[Federal Register Volume 87, Number 52 (Thursday, March 17, 2022)]
[Rules and Regulations]
[Pages 15125-15137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-05568]


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FEDERAL MARITIME COMMISSION

46 CFR Part 540

[Docket No. 20-15]
RIN 3072-AC82


Passenger Vessel Financial Responsibility

AGENCY: Federal Maritime Commission

ACTION: Final rule.

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SUMMARY: The Federal Maritime Commission (Commission) is issuing this 
final rule to adopt regulatory changes to its passenger vessel operator 
financial responsibility requirements. The Commission is defining when 
nonperformance of transportation has occurred and establishing uniform

[[Page 15126]]

procedures regarding how and when passengers may make claims for 
refunds under a passenger vessel operator's financial responsibility 
instrument when nonperformance occurs. This rulemaking resulted from 
recommendations in an Interim Report issued by the Fact Finding Officer 
in Commission Fact Finding Investigation No. 30: COVID-19 Impact on 
Cruise Industry. In the August 25, 2021, Notice of proposed rulemaking, 
the Commission proposed to modify regulations to revise the definition 
of Unearned Passenger Revenue, adopt a definition of nonperformance of 
transportation, and detail the process for obtaining refunds under the 
PVOs' financial responsibility instruments filed with the Commission. 
Based on the comments received on the proposed rule, this final rule 
also clarifies that passengers must wait until the PVO refund period 
has ended as outlined in the PVO's claims procedure before making a 
claim against the financial instrument, or the claim has been denied by 
the PVO. Also, this final rule confirms that claims may be resolved 
between the passenger and the PVO as an alternative form of 
compensation. Finally, it creates a small business accommodation by 
delaying implementation of the new unearned passenger revenue 
definition by two years for small entities.

DATES: 
    Effective date: This rule is effective April 18, 2022.
    Compliance date: For businesses that meet the criteria in the 
revised 46 CFR 540.2(i), the compliance date is March 17, 2024.

ADDRESSES: Docket: To view background documents or comments received, 
go to the Commission's Electronic Reading Room at: https://www2.fmc.gov/readingroom/proceeding/20-15/.

FOR FURTHER INFORMATION CONTACT: William Cody, Secretary, Phone: 202-
523-5725, Email: <a href="/cdn-cgi/l/email-protection#9be8fef8e9feeffae9e2dbfdf6f8b5fcf4ed"><span class="__cf_email__" data-cfemail="9deef8feeff8e9fcefe4ddfbf0feb3faf2eb">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Regulatory History: ANPRM and NPRM Summary
III. Discussion of Changes and Public Comments
    A. Substantive Changes to the Proposed Rule
     1. Process for Obtaining Refunds from PVO Financial Instruments 
for Nonperformance of Transportation
     2. Definition of Nonperformance
     3. Definition of Unearned Passenger Revenue
     4. Publishing Information on How To Obtain Refunds
     5. Mutually-Agreed Settlements
     6. Small Business Accommodation
    B. Other Comments
     1. Passenger Declaration With Refund Application
     2. Legal Authority
     3. Sureties' Discretion To Require Final Court Judgement
     4. Passengers' Own Cancellation
IV. Regulatory Analyses

I. Introduction

    The Federal Maritime Commission has broad authority pursuant to 46 
U.S.C. Ch. 44101 et seq. to establish rules pertaining to PVOs' 
financial responsibility instruments filed with the Commission. Fact 
Finding 30 was initiated on April 30, 2020, to investigate the impact 
of COVID-19 and identify commercial solutions to COVID-19 related 
issues that interfered with the operation of the cruise industry. Fact 
Finding 30: Covid-19 Impact on Cruise Industry, Interim Report: Refund 
Policy (July 27, 2020). This rulemaking was based on recommendations in 
an Interim Report issued by the Fact Finding Officer. The Commission 
has carefully considered all the comments it has received in an Advance 
Notice of Proposed Rulemaking (ANPRM), 85 FR 65020 (October 29, 2020) 
and a Notice of Proposed Rulemaking (NPRM), 86 FR 47441 (August 25, 
2021), prior to issuing this Final Rule (FR). The NPRM contains a 
detailed background of this rule. See 86 FR at 47442.

