reasons for accruing fault. 

In the case of the harbor movements that you mentioned, our 

pilot does have operational control of the ship because that ship is 

moving out of or into canal waters and we must maintain control. 

That is the reason that our pilots are aboard and in control. 

Mr. LENT. Thank you for that. That helps me. 

The legislative proposal forwarded to Congress pursuant to 

Public Law 96-70 in October 1981 proposed that the Commission 

may require as a condition of transit of the canal that vessels 

obtain insurance or otherwise demonstrate financial responsibility 

sufficient in amount to provide · reasonable indemnification for 

damages resulting from acts or omissions of ~uch vessels when 

passing through the canal. .. Would enactment of this provision reduce the amount set aside 

in reserve for accidents; and if so, by approximately how much? 

Mr. McAuLIFFE. In my opinion, Mr. Lent, if that were the case, 

that would not necessarily reduce the amount of tolls. 

Mr. LENT. Approximately what percentage, if you know, of the 

accident reserve is set aside to pay for cleanup of oil pollution 

damage? . Mr. GIANELLI. I don't think there is any specific amount set aside 

for that purpose, Mr. Lent. 

Mr. LENT. Would an oil tanker traversing the canal carry insurance to cover oil pollution cleanup costs? Would a tanker be required to carry that sort of insurance? _ Mr. GIANELLI. My understanding, Mr. Chairman, since the enactment of the treaty, is that they are not required to carry insurance 

to cover cleanup costs resulting from any spillage that might occur. 

Mr. LENT. I think we ought to check into that, because it seems 

to me if a tanker spills, there ought to be responsibility on the part .of the tanker. 

Mr. GIANELLI. I think the situation is, as I understand it from 

counsel, with whom we have just been talking on the subject, that 

is prior to the ·effective date of the treaty, there were certain re-
56 

sponsibilities under the Water Pollution Control Act that applied. 

My understanding is since the treaty, those provisions do not apply 

and, therefore, they are not liable for penalties under that law. 

At least that . is my understanding preliminarily from counsel. 

We can look at this matter further and advise you on it. 

Mr. LENT. One of the reasons we asked that question is to determine whether there might be not a duplication of insurance if, for 

example, a container were carrying insurance for that kind of act, 

and at the same time they were paying through the rate structure · on the tolls for that kind of protection to the canal itself, there 

would be a duplication. 

Mr. GIANELLI. I assume in the one case, Mr. Lent, you would be 

talking about, for example, charges for cleaning up a mess that 

might result from an oil spill. On the other hand, it seems to me 

part of what we have been talking about in terms of claims or damages that would occur to the ship. 

Whether the oil spill would be included as part of those I think is 

something we would have to look at. 

Mr. LENT. I have no further questions at this· time, Mr. Chairman. , Mr. HUBBARD. Congressman Tauzin? 

Mr. TAUZIN. Thank you, Mr. Chairman. 

Mr. McAuliffe, let :rne express to you publicly my appreciation 

for having the chance to meet you, sir, and work with you and for 

your appearance here today. As I understand the manner in which 

the toll system works and the liability of the Commission functions 

under the act, the assessment of tolls is a matter in which the risk 

of the Commission for damage to a single vessel traversing the 

canal is spread across all of those vessels traversing the canal. 

If we were to go to a different system, whereby the vessels themselves were to be obligated as in the case of automobiles-my good 

friend from New York used the analogy-would not that require 

the spreading of the risk for damage while traversing the. canal 

over all vessels insured generally in the global insurance market, 

whether or not they traverse the canal? 

Mr. GIANELLI. If it were not a Commission responsibility, then 

the Commission would certainly not have to include in its toll 

structure provisions for paying those claims. I assume then if the 

ships had that responsibility, that would be reflected by the individual policies which they would pay. . Mr. TAUZIN. My point is if ships generally had to be responsible, 

the ships that ended up not traversing the canal lll:ight end up in 

the insurance rating that is applied for ships carrying part of the 

risk, those vessels that did traverse the canal. 

The current system guarantees only those vessels traversing the 

canal through the toll system which will share the risk of those 

that are damaged in the process of going through the canal; isn't 

that correct? . Mr. GIANELLI. I think that is right. , Mr. TAUZIN. Second, in answering the gentleman from New 

York's question with reference to the liability of the canal having a 

pilot on board a ship, my understanding of the law in reading it is 

that the liability attaches outside the· locks unless there is a showing of contributory negligence on the part of the master, the crew, 
57 

or passengers of the · vessel. As I read the law-and I wish you 

would clear this up for me-you don't really have to show that the 

canal pilot was somehow negligent, that unless you have evid~nce 

there was negligence, contributory negligence, not bad judgment or 

something, but negligence, on the part of the master of the ship, its 

crew, or its passengers, that the Commission is liable? . Mr. GIANELLI. Mr. Chairman, I wonder if we could have Mr. 

Dwight McKabney, the General Counsel for the Commission, come 

to the table? He is in the audience, and can assist in answering 

some of these questions. 

Mr. TAUZIN. Let me elaborate again. The difference between my 

understanding and what I thought the question the gentleman 

from New York was raising, he was asking the question, the Commission is liable, upon a showing that the pilot, representing the 

Commission on the vessel, did something wrong and the answer 

was, well, it is almost correct, there are some variations to that. 

My question is: Isn't it true that the Commission pilot may show 

he hasn't don·e anything wrong or negligent, but unless you show 

that the master, the crew, or the passengers did something to contribute to the accident which something they did is considered ~negligent, unless. you show that, the Commission is liable, whether or 

not you show the Commission man was negligent or not? 

Mr. McKABNEY. May I answer the question by saying with respect to the accidents that occur in the locks, the Commission is a 

virtual insurer of the vessel. Only if we can show that action or 

omission by the vessel contributed to the accident is the amount of 

the damages payable herself reduced. 

Outside the locks, however, the regular admiralty rules of recovery apply; and unless there is- negligence on the part of the pilot, 

the tug master, or some other employee of the Panama Canal Commission or a negligent omission, tpen there is no liability. That is - . the rule that was in effect prior to the treaty implementation and 

it is the rule that is still applied in the settlement of claims by the 

Commission. 

Mr. LENT. Would the gentleman yield? 

A followup to that, sir, is who makes that determination of negligence· and liability? · 

Mr. McKABNEY. Prior to October of 1979, it was m:ade by the 

Panama Company but was subject to judicial review. Since September of 1979, the out-of-locks cases are settled, if they are under 

$120,000; by the Commission and the Commission's judgment on 

that is final. so· then it is the Commission that is making the determination as to whether there was,negligence on the part of the employee. · · 

With respect to tho~e claims that are in excess of $120,000 that 

have now gone to the Congress and that are in the process of being 

prepared to be sent,. the Congress itself is to make that determination, on the basis of the analysis and the recommendation of the 

Panama Canal Commission~ That, sir, is_ the way we read. the statute. · Mr. TAUZIN. Let me reclaim. I am not sure I still understand 

your answer. 

In the memorandum I have on the law, it says that inside the 

locks, the Commission employees exercise . virtual total control. 
58 

Therefore, inside the locks, the Commission is essentially an insurer of all claims, although technically, the Commission may, in fact, 

reduce the award in proportion to contributory negligence. I understand that. 

Outside the locks, however, the memorandum provides that the 

Commission must adjust and pay those claims not exceeding $120,000; and, again, the award must be reduced by the contributory negligence of the vessel and its crew. 

This leads me to this question: Does that mean within $120,000, 

and over $120,000 if Congress approves, that the Commission is 

liable for the claim whether or not there is proof that the Commission was negligent? The Commission is liable for this claim only to 

be .reduced by any proof of contributory negligence? 

Mr. McKABNEY. The position that the Commission has so far 

taken since the treaty went into effect in October of 1979 is that 

the determination with respect to claims for accidents occurring 

outside the locks is made on the basis that only a showing of a negligent act or omission on the part of the Commission will result in 

liability. 

Mr. TAUZIN. I am glad to hear that. What I still cannot understand in the law is the next series of questions. I hope you will help 

me here. As I understand the law, if an inside-the-locks accident 

occurs, and the damage in the inside-the-locks accident is whatever-$120,000, $200,000, $1 million-you can settle it as an insidethe-locks claim. Is that correct? 

Mr. McKABNEY. That is correct, sir. 

Mr. TAUZIN. If the damage occurs outside the locks and the Commission employee's negligence operates, let's say, to only 5 percent 

of the claim, the master of the ship is 95 percent negligent, and the 

damage is $120,000 plus, then in that instance, even though the 

Commission's liability is limited to maybe $5,000 or $6,000 or 

$10,000, the Commission cannot settle that claim; it has to bring 

that .claim to Congress? 

Mr. McKABNEY. That is correct, sir. The Comptroller General 

has construed the statute to read that if the claim itself--

Mr. TAUZIN. Total claim? · ·Mr. McKABNEY. Total claim exceeds the $120,000, then the Commission may take no action on it except to analyze it, collect the 

data, and send it to the Congress with the recommendation of the 

Commission. 

Mr. TAUZIN. So the Commission has been empowered by the act 

to settle claims within the locks, with no limit; and that Commission, however, in some cases may not be able to settle claims outside the locks where it has been determined the Commission's liability may be no more than a few thousand dollars? 

Mr. McKABNEY. That is correct, sir. The Panama Canal Company from 1951 until October 1979 had authority to settle those outof-locks cases for any amount, but with its determination being 

subject then to judicial review. 

Mr. TAUZIN. It seems to me that we are in desperate need for a 

change in the law in that regard if we are going to have some commonsense applied to the settlment of these claims. 

There is another provision in the law that Mr .. McAuliffe has 

pointed out that is appalling to me. As I understand your testimo-
59 

ny, you are charged with setting the tolls in order to collect enough 

money to cover contingency claims. Mr. McAuliffe's testimony 

indicates there are some 36 claims that are either pending or 

before the Congress or likely to come before the Commission since 

accidents involve cases over $120,000 outside the locks. 

Thirty-six· claims are likely to come to this Congress for settlement under the current law; and you further stated in your testimony, Mr. McAuliffe, there is no statute of limitations whatsoever . upon those 21 potential claimants who have not yet filed. They can . wait 2, 3, 5, 10, 20 years before filing a claim with the Commission. 

In the meantime, the Commission is required on some formula, 

apparently using some crystal ball analysis, to assess tolls to cover 

those potential claims which has no statute of limitations. 

It occurs to me, sir, that your testimony calls for this Congress 

immediately to act upon that serious omission. You need a statute 

of limitations upon those claims· so that you can accurately forecast 

your potential liability and the contingencies that the toll collections must cover. · I would also like to comment, sir, that in your testimony there 

appears to be some confusion as to whether or not there is a statute of limitations affecting judicial review of inside-the-lock disputes which also .calls upon this committee and this Congress to 

look seriously at correcting that situation and clarifying the status 

of those claims. 

It seems to me again if there is no statute of limitations on the 

judicial review of inside-the-lock claims, that you are terribly 

handicapped at knowing what to assess in tolls in order to cover 

contingent liabilities. 

Lastly, let me ask you this: You have testified that you have on 

hand sufficient funds in the tolls already collected as a contingency 

to cover the anticipated claims. Is that statement true in view of 

the fact that there are 21 claims which you do not yet have that 

are estimated to be above $120,000 for which the Commission may 

have some liability? And how do you go about estimating that contingent liability until you have done an assessment of the contributory negligence relationships between the Commission's liability 

and that of the crew, master, and passengers of the vessels? 

Mr. McAuLIFFE. As you point out, it is a very difficult procedure; 

but we, first of all, have the experience of any number of years in 

handling accidents; and we are watching the rate of accidents. We 

see accidents as they occur and we are able~ by virtue of the immediate investigation which we make of an accident when it occurs, to 

make an estimate for our own purposes of the amount of damage · involved. That estimate is always subject to · later, very technical 

assessment which is done on the part of the shipowner. But in most 

cases, our original estimates are shown· to be at least accurate 

enough for purposes of laying aside the funds for later paying the 

claims. · We did-this goes to a question that Mr. Lent asked earlierwhen we started off our first year of operation under these conditions, we were setting aside a certain amount of money per month 

and per fiscal year for accident claims. 

We found, as a result of the first year of operation, that we were 

not setting aside enough funds because· the costs of repairing 
60 

damage to the larger size ships now using the canal were greater 

than estimated. That is why we raised the amount to 1 million a 

month which is what we are setting aside now. 

Mr. TAUZIN. Let me ask you specifically: Is that amount sufficient to cover what your preliminary investigations lead you to believe may be the contingent liability of the Commission with reference to the 21 accidents for which you have not yet received 

claims? 

Mr. McAuLIFFE. Yes. It is sufficient. 

Mr. TAUZIN. Let me finally ask you. If this Congress provided a · clear statute of limitations on when claims must be submitted to 

you, No. 1; second, a clear statute of limitations on when judicial 

filings must be made to contest inside-the-lock decisions by the 

Commission; and, third, if you had a ·procedur~ whereby you could 

also settle your liability outside the locks with some judicial 

review, would you not have, No. 1, a more rational system of set~ 

tling these claims? And No. 2, a more rational basis upon which to . assess the · tolls so that the risk covered by those traversing the 

canal is more equal to the _contingent liability? . Mr. GIANELLI. Yes. I think the answer without question is yes, 

Mr. Congressman. 

Mr. TAUZIN. I thank you very much. 

I thank the Chair for the time. I yield back the balance of my 

time. 

Mr. HUBBARD. Congressman Bill Carney? 

Mr. CARNEY. Thank you, Mr. Chairman. 

Is there any redress to the decisions that you make? Do shipowners have any redress to the decisions you make? 

Mr. GIANELLI. The decisions for inside-the-lock cases, yes; they 

have recourse to the courts. 

Mr. CARNEY. Where would _that be? Where would they take _their 

claims? 

Mr. GIANELLI. I am informed that is a U.S. district court in Louisiana. 

Mr. CARNEY. New Orleans? What'·about outside the locks? _ Mr. GIANELLI. Outside the locks, Mr. Carney, I think we have the 

particular problem which is the subject of this hearing. That is, if 

the claims over $120,000 must be decided by the Congress, it is our 

understanding there is no channel for a shipowner, for example, to 

appeal that decision of the Congress. 

Mr. CARNEY. I am asking about the appeal below $120,000 as 

well. . 

Mr. GIANELLI. I am informed our decision is final on those. 

Mr. ·CARNEY. There is no appeal above or below? It doesn't _ matter? It is not necessarily the cause of the Public Law ·of l979, · the treaty of 1977 that makes the exclusion on 120 because Congress has to review it and pass on it? It would happen anyhow, below· $120,000? · -

Mt. McKABNEY. No. Prior to the treaty; Mr. Carney, it would 

have been possible to have those smaller claims reviewed judicially 

in the U.S. District Court for the District of the Canal Zone which 

was disestablished by the treaty. It is only since then that the 

claims for $120,000 and less, are subj~ct to review and payment 

only by the Canal Agency. 
61 

Mr. CARNEY. Did my colleague want me to yield? 

Mr. LENT. I just asked you to yield because I wanted to make the 

point that the final arbiter of the larger claims above $120,000 is 

the Congress of the United States. So the claimant, the -shipowner, 

is not without recourse. 

Mr. CARNEY. I am fully aware of the recourse they would have, 

coming to Members of Congress. · 

Mr. TAUZIN. Will the gentleman yield? 

Mr. CARNEY. I will be glad to yield. 

Mr. TAUZIN. As I understand this discussion, this testimony, even 

in a so~called larger claim, the Commission's liability may be very 

small. It may be just a few thousand dollars. Yet, in that instance, 

the Commission, under the present law, is not permitted to settle it 

because it is outside the locks nor is there any judicial review "for 

the claimant. 

So the actual recovery by the shipowner may be a very small 

one. He may have been liable for most of his own damage. Yet he 

has no judicial review as he has for a very large recovery or a very 

small recovery inside the locks. 

Mr. CARNEY. If I may, I would like to get off that subject and ask 

questions about the accidents within the canal and the responsibility in the entire area of the canal. · Mr. McAuliffe, _you stated there were 261 ocean passages for 

every ac.cident that we have and that was a trend in a good direction. Would you say that looking at overall accident figures that 

that might be high compared to, say, accidents in the 1960's? 

Mr. McAuLIFFE·. I am not prepared to state that answer with .precision. When I stated that there was a downward trend, I was talking about the 3 years of our responsibility as the .Panama Canal 

Commission. 

Mr. CARNEY. We are not taking the past history into that trend? 

Mr. GIANELLI. Let me add, one of the problems the Commission 

has had in recent years is the ships are much larger than they 

used to be. As you have larger ships transiting the canal, the problems are much more difficult. For example, the percentage of ships 

now that exceed, for example, 100 foot beam are much higher now 

than it was, for example, 10 or 15 or 20 years ago. 

So the point I would like to make, without even knowing whi~t 

the statistics will show, is that the problems that the Canal Commission have now are much mo~e difficult than they used to be just 

by virtue of the fact that the ships are much larger.and much more 

difficult, for example, to take through the canal. 

Mr. CARNEY. I am glad you brought that logic to the attention of 

everyone on this committee. However, when you look at the list of 

accid~nts, you find many of the accidents are small yachts, ketches, 

tugboats. Certainly, their size is very small. 

In fact, 1 day, they had 13 accidents. I don't think of the 13, any 

ships were with beams bigger than 80 fe.et. Thirteen accidents July 

26, I believe. 

Mr. TAUZIN. Was that a full moon? 

Mr. CARNEY. Many of them were yachts going through. As I look 

at this, only one accident was in the lock. Most of them were 

within the waters of .the canal, not within the locks; I can under1 2- 978 - 0 - 5 
62 

stand if you had a lot of ships in a lock and something went wrong, 

you would have accidents detailing all the ships. 

But they were not in the locks. I wondered why were there 13 

accidents with small ships? . Mr. McAuLIFFE. As I remember the day and looking at the 

statistics, I believe that at least 11 of those ships were all involved 

in the one incident. The Texaco-Kentucky happened, unfortunately, 

to collide with a number of small yachts at the Cristobal Yacht 

Club. So, each is listed as a separate accident when indeed all were 

involved in one unfortunate incident. 

Mr. CARNEY. I am not laughing at the incident. I wondered. That 

cleared it up rather rapidly. 

I was also curious, looking over the list of the accidents, that 

there was a ship that went through and had extensive damage, I 

would think. I don't know what extensive damage is. 

The claims were in excess of $100,000-or $120,000 with both 

ships. They were the same ships in a 5-day time period. Would 

there be any reason for that? I am going back quite a while to tp.e 

Overseas New York. They were both in the locks. One was on the 

25th of October and the other on the 30th of October. 

Mr. McAuLIFFE. The Overseas New York did have a rash of accidents, accidents of the type of its hull coming in contact with some 

portion of a lock's walls; and in each case cited in these reports; an 

investigation was conducted while the ship was still in canal 

waters; and then the ship master, on behalf of the shipowner, made 

the decision to continue the voyage to deliver his product. He was 

delivering Alaskan oil or picking up Alaskan oil, as the case may 

be. · 

You have spotted something that we have found, and that is that 

accidents which do not necessarily disable a · ship can be-under 

today's conditions-extremely costly, several hundre<;is of thousands of dollars, for what would appear to be a minor denting-of a 

hull, for example. 

But nevertheless, that is what we face. In many cases, I would 

say in most cases, the ship ·is entirely -sea worthy and is allowed to 

proceed to sea; then an assessment of the full damage is made the 

first time that the ship is pulled up in drydock and thoroughly inspected. 

Of course, divers will go under while the ship is still in canal 

waters to be absolutely sure that the ship is seaworthy and that 

both the canal and the owner are satisfied on that point. 

Mr. CARNEY. If I can sum this up in a few words, there was the 

accident, the delay of 5 days was basically because we kept the ship 

there to investigate and it moved on and maybe was in another 

lock when it had another accident? 

Mr. McAuLIFFE. No; it was making repeated transits through the 

canal from one side to the other, delivering or loading oil, you see. 

Mr. CARNEY. The larger ships, the one that could go through the 

canal to a larger ship? 

Mr. McAuLIFFE. That is right. 

Mr. CARNEY. I understand. 

Mr. McAuLIFFE. However, for example, if an accident to a ship 

occurs today. and requires an investigation, then our normal procedure is to start the investigation the following day. That permits 
63 

the ship to be tied up at one end of the canal and for the pilot to 

get required rest and then to appear before the board of local inspectors that has the responsibility of investigating accidents. So 

we do hold the ship at least 24 hours after an accident; sometimes 

a little longer, but we try not to" do so. We try to complete the investigation as quickly as we can. 

Mr. CARNEY. Who makes up the members of the local board? 

Mr. McAuLIFFE. Canal pilots. We have a pilot who is assigned to 

our management structure who is the chairman of ~he board of 

local inspectors. We will no_rmally have three experienced pilots 

who sit on that board. We, in Effect, detail other pilots to join with 

the chairman. · .. 

Mr. CARNEY. Is there someone who would represent the interests 

of the ship? · 

Mr. McAuLIFFE. I would like to ask our General Counsel, Mr. 

McKabney, to respond to that. . . , Mr. McKABNEY. The hearings that are conducted by the board of 

local inspectors are conducted with sworn testimony, and representatives of the shipowner or operator m~y attend. Ordinarily, a 

local attorney representing the shipowner or operator does appear 

at the board of local inspectors hearing where he interrogates the 

witnesses and presents whatever evidence he sees fit through the 

crew members and the officers of the damaged vessel. 

Mr. CARNEY. Those sitting in judgment would be the three pilots? 

Mr. McKABNEY. That is correct. The three members of the board 

of local inspectors merely render their opinion with regard to the 

cause of the accident. Those reports by the board of local inspectors 

have been, since about 1932, accepted into evidence in the courts in 

the fifth circuit ·as being reports from qualified, experienced navigators who know the Panama Canal. · Mr. CARNEY. But now we don't have the fifth circuit; right? 

Mr. McKABNEY. The fifth circuit still has the jurisdiction over 

locks cases because suits are brought in the eastern district of Louisiana at New Orleans.· Mr. CARNEY. Nonlocks cases below $120,000? 

Mr. McKABNEY. Well, the board of local inspectors' opinion is not 

the _sole determining factor in those claims below $120,000. 

Mr. CARNEY. They _make a judgment, pass that ju_dgment on to 

the Commission? · · Mr. McKABNEY. The Commission then considers that opinion by 

the board of local inspectors in making its determination as to how 

much to .pay of the $120,000. · Mr. CARNEY. Thank you very much. . I yield back my time. I thank the chairman for being so generous 

with it. · Mr. HUBBARD .. Thank you, Congressman Carney. 

Any other questions or comments by any members of the subcommittee? · · 

Hearing none-- - Mr. GIANELLI. Mr. Chairm·an, may I make a final comment? 

Mr. HUBBARD. Surely. 

Mr. GIANELLI. One of the things the Commission and the Con.: 

gress are both confronted with is how the law sets up the procedure for handling claims outside the locks in excess of $120,000. We 
64 

have, as I think has been indicated by the record, submitted to the 

Congress the first two claims under this ·procedure. I would respectfully suggest and hope that the Congress now, having had those 

two claims filed with it, will address the subject of how it is going 

to handle claims of this nature, because I can see others coming 

down the line, and I think it is important to the shipping industry 

and I think it is important to the Commission, certainly, to have 

some feel for how these things are going to be handled. 

I would certainly support what Mr. Tauzin has said here in 

hoping that the Congress ·will _ look at that one issue as an important one to resolve as fast as possible. 

I just wanted to make that closing comment. 

Mr. HUBBARD. Thank you, Mr. Gianelli, Mr. McAuliffe, Mr. 

McKabney. 

Mr. TAUZIN. Mr. Chairman, just one final comment. You know, 

in the cases involving claims over $120,000, they are coming to 

Congress. You can make an argument there is some review. Congress is ·going to review it, even though we are not, in my opinion, 

really capable of doing that kind of a job. 

But in the cases under $120,000 outside the locks, we have a situation where individual vessel owners are subject to having their 

claims adjudicated by the Commission with no judicial review 

whatsoever, with no _appeal to anyone. It seems to me that is an 

untenable situation that our judicial system has always recognized 

the right of review, whether it be civil or criminal, by some higher 

authority. 

Although I certainly respect the Commission and respect the 

work it does in those instances, I think that the individuals involved in those cases ought to have a right to go somewhere and 

have that decision appealed and reviewed. We seriously ought to 

look at doing that, sir. · 

Thank you, sir. 

Mr. HUBBARD. Thank you, Mr. Tauzin. 

Congressman, you have made an excellent point. I agree with 

you. Perhaps other members of the subcommittee agree with your 

good .statement. 

Once again, thanks to these three wit~esses.- I personally have a 

lot of admiration and fond regard for Mr. McAuliffe and Mr. Gianelli. It is always a pleasure to be with them. 

The next witness is Mr. Leonard J. Kujawa, a partner with 

Arthur Andersen & Co. He has done consulting work for the 

Panama Canal Commission. Of course, you know Arthur Andersen 

& Co. is an internationally known accounting firm. We welcome 

your comments. , We do hear after Leonard Kujawa, Peter Luciano, Ernest Corrado, and Harry Gotimer. 

STATEMENT OF ILEONARD J. KUJA-WA, PARTNE_R, ARTHUR 

ANDERSEN & CO. 

Mr. KUJAWA. Thank you, Mr. Chairman. My name is Leonard J. 

Kujawa. I am pleased to have the opportunity to again testify 

before this committee. · 
65 

As a matter of background, I am a partner in Arthur Andersen 

&, Co., a certified public accountant, and a member of the American Institute of Certified Public Accountants and other professional 

societies and organizations. Regarding the Panama Canal, I have 

been a consultant on various financial and accounting matters 

since 1962 for both the Commission and the predecessor company. 

Arthur Andersen & Co. is an international firm of independent 

public accountants. We serve clients in all areas of industry and 

government and we are among the largest public accounting firms 

in the world. 

Beginning with the first toll increase in 197 4, we have · had sig- ·nificant continuing involvement in the toll-setting process of the 

Panama Canal and the accounting upon which tolls are based. 

I prepared for the record a complete statement. In the interest of 

time I will summarize from my complete statement. 

Mr. HUBBARD. Thank you. It is agreed your full remarks will 

appear in the record. We appreciate your summarization. 

Mr. KUJAWA. Sound accounting has been an underpinning for 

the financial success of the Panama Canal. The cost of marine accidents is an unusual but significant cost requiring the application of 

appropriate accounting. Although it is difficult to predict the cost 

of marine accidents over the short run, the appropriate accounting 

recognizes the inevitability of marine accident costs over the longer 

term. This is the accounting followed by the Panama Canal. 

In implementing the Panama Canal Commission, Public Law 96-

70 required self-sufficiency, as did the legislation establishing the 

Panama Canal Company. In addition, Public Law 96-70 included a 

requirement for an accounting as an appropriated agency. 

When implementing legislation was being considered, I urged in 

testimony before .this committee that the requirement for sound accounting be continued. This I referred to as enterprise accounting 

which is a comprehensive accounting for all costs and revenues 

over a long-term in order to measure financial performance. 

Enterprise accounting was essential since the legislative objective 

was that the Panama Canal Commission continue to be a self-sufficient, financially viable entity providing service to world shipping. 

Public Law 96-70 does establish the requirement for enterprise 

accounting for purposes of measuring financial performance and in 

the setting of tolls. In addition, as a measure of .control, there is the 

requirement for an accounting for appropriations. From the perspective of financial management, each accounting method has a 

role to play and the respective roles must be understood. Clearly . stated, appropriation accounting is not a proper basis for setting of 

tolls nor for the accounting for costs in measuring long-term financial performance. · The financial viability of the canal enterprise is dependent upon 

the pro~ess of setting a proper level of tolls. As established by law, 

the present policy regarding the tolls level is to set tolls to recover 

costs. Cost is interpreted to be a comprehensive accounting for all 

costs. . The assurance that prices will be set based on cost gives the user 

confidence in the reliability of the price-setting process. He is assured that tolls will be rationally set and thus he can predict his 

future course of action with more reasonable certainty. This is a 
66 

positive economic contribution and is essential for a service such as 

the Canal to be able to attract users. · · From an accounting standpoint, the basis for tolls requires that 

all costs of maintaining and operating the .Panama Canal be recognized-reflected in the accounting records. Costs which are not recognized cannot be reckoned with in the toll-setting process. It 

should be appreciated that the accounting process for a rate-regulated utility such as the Panama Canal has special significance in 

that the level of cost recognized through the accounting process establishes the price to be charged for the service. Thus, the accounting process has a direct relationship to the actual cash received. 

This is in contrast to a profit-oriented company wherein the ac-· counting process serves the principal function of measuring the 

level of profit earned. 

Let me deal with the · use of estimates in the accounting process. 

The accountant constantly deals with the requirement for cost estimation. Decisions on when to recognize costs require the exercise of 

judgment based upon the understanding of financial realities and 

the application of generally accepted accounting principles. However, the alternative of not recognizing incurred costs or recognizing 

such costs only after· some physical event has occurred certainly ignores economic facts, and is wrong. · For a sound basis of cost measurement, the accountant must 

make estimates based upon the asssumption that the enterprise is 

a going concern. Months or years before a check is drawn, the accountant must measure costs for such things as product liability 

where claims have not yet been made; bad debts for which the 

payor has not yet declared his inability to pay; estimate of taxes 

when the tax return has not yet been completed~ or the position· of 

the taxing authority is not yet known; estimate of .cost to complete 

a contract months or years before it is physically completed; and 

the list of examples goes on and on. 

Marine accidents at the Panama Canal inherently place the accountant in the role of an estimator. Obviously, it cannot be predicted when an accident will occur, who will be responsible, or ·how 

much the repairs will cost if the Panama Canal is held responsible. 

Although these are complications, they do not present overwhelming obstacles to a proper accounting. By reference to level of traffic 

and past occurrences of accidents over a period of time, it is possible to reach reasonable judgments regarding levels of cost. 

One thing is certain: If the canal operates, accidents will occur. 

What is uncertain in a given month or a given year is the number 

of accidents and their relative severity. To wait until a claim is ultimately settled before accounting for it has potential for great distortion in the measurement of cost. The more appropriate basis is 

to normalize the costs by recognizing that accidents are an inherent part ,of operations and that each period of operations_ should 

bear a pro rata share of-costs over a longer period of time. 

Prior to the Panama Canal's first toll increase in 1974, we recommended that the Panama Canal Company establish · a reserve for 

marine accidents by charging each year with a pro-rata cost of accidents over a multiyea_r period. · This has been the policy of the 

Panama Canal in ·accounting for marine. accidents. We believe it to 

be a sound and prudent approach. . " · 
67 

I am not a lawyer. I deal with the issues from the perspective of 

an accountant. With the longstanding. policy of assuming the cost 

of ship accidents where the Commission has been found at fault, it 

is sound from an accounting standpoint to continue the recognition 

of marine accident costs in .the accounting process. This requires an 

estimation, as previously described, and is obviously based on the 

assumption that the Congress will not preclude such reimbursement. However, until the Congress concludes that a different policy 

is approporiate, the proper accounting is to recognize the cost as as 

been done by the Commission. 

In a matter not different from changes of other accounting estimates, if the ultimate costs are different than estimated, then new 

estimates are accounted for and reflected in the Commission's accounting records. Such accounting adjustments will be reflected in 

the tolls-setting process, giving credit for overestimates or charging 

back underestimates. · In summary, based on the facts and circumstances as I note 

them, the Commission's accounting for ship accident costs is sound 

and establishes an appropriate basis for the settling of tolls. It also 

is consistent with the congressional mandate that the Commission 

be self-sustaining and maintain operations at no cost to the U.S. 

taxpayer. Accordingly, unless the Congress directs a different 

policy in terms of the assumption of the liabilty, I urge that no 

change be made or directed in the manner in which the Commission accounts for ship accident costs. 

I thank you for your attention. If you have any questions, I·will 

be pleased to answer them. 

[The statement of Leonard J. Kujawa follows:] 

PREPARED STATEMENT OF LEONARD J. KUJAWA, ARTHUR ANDERSEN & Co. 

INTRODUCTION . 

My name is Leonard J. Kujawa and I am pleased to have the opportunity to again 

testify before this committee. As a matter of background, I am a ·partner in Arthur 

Andersen & Co., a Certified Public Accountant, and a member of the American Institute of Certified Public Accountants and other professional societies and organizations. Regarding the Panama Canal, I have been a consultant on various financial 

and accounting matters since 1962 for both the Commission and the predecessor 

company. · 

Arthur Andersen & Co. is an international firm of independent public accountants. We serve clients in all areas of industry and government and we are among 

the largest public accounting firms in the world. Our relationship with the Panama 

Canal Company began in 1951 when we assisted in establishing the- initial accountability for the newly formed Panama Canal Company. We also assisted in the financial reorganization to the Panama Canal Commission as a result of the Panama 

Canal Treaties of 1977. Included in this work was our report, "Analysis of the Esti- . mated Cash Requirements of the panama Canal Commission, 1979-1983," which 

was used to determine the financial impact of the treaties on the Canal enterprise. 

Beginning with the first toll increase in 197 4, we have had significant continuing 

involvement in the toll-setting processes of the Panama Canal and the accounting 

upon which tolls are based. An example of this was our report on recommended accounting policy which resulted in several significant accounting changes in fiscal .1973. This report was previously submitted to this Committee. Almost all of the accounting policies we recommend at that time still !emain in effect. 

SUMMARY OF TESTIMONY 

Sound accounting has been an underpinning for the financial success of the 

Panama Canal. The cost of marine accidents is an unusual but significant cost requiring the application of appropriate accounting. Although it is difficult to predict 
68 

the cost of marine accidents over the short run, the appropriate accounting recognizes the inevitability of marine accident costs over the longer term. 

FINANCIAL SELF-SUFFIC~ENCY 

In implementing the Panama Canal Commission, Public Law 96-70 required financial self-sufficiency, as did the legislation establishing the Panama Carn;il Company. In addition, Public Law 96-70 included a requirement for an accounting as an 

appropriated · agency. 

When implementing legislation was being considered, I urged in testimony before 

this Committee that the requirement for sound accounting be continued. This I referred to as enterpirse accounting which is a comprehensive accounting for all costs 

and revenues over a long-term in order to measure financial performance. Enterprise accounting · was essential since the legislative objective was that the Panama 

Canal Commission continue to be a self-sufficient, financially viable entity providing 

service to world shipping. 

Public Law 96-70 does establish the requirement for enterprise accounting for 

purposes of measuring financial performance and in the setting of tolls. In addition, 

as a measure of control, there is the requirement for an accounting for appropriations. From the perspective of financial management, each accounting method has 

a role to play and the respective roles must be understood. Otherwise, there is potential for confusion. Clearly stated, appropriation accounting is not a proper basis 

for setting of tolls nor for the accounting for costs in measuring long-term financial 

performance. 

COST RECOGNITION AND TOLL SETTING 

The financial viability of the Canal Enterprise is dependent upon the process of 

setting a proper level of tolls. As established by law, the present policy regarding 

the tolls level is to set tolls to recover costs. Cost is interpreted to be a comprehensive accounting for all costs, including the recovery of plant (capital). 

The economic value of the Panama Canal to world shipping comprises a number 

of factors. These include its reliability for planning purposes, its ability to pay its 

own way, the economic diversity it provides and savings realized by its users. The 

assurance that prices will be set based on cost gives the user confidence in the reliability of the price-setting process. He is assured that tolls will be rationally set and 

thus he can predict his future course of ~ction with more reasonable certainty. This 

permits him to make the required long-range plans for investment in facilities such 

as ships, with more reasonable assurance that his investment can be recovered. 

Thus, through its reliability, the Canal is able to permit users to control their risks 

and have a basis for long-range planning. This is a positive economic contribution 

and is essential for a service such as the canal to be able to attract users. 

From an accounting standpoint, the tolls formula requires-that all costs of maintaining and. operating the Panama Canal be recognized (reflected in the accounting 

records). Costs which are riot recognized cannot be . reckoned with in the toll-setting 

process. It should be appreciated that the accounting process for a rate-regulated 

utility such as the Panama Canal has special significance in that the level of cost 

recognized through the accounting process establishes the price to be charged for 

the service. Thus, the accounting process has.a direct relationship to the actual cash 

received. This is in contrast to a profit-oriented company wherein the accounting 

process serves the principal function of measuring the level of profit earned. 

REQUIREMENT FOR ESTIMATION 

The accountant constantly deals with the requirement for cost estimation. Decisions on when to recongize costs require the exercise of judgement based upon the 

understanding of financial realities and the application of generally accepted accounting principles. However, the alternative of not recognizing incurred costs or 

recognizing such costs only after some physical event has occurred certainly ignores 

economic facts, and· is wrong. · · 

The limitation of appropriation accounting is ~hat accounting does not take place 

until a physical certainty or legally defined act has occurred such as the signing of a 

contract, or the issuance of a check. This do~s not mean that appropriation accounting is wrong, but that appropriation accounting seryes a role different from that of 

cost measurement. It deals with the control of governmental funds. 

For a sound basis of cost -measurement, the accountant must make estimates 

based upon the assumption that the enterprise is a going concern. Months or years 

before a check is drawn; the accountant must measure costs for such things as prod-
69 

uct liability where claims have not yet been made; bad debts for which the payor 

has not yet declared his inability to pay; the estimated life of equipment where the 

retirement date is not yet certain; estimate of taxes when the tax return has not yet 

been completed, or the position of the taxing authority is not yet known; estimate of 

cost to complete a contract months or years before it is physically completed; and 

the list of examples goes on and on . . . 

THE ENVIRONMENT OF MARINE ACCIDENTS 

Marine accidents at the Panama Canal inherently place the accountant in the 

role of an estimator. Obviously, it cannot be predicted when an accident will occur, 

who will be responsible, or how much the repairs will cost if the Panama Canal is 

held responsible. Although these are complications, they do not present overwhelming obstacles to a proper accounting. By reference to level of traffic and past occurrences of accidents over a period of time, it is possible to reach reasonable judgemen ts regarding levels of cost. 

One thing is certain: if the Canal operates, accidents will occur. What is up.certain 

in a given month or year is the number of accidents and their relative severity. To 

wait until a claim is ultimately settled before accounting for it has potential for 

great distortion in the measurement of cost. The more appropriate basis is to normalize the costs by recognizing that accidents are an inherent part of operations 

and that each period of operations should bear a pro-rata share of costs over a 

longer period of time. 

Prior to the Panama Canal's first toll increase in 1974, we recommended that the 

Panama Canal Company establish a reserve for marine accidents by charging each 

year with a pro-rata cost of accidents over a multiyear period. This has been the 

policy of the Panama Canal Company and the successor Panama Canal Commission 

in accounting for marine accidents. We believe it to be a sound and prudent approach. 

I wish to quote from our report dated August 24, 1973, setting forth our reasoning 

for a change in the method of accounting: 

"The Panama Canal Company is precluded by law from obtaining outside insurance coverage to protect it from the risks associated with the costs of these losses. 

By their nature, such losses are unusual and would distort the cost of providing 

Canal service in the .year(s) of occurrences if provisions were not made annually to 

reserve for such losses. Under the previous practice of recording these losses in the 

year of occurrence, the risk of nonrecovery of such costs was borne by the company. 

Under the new policy, which recognizes the unpredictability but certainty of such 

occurrences, the company is attempting to minimize a risk for which it is not being 

compensated. 

"Recording annual provisions 'for these losses which will occur. These provisions 

are co~parable to the insurance expense which would be incurred if the company 

were permitted to obtain outside insurance coverage. This practices also allows for a 

reasonable accommodation of the cost of marine accidents and other casualty losses 

in the rate-making process." 

LIABILITY. 

At this proceeding there is substantial testimony on the question of the Commission's legal liability for ship accidents. Mr. McAuliffe has indicated that the present 

legislation is somewhat confusing on this matter and requires clarification. Accordingly, there appears to be a legal question regarding the longstanding policy of the 

Commission to reimburse the Panama Canal's customers where the Commission or 

its employees are found to be at fault. 

I am not a lawyer. I deal with the issues from the perspective of an accountant. 

With the long-standing policy of assuming the costs of ship accidents where the 

Commission has been found at fault, ·it is sound from an accounting standpoint to 

continue the recognition of marine accident costs in the accounting process. This requires an estimation, as previously described, and is obviously based on the assumption that . the Congress will not preclude such reimbursement. However, until the 

Congress concludes that a different policy is appropriate, the proper accounting is to 

recognize the cost as has been done by the Commission. 

In a matter not different from changes of other accounting estimates, if ultimate 

costs are different than ·estimated, then new estimates are accounted for and reflected in the Commission's accounting records. Such accounting adjustments will be reflected prospectively in the tolls-setting process, giving credit for overestimates or 

charging back underestimates. 
70 

SUMMARY 

Based on the facts and circumstances as I note them, the Commission's accounting for ship accident costs is sound and establishes an appropriate basis for the setting of tolls. It also is consistent with the Congressional mandate that the Commission be self-sustaining and maintain operations at no cost to the U.S. taxpayer. Accordingly, unless the Congress directs a different policy in terms of the assumption 

of the liability, I urge that no change be made or directed in the manner in which 

the Commission accounts for ship accident costs. 

Mr. HUBBARD. Thank you. About two-thirds of the questions I 

have here I will submit for the record. I would ask over a period, a 

reasonable period of time, that_ you try to answer those that are 

submitted for the record. Our staff will be in contact with you. 

For today, and· for this hearing, in your statement, of course, you 

have noted you are long associated with the Panama Canal. You 

indicate that you and your company were involved in helping the 

Panama Canal Company establish a marine accident recovery back 

in 1973. Prior to this, how was the accounting for vessel accident 

claims done? 

Was there no marine accident reserve? 

Mr. KUJAWA. There was no reserve at that time. The accounting: 

was to recognize the costs when the claim, in effect, was known, 

both in terms of the entitlement to the ship owner and the measurement of damages. 

Mr. HUBBARD. In setting up the reserve in 1972, what base period 

was used to determine how much should be set aside annually for 

claims and how was that period -chosen? 

Mr. KUJAWA. I forget the exact number of years, but it was at 

least the previous 3-year period, as I recall. 