II. Regulatory History: ANPRM and NPRM Summary

    On October 29, 2020, the Commission issued an Advance Notice of 
Proposed Rulemaking (ANPRM) to obtain comments on potential regulatory 
changes recommended in the Fact Finding 30 Interim Report on PVO refund 
policies. The proposed changes were intended to provide a clear and 
consistent policy toward passenger vessel ticket refunds in the case of 
nonperformance by the vessel operator. Specifically, the Commission 
recommended modifying regulations in 46 CFR part 540 to: (1) Adopt a 
definition of nonperformance of transportation, and (2) detail the 
process for obtaining refunds under the PVOs' financial responsibility 
instruments filed with the Commission. Subsequent to the ANPRM, the 
Commission received 4 sets of comments; these were from Cruise Lines 
International Association (CLIA); Passenger Vessel Association (PVA); 
The Surety & Fidelity Association of America (SFAA); and Kacie Didier. 
The Commission took these comments into consideration in developing 
recommendations which were included in the Notice of Proposed 
Rulemaking (NPRM).
    The Commission considered the comments it received in response to 
the ANPRM and adjusted the proposed regulations published on August 25, 
2021. In response to the NPRM, the Commission received 82 comments from 
interested parties. Of the comments received, six recommended changes 
to the proposed regulatory text and are discussed below. The 76 
remaining comments detailed individual disputes between passengers and 
passenger vessel owners or operators but do not directly request 
changes to the proposed regulatory text. The Commission appreciates the 
examples provided and encourages passengers that have commented to 
utilize the tools the Commission provides in this final rule. The six 
comments recommending changes to the proposed rule text were filed by 
Alaskan Dream Cruises (ADC), CLIA, PVA, Roanoke, SFAA, and Fredric 
Lazarus. These comments are addressed in the discussion below.

III. Discussion of Changes and Public Comments

    The Commission's current regulations provide that ``[n]o person in 
the United States may arrange, offer, advertise or provide passage on a 
vessel unless a Certificate (Performance) has been issued to or covers 
such person.'' 46 CFR 540.3. Such persons must apply for a Certificate 
pursuant to Section 540.4, and, per Section 540.5, provide financial 
responsibility ``in an amount determined by the Commission to be no 
less than 110 percent of the unearned passenger revenue of the [PVO] 
applicant'' for the two immediately preceding fiscal years that reflect 
the greatest amount of unearned passenger revenue. The amount of 
required financial responsibility, however, is currently capped at $32 
million. 46 CFR 540.9(j). This Final Rule will revise the current 
regulations to include the following: (1) Implementation of the process 
for obtaining refunds from PVO financial responsibility instruments for 
nonperformance of transportation, (2) addition of the definition of 
nonperformance and reporting requirement for instances of 
nonperformance of transportation, (3) revision of the definition of 
unearned passenger revenue, (4) publishing information on how to obtain 
refunds, (5) acknowledgement of mutually-agreed settlements, and (6) 
accommodation for PVOs that fall into the small business category.
    The sample surety bond, guaranty, and escrow agreement that are set 
forth

[[Page 15127]]

in the Commission's regulations are also amended. They are included in 
the Appendix to this final rule.