Mr. HUBBARD. Were all different types of claims during the base 

period considered? 

Mr. KUJAWA. Yes. 

Mr. HUBBARD. Lastly, how was the amount to be set aside under 

the marine accident reserve calculated? 

Mr. KUJAWA. There were two factors taken into account. Basically, the actual experience for the prior periods and the establishment of some type of balance in the reserve, a judgment call, to 

take care of the possibility for uncertainty in terms of the severity 

of future accidents. 

Mr. HUBBARD .. Thank you very much. Again, I will submit other 

questions for the record. · Mr.Lent? -

Mr. LENT. Thank you very much, Mr. Chairman. 

I understand, Mr. Kujawa, that you deal with these liability 

issues from the perspective of an accountant. However,-assuming 

the Panama Canal currently ·has no legal authority to settle vessel 

damage claims in excess of $120,000 that occur outside the locks, is 

it a proper prac(ice to set aside Feserves for that type. of accident? 

In ·other words, if the Commission cannot .settle a claim for an accident that occurs outside the lock having an amount in excess of 

$120,000, why does the Commission set aside a reserve to cover 

that? 

Mr. KUJAWA. The absence of authority for the ·commission to actually settle would not be of concern to me as an accountant. The 

question I would address would be, Would ultimately the co~t of 
the accident have to be borne by the Commission on the basis of 

the conclusion reached by Congress if delegated to some other outside authority? Companies have the same problem. The decision 

may be reached by a court of law, outside of their authority, but 

they must account' for it or the potential cost of it on their books. 

Mr. LENT. You are assuming then-and this may be the correct 

assumption, I don't know-that even though the Congress adjudicates the claim, that the claim will be paid out of the Panama 

Canal funds? · 

Mr. KUJAWA. That is an assumption in the .accounting that is 

being followed. · 

Mr. LENT. One other question. This is just an opinion question. 

In your opinion, would it be more sensible for you, the accountant, 

for a business enterprise that is some business enterprise not constrained by the various constraints contained in the Panama Canal 

implementing legislation, would you advise your client to attempt 

to cover this entire area of contingent liability by the purchase of 

liability insurance? Or would you advise him to continue, as they 

presently are, covering this contingent liability through the estabishment of a reserve? . Mr. KUJAWA. That is a decision· that I have seen clients deal 

with and entails consideration of the cost of administering their 

own claims or· engaging a third party insurance company to deal 

with it. In a company environment, it' also . has tax consequences 

that must be dealt with. But essentially, it is a cost comparison, 

how much it cost for you to do it versus how much does it cost-to 

engage a third party. 

An insurance company is going to charge you for your experience in this kind of in~urance. So ultimately, as part of your premiums, they will come back to you in terms· of your experiences. I see 

this, for example, in airlines insurance. Lloyds, for example, 

charges the airlines based upon what the actual experience has 

been in the last 2 or 3 years in airline accidents. It gets directly 

into your current premiums. 

So I think in the Panama Canal environment, it would be primarily a cost-benefit relationship· as to what would it cost you to 

administer it yourself versus contracting with an insurance company. 

Mr. LENT. Thank you. 

Mr. HUBBARD. Thank you very much, Mr. Leonard J. Kujawa, 

partner with Arthur· Andersen and Co., for your testimony today. 

Mr. HUBBARD. We now call a panel composed of Peter Luciano, 

Ernest Corrado, and Harry Gotimer. Mr. Luciano is the executive 

director of the Transportation Institute; Mr. Corrado is vice president of the American Institute of Merchant Shipping; Mr. Gotimer 

is an attorney with the law firm of Kirlin, -Campbell, & Keating in 

New York City. They are accompanied by two other attorneys, 

· Raymond Burke . and Bob Phillips. Welcome. 

We ·will call first on Mr. Peter Luciano, executive director of the 

Transportation Institute. 
- 72 

STATEMENTS OF PETER LUCIANO, EXECUTIVE DIRECTOR, 

TRANSPORTATION INSTITUTE; ERNEST CORRADO, VICE PRESIDENT, AMERICAN INSTITUTE OF MERCHANT _SHIPPING; AND 

HARRY GOTIMER, ESQ., KIRLIN, CAMPBELL, & KEATING, ACCOMPANIED BY RAYMOND BURKE, JR., ESQ, BURKE & PARSONS, AND BOB PHIL:LIPS, ESQ., TEXACO 

Mr. LUCIANO. Thank you, Mr. Chairman, members of the subcommittee. · 

For the record, I am Peter Luciano, executive director of the 

Transportation Institute. The institute is a nonprofit research and 

educational organization founded in 1968 and comprising 17 4 

member companies 9perating U.S.-flag vessels in the Nation's foreign and domestic shipping trades. Several of our members regularly use the Panama Canal. . In the interest, Mr. Chairman, and members of the subcommittee, of saving your time, I would appreciate . it if my prepared statement might be entered into the record. I would like to summarize. 

Mr. HUBBARD. We appreciate your doing that. It will be entered 

in the record .in full. 

Mr. LUCIANO; Thank you. 

First of all, I deeply appreciate the opportunity to appear before 

this subcommittee. This is an issue which is of great importance to 

our member companies and we value very much your interest in 

the issue and your concern. _ The problem here basically is, as they say, a thing that wasn't 

broke got fixed, and that is the case in at least three major areas 

that affect our membership. You have heard all of the problem 

areas discussed in great detail already this morning. I ·won't bore 

you with a reiteration of all the details. Essentially, we would ask 

that the Congress restore· judicial review of outside-the-locks claims 

of any amount; also, that the Commission be authorized to settle 

all outside-the-locks claims; and that the previous treatment be re- . stored with respect to detention time required by any activity of 

the board of local inspectors. 

These proposed procedures are the same ones that were in place 

before the Commission took over in 1979. The previous procedures 

had worked very well for 27 years and we feel that in the interest 

of equity, in the interest of saving the time of the Congress, in the 

interest of saving the time of all parties concerned, and in the interest of restoring logic to this situation, the restoration of the pre1979 regimen offers the most -reasonable solution. 

We have taken the liberty of proposing several amendments 

which are attached to my prepared statement and which we feel 

would solve the problem. 

Thank you very much. 

Mr. HUBBARD. Thank you. 

[The statement of Peter Luciano follows:] 

PREPARED STATEMENT OF PETER J. LUCIANO, EXECUTIVE DIRECTOR, TRANSPORTA.TION 

INSTITUTE 

Mr. Chairman and members of the subcommittee, my name is Peter Luciano. I 

am Executive Director of the Transportation Institute. The Transportation Institute 

is a nonprofit research and educational organization, founded in 1968, comprising 
73 

17 4 member companies operating U.S.-flag vessels in the nation's foreign and domestic shipping trades. Several of our members regularly use the Panama Canal. 

The Transportation Institute believes that the current claims procedures, established in the :Panama Canal Act of 1979, are in need of amendme.nt. The Panama 

Canal Act of 1979 prohibits the Panama Canal Commission from settling negligence 

claims in excess of $120,000 for injuries occurring within the Canal waters but outside the Canal locks. For over twenty-seven years prior to the passage of the 1979 

Act, however, the Commission's predecessor, the Panama Canal Company, had satisfactorily dealt with all negilgence claims on accidents occurring outside the locks. 

In addition to the burden placed on United States and world shipping, the current 

procedure for settlement of outside-the-locks claims provides no economic benefits to 

the United States. Damage claims are paid from an account in the U.S. Treasury 

known as the Panama Canal Commission Fund. Revenues from this fund come entirely from Canal users, as the Commission is required by law to recover from users 

the cost of operating and maintaining the Canal. A statutory tolls formula insures 

that user tolls produce revenues sufficient to cover operating costs. Thus, the 

amendments proposed by the Transportation Institute would result in no increased 

costs to the United States Government or its taxpayers. 

Primarily because the Canal is used by larger ships, both the number and dollar 

amount of accident claims have been increasing over the past several years. Of the 

claims submitted to the Commission since the effective date of the 1979 Act, fifteen 

are beyond the authority of the Commission · to settle. At least four of the pending 

claims exceed $1,000,000. Thus, it is clear that the current maximum settlement 

amount is unrealistically low. 

The Commission continues to have unlimited settlement authority in connection 

with claims arising inside the locks. For example, in 1981 the Commission settled a 

pre-treaty (prior to October 1, 1979) inside-the-locks claim for $1,000,000. Presumably a post-treaty settlement would have produced the same result. A similar outside-the-locks claim arising today, however, would require Congressional approval 

for settlement. The Commission has demonstrated its ability efficiently to administer inside-the-locks claims without artificial limits. Thus, there is no consistent 

rational basis to saddle the Commission with an unrealistic limitation on awards for 

accidents outside the locks. 

In the interest of facilitating shipping and providing for consistent, expeditious 

adjustment of claims, the Panama Can.al Act should be amended to re-institute the 

pre-1979 procedure of authorizing the Commission to settle all outside-of-the-locks 

negilgence claims. 

The Transportation Institute also is concerned .with another aspect of the claims 

procedure, the judicial review process for outside-the-locks claims. 

When the Panama Canal Act of 1979 transferred operation of the Canal from the 

Panama Canal Company to the new Panama Canal Commission, existing provisions 

allowing judicial review for inside-the-locks claims were continued. However, the 

1979 Act eliminated the judical review process for outside-the-locks claims of any 

amount. Relief now must be sought from Congress· to resolve disputed outside-thelocks awards. Unfortunately, passage of a private bill often is a long and cumbersome process. The Institute submits that Congress should not be distracted from 

matters of national policy to analyze routine commercial claims which are more efficiently dealt with in the traditional forum provided by the federal courts. 

In order to expedite the equitable resolution of disputed claims, and relieve the 

Congress of needless work, the Transportation. Institute believes that tp.e pre-1979 

procedure of allowing judicial review of claims settlements should be reinstated. 

Lastly, the Institute is concerned with the present procedure for awarding the 

Board of Local Inspection (BLI) detention damages. In order for a claim for accident 

damages to be considered by the Commission, a vessel must remain in Canal waters 

until the BLI conducts an investigation. Prior to 1979, the U.S. Court of Appeals for 

the Fifth Circuit construed the Measure of Damages provision (now 22 U.S.C. S. 

3773) as establishing rules for recovery of damages substantially parallel to that accorded by general maritime law. Under those principles, shipowners could not only 

recover for actual damages to the vessel, lost charter hire, crew wages and mainte- . nance, but also damages for loss of use of a vessel while the BLI investigation was 

taking place. 

The 1979 Act specifically exe:,luded consideration of such detention damages as an 

item of recovery in claims before the Commission. The ability to recover such damages is vital to .shipowners who may incur substantial losses because of detainment 

of a vessel in Canal waters awaiting completion of the BLI investigation. In order to 

fully compensate shipowners for the damages their vessels incur, the Institute urges 
74 

that the Act be amended to restore the pre-1979 law, thus leaving intact the judicial 

interpretation of the statute allowing BLI detention claims. 

We have taken the liberty of attaching to our comments proposed draft amendments to Title 22 of the United States Code in addition to a comparative print of 

those amendments (Exhibits "A" and "B"). The Transportation Institute respectfully requests that these proposals be included in the record. 

Thank you. 
75 

Exhibit 11 A11 

PROPOSEP AMENDMENT TO TITLE 22 UNITED STATES CODE 

Provision dealing with claims for injuries to persons or 

property occurring outside the locks of the Panama Canal. 

1. Section 3'T/2 is amended by striking "Canal, and when 

tbe amount of the claim does not exceed $120,000'' and inserting 

in lieu thereof 11 Canal 11 • 

2. Section 3774 is amended by: 

a. Striking subsection (6) 

b. Inserting 11 or 11 immediately after "traffic" 

c. Renumbering subsection (7) as subsection (6). 

3. Section 317S is amended by: 

a. In subsection (a) striking 11 (a) subject to 

subsection (b) ot this section, the" and inserting in lieu 

thereof 11 The 11 ; and 

b. Striking subsection (b). 

4. Section 3176 is amended by: 

a. Inserting "or section 3772 11 immediately after 

"section 3771" 

b. Striking "the United States District Court 

for the Eastern District of Louisiana" and 

i~1serting "any United States District Court." 
Part 4 

76 

Exhibit "B" 

COMPARATIVE PRINT 

Title 22 

Chapter 51 --· Panama Canal 

Claims for Injuries to Persons or Property 

Subpart I! -- Vessel Damage 

§3771. Injuries in locks of canals. 

[unchanged] 

§3772. Injuries outside locks. 

The Commission shall promptly adjust and pay damages for 

injuries to vessels, or to the. caigo, c~ew, or p~ssengers of 

vessels which may arise by reason of their presence in the Panama 

Canal, or waters adjacent thereto, other than the locks, when the 

injury was proximat~ly caused by negligence or fault on the part i 

of an officer or employee of the United States acting within the 

scope of his employment and in the line of his duties in 

connection with th~· operation of the, €a~ai a~~-w~e~-~~e-affleH~~ 

or fau~t of the vesseJ, master, crew, or passengers proximately 

contributed to the injury, the award of damages shall be 

diminished in proportion to the _negligence or fault attributable 

to the vessel, m~ster, crew, or passengers. In the case of a 

vessel which is required by or pursuant to regulations prescribed 

pursuant to sectio~ · 3811 of this Title t6 have a ~anama Canal 

pilot or. duty aboard, damages may not be adjusted and paid for 

injuries to the vessel, or its cargo, crew, or passengers, 

incurred while the vessel was underway and in motion, unless at 
77i 

the time the injuries were . incurred the havigation or movement of 

the vessel was under the control of a Panama Canal pilot. 

§3773. Measure of damages generally. 

[unchanged] 

§3774. Delays for which no responsibility is assumed • . 

[unchanged] 

§3775. Settlement of claims. 

iet-Sttbjeet-te~stteseetie"-~et-ef-~kis-!!eetie~7 -the [~he] 

Commission, by mutual agreement, compromise, or otherwise, may 

adjust and determine the amounts of the respective awards· of 

damages pursuant to this subpart. Such amounts shall be payable 

~romptly out of any moneys appropri~ted or alloted for the 

mainter.ance and operation of the Pqnama Canal. Acceptance by a 

claimant of the amount awarded to him .shall be deemed to be in 

full settlement of such claim against the Government of the 

Ur.ited States. 

i et-- ~he-€efflffli es ie" -s-ha i ~ -"e~ -ee;tt!!·t -e"e-J'ay-e"y-e ie iffl-£er 

eefflages-fer-i";ttries-erisi"g-ey-ree!!e"-ef-~he-~re!!e~ee-ef-~he 

ve~se~-i"-the-Pe~effl8-€e"e~-er-ee;eee"t-weters-etttsiee-the-ieeks 

whe~e-the-efflett"t-ef-the-e~aiffl-eMeeee!!-$1~8 7 888 7 -~ttt-~heii~~tt~fflit 

the-e~eiffl-te-€e~g~es~-i~-e-s~eeiei-rel'ert-ee"~ei"i"~-the-meteriei 

faets-a"e-the-reeefflffle"eetie"-ef-the-€efflffli!!sie"-theree". 

§3776. Actions on claims. 