A. Substantive Changes to the Proposed Rule

1. Process for Obtaining Refunds From PVO Financial Instruments for 
Nonperformance of Transportation
    The Commission's regulations do not currently prescribe how long 
passengers have after nonperformance to seek a refund from a PVO's 
financial responsibility instrument. The Fact Finding 30 Interim Report 
recommended that the Commission specify that a PVO may set a reasonable 
deadline for passenger refund requests, but the deadline may not be 
less than six months after the scheduled voyage. Fact Finding 30 
Interim Report at 12. The Commission proposed: (1) The passenger makes 
a request for a refund from the Principal in accordance with the ticket 
contract. If the ticket contract refund procedure provides less than 
180 days to submit a claim, the financial responsibility instrument 
will be available after written notification to the Principal and (2) 
If the passenger is unable to resolve the claim within 180 days after 
nonperformance, as defined in 46 CFR 540.2, the passenger may submit a 
claim against the financial responsibility instrument per the 
instructions on the Commission website. The claim may include a copy of 
the boarding pass, proof and amount of payment, cancellation notice, 
and dated proof of the properly filed claim against the Principal. All 
documentation submitted must clearly display the vessel and voyage with 
the scheduled and actual date of sailing. At the discretion of the 
financial instrument provider, a judgment may be required prior to 
resolving the claim; and (3) valid claims must be paid within 90 days 
of submission of the claim to the financial instrument provider.
    In its submitted comments, CLIA requested that the Commission 
change the proposed text of 46 CFR 540.9(f)(1) and (2) to read: (1) The 
passenger must make a written request for a refund from the PVO in 
accordance with the respective PVO's claims procedures; (2) In the 
event the passenger is unable to resolve the claim within 180 days, or 
such shorter refund notice period for which the PVOs claims procedure 
provides, after nonperformance of transportation occurs or if the claim 
is denied by the PVO, the passenger may submit a claim against the 
financial instrument as per instructions on the Commission website. The 
Commission has considered the proposed changes submitted by CLIA and 
has adopted the proposed changes with some modification. These changes 
will clarify that passengers must wait until (1) the PVO refund period 
has ended as outlined in the PVOs claims procedure before making a 
claim against the financial instrument, or (2) the claim has been 
denied by the PVO. With this minor change, the Commission adopts CLIA's 
recommendation.
    CLIA also proposed to revise numbered paragraphs (1) and (2) of the 
Commission's proposed forms FMC-132(A), FMC-133(A) and ``Appendix A of 
Escrow Agreement,'' changing the language to similarly match what they 
proposed for 46 CFR 540.9(f)(1) and (2). The Commission concurs and 
makes the corresponding changes to the forms.
2. Definition of Nonperformance
    Congress requires that PVOs file with the Commission evidence of 
financial responsibility to indemnify passengers for nonperformance of 
transportation. 46 U.S.C. 44102. The Commission's regulations in 46 CFR 
540 do not expressly define what constitutes nonperformance of 
transportation, but the substantive provisions and required financial 
responsibility instrument terms indicate that it means a PVO's failure 
to provide transportation or other accommodations and services subject 
to part 540, subpart A,\1\ in accordance with the terms of the ticket 
contract between the PVO and passenger. See 46 CFR 540.1(a).
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    \1\ The scope of the transportation, accommodations, and 
services covered is described in the definition of ``unearned 
passenger revenue'' in Sec.  540.2 and includes water transportation 
and all other accommodations, services, and facilities relating 
thereto, but excludes air transportation, hotel accommodations, or 
tour excursions. 46 CFR 540.2(i).
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    As discussed in the ANPRM and NPRM, the Commission sought comment 
on adopting a definition of nonperformance of transportation. In the 
ANPRM, the Commission include the following draft definition:
    Nonperformance of transportation means (1) Canceling a voyage; or 
(2) delaying the boarding of passengers by more than twenty-four (24) 
hours if the passenger elects not to embark on the substitute or 
delayed voyage.
    After considering the comments received in the ANPRM to this 
definition, which are discussed in the NPRM, the Commission revised the 
proposed definition of nonperformance of transportation as follows:
    Nonperformance of transportation means cancelling or delaying a 
voyage by three (3) or more calendar days, if the passenger elects not 
to embark on the delayed voyage or a substitute voyage offered by the 
passenger vessel operator.
    The Commission also proposed revising the language of the forms for 
financial responsibility instruments (surety bonds, guaranties, and 
escrow agreements) to reflect coverage in situations that meet the 
added definition.\2\
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    \2\ These forms include Form FMC-132A, Passenger Vessel Surety 
Bond (Performance); Form FMC-133A, Guaranty in Respect of Liability 
for Nonperformance, Section 3 of the Act; and Appendix A, Example of 
Escrow Agreement for Use Under 46 CFR 540.5(b)). There is no 
required or optional form for insurance, which must meet the 
requirement in Sec.  540.5(a).
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    PVA concurs with the Commission's change to the definition in the 
proposed rule from delaying the boarding of passengers by more than 24 
hours to delaying the voyage by three or more calendar days because it 
does not believe that a 24-hour delay in sailing should constitute 
nonperformance of transportation. It states that the proposed rule 
embraces a more reasonable standard: a delay in sailing by three (3) or 
more calendar days, if the passenger elects not to embark on the 
delayed voyage or a substitute voyage.
    The PVA also agrees with the change in the proposed rule excluding 
from the definition of ``nonperformance of transportation'' a scenario 
in which a passenger voluntarily cancels a booking at any time in 
advance of the scheduled sailing. It states that if the PVO's vessel in 
fact sails, there is no ``nonperformance of transportation.'' PVA 
believes that the proposed definition of ``nonperformance'' 
satisfactorily addresses this potential problem.
    The Alaska Catamaran, LLC dba Alaskan Dream Cruises (ADC) also 
concurs with revised definition of nonperformance of transportation in 
the proposed rule because it does not believe that a 24-hour delay in 
sailing should constitute nonperformance of transportation. The ADC 
concurs with the updated definition in the proposed rule of ``a delay 
in sailing by three (3) or more calendar days, if the passenger elects 
not to embark on the delayed voyage or a substitute voyage.'' ADC 
encourages the Commission to resist suggestion to compress this 
standard.
    The Commission took into consideration the comments of the various 
interested parties, and adopts a new definition of nonperformance of 
transportation in 46 CFR 540.2.
    The adoption of the definition of nonperformance of transportation 
led the Commission to require PVOs to report nonperformance of 
transportation events to the Commission semi-

[[Page 15128]]

annually. This reporting is necessary in order for the Commission to be 
responsive to the public and to provide adequate monitoring and 
statistical information on occurrences of nonperformance. 
Nonperformance of transportation events occurring between January 1 and 
June 30 would be reported no later than July 20 of the same calendar 
year, and events occurring between July 1 and December 31 would be 
reported no later than January 31 of the following calendar year.
    Also, this final rule requires all certified PVOs to report to the 
Commission, as part of their semi-annual statement, instances of 
nonperformance of transportation. The Commission will use the 
information to analyze any PVO's nonperformance and monitor the rule's 
impact on PVOs and consumers.
3. Definition of Unearned Passenger Revenue
    Commission regulations currently state that the PVO financial 
responsibility instruments must provide coverage for ``unearned 
passenger revenue,'' (UPR) which is defined in 46 CFR 540.2(i) as 
passenger revenue received for water transportation and all other 
accommodations, services, and facilities relating thereto not yet 
performed and includes port fees and taxes paid, but excludes such 
items as airfare, hotel accommodations, and tour excursions. In the 
NPRM, the Commission proposed redefining unearned passenger revenue as 
passenger revenue received for water transportation and all other 
accommodations, services, and facilities that have not been performed 
by the PVO. Passenger revenue includes port fees, taxes, and all 
ancillary fees remitted to the PVO by the passenger. The Commission 
received comments from CLIA, PVA, The Roanoke Insurance Group Inc. 
(Roanoke) and ADC stating their concerns with revising the definition 
of unearned passenger revenue.
    CLIA proposes that the Commission's proposed definitions of 
unearned passenger revenue, at 46 CFR 540.2(i), be revised by adding 
the words, ``. . . excluding any non-refundable amounts advanced by the 
PVO on behalf of the passenger to unaffiliated providers of goods and 
services, such as payments for non-refundable airline tickets provided 
to the passenger.'' CLIA believes the definition should exclude from 
ancillary fees any non-refundable payments by the PVO, which CLIA says 
is acting in good faith as the agent for passengers. With respect to 
non-refundable airfares, CLIA maintains under most airlines' policies 
the passenger may be able to apply a non-refundable airfare for a 
different travel date for the passenger's benefit for up to a year 
after the original scheduled flight date. CLIA further claims that 
while the PVO cannot legally recoup the airfare payment for the 
passenger, the passenger may use the ticket.
    The PVA continues to urge the Commission not to amend the 
definition of UPR. PVA believes that broadening the definition will 
cause the UPR of a PVO to go up and thereby increase how much financial 
responsibility must be demonstrated but that it will have no 
consequence for a PVO that can currently take advantage of the 
regulatory ``cap'' for financial responsibility (now at $32 million). 
PVA asserts that for smaller PVOs for which the ``cap'' does not come 
into play, it will increase their costs for obtaining instruments 
attesting to their financial responsibility. More specifically, PVA 
states, this change will increase the costs of the five PVOs that 
operate ``small ship'' U.S.-flagged overnight cruise vessels.
    The PVA further states that travel providers that offer land-based 
package trips with advance collection of fees for airfare, hotel 
accommodations, and third-party tours will not be subject to this 
requirement and the land-based travel companies often compete directly 
with ``small ship'' U.S-flagged PVOs in Alaska and elsewhere. PVA 
claims that in the rare instances of ``nonperformance of 
transportation,'' the passengers are not without remedies--the PVO is 
likely to provide voluntary refunds (or if the customer agrees, credits 