A claima1:t for damages pursuant to §3 7 71 ·[2.!: §37 72] of this 

title who considers himself aggrieved by the findings., 
78 

determination. or award of the Commission in reference to his 

claim may bring an action on th~ claim against the Commission 

~~~4~4aRa-[any United States District Court.] Subject to the 

provisions of this part and of applicable regulations issued 

pursuant to§ 3811 of this title relative to navigation of the 

Panama Canal and adjacent waters. such actions shall proceed 

and be heard by the Court without a jury according to the 

principles of laws and rules- of practice obtaining generally in 

like cases between a private party and a department or agency 

of the United States. Any judgment obtained against the 

Commission in an action under this subpart shall be paid out of 

\ 

any moneys appropriated or alloted for the maintenance and 

operation of the Panama Canal. An action· for damages 

cognizable under this section shall not otherwise lie against 

the United States or the Commission. nor in any other court. 

than as provided in this section; nor may it lie against any 

officer or employee of the United States or of the Commission. 
79 

Mr. HUBBARD. We will next call on Ernest Corrado. 

STATEMENT OF ERNEST CORRADO 

Mr. CORRADO. Thank you, Mr. Chairman. I will read part of my 

statement and leave out part of it and make a few extemporaneous 

remarks at the en~, if I may. > · 

Mr. HUBBARD. Thank you, Ernie. Let me say the statements of 

each of you will be included in full in the record. We appreciate 

your considering us in limiting your remarks to· a summary. 

Mr. CORRADO. Thank you very much, sir. · 

I am the vice president of the American Institute of Merchant 

Shipping, which is a national trade association consisting of 30 

member companies which own or operate almost 12 million deadweight tons of U.S. flag bulk shipping operating mos_tly in the U.S. 

domestic commerce. . Many of our me~bers use the Panama Canal frequently in their 

trades, so we are happy to have been invited here today to comment on this matter of extreme importance to our membership. 

Also, we are encouraged that the · subcommittee is holding these 

hearings and we regard it as a sign that the subcommittee and full 

Merchant Marine and Fisheries Committee intend moving expeditiously to solve this vexing problem involving damage to vessels occurring outside the locks during transits of the canal. 

As has been set out in correspondence between AIMS and this 

subcommittee (and full committee) over the past year, we are opposed to the two provisions ·of the Panama Canal Act of 1979 (22 

U.S.C. 3601, et seq.): First, the requirement that any decision of the 

Commission awarding $120,000 or more to claimants be forwarded 

to Congress for approval; and, second, the requirement that claims 

for damage arising outside of the locks be submitted to the Panama 

Canal with no right of judicial review of the Commission's decision. 

There seems to be some confusion on this matter in the previous 

comments to testimony. There is no right of judicial review, either 

under or above $12.0,.000 for accidents outside the locks. That is, of 

course, part of our complaint. You can't have liability imposed on 

an entity by the negligence of a Canal Commission employee and 

then not have judicial review, too. There are two wrongs there. ·The users of the canal are adamantly opposed to this limitation 

amount system and would like to ·return to the system which existed prior to. the 1979 Panama Canal Act which implemented the 

treaties, whereby the present Commission's predecessor corporation, the Panama Canal . Company, had unlimited authority to 

settle outside-the-locks claims, and judicial review of such claims 

was available under the Canal Zone Code and in the Federal district court in the Canal Zone. . . Those, .of course, are now gone. 

I~ the interests of saving time, Mr. Ch~irman I will not burden 

the record or waste time by going into the law, regulations, Executive orders, and other documents beginning· with the Panama 

Canal Act of 1912 and extending to the act of 19·50. You have this 

record and also· all the individuals on your staff are well versed_ in 

these documents. 
80 

The 1950 act, of course, transferred the operation of the Panama 

Canal, effective July 1, 1951, to the Panama Railroad Company 

which was renamed the Panama Canal Company. Section 3 of the 

1950 act amended section 10 of title 2 of the Canal Zone Code governing claims for vessel damage. The Panama Railroad Company 

was generally subject to suit on tort claims, so the transfer just 

mentioned and the amendment of section 10 of title 2 would: 

One, continue the previous rule imposing absolute liability for 

damage in the locks;. Two, for the first time extend the liability of the company on. claims for vessel damage outside the locks_ caused by the negligence 

of Panama Canal employees; · . Three, continue the consent to suit against the agency operating 

the canal for damage in the locks, and ·extend this consent to suit 

for ·vessel damage outside the locks; 

Four, continue the immunity of Panama Canal employees from 

personal liability for vessel damage. · · Assuming the ·corporation could sue and be sued, one effect of 

the 1950 act was to give owners of vessels damaged in the canal 

outside the locks the right to sue the entity operating the canal. 

We think this result is legally and commercially correct and urge· that this should be reinstituted. 

The 1950 act's extension of liability for outside-the-locks claims 

to the governmental entity operating the canal is an accurate reflection of a properly perceived need for a government body which 

operates in a commercial context to accept responsiblity for the 

acts and omissions of its employees. Moreover, such extension is 

consistent with the general trend of congressional action in recent 

years which has been toward expansion rather than contraction of 

Governm_ent liability with respect to tort clai:rp.s. Acceptance by the 

Commission of responsibility for damage from inside-the-locks incidents as set forth in both the 1950 and 1979 acts is a perfect' example of the principle that. a government· body functioning commercially should be liable for its acts and omissions . .The requirement 

of the 1979 act, however, that Congress approve settlement of outside-the-locks claims exceeding $120,000 is. an aberration which effectively deflects frqm the Commission a liability which should rest 

directly there. Interposition of Congress between the claimant and 

the Commission serves no constructive purpos~ but rather only prolongs the settlement process to the detriment of the injured party. 

Unlike most, if not all other waterways, ports and harbors, in 

the Panama Canal, the pilot is in complete control of the vessel. 

There· is nothing advisory about this function as is the case in the 

ports and harbors of the continental United States. Since the 

Panama Canal pilot is in complete control of the vessel during 

transit, we do not see any basis for shielding the Commission from 

liability as is accomplished by the 1979 act. It is difficult to see how 

an argument that the Com.mission should .not be responsible under. the principle of respondeat superior for the negligence of the pilot 

when q.e is in complete control can be sustained. The pilot assigned 

to _ a vessel shall have control of the navigation and movement of 

such vessel. There is no distinction, regulatory or otherwise, in the 

pilots' duties and obligations inside and· outside. the locks. Of 

course, the pilot could be made to operate in an advisory capacity, 
81 

as in other waterways, but this raises a whole new set of problems, 

not the least of which is that the pilots would not agree to such a 

change in their authority after all these years. Nor would such a , change be in the best interests of Panama Canal transit maritime 

safety. 

Another point, we certainly do not think that damage claims in 

excess of $120,000 occurring outside the locks should be submitted 

to Congress for approval as established by the 1979 act. Aside from 

the fact that the U.S. Congress is not the proper forum for the 

processing an· adjudication of tort damage claims, the system established does not lend itself to an expeditious resolution of these 

damage claims. Indeed, the record to date shows that there is no 

resolution at all following this route for these claims. 

The next part of my statement is not up to date, but we have had 

testimony from the Panama CanaJ Commission today that there 

are 36 claims, 15 active and 21 more whereby they think there is 

negligence on the part of the canal employees and these claims will -probably be in the pipeline pretty soon.· Up to this point, only two claims are ready for referral to the 

Congress and these were sent to 0MB for clearance and referral. 

These two claims have· languished in 0MB for the last 8 months 

and were finally forwarded to the Congress on November 8, 1982. 

Could anyone perceive that this system is working, even if the Congress was the proper forum for tort damage claims? And what will 

happen to these claims when the finally reach Congress after 3 to 4 

years? How rapidly will the Congress act on these claims? How. will 

Congress process them? Will the Congress act at all? Should Congress honor such claims, where will the money come from? We .are 

convinced that Congress will never pay such awards from general 

revenues-the taxpayers, but will tell the Commission· to pay them, 

which is where the claim would be satisfied if the Commission were 

not exonerated from liability. 

We further believe that elimination of the judicial review process 

effectuated by the 1979 act is misplaced. The attention of Congress 

should not be distracted from matters of national policy to analyze 

routine commercial claims which are more efficiently dealt with in 

the traditional forums provided by the Federal courts. 

Mr. Chairman, we cannot conceive of Congress' continued blind 

adherence to the system established in the 1979 act with its numer- ,. ous uncertainties and almost limit.less delays, when it is clear 

under all the established principles of tort law that the Commission should bear the responsibility for the negligence of its tort 

feasor employee who is in complete control of the vessel in transit. 

Meanwhile, the years since enactment in 1979 begin to mount. 

Claims accumulate, and the users of the canal continue on without 

redress for their legitimate tort damage claims. What will happen 

in the event of a major catastrophe in the canal? We submit, Mr. 

Chairman, that continuation of the present circumstances is unsatisfactory from every standpoint and manifestly unfair to the use.rs 

of the canal. 

A final point, Mr. Chairm_an, having served as chief counsel on 

this committee for many years, I know one of the purposes of the 

committee has always been to advance the welfare of the U.S. flag 

merchant marine. I know the present leadership· of the committee 
82 

is no less dedicated to that purpose; but the irony of this situation 

is that this very issue we are discussing here today undermines the 

efforts to keep these U.S. flag merchant fleet afloat. Everybody 

knows that with the worldwide recession that with worldwide 

shipping, and U.S. shipping in particular, is in very dire straits. We 

are losing vessels every day, laid up or being scrapped. The margin of 

profit on any company, be it liner or bulk, is only a few percent. 

Here we have damage claims of our operators in the millions of 

dollars and there is no redress for this; and the way it is going, 

there is no telling when there will be. 

In addition, we also support the statement of the Transportation Institute with respect to detention, although we didn't put it 

in. our statement .. I won't take anymore time, Mr. Chairman. 

'Fhank you very much for having us here today. 

[The statement of Ernest Corrado follows:] 

PREPARED STATEMENT OF ERNEST J. CORRADO, VICE PRESIDENT, AMERICAN INSTITUTE 

OF MERCHANT SHIPPING 

Thank you, Mr. Chairman, my name is Ernest J. Corrado, and I am vice president 

of the American Institute of Merchan~ Shipping (AIMS), which is a national trade 

association consisting of 30 member companies which own or operate almost 12 million deadweight tons of United States flag bulk shipping operating mostly in U.S. 

domestic commerce. . Many of our members use the Panama Canal frequently in their trades so we are 

happy to have been invited here today to comment on this matter of extreme importance to our membership. Also, we are encouraged that the subcommittee is holding 

these hearings and we regard it as a sign that the subcommittee and full Merchant 

Marine ~nd Fisheries Committee intend moving expeditiously to solve this vexing 

problem involving damage to vessels occurring outside the locks during transits of 

the canal. 

As has been set out in correspondence between AIMS· and this subcommittee (and 

full committee) over the past year, we are opposed to two provisions of the Panama 

Canal Act of 1979 (22 USC 3601, et seq.): (1) the requirement that any decision of the · Commission awarding $120,000 or more to claimants be forwarded to _congress for 

approval; and, (2) the requirement that claims for damage arising outside of the 

locks be submitted to the Panama Canal Commission with no right of judicial 

review of the Commission's decision. 

The users of the canal are adamantly opposed to this limitation amount system 

and would like to return to the system which existed prior to the 1979 Panama 

Canal Act which implemented the treaties, whereby the present commission's predecessor corporation, the Panama Canal Company, had unlimited authority to settle 

outside the · locks claims, and judicial review of such claims was available under the 

canal zone code and in the Federal district court in the canal zone. 

Mr. Chairman, in the interests of saving time and not burdening the record unnecessarily, I will not go into the myraid of laws, regulations, executive orders, appropriations act provisions, decisions of the Comptroller of the Treasury, and governing claims, beginning with the Panama Canal Act of August 24, 1912 (37 · stat. 

562) and extending to the act of September 26, 1950 (64 stat. 1038). You have this 

record and also individuals available to you who are well versed in these developments. "" 

The 1950 act, of course, transferred the operation of the Panal Canal, effective 

July 1, 1951, to the Panama Railroad Company which was renamed the Panama 

Canal Company. Section 3 of the 1950 act amended section 10 of title 2 of the canal - zone. code governing claims for vessel damage. The Panama Railroad Company was 

generally subject to suit on tort claims, so the transfer just mentioned and the 

amendment of section 10 of title 2 would: . (1) Continue the previous rule imposing absolute liability for damage in the locks; 

(2) For the first time extend the liability of the company on claims for vessel 

damage outside the locks caused by the negligence of Panama Canal employees; 

(3) Continue the consent to · suit against the agency operating the canal for 

damage in the locks, and extend t~is consent to suit for· vessel damage outside the 

locks; 
83 

(4) Continue the immunity of Panama Canal employees from personal liability for 

vessel damage. 

Assuming the corporation could sue and be sued, one effect of the 1950 act was to 

give owners of vessels damaged in the · canal outside the locks the right to sue the 

entity operating the canal. We think this result is legally and commercially correct 

and urge that this should be reinstituted. 

The 1950 act's extension of liability for outside-the-locks claims to the governmental entity open:iting the canal is an accurate reflection of a properly perceived need 

for a government body which operates in a commercial context to accept responsibility for the acts and o·missions of its employees. Moreover, such extension is consistent with the general trend of congressional action in recent years which has been 

toward expansion rather than contraction of government liability with respect to 

tort claims. Acceptance by the commission of responsibility for damages from insid~-

the-locks incidents _as set forth in both the 1950 and 1979 acts is a perfect example 

of the principle that a government body functioning commercially should be liable 

for its acts and omissions. The requirement of the 1979 act, however, that Congress 

approve settlement of outside-the-locks claims exceeding $120,000 is an aberration 

which effectively deflects from the commission a liability which· should rest directly 

there. Interposition of Congress between the claimant and the commission serves no 

constructive purpose but rather only prolongs the settlement process to the detriment of the injured party. 

Unlike most, if not all other waterways, ports and harbors, in the Panama Canal, 

the pilot is in complete control of the vessel. There is nothing advisory about his 

functions as is the case in the ports and harbors of .the continental Unted States.· Since the Panama Canal pilot is in complete control of the vessel during transit, we 

do not see any basis for shielding the commission from liability as is accomplished 

by the 1979 act. It is difficult to see how an argument that the commission should 

not be responsible under the principle of respondent superior for the negligence of 

the pilot when he is in complete control can be sustained. Section 105.6 of title 35, 

Code of Federal Regulations (CFR) states: "the pilot assigned to a . vessel shall have 

control of the navigation and movement of such vessel." Furthermore, there is no 

distinction, regulatory or otherwise, in pilot's duties and obligations inside and outside the locks. Of course, the pilot could be made to operate in an advisory capacity, 

as in other waterways, but this raises a whole new set of problems, not the least of 

which is that the pilots would not agree to such a change in their authority after all 

these years. Nor would such a change be in the best interests of Panama Canal 

transit maritime safety. . -An examination of the situation in other canals in the world supports our contention: 

(A) Suez Canal-This is a sea level canal with no locks whatsoever and; accor.ding 

to the Suez rules of navigation, masters are held solely responsible for damages or 

accidents from the handling or. navigation of their vessels, but the masters are in 

control. -

(B) Kiel Canal-The german government has consented to be sued in connection 

with casualties in the Kiel Canal. 

(C) St Lawrence Seaway-The portion of the seaway lying in the United States is 

operated by the St. Lawrence seaway development corporation under the act of May 

13, 1954, as amended, 33 USC 983, et. seq. The U.S. government as sovereign has 

:consented to be sued (suits in Admiralty Act, 46 U.S.C. 741 et. seq., and Federal Tort 

Claims Act, 28 U.S.C. 2672, 2679 and 1346(b)); the Seaway Corporation may be sued 

in its corporate name (33 U.S.C. 984(a)(3.) and is subject to the Federal Tort Claims 

Act (Handley v. Tecon Corporation, 172 F. supp. 565 (1959); Federal Reserve Bank v. 

/yf etrdcentre Imp. Pist. 492 F. Supp. 353 at 355, 356 (1980); Breitbeck v. United States, 

500 F. 2nd 556 at 559 (197 4).) 

(D) Cape Cod Canal-A toll free canal maintained by the Corps of Engineers with 

tort claims handled by the Department of the Army under the provisions of the Federal Tort Claims Act, supra. . (E) Tennessee Valley Authortty-TVA, lik_e the Panama Canal Commission, may . sue or be sued in its corpor-ate name, the corporation is generally liable for the negligence of its employees and judgements or amounts paid in settlement of .claims are 

paid out of funds available to that activity included as a cost of operation. 

One final point, we certainly do not think that damage claims in excess of 

$120,000 occurring outside. the locks should be submitted to Congress for approval as 

established by the 1979 act. Aside from the fact the U.S. Congress is not the proper 

forum for the processing and adjudication of tort damage claims, the system established does not lend itself to an expeditious resolution of these damage claims. 
84 

Indeed, the record to date shows that there is no resolution at all following this 

route for these claims. 

Consider, if you will, that experience to d~te indicates that since 1979 there have 

been ten (10) accident claims filed. The accidents occurred from November 8, 1979 to 

May 25, 1981. The bureau of local inspectors (BLI) began its inspections as early as 

November 9, 1979 and its reports were issued on various dates in 1980 and 1981. Up 

to this point only two claims are ready for referral to the Congress and these were 

sent to 0MB and the Department of Justice for clearance for referral. These two 

claims have languished in 0MB for the last eight months and. were finally forwarded to the Congress on November 8, 1982. Could anyone perceive that this system is 

working, even if the Congress was the proper forum for tort damage claims? And 

what will happen to these claims when they finally reach Congress after three to 

four yearsr How rapidly will the Congress act on these claims? How would the Congress process them? Will the Congress act at all? Should Congress honor such 

claims, where will the money come from? We are convinced that Congress will 

never pay such awards from general revenues-the taxpayers, but will tell the commission to pay them, which is where the claim would be satisfied if the commission 

were not exonerated from liability. 

We further believe that elimination of the judicial review process effectuated by 

the 1979 act is misplaced. The attention of Congress should not be distracted from 

matters of national policy to analyze routine commercial claims which are more efficiently dealt with in the traditional forums provided by the Federal Courts. 

Mr. Chairman, we cannot conceive of Congress' continued blind adherence to the 

system established in the 1979 act with its numerous uncertainties and almost limitless delays, when it is clear under all the established principles of tort law that the 

commission should bear the responsibility for the negligence of its tort feasor em.:. 

ployee who is in complete control of the vessel in transit. Meanwhile the years since 

enactment in 1979 begin to mount, claims accumulate, and the users of the canal 

continue on without redress for their legitimate tort damage claims. What will 

happen in the event of major catastrophe in the canal? We submit, Mr. Chairman, 

that continuation of the present circumstances is unsatisfactory from every standpoint and manifestly unfair to the users of the canal. 

· ~fr. HUBBARD. Thank you, Mr. Corrado. You understand the purpose of our hearing is to find out all we can about the need for legislative change. You do agree that the two claims above $120,000 

have not been delayed at this point by Congress? 

Mr. CORRADO. Yes, sir. They only came to Congress a month ago. 

Mr. HUBBARD. Right. 

Let us hear at this point Mr. Harry Gotimer. 

STATEMENT OF HARRY A. GOTIMER 

Mr .. GOTIMER. Mr. Chairman, distinguished members of the subcommittee, my name is Harry A. Gotimer. I am a member of the 

law firm of Kirlin, Campbell & Keating of New York City and 

Washington, D.C. It.has been principally engaged in the practice of 

admiralty law for over the past 100 years. In addition, I am an adjunct professor of admiralty law at New York Law School, a graduate of the U. S. Merchant Marine Academy~ and a licens·ed merchant marine officer. 

Out law firm represents major shipowners and marine underwriters. We represent. United States Lines, Inc., and Exxon Corp. in 

connection with casualties occurring in the Panama Canal since 

the passage of the Panama Canal Act of 1979. 

We are currently handling three claims presently pending before 

the Panama Canal Commission which arose from casualties outside 

the Panama Canal locks where damages exceed $120,000: the collision between the Esso Nassau and the Esso Guam occurring. in 

Balboa Reach on April 10, 1980, resulting in damages of ~pproximately ,$1,280,000; the grounding of the SS America_n Apollo in San 
85 

Pablo Reach on October 1, 1980, resulting damages of approximately $5,500,000.00; and the allision of the SS American Aquarius and 

a dock in Balboa on January 12, 1981, resulting in damages to that 

vessel of approximately $540,000.00, plus a contingent claim for in 

rem liability for damages sustained by the dock owner and tug 

owner . . I am testifying today not at the request of these shipowners, but 

rather as an attorney involved in handling claims before the Commission under the current procedures. 

In general, as a practical matter, the vast majority of all claims 

in the admiralty field are settled. I do not think it an exaggeration 

to state that, in general, over 90 percent of the claims do not reach 

trial. The damages and the probable result after litigation falls 

within narrow parameters which can be fairly well evaluated by 

experienced admiralty practioners after all the relevant facts are 

obtained and analyzed. 

I will abbreviate my statement by not going through the current 

statue, if that is all right. 

Mr. HUBBARD. As you know, your full statement will be in the 

record. 

Mr. GOTIMER~ With respect to out-of-lock claims over $120,000, ·at 

no time other than at the initial Board of Local Inspectors' investi- . gation does the claimant, the shipowner, the personal injury plaintiff, or the cargo owner participate in the procedure. What happens 

is that ~pproximately 24 hours after the casualty, a hearing is held 

by the Board of Local Inspectors. The attorneys for the claimant. do 

participate fully in that. After which, the damages are submitted 

to the claims branch of the Panama Canal Commission and they 

request whatever additional -supporting documentation they require. However, with response to these claims in excess of $120,000 

outside the locks, at no time other than handing the damage documentation to the Commission is the shipowner or. the claimant 

privy to what factors are being considered as relevant in terms of 

liability or damages until the report actually gets to Congress. That 

report is confidential and unavailable. 

I strongly support changing the law by allowing the Panama 

Canal Commission to have settlement authority on all claims 

where their employees negligence has contributed to a casualty. I 

also recommend strongly that judicial review be granted to the 

U.S. district court in any district which is convenient. 

Finally, I think that any changes that are made should be retroactive to include the claims such as the ones I am presently representing for my firm. We have a large number of claims. In our 

opinion, they were caused not by the negligence on the part of our 

~mployees, but rather by the pilot who was in command of the 

ship. I think those claims ought to be included in any pending legislation. · However, I do have a suggestion; and that is if for some reason 

we cannot-if the law is passed and it cannot be retroactive, there 

may well be authority under the congressional reference statute 

for Congress to pass these to the U.S. Court of Claims fo_r a hearing 

and a determination on the merits of these claims. 

I thank you for your time. I will be pleased to answer any questions you might have. 

12-978 - O - 6 
86 

[The statement of Harry Gotimer follows:] 

PREPARED STATEMENT OF HARRY A. GOTIMER, A MEMBER OF THE LAW FIRM OF 

KIRLIN, CAMPBELL & KEATING, NEW YORK CITY AND WASHINGTON, D.C. 

Mr. Chairman and distinguished members of Congress, my name is Harry A. Gotimer. I am a member of the law firm of Kirlin, Campbell and Keating of New York 

City which has principal1y engaged in the practice of admiralty law for over 100 

years. I am also an Adjunct Professor of admiralty law at New York Law School, as 

well as a graduate of the United States Merchant Marine Academy and a licensed 

merchant mariner. 

Our law firm represents major shipowners and marine underwriters. We represent United States Lines, Inc. arid Exxon Corporation in connection with casualties 

occurring in the Panama Canal since the passage of the Panama Canal Act of 1979. 

We are currently handling three claims presently pending before the Panama 

Canal Commission which arose from casualties outside the Panama Canal locks 

where damages exceed $120,000: the collision between the Esso Nassau and the Esso 

Guam occurring in Balboa Reach on April 10, 1980 resulting in damagei;; of approximately $1,280,000; the grounding of the SS American Apollo in San Pablo Reach on 

October 1, 1980 resulting in damages of approximately $5,500,000; and the collision 

of the SS American Aquarius and a dock in Balboa on January 12, 1981 resulting in 

damages to that vessel of approximately $540,000 plus a contingent claim for in rem 

liability for damages sustained by the dock owner and tug owner. 

I am testifying today not at the request of these shipowners but rather as an attorney involved in handling claims before the commission under the current proce- . dures. 

In general, as a practical matter the vast majority of all claims in the admiralty 

field are settled. I do not think it an exaggeration to state that in general over 90 

percent of the claims do not reach trial. While there may be many reasons for this, 

one in particular -is that by statute and case law, the liability and quantum of damages can be fairly well evaluated by experienced admiralty practitioners after all 

the relevant facts are obtained and analyzed. _ The present statute provides that for injuries occurring in the locks (Public Law 

96-70, Title· I, §§ 1411, 1415) and for injuries occurring outside the locks where resulting damages are less than $120,000 (Public Law 96-70, Title I, §§ 1412, 1415) the 

Panama Canal Commission must adjust and pay for such injuries on the basis of 

proportionate fault, i.e.-the Commission shall pay an amount which does not 

exceed the percentage of fault of its employee's negligence in causing the casualty. 

For injuries occurring outside the locks where damages exceed $120,000, the Commission is prohibited from adjusting and paying claims but rather is required to 

submit the claim to Congress in a special report with its recommendations (Public 

Law 96-70, Title I, §§ 1415(b)). 

I recommend amending the current statute with respect to injuries occurring outside the locks to provide a judicial remedy to claimants damaged by the negligence 

of Panama Canal Commission employees, principally the pilots who by law are in 

complete control and command of a vessel's navigation during its transit through 

the Canal. 

The current procedure for handling claims occurring outside the Canal's locks and 

where the amount involved exceeds $120,000 does not afford the sa~e remedies as 

are available to claimants for casualties 9ccurring in the locks. 

With respect to both typ~s of claims, the present procedure is that promptly after 

a casualty occurs, an investigation is conducted by the Board of Local Inspectors of 

the Panama Canal Commission. This investigation basically and almost exclusively 

deals with the factual and navigational situation leading up to the casualty. The 

Board then prepares findings and conclusions indicating fault but they, at least in 

our e~perience, do not apportion liability. Damages are thereafter submitted to and 

reviewed by the Claims Branch of the Panama Canal Commission. Then, with respect to claims arising from "in lock" casualties and "outside the locks" claims 

under $120,000, the claimants and Commission attempt to reach an amicable settlement. Failing in which the claimant in "in lock"' claims is afforded ·a judicial 

remedy. However with respect to "out of locks~' claims exceeding $120,000, the Commission is not empowered to settle such claims but, rather a special report is prepared by the Commission _and submitted to the Congress which is then required to 

deal with the claims. · 

With respect to "out of locks" claims at no time other than during the initial investigation does the claimant have the right to participate in the procedure, to 

argue or urge its pqsition -or even to know what issues are being considered as rele-
87 

vant or determinative. I do not mean to impugn in any way the good faith of anyone 

associated with the Panama Canal Commission, . but rather to call attention to the 

fact that the system currently utilized is alien to the American system of jurisprudence . . The current statute, therefore, lacks essential fairness because it differentiates between "in lock" claims and "out of locks" claims. With respect to the former an 

administratiye and judicial remedy to resolve those claims is provided while as to 

the latter the· Panama Canal Commission is stripped of its decision making function 

and no judicial remedy is afforded. 

Although the Board of Local Inspectors performs the same function in both types 

of claims, the elimination of settlement authority and judicial review in "out of 

locks" claims prevents a claimant from presenting all relevant evidence to the 

Panama Canal Commission to allow a full and fair evaluation of the claim, which 

results in a lack of procedural due process, the claimant is deprived of any judicial 

remedy. · 

When the special report from the Commission gets to Congress, the method of 

handling it, at least to me, despite. the reserch I've done, is unclear.· It is entirely 

probable that in most cases the report of the Commission will differ· from what the 

claimant considers fair and equitable, especially given their lack of input into many 

of ~he ciritical steps leading to the report findings and recommendation~. . Congreess, with innumerable pressing problems both foreign and domestic should 

not be made judge and jury on these routine claims although they are of immense 

importance to the individual claimants. 

I submit that _common fairness dictates that the normal judicial process be enlisted to determine and evaluate the "out of locks" claims in the same manner as now 

mandated for ."in lock" claims. Furthermore, to encourage the amicable resolution 

of claims the Panama Canal Commission should be given settlement authority for 

all claims involving 'its employees' actions. If the: claim· cannot be settled, jurisdiction should be vested in the United States District Court, our traditional admiralty 

court, whose experience and capability is clear. This could easily be done by amend- . ing the Panama Canal Act of 1979. 

The funds with which to pay such claims should be provided from the tolls paid 

by the shipowner users of the Canal. I am informed that any tolls collected exceeding the Commission's budget are paid to the Republic of Panama. · There is. no just 

reason for doing so until all costs associated with the operation of the Canal, including damages to ships and others caused by the fault of Panama Canal Commission 

employe·es, are included. If the tolls were so utilized the taxpayers of the United 

States would be the beneficiaries in that the users of the Canal would be paying for 

the claims through the tolls collected. 

Any amendment to the current situation should be retroactive so as to encompass 

the claims arising since passage of the Panama Canal Act of 1979. However," if this 

is not possible, another possible solution for existing claims would be to submit 

pending d_isputed claims to the United States Court of Claims under the Congressional Reference Statute (28 U.S.O. §§ 1492 and 2509) for determination. Although 

this is. not the preferred solution, it would be preferable to the present statute and 

in large measure would free Congress from the burden of handling those claims. 

I thank you for the opportunity of addressing you today. If you have any questions, I would be pleased to try to answer them. 

Mr. HUBBARD. Thank you for your excellent presentation. We listened to you with interest knowing your background in admiralty 

law and as a law_professor at New York Law School. We have no 

choice at this point but to stand in recess until about 1:30. 

[Whereupon, at 12:45 p.m., the subcommittee was recessed, to re- ·convene at 1:30 p.m. this same day.] 

AFTERNOON SESSION · 

Mr. HUBBARD. We finished the comments of Peter, Ernie, and 

Harry. It was time for questioning. 

Mr. Luciano, you state that you recommend the limit should be 

raised on settling outside-the-lock claimants for the Commission. 

What do you feel is a · realistic limit to put on. these claims before 

submission to Congress? 
88 

Mr. LUCIANO. It would seem to me, Mr. Chairman, that there 

may not be a need to impose any limit on the size of the claim. The 

question, I think, is a matter of principle. What works inside the 

locks should work outside the locks. To differentiate between the 

two does not seem, in our opinion, to have any basis. 

Mr. HUBBARD. If Congress does see the need to put a limit on, 

what do you think would be realistic? 

Mr. LUCIANO. We have not addressed that issue, Mr. Chairman, 

with our m·embers. I don't know that I could advise you. Given the 

size of the claims that we have heard discussed this morning, there 

is .the potential that any limit that might be imposed is one which 

at some time or other down the road might require the Congress to 

sit and arbitrate claims, which I think is probably not an efficient 

use of the process. . Mr. HUBBARD. Regarding the present procedure of awarding the 

Board of Local Inspectors detention damages, what is the average 

length of time between the marine accident and the board's investigation? 

Mr. LUCIANO. I believe it is a relatively short period of time. The 

investigation itself, I believe, takes no more than about 24 hours on 

average. However, although that might seem like a small amoupt 

of time, _-there are two factors which make it reasonable to include 

those damages in with actual damages: In the first place, we have 

heard testimony about the increasing size of the ships that are 

using the canal. The cost of capital, the cost of operating expen·ses 

and so forth and so on can be very substantial even for just 1 day's 

detention. Added to that, however, is the fact that in some cases, a 

vessel may be subject to very substantial damages if a cargo is not 

delivered on time by a certain date. If a date certain is specified in 

the delivery contract, those damages can be very appreciable in 

many cases. 

Mr. LUCIANO. Is that better? _ Mr. HUBBARD. Right. We may be back to you with more questions. 

Mr. Corrado, in fact be thinking of the answer to this. We won't 

ask for your answer until Mr. Lent returns. He and I were discussing on the House floor after having_ heard Mr. Gianelli and Mr. 

McAuliffe and the three of you, just where do you three disagree , with Mr. McAuliffe and Gianelli as to what we should do? It was 

somewhat confusing because we seem to think that you are in 

agreement much of the time as to what needs to be done as to 

these outside-the-lock claims. 

Mr. CORRADO. Would you like me to respond to that? 

Mr. HUBBARD. I was just passed a note by Robin McClung, the 

assistant to Mr. Lent, that he is unable to return to the hearing. I _ would ask any of the three of you to respond to that question. 

Mr. CORRADO. I don't think there is any difference philosophically between our position and the position of Mr. Gianelli and Mr. 

McAuliffe. They came at it from a little different direction, but I 

think we all are in agreement that we would like the system 

changed back to the way it was; namely, the responsibility-the liability should rest on the Commission for the negligence of its employees. I think that is basically our position and I think that has 

been our position. I think that is the position of all of us at the 
89 

table; and as I understood the · testimony of the Commission and 

government people, it was the same, perhaps stated just a little differently. I do think it is consistent. 

Mr. LUCIANO. Mr. Chairman, I would agree with Mr. Corrado's 

comments. 

Mr. HuBBARn. How about accidents where it would not necessarily be the negligence of the Commission employees? 

Mr. CORRADO. Inside or outside the lock? 

Mr. HUBBARD. Outside the lock. . Mr. CORRADO. Outside the locks? Under the present system or 

under the last system? 

Mr. HUBBARD. Under the present system. For example, Texaco 

Kentucky, runn~ng into the yacht. Let's assume for the moment 

that wasn't the fault of the Commission empl_oyees. -Mr. CORRADO. My recollection of the statutory language is-and I 

have it here, although I had no chance to look at it-but my recollection of the statutory language is that there is no Commission liability if there is no employee negligence and is diminished by the 

amount of the negligence of the employee of the Commission. 

Mr. HUBBARD. Thank you. 

Again, to Mr. Corrado, one of the major concerns brought out in 

your testimony is that the ship owners under Public Law 96-70 are 

unable to exercise the· right for judicial review of the Commission's 

decision of the outside-the-locks claims. Prior to the enactment, 

however, of this Public Law 96-70, when this judicial review right 

was exercised on the average, were most of the Commission's decisions adjusted in favor of the ship owner in settling the claim? 

Mr. CORRADO. Adjusted, Mr. Chairman, by the courts in the regular judicial review, or by the Commission? 

Mr. HUBBARD. Yes, adjusted by the courts. 

Mr. CORRADO. I don't really know because I don't have a record 

of all of the court's decisions. My guess is that when it went to 

court-I really can't 1 respond to that question, Mr. Chairman, because I don't know the decisions in the courts. Maybe somebody 

else at the table might know some of the court decisions. My guess 

is, though, that Jwhen it went to_ the court most of the decisions 

were favor~ble_ to _ th~ . ..§bip9wner _because the Panama Canal Company had settled the ones Javorable to it. · ·- · 

Mr. HuBB~RD~· Could you give us a better answer for the record 

later? 

Mr. CORRADO. We can attempt to supply that for the record, yes. 

We have to talk to the Commission and some of the lawyers. But to 

answer the question you are asking, we really have to get the court 

decisions over· whatever number of years you woμld like. 

Mr. HUBBARD. Near the bottom of page 4 of your statement, 

Ernie, you state, · 

Since the Panama Canal .pilot is in complete control of the vessel during transit, 

we do not see any basis for shielding the Commission from liability as is accomplished by the 1979 Act. 

May we infer from this that if the pilots were ~ade only advisory to the vessel master, that you would not object to the current 

system? 
90 

Mr. CORRADO. Well, I think we would object, Mr. Chairman. 

First, I am not sure you could impose-you could take away this 

authority from the pilots; but if you did, I am not sure that would 

be a very good system. Of course, if you took away the responsibili- , ty of the pilot and made him advisory, it would obviously alter the 

tort aspect of this issue to that extent, but I am not sure that that 

system would satisfy us. The Panama Canal is a very unique waterway. The question is who would be in charge. The master of the 

vessel? The master probably is not able to take it through that particular waterway. I don't think the pilots would agree to that. I 

doubt the Commission would agree to it; and I do not think that it 

would solve our problem. 

Mr. HUBBARD. One last question, Ernie: You state in your testimony that the pilot of the Panama Canal is in complete control of 

the vessel during canal transiting. Is it not true that at least 

during outside-the-locks transiting, that there are many factors involved in accidents, sometimes over which the pilots really have no 

control such as engine trouble, the master not carrying out the 

order fast enough, et cetera? 

Mr·. CORRADO. That is true. That is something else that is 

different. We are talking about the negligence of the employee of 

the Panama Canal Company. If there is disregard of orders, or if 

there are engine difficulties or some malfeasence inherent in the 

vessel itself, I think .we all agree that that is a different situation. 

Those are mitigating factors impacting on the conduct of the employees of the canal and Commission liability. That is really not 

what we are talking about. 

Mr. HUBBARD. A question for Mr. Gotimer. Can you tell us what 

effect, if any, the Panama Canal Act of 1979 may have had on the 

cost of insurance for vessels transiting the canal? 

Mr. GOTIMER. I think, Mr. Chairman, I would rather_ defer on 

that question to Mr. Brown, who represents one of the major insurance companies who will testify next . .I think, though, it is too early to say, because the claims that are 

currently pending have not been resolved. At the current state, we 

do not know whether the Commission agrees in full with our 

claims or they agree that the claims are completely unsupportable. , Mr. HUBBARD. Mr. Gotimer, why cannot the ships traversing the 

canal carry insurance that would protect them against any damage 

inside or outside of the lock? 

Mr. GOTIMER. Oh, I think they can. Again, I will defer to Mr. 

Brown for a more detailed answer, only because you are talking 

about insurance; but basically-and what you are talking about, 

Mr. Chairman, is the sum and substance, as I understand it, of this 

testimony-but what you are talking about is a ship owner buying 

insurance and receiving or paying premiums on the basis of his experience. So the more casualties he has, the more he is going to 

pay in terms not only of premiums, but what is called calls. So 

what you are effectively doing is making it very much more costly 

for him to operate. 

Of course, there are major aspects that are not covered: loss of 

use, and things like that. . Mr. HUBBARD. Would it be also an argument that the shippers 

are already paying for the damages through tolls? · 
91 

Mr. GOTIMER. Yes, it is. As a matter of fact, if I might digress 

perhaps a little bit, I wonder what would happen in the case of a 

Navy ship which runs aground or gets in a collision where the taxpayer, through paying tolls for the Government ship has contributed to a big_ fund to pay those claims; and because of nonliability, it 

comes-to Congress, and Congress either agrees and says yes, pay it, 

in which case the taxpayer is paying a second time, or they say 

don't pay it, and then it goes and is paid out of the Department of 

Navy's budget. In either event, I think the taxpayer gets hit twice 

there if you are are talking about a Government ship involved in 

the same situation as opposed to spreading the risk out by virtue of 

the $6 million fund for outside-the-lock claims. 

Mr. LUCIANO. Mr. Chairman, may I address that question as 

well?" 

Mr. HUBBARD. Sure. 

Mr. LUCIANO. I think. there is, in addition, a question of equity 

here. That is, the kinds of claims we are talking about are claims 

that are the result of failure on the .part of Commission employees. 

To ask a vessel owner to bear the cost of insuring ·his vessel for 

events- that are under someone else's control and are, in fact, the 

fault of someone ·else raises a serious question of equity. 

Mr. HUBBARD. Thank you. 

Mr. Gotimer, on page 3 of your testimony· you state. 

The elimination of settlement autho;ity and judicial review in out-of-locks claims 

prevents a claimant from presenting all relevant evidence to the Panama Canal to 

allow a f~ll and fair evaluation of the claim. 

Should not this "relevant evidence" be submitted to the Panama 

Canal prior to their submission of the claim to the Congress? 

Mr. GOTIMER. Mr. Chairman, the problem is-and this i~ no criticism of the Panama Canal Commission-representing a ship owner 

we have no way of knowing what is relevant. We do participate in 

the board of local inspectors' investigation. We know what issue 

they consider relevant. They then come out with a report which 

has findings of fact and conclusions; and the conclusions are, for 

instance, fault: The pilot was going too fast; the ship had a fault in 

that their· automatic engine logger did not record a certain bell. 

They do not apportion liability. What considerations go into that 

liability and the amount of liability that would be apportioned to 

either side we have no knowledge of. 

As to what is done with the damages that are submitted, what is 

considered provable and not consider provable, we have no input at 

all into that. All we do is send · the damage claim and supporting 

documentation to the Commission; it is analyzed; the Commission 

then sends back and asks for whatever additional information they 

want. Only after the report is issued by the ·- Panama Canal, it goes 

through 0MB and gets in Congress, and Congress releases it, does 

the ship · owner or his attorney have any idea what is in that 

report. 

When we have a case in court, we know what the issues are, we 

can brief the issues, we· can address the issues. We are operating in 

a vacuum here with respect to most of the issues other than the 

initial board of local inspectors' investigation. 
92 

If I might add, Mr. Chairman, I think not speaking for the Commission, but I think their position has to be that all the considerations that are going on since it is a special report to Congress is 

something that is being done and it is not final yet; therefore, they 

can't release it. 

Mr. HUBBARD. Thank you very much. · , , Are there any other comments from Mr. Corrado, Mr. Luciano, 

or Mr. Gotimer? 

Let me ask, say it would be a real pleasure to hear from those 

two rather shy fellows, Raymond Burke and Bob Phillips. 

Mr. PHILLIPS. I would like to make a brief comment, if I may, Mr. 

Chairman. 

Mr. HUBBARD. Being an attorney myself, I can understand why 

you want to say something. . Mr. PHILLIPS. This is directed at one of the more important topics 

raised this morning, the Texaco Kentucky. 

Mr. HUBBARD. Maybe I shouldn't have asked for your comment. 

Mr. PHILLIPS. I would just like to say, Mr. Chairman, representing Texaco, despite the not always positive comments made about 

the Kentucky , performance this morning, I would like to assure you 

over the years she has performed in a fashion that you, yourself, 

and· your constituents would be most proud of. · Mr. HUBBARD. I think it was the sight of that yacht that excited 

it. 

Mr. PHILLIPS. I think as shipowners sometimes say, Mr. Chairman, it is amazing how fixed objects like piers or in this case anchored boats have a tendency to move in front of the _moving vessels. 

Mr. HUBBARD. Sounds very possible. 

Mr. Burke? 

Mr. BURKE. Not to be outdone, Mr. Chairman, I rep~esent the 

Overseas New York, the other vessel whose name was taken in 

vain this morning. I would like to make a few comments. 

You ask~d information about the cost of detention damages-the 

cost to the shipowner for delays awaiting the BLI investigation. 

My experience has been that for some of our client's larger ships 

detention damages have been as high as $25,000 a day. In discuss-- ing this last week with Mr. Gotimer, I learned that on one of his 

vessels, detention was as high as $45,000 a day. Our experience has 

been that most of the delays have been approximately 24 hours. 

There have been times when ships have been delayed longer than 

that. Generally, if the ship is delayed longer, it is because the 

board of investigation is busy handling another investigation; they 

just didn't have the manpower to speed it up. 

Just one other item: You asked Mr. Corrado about the effect of 

the judicial review and-how often courts disagreed with the find-· ings of the BLI and the Panama Canal Company. I think it would 

be nearly impossible to document that. However, one of the effects 

of having judicial review is that if initially the parties are unable 

to come to an agreement with the Panama Canal authorities, the 

existence · of judicial review acts as an incentive to settle cases 

before going to trial. In addition, there have been some signficant 

decisions by what had been the district court for the Canal Zone 

which from time to time disagreed with the ·findings and conclu-
93 

sions of the BLI and claims branch and were of gr·eat benefit in 

protec.ting the rights of the users of the Panama Canal. 

Mr. HUBBARD. Thank you very much, Raymond. Burke and Bob 

Phillips. 

Any other comments? 

Mr. CORRADO. I have yet to see a shy lawyer, Mr. Chairman. 

I would like to make one request, if I may, Mr. Chairman. In the 

questioning of the Commission witnesses, the issue of a statute of 

limitations arose. If you really seriously entertain that idea, I wish 

that we might have input into that, because it is not so simple, and 

it is not clear from the record the way it is right now whether the 

statute of limitations would run from the time of the incident or 

from the time of filing. the claim or how it would relate to the pro- . duction of documents after filing the claim or now it would relate 

to judical review, if it imposed for outside-the-locks claims. So if, in 

fact, you should seriously entertain the idea of the imposition of a 

statute of limitations, we. would like to be ·able to discuss it with 

the members of the staff, or whomever appropriate, to make sure 

that we are adequately protected. I know the period of 2 years was 

mentioned, but I think we would like something a little longer. The 

statute of -limitations·· in the Canal Zone Code was ·3 years, for 

exam pl~. ____ ----· _ _ . ___ _ __ __ _ _ . _ _ ___ · _ Mr. HUBBARD. Three years from the date of the incident? 

Mr. CORRADO. My recollection is 3 years from the date of the incident. I would also like to mention the personal injury legislation 

which came out of this committee several years ago. That had a 3-

year statute of limitations. 

Mr. HUBBARD. Why that long a time? Why is that needed? 

Thinking back on tort claims in my home State, where 1 year was 

the statute of limitations, why 3 years for these types of accidents? 

Mr. CORRADO. For personal injury or for the--

Mr. HUBBARD. Either. . Mr. CORRADO. By the time that the claim is filed and the documentation comes in there is a substantial lag-the documentation 

is slow coming in. 

Mr. HUBBARD. That slow? 

Mr. CORRADO. I think it is. · We have claims right now on damages that are a couple years 

old and additional information is still being requested and required. The processing of these claims is inordinately long, personal injury or property damage. 

I think it takes quite a bit of time. 

Mr. GOTIMER. Mr. Chairman, may I address that issue? I do 

think I can speak to it. · With respect to a vessel that is damaged substantially io that it 

has to be .repaired immediately, repairs can take as long as 3 or 4 

·months. After that, finalizing the shipyard repair cost is often a 

matter of negotiation and the first bill given by the shipyard is not 

necessarily the final bill taken. It is quite conceivable a time of 

almost a year will elapse- before the repair.· costs of the vessel is 

known. In addition to that, or casualties which do not require that 

the vessel be taken out of service such as accident in the side or a 

bow that is damaged, the ship may still be in seryice for the. next 

14 or 15 or 16 months before it goes in the shipyard for repairs. 

The reason for that is if the ship were put in the shipyard immedi-
94 

ately for repairs, there would be no recovery for loss of use and the 

shipowner would lose a substantial amount of revenue. Therefore, 

the time for the repairs in many of these cases does not even begin 

for over a year after the casualty. 

In addition to that, if you were talking about a judicial review, I 

think you would like to have the repairs and the damage claim finalized sufficiently in advance so that negotiations could take place 

before litigation is begun. · Mr. HUBBARD. It seems as though 2 years would be a--

Mr. GOTIMER. In our experience, 2 years is often very, very difficult. 

Mr. BURKE. Mr. Chairman, if I may address that? · Mr. HUBBARD. Yes. 

Mr. BURKE. Mr. Beale, who will testify after this panel finishes, 

reminded me that there is a uniform act providing for a maritime 

personal injury statute of limitations of 3 years. 

Mr. HUBBARD. Thank you. 

If a vessel is damaged in the canal and is repaired before the 

claim is settled, who pays for the repairs? 

Mr. BURKE. In the first instance, the owner and the owner's hull 

underwriters pay for the repairs. Then the bill is submitted to the 

Panama Canal Commission. 

Mr. HUBBARD. Thank you. We would like to ask that written 

questions be submitted by the members of the subcommittee to the 

witnesses for answers for the record. I know Mr. Lent, Mr. Tauzin, 

and Mr. Carney would have had some questions if they were here 

right now. They were tied up on other matters this afternoon, 

either on the House floor or in their offices. So we would send 

those to you later, if they do, indeed, have questions. 

Thank you so much. 

Mr. GOTIMER. Thank you. 

Mr. LUCIANO. Thank you, Mr. Chairman. 

Mr. CORRADO. Thank you. 

Mr. HUBBARD. We will now hear from Mr. Brown and Mr. 

Beale-and· if it wouldn't be too much out of line, I would ask Mr. 

McAuliffe to be considering the possibility after brief comment at 

the conclusion to counter or give a different viewpoint as to what _ has been said since the time that you and Mr. Gianelli testified. 

I know many things have been said and that you have sat there 

and been silent; but at the very end we would give you the chance, 

if you would like, to take 5 minutes or so to counter. If one of the 

other witnesses wishes to add one · more comment such as Ernie 

Corrado or Peter Luciano or someone else, we would permit that. 

We are happy to have Mr. Richard H. Brown, Jr., attorney with 

the law firm of Kirlin, Campbell & Keating, the same law firm 

Harry Gotimer is with, with offices in New York and Washtngton. 

Mr. Brown represents the American Steamship Owners Mutual 

Protection & Indemnity Association, Inc.; Mr. Almer W. Beale, II, 

will be next. · 

We will hear first from Mr. Brown and then from Mr. Beale, an 

attorney with the Toole; Taylor., Moseley & Joyner law firm in 

Jacksonville, Fla. They represent the Maritime Law Association of 

the United States. 
95 

STAT.EMENT OF RICHARD H. BROWN, JR., ESQ., KIRLIN, CAMPBELL, & KEATING, REPRESENTING THE AMERICAN STEAMSHIP 

OWNERS MUTUAL PROTECTION, & INDEMNITY ASSOCIATION, 

INC. 

Mr. HUBBARD. Mr. Brown, we have already had several questions 

pile up for you. Before the questions, we look forward to hearing 

your testimony and both you and Mr. Beale can know that if you 

do summarize, your full text will be entered in the record. 

Mr. BROWN. Thank you, Mr. Chairman. I will summarize my 

comments and thank you for the opportunity of being here today. 

I represent the American P & I Association, which has insurance 

coverage for P & I risks which .are essentially nonhull risks. They 

include personal injury, cargo damage, pollution, things of that 

sort. On the subject of insurance which has been mentioned several 

times earlier today, there are ·several things to bear in mind. 

First of all, both hull and P & I insurance involve substantial deductibles on the part of the shipowner. The reason for the deductibles is to keep the premium costs down and ·it is not infrequent 

that the deductibles are $25,000 or $50,000 per occurrence. . So there is in those regards a substantial uninsured risk on the 

shipowner's part. In addition, ordinarily loss of use of the vessel is 

not insured. Loss of use of a vessel and the substantial casualty 

may run to several hundred thous~nd dollars which is usually an 

uninsured risk. 

As to risks which are insured and covered by an insurance company, just as in our own automobile insurance, if we have a bad 

loss or a bad loss experience, our premiums go up. The same is true 

for shipowners. If they have a bad loss record, _their premiums go 

up. 

Therefore, it is a very important point for shipowners and underwriters that when a casualty occurs that is the responsibility of 

some party not insured or not the shipowner, that a recovery be 

made against the party who is negligent or whose servant was 

negligent. 

I think it goes beyond the mere question of insurance and ·who 

pays. I think it is a basic American principle and sound public 

policy that a party injured by the negligence of another be compensated by the negligent party for that injury and that is true with 

regard to the United States under the Federal Tort Claims Act, the 

Suits in Admiralty Act, and so forth. 

In connection with Panama Canal operations, it is especially important, as a matter of principle, that the Panama Canal Commission be liable for the negligence of a Panama Canal pilot for one 

reason which has been mentioned here before: 

No. 1, almost unique in the world's waterways, the Panama 

Canal pilot is a control pilot, not merely an adviser to the master. 

He has control of the vessel from the time he takes it over. There 

is a second feature which has not been mentioned which is that if a 

pilot is in charge of a vessel, even. though not employed by the 

owner and that. pilot is negligent, the vessel itself is liable to third 

parties; so, for example, if ship A and ship B are passing through 

the Panama Caμal and ship A has a Panama Canal pilot on board 

who is negligent, causing a collision with ship B, if there is no re-
96 

course against the Panama Canal Commission, the owner of ship A 

not only pays his own damages but· he can be liable for the damages to the other ship, even though his own servants, the master 

and crew, were not negligent. The unfairness of a result like that I 

think is obvious. 

We have listed in our written testimony really three specific 

criticisms of the existing Panama Canal Act of 1979. The first is 

that the Commission's settlement authority is limited to daims not 

exceeding $120,000. A great many claims exceed that amount. 

As is usually the case, in these matters, the parties can agree on 

settling claims without adjudication or a resort to any third party 

to .decide the case. Now settlement happens much more often than 

not, and when that does .occur, the claims are resolved at minimum 

expense and inconvenience to everybody. 

The limitation on the Canal Commission's settlment authority 

severely inhibits that settlement procedure and we think it ought 

to be eliminated. 

Our specific remedial proposal is to delete the limitation of 

$120,000 in the first sentence of section 1412 and delete section 

1415(b)" altogether. That is the section that refers over-$120,000 

matters to Congress. 

Our second concrete criticism is that the present act makes no 

provision for an aggrieved claimant for injuries occurring outside 

the locks to bring-an action in court against the Commission. It has 

already been pointed out that for claims outside the locks up to 

$120,000, the Panama Canal Commission is the court of last resort. 

That is a party which is a party to the dispute is the one that 

decides it. I think that is clearly an improper way to handle things. 

For claims over $120,000, it seems to us the proper forum for adjudication or determination of issues the parties cannot resolve them- . selves is the. court rather than Congress. 

I think the courts are far better suited for that. It is a judicial 

function. Congress is a legislative body. And if I may say so, I think 

Congress has more important things to do these days than resolve 

specific claims for specific damage incidents. 

Our third specific criticism is that section 1414, item (6) thereof 

bars a claim for any delay due to an· investigation of marine acci-, 

dents by the Panama Canal authorities. These delays can be rather 

substantial, and it seems unfair to penalize a shipowner where the 

accident has been caused by the negligence of the pilot. 

We point out one off-spin of this. This is that section 1417 provides that a claim may not be considered unless there has been an 

investigation. There are cases where the damages are comparatively minor, maybe only, say, $50,000, $75,000, or $100,000; and a shipowner would be very hesitant to delay an expensive ship at a cost 

of, say, $25,000 a day for an investigation if he knows that cost 

cannot be reimbursed. 

So that puts unfair pressure on the shipowner to waive an other- . wise valid claim by waiving, not attending, the· investigation and 

leaving the Canal. 

Our remedy for that is to delete item 6 of section 1414. Going 

back to our second point, our remedy for lack of judicial review, is 

to authorize a claimant for all injuries, outside the locks as well as 
97 

in the locks, to bring an action in an appropriate district court of 

the United States. 

We think the foregoing proposals would, in effect, restore the fair 

and equitable procedures that existed immediately prior to the passage of the act in 1979 and would be helpful to the American merchant marine as well as others. We respectfully request these proposals be given favorable consideration. 

Thank you, Mr. Chairman. 

[The statement of Mr. Brown follows:] 

PREPARED STATEMENT OF RICHARD H. BROWN, JR., ON BEHALF OF THE AMERICAN 

STEAMSHIP OWNERS MUTUAL PROTECTION AND INDEMNITY ASSOCIATION, INC. 

Mr. Chairman, my name is Richard H. Brown, Jr. I am a member of the law firm 

of Kirlin, Campbell & Keating of New York. The firm (and I in particular) act as 

Counsel to the American Steamship Owners Mutual Protection and Indemnity Association, Inc. I am testifying today on behalf of that Association. On its behalf, and 

my own, I wish to thank you for giving me the opportunity to appear before you 

today. 

The Association and its members support certain revisions to the claims procedure under the Panama Canal Act of 1979. The Association currently has 34 members shipowning companies, the great majority of which are American, owning vessels aggregating over 4,500,000 gross tons. It is a mutual insurance association insuring its members against risks which essentially are not covered by hull underwriters. These Protection and Indemnity (or "P and I") risks include, among other 

things, members' liabilities for personal injuries, cargo damage, damage to fixed 

structures, and oil pollution. 

The foregoing insurance coverages are subject to deductibles, which are often substantial. To the extent of such deductibles the shipowner is uninsured. In addition, a 

shipowner ordinarily does not carry insurance covering loss of use of its vessel. 

Thus, in the eve:μt of a collision, if a ship were required to go out of service for collision repairs, her owner's loss of profit while she was out of service would not be 

covered by insurance. Such uninsured losses can be very large. 

To cover its members' liabilities the Association (like other P and I associations) 

charges each member an annual renewal premium and additional assessments 

during the insurance year to provide adequate reserves for payment of claims. The 

premiums and assessments, of course, must' be large enough to cover payment of all 

claims and related costs. The larger the member's liabilities, the worse will be its 

loss record and the larger will be the premiums it must pay. One very important 

way of reducing liabilities and losses (and a resultant increase in premium) is to 

make recoveries therefor against the party whose negligence caused the accident. 

Thus, shipowners and their underwriters have a significant financial interest in 

being able to make recovery against negligent parties through a fair and efficient 

procedure for resolving claims. 

Most importantly, it is a basic American principle of justice and sound public 

policy that a party injured by the negligence of another should be entitled to obtain 

compensation from the negligent party. In this century Congress has granted that 

right widely, wisely and fairly with respect to claims against the United States arising from negligence-thereby largely abrogating the inequitable earlier doctrine of 

sovereign immunity. See, e.g., the Federal Tort Claims Act and the Suits in Admiralty Act. · 

Such right to just compensation from the negligent party is peculiarly necessary ·with regard to claims against the Panama Canal Commission for negligence of its 

pilots because (1), a Panama Canal pilot (perhaps unique among pilots) has control of 

the vessel rather than merely being an advisor to the master and (2) a vessel is 

liable in rem for the negligence of the persons controlling or navigating her (whether employed by the owner or not), so that the owner of a . vessel can be held liable 

for the negligence of a Panama Canal pilot over whom he has no control. Thus, if a 

collision between Ship A and Ship B occurs in the Panama Canal and is solely due 

to negligence of the Panama Canal pilot on Ship A, Ship A's owner not only would 

make no recovery of damages against Ship B but would be liable to pay Ship B's 

damages, unless the Panama Canal Commission were held liable for the pilot's negligence. The unfairness of such a result is obvious. 

The Panama Canal Act of 1979 provides generally adequate procedures and machinery for handling claims in the locks in that the Commission has authority to 
98 

settle such claims without limit (Public Law 96-70, Title I, §§ 1411 and 1415) and a 

party aggrieved by the Commission's determination has a right to bring an action in 

court(§ 1416). However, for injuries arising outside the locks, we respectfully submit 

that the present statute is inadequate in the following respects, which should, in our 

view, be remedied in the manner proposed below: · (a) Criticism: The Commission~ settlement authority is limited to claims not exceeding $120,000 (§§ 1412 and 1415(b)).-Many claims exceed that amount. When, as 

is usually the case, parties can agree to settle claims without adjudication or a similar determination, each party should have the authority necessary to settle, thereby 

disposing of the claim expeditiously, efficiently, and at minimal expense. 

Remedial proposal.-Delete the limitation of $120,000 in the first sentence of 

§ 1412 and delete § 1415(b) 1 altogether. 

(b) Criticism: There is no provision for an aggrieved claimant for injuries arising 

outside the locks to bring an action in court against the Commission. -For such 

claims of $120,000 or less, an aggrieved claimant has no remedy whatever [even by 

means of a report to Congress] apart from the Commission's determination (see 

§§ 1412, 1415(b), and 1416). For claims exceeding $120,000 the Commission, under 

§ 1415(b), must submit the claim to Congress in a special report containing the mate.rial facts and the Commission's recommendation. While this section does provide a 

Congressional remedy (the precise form of which is somewhat uncertain), we respectfully submit that it would be better to provide for a judicial remedy (where 

Commission and claimant disagree) rather than referring the matter to Congress. 

The claims usually arise from collisions or groundings. Proper resolution of the 

liabilities of the pilot or others depends on analysis· of detailed oral and documentary evidence as to the vessels' navigation in a particular situation, with attendant 

technical calculations, evaluation of fact witnesses, and frequent use of expert witnesses. This is a process for which our efforts were created and for which they are 

very well suited. In short, it is a judicial function. I believe that Congress, by reason 

of both its structure and legislative function, is less suitable for such a task. And, if 

I may say so, Congress has more important ways to use its time than deciding the 

merits of particular claims. 

Remedial proposal. -Provide that, for all injuries outside the locks, an aggrieved 

claimant may bring an action in a District Court of the United States. 2 

(c) Criticism: Section 1414 [Item (6)] bars a claim for any delay due to an investigation of marine accidents by the Panama Canal authorities. -Such delays can be substantial, and it is unfair that the Commission should not be held liable when the 

accident causing the investigation was due to the negligence of the Commission's 

own employee (the Panama Canal pilot). Moreover, Section 1417 pr9vides that a 

claim may not be considered unless there has been an investigation by the competent authorities of the accident before the vessel leaves the Panama Canal. In the 

case of smaller claims, a shipowner may be unwilling to delay his vessel due to the 

presently unrecoverable expense of delay and may thus be economically forced to 

waive an otherwise just claim. 

Remedial proposal.-Delete item (6) of§ 1414. ·. We understand that payment of claims would be funded by the Panama Ca:q.al 

tolls, which can be adjusted to provide monies to pay for all liabilities. 

We believe that properly drafted legislation to implement the foregoing proposed ' 

amendments to the Panama Canal Act of 1979 would provide an efficient and fair 

means of resolving claims of vessels in the Panama Canal and would be in the best 

interests of the American merchant marine. 

The foregoing proposals would, in effect; restore the equitable procedures for handling Panama Canal claims which existed immediately before the Act of 1979 went 

into effect. See: 2 C.Z. Code §§ 291 and 292, [76A Stat. 23] and §§ 294, 295 and 296 

[76A Stat. 24] and§ 297 [76A Stat. 25]. 

For all of the foregoing reasons we respectfully request that the above-described 

proposals be given favorable consideration. 

Mr. HUBBARD. Thank you very much, Mr. Brown. 

This question we did ask Mr. Gotimer: Can you tell us what 

effect, if any, the Panama Canal Act of 1979 may have had on the 

cost of insurance for vessels transiting the canal? .In other words, 

were insurance premiums or deductibles adjusted as a result of the 

1 A similar proposal would be appropriate for § 1401, which.has a $50,000 limit. 2 A similar proposal might be made with regard to claims u.nder § 1401 (see §§ 1401(d) and 

1417). 
99 

Panama Canal Commission's inability to pay the claim for damages 

in excess of $120;000? 

Mr. BROWN. I really don't think there is any way of saying there 

has been an increase or not. First of all, I think most shipowners 

are under the 'impression that they still have a valid claim against 

the Panama Canal Commission for negligence of pilots, even 

though the format has been changed so that now they would have 

to go to Congress for these claims outside the locks. 

So I think shipowners and their underwriters still now think 

that recoveries will be made where recoveries are warranted. So 

there is no change there. 

Secondly, in handling insurance, I don't think there is a review 

of risks as specific and _unusual as this; what really happens is a 

shipowner's loss experience is examined when he reduces insur- ance each year. His loss experience for the last several years, actually, is examined. 

Part of that loss experience where it includes claims that have 

not yet been resolved will depend upon reserves or estimates but 

on the claim which is again based on a forecast of what the result 

of recovery attempts will be. · As I have said,. I think most shipowners at present think there 

will be recoveries with respect to cases in which the Panama Canal 

pilot has been negligent; not through the same means as before, 

but still recoveries. · 

So, in short, there is no real way of saying there has been an increase. If there is a situation in which recoveries are not made 

which should have been made, that in the long run has to increase 

premiums and losses . . Mr. HUBBARD. Mr. Gotimer answered this in part; could you add 

to what he said to this question: Why could not the ships using the 

canal carry insurance that would fully protect them against any 

damages inside or outside the locks? 

Mr. _BROWN. All ships, ·all large ships at least, using the canal do 

carry insurance. 

Mr. HUBBARD. Sure. 

Mr. BlWWN. ·It .protects them against damage to th~ vessel itself; 

it protects them against damage and liabilities for damage to 

others. The issue here really is that where the canal pilot has been 

negligent, if the shipowner does not make a proper recovery 

against the Can.al Commission, his loss experience will be worse 

and the cost of that insurance will be increased. Unfairly, in our 

judgment. 

Mr. HUBBARD. Would it be more expensive for shippers to -have 

the higher· insurance premium if the tolls could be lowered sub- . stantially across the board for all the ships? . Mr. BROWN. Again that is very hard to say. I guess in pure 

theory-in pure theory-if the tolls covered liabilities of canal personnel, the ships using the canal would · pay those extra costs, and 

the ships that did not use· th_e canal would reap a benefit in having 

lower insurance premiums. If insurance losses were charged across 

the board to all ships because the Panama Canal Commission did · not respond in damages, presumably that would raise the insurance premiums of all ships generally. 
100 

Mr. HUBBARD. Are you aware of any actual instances in the 

Panama Canal where, as a result of pilot negligence on, say, ship 

A, a second ship has been struck and damaged? 

Mr. BROWN. Yes. Any time you have a collision between two 

ships in the canal, ordinarily there is damage to the other ship. 

Mr. HUBBARD. But this is not always the result of pilot negligence? 

Mr. BROWN. Oh, no. It may be due to pilot negligence. It may be 

due to other forms of negligence. I might say, however, ordinarily, 

as a realistic matter, responsibility for ship collision rests upon the· person in charge of the ship's navigation. That person in the 

Panama Canal is generally the pilot. There may be other features 

that come into it--

Mr. HUBBARD. Like defects in the ship? 

Mr. BROWN. Defects in the ship. There might be negligence on 

the part of the ship's personnel. For those defects and negligence 

on the part of the ship's personnel, the shipowner would be liable. 

If there were negligence on the part of both pilot and shipowner, 

that negligence would be apportioned; so each party would pick up 

its proportion. · Mr. HUBBARD. At the bottom of page 1, Mr. Brown, you note that 

most vessels are uninsured to the extent of their deductibles and 

are not insured against loss of use. Could these vessels be so insured if the owner wanted them to be? 

Mr. BROWN. I suppose it is theoretically possible that they could 

be. There is a question of premium charge. If you eliminate--

Mr. HUBBARD. A question of what? 

Mr. BROWN. The premium charge. I think you can buy insurance 

for just about anything if you are ready to pay the premium for it. 

I know as a matter of practice that most-well, I have been in this 

business about 28 years now. I have never known a case _where a 

shipowner has been insured for a loss of use of his vessel as a 

result of the collision. That is a shipowner's risk ordinarily. 

Mr. HUBBARD. This last question: Obviously, to the extent that 

vessels can recover money damages from the Panama Canal Commission their insurance rates will go down and vice versa. What 

would be helpful for the committee to know is how much insurance , rates will change· if, for example, all authority of the Commission 

to pay claims were removed or if the Commission were given authority to pay all claims? · 

Mr. BROWN. I think, Mr. Chairman, that would be an extraordinarily difficult calculation to make. I don't know if it can be made. 

I think it can be said that there would be an increase in insurance 

costs to some extent. 

Mr. HUBBARD. What would you say to the argument of some that 

private insurance premiums would change very little if the Commission simply got out of the insurance business altogether? · Mr. BROWN. I don't know the degree of the change. You know, it 

would be hard to make that· calculation. I think what would 

happen would be that if a shipowner were taking a ship through 

the canal and had a heavy casualty, that shipowners' premiums 

would go up very heavily if he could no~ make a legitimate recovery from the canal. · 
101 

In other words, the impact of the canal going out of the insurance business as one might put it would fall on shipowners who 

happens to sustain heavy casualties in the canal. I think it would 

fall on them unfairly. I think it is a matter of principle; he who is 

negligent should pay for his negligence. 

Mr. HUBBARD. Mr. Beale, let's hear from you. 

STATEMENT OF 'ALMER W. BEALE II, ESQ., TOOLE, TAYLOR, 

MOSELEY & JOYNER, REPRESENTING THE MARITIME LAW ASSOCIATION OF THE UNITED STATES 

Mr. BEALE. Initially, I would like to thank the subcommittee for 

this opportunity to appear ·and make .known the sentiments of the 

Maritime Law Association of the United States on the ·need for an 

amendment to the Panama Canal Act of 1979 addressing vessel accident claims. My full-ti'me devotion is the practice of admiralty 

law in Jacksonville, Fla., as a partner in the firm of Toole, Taylor, 

Moseley & Joyner. I also serve as a member of the Committee on 

Maritime Legislation of the Maritime Law Association of the 

United States. Particularly, I have the pleasure of being the chairman of the subcommittee therein appointed to study the need for a 

change in procedure in handling vessel accident claims involving . the Panama Canal Commission. 

The Maritime Law Association of the United States is a national 

bar association founded in 1899. The association has a nationwide 

membership of more than 3,000 practicing admiralty attorneys, 

Federal judges, professors of admiralty law and others interested in 

the development and improvement of maritime law. The association's attorney members represent the full range of maritime interest: Shipowners, cargo owners, seamen, passengers, stevedores, 

shipbuilders and repairers, insurance underwriters, the U.S. Government and a number of State and local governments. 

Furthermore, because the association is a constituent member of 

the Comite Maritime International, which is the international organization of national maritime law associations, it has a direct interest in the need for certainty in international shipping and commerce. 

With that preface, may I say that the president of our association has designated me to have the honor of expressing to you our 

support for a vessel accident claims amendment to the 1979 

Panama Canal Act. The general membership of the Maritime Law 

Association, at its fall meeting on November 5, 1982, unanimously 

adopted the following resolution: 

Resolved That the Maritime Law Association of the United States supports the 

enactment of Legislation (1) to vest the Panama Canal Commission with authority 

to com promise all claims against it arising from casual ties occurring outside the 

locks of the Panama Canal; (2) to grant jurisdiction to a district court of the United 

States to hear and determine such claims; and (3) to restore the liability of the Commission for detention of vessels by the Commission during the time necessary for 

investigation of marine accidents for which the Commission is liable; and the President of this association is authorized to designate a representative of the association 

to make this resolution known to and facilitate its implementation by the appropriate committees of the Congress . 

. Today there has been much discussion about certain limitations 

under the 1979 act. ·No one today has addressed the actual reason 

12- 9 78 - 0 - 7 
102 

for a change under the 1979 procedure. I would like to address that 

topic. 

Although it is not totally clear from the legislative history of the 

present act, apparently someone believed that an appropriate 

model for handling vessel accident claims by the new Commission 

was the procedure followed by the old quasi-autonomous ·Panama 

Canal Agency prior to 1951. · In 1951, the Congress created the Panama Canal Company to run · the Canal. In the earliest days when the Panama Canal Agency 

made the. decisions about claims handling, but the U.S. Government was responsible for payment, there was a different procedure 

for · vessel accident claims occurring inside the locks from those occuring outside the locks. Congress made this distinction for .budgetary reasons. · It was assumed that claims arising from accidents occurring 

inside the locks would almost always be the responsibilty_ of the 

Agency, and accordingly, it was given full power to compromise 

them. However, Congress believed that accidents occurring outside 

the locks, for example a major collision between two vessels, as discussed today, . was not necessarily always going to be the Panama 

Canal's responsibility. For instance, a malfunction of ships equipment may have caused or contributed to the occurrence. 

Apparently, Congress was concerned .that the Agency in such 

cases might agree to settle claims for enormous amounts, creating · budgetary demands that Congress had not anticipated and about 

which·it had not previously been warned. This was a valid concern 

since at that time, unlike the present act, there was no guarantee 

that the expenditures of the Agency would stay within the budget. 

What I am saying is those same concerns do not exist today because there is a procedure by which the tolls can recapture the cost 

of operation, including claims. 

To avoid these problems, prior to 1951 Congress limited the 

Panama Canal authority to settle claims against it arising from casualties outside the locks to $60,000. 

The Panama Canal Company, without the need for special legislation and without any restriction as to dollar amounts, had full 

authority to compromise claims arising both inside and outside the , locks during· the period from 1951 to 1979. The apparent reason for 

that change was not the change from an agency to a corporation, 

but that the 1950 legislation gave· the Canal Company power to es- - . tablish tolls based on a formula designed to recapture the cost of 

operation of the canal including claims. Of course, a similar arrangemer..: for a tolls recapture is present in the 1979 act. 

We have heard a lot of testimony today that the recapture provision is working just fine. Equally important, under the pre-1979 arrang·ement with the Canal Company, is the fact that aggrieved partie~ could sue the Company on all such claims·, occurring inside or 

outside the locks, in the U.S. District Court for the Canal Zone-. I don't need to belabor the actual · provisions of today's · claims 

procedure under the act. I think there was sufficient discussion 

this morning. I would like to say that the Maritime Law Association feels extremely concerned that no claim, regardless of its.size, 

arising outside tl)e locks, has a forum in which claimants may sue 
103 

the Commission, not even the newly created Admiralty Court in 

the Republic of Panama. 

In the recent act, the authority of the new quasi-autonomous 

Panama Canal Commission to settle claims arising from casualties 

occurring inside the locks is likewise unfettered. Moreover, claimants aggrieved by their inability to conclude what they would 

regard as a favorable settlement with the Commission may sue it 

on inside the locks claims in the U.S. District Court for the Eastern 

District of Louisiana. 

However, the authority of the Commission to settle claims arising from casualties occurring outside the locks is limited to 

$120,000. For these claims exceeding $120,000, special congressional 

review and approval is necessary. And no claim, regardless of size, 

arising outside the locks has a forum in which claimants may sue 

the Commission-not even the newly created Admiralty Court of 

the Republic of Panama. · The absence of a forum altogether is, by itself, a cause for much 

concern. Moreover, procedurally there is no basis today for distin- . guishing between claims arising from casualties inside or outside 

the locks. Unlike claims against the old Panama . Canal Agency 

which were funded by the U.S. Treasury without regard to tolls, 

claims against the new Panama Canal Commission should be and 

will be funded out of tolls. Thus, world shipping will bear the cost 

for such accidents .by surcharging the frequent users of the canal. 

And a change in the claims procedure, so direly needed, will not 

remove this underlying equitable· premise. 

Congress is qmch too busy to be burdened with the time consuming examination of liability testimony and damage documentation 

of these ongoing claims. Moreover, judicial review of tort. claims is 

all but basic to our democratic system. Because of the heavy usage 

of the canal by international ship.ping and the involvement of the 

United States with the operation of the canal until the end of .the 

century, the need for a change to a more uniform procedure is obvious. · · 

A final problem with the 1979 act which needs legislative correction is the provision which shields the Panama Canal Commission 

from liability for detention of vessels during the time necessary for 

an investigation by the Commission of marine casualties for which 

the Commission is ultimately liable. ·Prior to the 1979 act, the established case law provided that the 

former Panama C~nal Company was liable for such delays which 

solely benefitted the Company by affording it an opportunity to 

construct a defense to such claims, if it could do so. 

In the shipping business, time is money and it is simply inequitable for the new Commission to have the power to detain a vessel, 

not for,some general police purpose-:-as in a Coast Guard investigation-but strictly· for its own litigation purpos·es to defend against a 

claim. If the Commission needs to delay a vessel to investigate a 

casualty and later it is determined that the Commission is liable 

for the casualty, the Commission should compensate the shipowner, 

as was previously tμe case under the former practice. . Of _course, the 1979 act contemplated that. adjustments to the legislative procedure, such as those addressed today, would be required as time proved necessary. The association appreciates your 
104 

close consideration of these matters and we anxiously await your 

solution to these problems. 

[The statement of Mr. Beale follows:] 

PREPARED STATEMENT OF ALMER w. BEALE II, TOOLE, TAYLOR, MOSELEY & JOYNER, 

REPRESENTING THE MARITIME LAW ASSOCIATION OF THE UNITED STATES 

Initially, I would like to thank the Subcommittee for this opportunity to appear 

and make known the sentiments of the Maritime Law Association of the United 

States on the need for an amendment to the Panama Canal Act of 1979 addressing 

vessel accident claims. My full-time devotion is the practice of admiralty law in 

Jacksonville, Florida, as a partner in the firm of Toole, Taylor, Moseley & Joyner. I 

also serve as a member of the Committee on Maritime Legislation of the Maritime 

Law Association of the United States. Particularly, I have the pleasure of being the 

chairman of the subcommittee therein appointed to study the need for a change in 

procedure in handling vessel accident claims involving the Panama Canal Commission. 

The Maritime Law Association of the United States is a national bar association 

founded in 1899. The Association has a nationwide membership of more than 3,000 

practicing admiralty attorneys, federal judges, professors of admiralty law and 

others interested in the development and improvement of maritime law. The Association's attorney members represent the full range of maritime interest: Shipowners, 

cargo owners, seamen, passengers, stevedores, shipbuilders and repairers, insurance 

underwriters, the United States Government and a number of state and local governt.nen ts'. Furthermore, because the Association is a constituent member of the Comite 

Maritime International, which is the international organization of national 

maritime law associations, it has a direct interest in the need for certainty in international shipping and commerce. The objectives of the Association as set out in Articles and By-Laws are: 

"To advance ·reforms in the Maritime Law of the United States, to facilitate justice in its administration and consideration of problems affecting the Maritime Law 

and its administration, to act with foreign and other Associations in an effort to 

bring about greater harmony in the Shipping Laws, regulations ~nd practices of 

different nations. 1 . 

With that preface, may I say that the president of our Association has-designated 

me to have the honor of expressing to you our support for a vessel accident claims 

amendment to the 1979 Panama Canal Act. The general membership of The 

Maritime Law Association of the United States, at its Fall Meeting on -November 5, 

1982, unanimously adopted the following Resolution: 

"Resolved, That The Maritime Law Association of the United States supports the 

enactment of Legislation 1) to vest the Panama Canal Commission with authority to 

compromise all claims against it arising from casualties occurring outside the locks 

of the Panama Canal; 2) to grant jurisdiction to a district court of the United States 

to hear and determine such claims; and 3) to restore the liability of the Commission 

for detention of vessels by the Commission during the time necessary for investigation of marine accidents for which the Commission is liable; and the President of 

this Association is authorized to designate a representative of the Association to .., make this resolution known to and facilitate its implementation by the appropriate 

committees of the Congress." 

As this Subcommittee knows, as a result of the 1977 Panama Canal Treaty, Congress enacted legislation which provides that until the Republic of Panama assumes 

full jurisdiction on January 1, 2000, the Canal will be operated by the Panama 

Canal Commission. 2 · - -

Although · it is not totally clear from the legislative history of the present Act, apparently someone believed that an appropriate model for handling vessel accident 

claims by the new Commission was the procedure followed by the old quasi-autonomous Panama Canal [Agency] prior to 1951. 3 

In 1951, the Congress created the Panama Canal Company to run the Canal. 4 In 

the earliest days when the Panama Canal [Agency] made the decisions about claims 

1 Article II, Articles of Association · and By-Laws, Maritime Law Association of the United .States; Adopted December 13, 1935, with Amendments to November 6, 1981. 2 22 U.S.C. § 3601-3871 (1979). 3 Act of Sept. 27, 1979, Pub. L. No. 96-70, 1979 U.S. Code Cong. & Ad. News (93. Stat.) 1034, 

1067-70 [hereinafter cited as Legislative History]. 4 Panama Canal Act, ch. 1049, § 5, 64 Stat. 1038, 1041 (1950) [hereinafter _ cited as 1950 Act]. 
105 

handling, but the United States Government was responsible for payment there was 

a different procedure for vessel accident claims occurring inside-the-locks from those 

occurring outside-the-locks. 5 Congress made this distinction for budgetary reasons. 

It was assumed that claims arising from accidents occurring inside-the-locks 

would almost be the responsibility of the Agency, and accordingly, it was given full 

power to compromise them. 6 However, Congress believed that accidents occurring 

outside-the-locks, for example a major collision between two vessels due to alleged 

Canal pilot error, was not necessarily always going to the Panama Canal's responsibility (for instance, a malfunction of ship equipment may have caused or contributed to the occurrence). Apparently, Congress was concerned that the Agency in such 

cases might agree to settle claims for enormous amounts, creating budgetary demands that Congress had not anticipated and about which it had not previously 

been warned. This was a valid concern since at that time, unlike the prese:μt 1979 

Act, there was no guarantee that the expenditures of the Agency would stay within 

the budget. 7 To avoid these problems, Congress limited the Panama Canal authority 

to settle claims against it arising from casualties outside-the-locks to $60,000. 8 

The Panama Canal Company, without the need for special legislation arid without 

any restriction as to dollar amounts, had full authority to compromise claims arising both inside and outside-the-locks during the period from 1951 through 1979. 9 

The apparent reason for that change was that the 1950 legislation gave the Canal 

Company power to establish tolls based on a formula designed to recapture the cost 

of operation of the Canal including claims. 10 Of course, a similar arrangement for a 

tolls recapture is present in the 1979 Act. 11 Equally important, under the pre-1979 

arrangement with the Canal Company, aggrieved parties could sue the Company on 

all such claims (occurring inside or outside-the-locks) in the United States District 

Court for the Canal Zone. 12 

In the recent Act, the authority of the new quasi-autonomous Panama Canal 

Commission to settle claims arising from casualties occurring inside-the-locks is likewise unfettered. 13 Moreover, claimants aggrieved by their inability to conclude 

what they would regard as a favorable settlement with the Commission may sue it 

on inside-the-locks claims in the United States District Court for the Eastern District of Louisiana. 14 However, the authority of the Commission to settle claims arising from casualties occurring outside-the-locks is limited to $120,000. 15 For these 

claims exceeding $120,000, special congressional review and approval is necessary. 16 

And no claim, regardless 9f size, arising outside-the-locks has a forum in which 

claimants may sue the Commission-not even the newly created admiralty court of 

the Republic of Panama. 1 7 

The absence of a forum altogether is, by itself, a cause for much concern. Moreover, procedurally there is no basis today for distinguishing between claims arising 

from casualties inside or outside-the-locks. Unlike claims against the old Panama 

Canal [Agency] which were funded by the United States Treasury without regard to 

tolls, claims against the new Panama Canal Commission should be and will cost for 

such accidents by surcharging the frequent users of the Canal. And a change in the 

claims procedure, so direly needed, will not remove this underlying equitable premise. 

Congress is much too busy to be burdened with the time consuming examination 

of liability testimony and damage documentation of these ongoing claims. Moreover, 

judicial review of tort claims is all but basic to our democratic ·system. Because of 

the heavy usage of the Canal by international shipping and the involvement of the 

United States with the operation of the Canal until the end of the Century, the need 

for a change to a more uniform procedure is obvious. 

A final problem with the 1979 Act which needs legislative correction is the provision which shields the Panama Canal Commission from liability for detention of ves5 Panama Canal Act, ch. 358, § 1, 54 Stat. 387, 388 (1940) [hereinafter cited as 1940 Act]. 6 Legislative History, supra at i067-68; Panama ·Canal Act, ch. 390. § 5, 37 Stat. 560, 563 

(1912). 7 Legislative History, supra at 1041; 1040 Act, supra at 388. 8 1940 Act, supra at 388. 9 Act, supra at 1039. 1 0 Legislative History, supra at 1041; 1950 Act, supra at 1042- 43. n 22 U.S.C. § 3792(b)(1979). 12 1950 Act, supra at 1040. 13 u.s.c. § 3771 (1979). 14 U.S.C. § 3776 (1979). 15 u.s.c. § 3772 (1979). 1 s U.S.C. § 3775(b) (1979). 17 Panama Canal Treaty, Sept. 7, 1977, United States-Panama, Art. III, sub-para. 2. 
106 

sels during the time necessary for an investigation by the Commission of marine 

casualties for which the Commission is ultimately liable. 18 Prior to the 1979 Act, 

the established case law provided that the former Panama Canal Company was 

liable for such delays which solely benefited the Company by affording it an opportunity to construct a defense to such claims if it could do so. 19 

In the shipping business, time is money and it is simply inequitable for the new " 

Commission to have the power to detain a vessel, not for some general police purpose-as in a Coast Guard investigation-but strictly for its own litigation purposes 

to defend against a claim. If the Commission needs to delay a vessel to investigate a 

casualty and later it is determined that the Commission is liable for the casualty, 

the Commission should compensate the shipowner, as was previously the case under 

the former practice. 

Of course, the 1979 Act cont~mplated that adjustments to the legislative procedure, such as those addressed today, would be required as time proved necessary. 20 

The Association appreciates your close consideration ·of these matters and we anxiously await your solution to these problems. 

Mr. HUBBARD. Thank you very much, Almer Beale. Let me take 

this opportunity to say that much of the assistance provided the 

chairman and other members today has come from Ed Welch, to 

my extreme right your left the counsel for the full Merchant 

Marine and Fisheries Committee, and to my right also, closer to 

me, John Long, assistant counsel for the full Merchant Marine and 

Fisheries Committee; from Janie Lawson, on my far left, the staff 

director for our subcommittee; from Jana Oakley to my right, staff 

as~istant; and Robin McClung to my left, minority staff assistant. 

They are very helpful. . 

. You say the Federal Government now need not worry about 

paying a portion of a claim because the canal, by law, must be financed by tolls solely. What would -happen if a large claim surpassed the cumulative reserve? 

Mr. BEALE. Mr. Chairman, during the interim time the claim is 

being processed, if the Canal Commission kriew about it, there 

would have to be immediate adjustments in the toll rates ·to prospectively take care of the claim. Otherwise, Congress would have 

to go ahead and advance the money through appropriations and 

then recapture it by with adjusting the toll base. 

In Mr. Kujawa's testimony he proved the reserve mechanism for 

claims does work. The Commission mentioned something about 

buying some catastrophic insurance. I think that is an alternative 

that could be considered which that would avoid a need for any immediate adjustment in the toll base and it is one way it could be 

handled.· Mr. HUBBARD. Would a successful claimant be willing to wait for 

his money until a higher toll structure could be ·put in place to replenish the reserve or would he insist on immediate payment from 

the General Treasury? 

Mr. BEALE. J.. can't subjectively answer· that question. I think it 

would have to be the individual shipowner's choice. Ideally, of 

course, he would want to be able to satisfy the claim immediately 

or satisfy his judgment immediately. 

If you had catastrophic insurance which the Canal Commission 

had secured, that would obviate the need for any waiting period. . ' 

18 22 U.S.C. §§ 3777, 3774(6) (1979). 19 Gulf Oil Corp. v. Panama Canal Co., 481 .F2d 561 (5th Cir. 1973). 2 0 22 u.s.c. 3602(d)(3) (1979). 
107 

Mr. HUBBARD. I have only three more questions. Could you elabo- . rate on your statement that the pre-1951 distinction between 

inside- and outside-the-locks claims was based oh budgetary consideration? 

Mr. BEALE. In my paper, Mr. Chairman, there are a number of 

annotations. I went through the legislative history. I have cited the 

U.S. Code Congressional and Administrative New. The reference 

material demonstrates that reasoning. 

Furthermore, I would like to cite the subcommittee some other 

references which discussed the 1951 legislation. Grace Lines v. the 

Panama Canal Company, 243 F2d, 844. This is a decision of the 

U.S. Court of Appeals for the Second Circuit. There was further 

discussion in a U.S. Supreme Court decision, which points up congressional reasoning. · The offiqial citation to the Supreme Court case is 356 .U.S. 309. 

Those Federal courts go into great depth to explain why there was 

the need to make the tolls provision mandatorily cover the operation of the canal. 

Those cases, -of course, talk about claims. It is clear that one of 

the reasons Congress passed the legislation that went into effect in 

1951 was to grant the Canal Company the budgetary means to provide a ·recapture in the toll system and pay all costs of operations 

including claims. . · Mr. HUBBARD. I must leave now for a vote . . We will recess for 

about 10 minutes. 

[Recess.] 

Mr. HUBBARD. The subcommittee will now reconvene. 

Mr. Beale, you state that Congress in 1951 gave the Panama 

Canal Company full authority to compromise claims because the 

cost of this could be recovered in tolls. Isn't it also possible to 

deduce from the legislative history that the full authority to pay 

claims in the 1951 law derived from the corporate structure of the 

Panama Canal Company and Congress believed that a government 

corporation should be able to sue and be sued like- other corpora- tions? · . . 

Mr. BEALE. Mr. Chairman, that is partially correct. However, one 

has to look beyond to why Congress made the canal operation a 

corporation. In the legislative history, and the cases cited, the history shows President Truman was contemplating a toll increase in 

1948-49. Congress asked the President to delay the increase so it 

could study the entire structure. There· were a number of hearings 

and a lot of statistical analysis was disclosed therein. 

The net result was Congress decided to make the canal self-sustaining. This was the reason Congress.put the entire operation into 

one corporation, both the agency and the railroad company functions. So in a short answer to your questio·n, I think the reason the 

canal was organized as a corporation was not -so it could sue or be 

sued; it was so it would be self-sustaining But as a result of the 

canal operation becoming self-sustaining, Congress allowed the 

canal to be sued on all vessel accident claims. 

Mr. HUBBARD. Thank you very much. You did want to make a 

closing statement? 

Mr. BEALE. Just one short thing. I think it is very important for 

the subcommittee and .all of Congress to consider that whatever 
108 

Congress ultimately does with this claims procedure, most likely 

the Republic of Panama, after the year 2000, will follow suit. The 

basis for this comment is the Panamanian Maritime Tribunal, recently created in the Republic of Panama, has adopted many of the 

admiralty procedures now followed in our U.S .. district courts. They 

look to us for guidance. 

It is reasonable for us to believe that whatever Congress does 

with this claims procedure, hopefully changing it-and we, of 

course, urge Congress to change it-that the Republic of Panama 

will adopt the same procedure after the year 2000. The procedure 

you formulate will govern shipping interests, including the American merchant marine, into the future even after the United States 

has totally divested itself of the canal. 

Thank you. · 

Mr. HUBBARD. Mr. Brown, do you have a final comment? 

Mr. BROWN. I guess, one other. That is, I mentioned the increase 

of premium where losses are sustained by a shipowner. I should 

have said that that increase in premium is very substantial. It can 

be as high as paying back the loss over a period of 5 years. 

That is, if there is $1 million loss, the underwriter will pay the 

loss, but he will collect it back in premium over the next 5 years at 

$200,900 a year. So it would fall very heavily on an individual shipowner. 

Mr. HuBBAR~. Thank you for that information. 

We do ask Mr. McAuliffe to come back. We will hear you one 

more time for 5 minutes or less. 

STATEMENT OF HON. DENNIS P. McAULIFFE, ADMINISTRATOR, 

PAN AMA CANAL COMMISSION 

Mr. McAuLIFFE. Mr. Chairman, we have no substantial disagreement with any of the testimony today. All witnesses have testified 

concerning the confusion or uncertainty arising from the presenting legislation and the need for amendments with respect to the 

claims procedures. 

Incidentally, we have not had the opportunity to review the proposed legislative changes submitted by certain witnesses and would · welcome an opportunity to comment on these and any others submitted to the subcommittee. 

In addition, we stand on our own testimony concerning the need 

for a statute of limitations and for authorization for catastrophe insurance. We do very much appreciate the opportunity to appear 

before this subcommittee tod~y and to address this very important 

subject. 

Thank you! 

Mr. HuBBARn. Thank you very much, Mr. McAuliffe. 

The hearing now stands adjourned. 

[The following was received for the record:] 

QUESTIONS SUBMITTED BY MR. HUBBARD AND ANSWERED BY LEONARD J. KUJAWA 

On page 7 of your statement, in quoting your 1973 report, you state that the cost 

of the marine accident reserve is "comparable to the insurance expense which 

would be incurred if the company were permitted to obtain outside insurance coverage.'' 

Question 1. Do you · have an opinion on ·whether or not insurance coverage for 

vessel damage claims is something the current Commission should consider? 
109 

Answer. There are two possible objectives served by insurance coverage for the 

Commission: 1. Management of risk; and ·2. Administration of claims. 

Regarding management of risk, it is the policy of the U.S. Government to selfinsure for all risk, including catastrophies. I am not aware of any special circumstances of the Panama Canal Commission which would justify a variation from the 

policy of the U.S. Government generally. 

The administration of claims is a complex and time consuming matter. Whether 

~n insurance company could perform this function in a more cost effective manner 

would require a special study to determine. We have performed no such study. 

Question 2. How would the costs compare nowadays? Would it cost $12 million a 

year or more in insurance premiums to cover current claims? · Answer. It is not possible to quantify the cost of insurance with the current cost 

provision of $12 million annually. If the Commission pu:r:chases insurance, the premiums would reflect the actual accident experience of the Panama Canal plus the 

cost of administering claims. Only if an insurance company could administer the 

claims in a more cost effective manner would the cost be less than that being incurred by the Commission. 

Question 3. Do you have any information on how the cost of the marine accident 

reserve compares with the purchase by individual vessels of sufficient insurance to 

cover their possible accidents? 

Answer. The insurance coverage of vessels currently does not jnclude the cost of 

accidents in the Panama Canal. If such coverage were to be obtained by vessels, 

quite obviously the premium to the vessels would be higher than currently incurred. 

Congressman CARROLL HUBBARD, 

TOOLE, TAYLOR, MOSELEY & JOYNER, 

Jacksonville, Fla., 32202, December 10, 1982. 

Chairman, Subcommittee on Panama Canal/Outer Continental Shelf, Committee on 

Merchant Marine and Fisheries, House of Representatives, Washington, D.C. 

DEAR CONGRESSMAN HUBBARD: Thank you very much for the honor and pleasure 

of appearing before your Subcommittee on Thursday of last week about a matter of ·great importance to uniformity and equity in the maritime law. During the course 

of the hearing, you had invited any of the witnesses present to provide written responses to any of the questions posed by members of the subcommittee. I appreciate 

your offer to make these written responses part of the record. 

There was an important question posed by Congressman Tauzin, which deserves a 

more thorough response. Essentially the question was: Under the present procedure, 

will the Canal Commission be responsibile for payment of claims regardless of fault, 

unless it is shown that the negligence of the ship, its crew, etc., caused or contributed to the accident? As I perceive the question, essentially Congressman Tauzin 

wanted to know whether the Canal Commission is strictly liable for these vessel accident claims to the extent of being an insurer? 

The basic short answer is the Canal Commission is not serving as an insurer of 

the vessel for either inside or outside-the-locks claim. The difference between the 

Commission's liability on inside-the-locks and outside-the-locks claims is simply a 

difference in the burden of proof of a claim. Under 22 U.S.C. § 3771 [inside-thelocks ], the Commission will be required to pay the claim unless it can affirmatively 

show that the accident was caused by the negilgence of the ship, its crew, passengers, etc. On the other hand, if the accident occurs outside-the-locks [22 U.S.C. 

§ 3772] the shipowner, crewmember, etc., have the burden to prove that negligence 

of the Canal or its employees caused the injuries. In both cases, the shipowner, 

crewmember, etc., may not recover for their damages if the injury was proximately 

caused by the negligence or fault of the vessel, master, crew or passengers. In both 

instances partial negligence or fault of the vessel, master, crew: or passengers will. reduce the award of damages in proportion to the percentage of negligence or fault 

on the part of the vessel, master, crew or passengers. Both the inside and outsidethe-locks accidents totally rest on fault principles which . are basic to the American 

tort system. In no event is the Canal Commission absolutely liable as an insurer. 

The reason for the burden of proof distinction between the inside and outside-thelocks claims is the degree of control the Canal Commission exercises over the vessel 

during its transit. When the vessel is in the locks, its movement is in the absolute 

control of the Comrpission and its employees. The vessel is assisted in. entering the 

locks by tugboats. After the first line is attached to the vessel, the-ship rarely uses 

its own propulsion. The vessel is guided into the locks with the use of the Canal's 

locomotives. 

The practical effect of the Canal's close control over the vessel while in the locks 

is in almost every instance if a vessel accident occurs, it will be due to improper or 

negligent handling on the part of the Canal. However, if the Commission can dem-
110 

onstrate that the accident was caused thro~gh fault of the vessel or its crew, it will 

be relieved of liability. for instance, the Canal is not going to be responsible in the 

very unlikely event that the crew of the vessel independently decides to move the 

ship. Furthermore, the Canal is not going to be responsible for any type of personal 

injuries caused by a malfunction of ship's gear, for which ~he Canal has no involvement. 

Once the ship leaves the locks, although it is still under the total navigational 

control of the Panama Canal pilot, it is under its own propulsion. Thus, there is a 

greater likelihood that the ship's equipment will cause a collision, grounding or allision. 

The differences in the quantum of responsibility of the Canal have been reflected 

with the shift of the burden of proof between the Canal and the shipowner. This 

doctrine dates back to the very early times in the operation of the Canal. This same 

differential of responsibility, handled by the fault doctrines of the burden of proof, 

have remained the same through the present. The 1979 Act did not change the basic 

fault principles which ::1pply in these vessel accident claims. At no times since 

claims were allowed both for inside and outside-the-locks, has the Canal faced strict 

liability to a shipowner making it an insurer of these claims. 

Since the Canal has virtual· control of the operation of the ship when it is in the 

locks, those persons involved in the claims handling for the vessel accidents have 

developed a ''term of art'' stating that the Canal is the ''virtual insurer'' of the 

vessel when it is in the locks. However, this is merely a term of art to describe the 

total control the Canal has over the vessel. In the strict legal sense, the Canal is not 

an insurer of the vessel, but as described above, fault principles apply. · None of the witnesses advocated any change in the fault doctrines that have applied to these accidents for almost half a century. We simply urge providing an efficient meaningful claims procedure for outside-the-locks claims, with a forum for judici~l review. 

No one seeks to increase the Canal's responsibility to make it an insurer for the 

shipowners. Everyone wishes to have the system of fault applicable to both parties. 

This is true Jrom the shipowners standpoint as well as the Commission. If the vessel 

is at fault in an accident causing damage to the Canal, it, of course, is expected to 

respond for the damages it causes. And, of course, the converse is true. It is apparent neither the Commission nor the users of the Canal wish to change this system. 

What parties of all concern expressed at the hearing is the need for an effective, 

efficient and thorough procedure for handling .these outside-the-locks claims. Thus, 

the Maritime Law Association of the United States respectfully request that the 

claims procedure return to the system that effectively worked for twenty-eight (28) 

years during the period 1951-1979. - We hope this answers Congressman Tauzin's query. By copy of this letter to him 

we sincerely thank Congressman Tauzin for his intense interest in the problem with 

the present procedure. We stand ready to answer any further inquiries from any of 

the members of the Committee. 

Respectfully, 

ALMER w. BEALE II. 

PREPARED STATEMENT BY THE INTERNATIONAL DIVISION, U.S. GENERAL ACCOUNTING 

OFFICE 

Mr. Chairman and members of the committee, we are . pleased to present our 

views on the Panama Canal Commission's accounting procedures for setting aside 

reserves for marine accidents. 

MARINE ACCIDENT RESERVE 

From time to time, ships transiting the Canal are involved in accidents: Ship accidents are viewed as a normal and expected part of doing business in the Panama 

Canal. 

The Commission's marine accident reserve to pay for vessel damage claims is, in 

effect, a way of insuring against this normal business risk and spreading the cost 

evenly over time. The reserve is charged to current operations and is not unlike 

other business practices of charging insurance premiums against current operations. 

However in ·this case, rather than paying premiums to an outsider, an amount is 

collected from each Canal user to pay for ship accident claims which occtir (part of 

the tolls rate). Specifically, each month the Commission records, as an · expense, onetwelfth the annual estimate· needed to pay for marine acciq.ents .. Currently, the 

Commission is estimating an annual need of $12 million, so the monthly expense is 
111 

$1 million. When an accident does occur, the Commission estimates the cost it will 

be responsible for paying and sets up an account payable for that amount. The 

amount of the reserve is reduced by the amount of the payable. 

In our opinion, the practice of setting up such a reserve accomplishes a matching 

of cost and revenues by charging users each year with their share of the cost of accidents that will occur. Additionally, the reserve process described above normalizes 

or levels out cost fluctuations. 

The Commission is required by its implementing legislation to recover all costs of 

operating and maintaining the· Canal. Tolls are to be increased or decreased as these 

costs fluctuate. If reserves were not employed, the tolls rate would need to rise each 

time there was a major accident and lowered as soon as the co~t of the accident 

were recovered. The tolls adjustment mechanism would not be that responsive-an 

increase in the tolls rate takes 6 months. Additionally, although unrecover·ed costs 

can be made up from future tolls revenues, excess recovery becomes a profit and, 

under the Treaty and Act, the first $10 million in profits is payable to the Republic 

of Panama. 

RESERVE COVERAGE 

The reserve described above provides for all marine accidents within the Canal. 

That is, it includes the estimated cost of claims for damages arising from marine 

accidents which may occur: within the Canal locks, outside the Canal locks with an 

estimated liability of $120,000 or less, and outside the Canal locks with an estimated 

liability of more than $120,000. 

The Commission has the authority to adjust and pay the first two categories of 

claims. Sections 1411 and 1412 of the Panama Canal Act direct the Commission to 

promptly adjust and pay all claims arising. from accidents within the locks and all . 

those outside the locks where the claim or estimated liability is $120,000 or less. 

These are to be paid for appropriations for operating and maintaining the Canal. 

The Commission, however, has no authority to adjust or pay claims in the third 

category-that is, claims· arising from accidents which occur outside the· locks and 

where the claim or estimated liability exceeds $120,000. Rather, section 1415 of the 

Act requires the Commission to submit this category of claims to the Congress with 

a special report on the accident containing the ~aterial facts and the Commission's 

recommendation. The Act is sile.nt as to what the Congress will do upon receipt of 

these reports. 

Some . question whether the Commission should consider this last category of 

claims in its reserve for marine accidents when it has no authority to pay such 

claims. We believe reserves should continue for this category of claims; collected as 

a part of tolls and deposited in the Panama Canal Commission Fund. However, authorization and appropriation from the Fund to pay such claims now must await the 

action of the Congress on the reports rendered by the Congress. 

The Act is clear that the Panama · Canal is to be self-supporting and none of the 

cost of operation and maintenance should be borne by the U.S. taxpayer. The Commission's decision to include all cl:;1ims in its reserve is in recognition of this requirement · to be self-supporting. It also assumes that the Congress will not deny a 

valid claim arising from an ~ccident caused by the negligence or fault of an officer 

or employee of the United States acting within the scope of his employment and in 

the line of duty. We agree with the self-support concept. 

CONCLUSION 

In short, we believe the Commission's marine accident reserve reflects prudent financial management under the rule$ for operating and maintaining the Canal. It 

allows for a reasonable accommodation in that it ·allows for matching revenues with 

expenses, assuring self-support through cost recovery, and providing for a reasonably stable toll rate. 

We recently approved the Commission's statement of accounting principles and 

standards which include the marine accident reserve. Additionally, we hav~ completed our examination of the Commission's financial statements for fiscal years 

1980 and 1981. We discussed the Commission's marine accident reserve in our 1980 

report, but we did not challenge either its _concept or coverage. 
112 

PREPARED STATEMENT OF WALLER B. SMITH, RISK MANAGER TO THE PANAMA CANAL 

COMMISSION 

The core issue to be determined by this study is whether the current arrangements of the Panama Canal Commission for handling risks arising out of the operation of the Panama Canal, are adequate and cost effective. 

In reaching an answer to this question, it appears rational to pursue four subsidiary inquiries: · 

1. Is the present method of self-insuring and self-administering recurring and reasonably predictable claims the most efficient and cost effective method of financing 

and handling this level of risk? 

2. Are there risks, of a size or nature, that are not provided for, adequately, or at 

all, by the present program? Is so, are they of such a nature that provisions should 

be made? What, if any, program should be implemented for such risks? 

3. What effect does Public Law 96-70 have on the categories of risk set forth in 1 

and 2 above? . 4. What steps to abate, or finance risks are available, and what advantages do 

they off er? · It is unlikely that many absolute answers can be supplied, since we are dealing 

with changed circumstances in a rapidly changing world. 

The fact that the Canal has been operated for 70 years without a major catastrophe does not guarantee that a loss of major proportions will not occur tomorrow, or 

next week. To rely on such an assumption would be like assuming that because a 

building has stood for a like number of years, it is immune to fire, windstorm or 

earthquake. 

Once one accepts the possibility that a loss of major proportions can occur, for 

which the Commission would be responsible, it becomes rational to explore what -steps can be taken; what alternatives are available, and what are the relative advantages and disadvantages of those alternatives? 

At this juncture, it is neither possible nor important to make a quantitative judgment as to the immediacy or enormity of major losses. It is sufficient to accept the 

fact that the possibility does exist. With such acceptance in mind, let us probe_ the 

four questions raised. 

1. Is the present method of self-insuring and self-administering recurring and reasonably predictable claims the most efficient and cost effective method of financing 

and handling this level of risk? 

The Commission and its predecessors have traditionally accepted responsibility for 

damage to vessels while in the care, custody and control of the Commission. The 

present method is to provide $1 million a month as a reserve for claims for such 

damage. Settlement is pursuant to Chapter 4 of Public Law .96-70. 

It would appear that the present methodology for financing the payment of such 

claims must, in the long range, be the most cost effective method of disposing of the 

risk of recurring claims. Self insurance as employed by the Commission eliminates 

any of the overhead and profit add-ons present in insurance. It further provides ultimate cash flow advantages, since no funds leave the government's hands until the 

claim is paid. , The foregoing paragraph does not deal with the advisability of self-administration 

of claims handling. First impressions argue that the nature of the claims, and the 

interplay with the Congress is of such a unique nature as to preclude successful delegation. 

However, the volume of funds expended strongly suggests a claim analysis of a 

sufficiently large sample to determine if revisions in methods of claims handling 

(e.g. the use of a professional claims service) would materially reduce costs, and 

permit more accurate projections of future costs, and areas where less control might 

be successfully applied. 

2. Are there risks, of a size or nature, that are not provided for adequately, or at 

all, by the present program? If so, are they of such a nature that provisions should 

be made? What, if any, program should be implemented for such risks? 

There is no question but that there is a clear and distinct possibility that an accident of catastrophic proportions could occur under circumstances which would make 

the Commission liable. The loss of a multi-million dollar hull, coupled with the loss 

of very expensive cargo, and/ or the loss of multiple lives could produce claims in 

the megamillion dollar category. Financing for such an eventuality is impractical 

and imprudent, except.through a device which such risk would be shared with many 

others with similar risks. 

In the private sector, the Commission would determine the cost of a number of 

insurance plans; th.en compare the cost against the risk _of remaining uninsured. 
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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 optimum 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 outside the locks, there appears to be assumption of unlimited liability, but the Commission'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 t~>" insur~ the necessary 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 problems 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 ciaims 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 preclude 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 incorporated 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 conditions 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. Sho~ld Congress be asked to .amend Public Law 96-70 to limit the liability of 

the Commission to readily fundable levels? There are obviously political considerations in such a step which we are in no position to evaluate. Form a purely pragmatic 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 passage 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 shippers, since this risk is such a small part of the annual exposure. 
114 

I further believe that the cost of excess insurance would be acceptable, and that 

the cost thereof could well be absorbed by an insurer-guided loss control program. 

e. Obtain legal opinions as to the risk impacts of Chapter 4 as now written, and 

suggested changes to meet risk management objectives. 

f. Establish long range internal financing plans for all categories· of risk. 

As of this writing, an umbrella policy, excess of negotiated deductibles, is availa:.. 

ble to blanket all risks- of the Canal Commission. Supplemental services could be 

arranged. The cost could be very materially affected by revisions in Chapter 4 of 

Public Law 96-70. · · 

PREPARED STATEMENT OF THE AMERICAN HULL INSURANCE SYNDICATE 

The American Hull Insurance. Syndicate was .created in 1920, when Congress, recognizing the need for a strong national merchant marine and a stable independent 

insurance market to support it, included in the Merchant Marine Act of 1920 provisions encouraging collecitve action between marine insurance companies. This enabled marine insurers in the United States to create a single agency for the underwriting of hull business; to include negotiation of terms and rates, issuance of policies, collection of premiums and settlement of claims on behalf of its member companies. These member companies, called subscribers, today number 58 and consist of 

major domestic insurance companies and of foreign insurance companies admitted 

to do business in the United States. Today, in addition to the Syndicate, there is a 

substantial independent market in this country insuring all types of vessels. 

The Syndicate insures many shipowners, both domestic and foreign, whose ships 

use the ·Panama Canal. Among the former are American Trading and Production 

Corporation, Central Gulf Lines, Inc., Keystone Shipping Co., Lykes Bros. Steamship 

Co., Inc., Ogden Marine, Inc., Sea-land Service, Inc., United States Lines, Inc., and 

Waterman Steamship Corporation. · 

We are submitting this statement for consideration by the subcommittee because 

of our desire to support those of our assureds who use the Panama Canal in their 

wish to amend the present procedure for settling damage claims arising out of casualties that occur outside of the locks. 

The type of casualties that usually occur outside of the locks., such as groundings, 

standings and collisions, do, to the extent that they exceed applicable policy deductibles, result in claims on hull underwriters. These claims are almost always for the 

cost of repairing the insured vessel's damage and, sometimes, in addition, for the 

cost of refloating a stranded vessel, or, in the case of a collision, and to the extent 

the insured vessel is at fault, for the assured's liability for the damage to the other 

vessel and the cargo thereon. -

Whereas these claim payments by underwriters reimburse the shipowners for 

their repair and related costs, they do not make them financially whole. For one 

thing, the shipowners must bear their uninsured losses themselves (such as loss of 

use of the vessels during the periods of repair and the amounts of the hull policy 

deductibles). For another, the claim amounts recovered from hufl underwriters may · have a bearing on future hull insurance premiums. · 

The latter statement refers to the fact that hull insurance is experience rated, i:e., 

the individual shipowner's annual premium cost is affected by his own past loss experience, so that the greater this experience is the more premium he must pay and 

vice-versa. It follows, . therefore, that if the shipowner can recover from negligent 

.third parties the cost of repairing vessel damage caused by them and credit such 

recoveries to the hull underwriters under the doctrine of subrogation, the shipowner's loss record will be improved to that extent. 

The point of all of this is .that the shipowner is bound to suffer financial loss, even 

if insured. Therefore, there should be some fair and effective way for the shipowner 

to recover all claims for vessel damage caused by the fault of Panama Canal personnel. 

The current claims procedure requires Congress to make the final decision on 

claims arising out of casualties occurring outside of the locks in excess of $120,000. 

It appears to us that Congress has enough to do without this task and that funds for 

payment of such claims should come out of Panama Canal tolls, i.e., the payment of 

all claims should be considered a cost of doing business by the Panama Canal Commission. · 

It is our understanding as laymen that as an inducement to the exercise of due 

care the public policy of the United States calls for parties at fault to bar the cost. 

This prompts two comments: . 
115 

1. If the Panama Canal personnel are at fault for vessel damage, the Panama 

Canal Commission should pay for it, wherever the casualty occurs. · 2. In determining -fault our Federal court system is the usual forum in admiralty 

cases, but this forum is denied shipowners insofar as casualties occurring outside of 

the locks are concerned. 

Accordingly, we recommend that the claims procedure for injuries occurring outside of the locks set forth in Sec. 1412 of the Panama Canal Act of 1979 be modified 

to: 

1. Permit the Panama Canal Commission to adjust and pay damages without limitation of amount, and 

2. Permit a claimant who considers himself aggrieved by the Commission's determination to bring an action in an appropriate United States District Court. 

[Whereupon, at 3:20 p.m., the subcommittee adjourned subject to 

the call of the Chair.] 

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