for future travel) or the customer can obtain reimbursement from a 
credit card company.
    Roanoke believes that the expanded definition of UPR may likely 
cause surety companies to be more reluctant to provide larger bonds to 
PVOs or make them available on pricing and/or collateral terms more 
expensive than they would be for a smaller bond amount. The revision 
will cause the calculation of UPR to be a higher amount than it would 
be under the current rule. This higher amount means that bond, if not 
already at the cap, would be for a larger amount. The financial 
structure of the PVO, however, would remain unchanged or could be more 
leveraged.
    Roanoke further states that the financial structure and business 
nature of the cruise industry requires large dollar fixed assets, large 
dollar capitalization (often debt many times greater than equity), and 
meaningful current liabilities (unearned passenger revenue) since 
cruises are often booked over a year in advance. This high leverage 
business model makes bonding expensive or difficult to obtain unless 
adequate collateral security is posted with the surety. In Roanoke's 
experience, increasing to larger bond amounts would typically mean the 
surety would require a higher amount of collateral and charge a higher 
premium than is required by smaller bond amounts under the current 
rule.
    ADC is a member of PVA, and a portion of their submitted comments 
echoed exactly the comments submitted by PVA and discussed above. ADC 
believes that broadening the definition will cause the UPR to go up and 
thereby increase how much financial responsibility must be 
demonstrated. ADC believes this will have no consequence for a PVO that 
can take advantage of the regulatory ``cap'' for financial 
responsibility (now at $32 million). The ADC asserts that for smaller 
PVOs, the cap does not come into play, and it will increase their costs 
for obtaining instruments attesting to financial responsibility, at a 
time when they are receiving great pressure from their bonding company 
to reduce their bond exposure through all steps necessary.
    The ADC further claims that travel providers that offer land-based 
package trips with advance collection of fees for airfare, hotel 
accommodations, and third-party tours will not be subject to this 
requirement; these land-based travel companies often compete directly 
with ``small ship'' U.S.-flagged PVOs. According to ADC, in the rare 
instances of ``nonperformance of transportation,'' the passengers are 
not without remedies as demonstrated by ADC work during 2020 when they 
either refunded passengers or the passengers volunteered to move their 
travel to a future year.
    In addition, ADC stated that it is under contract with their credit 
card processor to hold funds received to use in the event the company 
is unable to refund passengers. During the COVID-19 pandemic, their 
credit card company increased ADC's cash on deposit from $300,000 to $2 
million. ADC believes that the UPR definition in the proposed rule 
would significantly damage the company's ability to meet its financial 
obligations.
    The Commission adopts the definition of unearned passenger revenue 
as passenger revenue received for water transportation and all other 
accommodations, services and facilities that have not been performed by 
the PVO. Passenger revenue will include

[[Page 15129]]

port fees, taxes and all ancillary fees submitted to the PVO by the 
passenger. The Commission, therefore, continues to believe that to 
provide better protection to passengers, and because PVOs have the 
existing relationship with the providers of ancillary services, the 
PVOs should be responsible for refunding all monies collected by the 
PVOs for all services not yet performed.
4. Publishing Information on How To Obtain Refunds
    The Commission received one comment in reference to publishing 
information on how to obtain refunds. The PVA commented that it agrees 
with the Commission's suggestion of developing a template to place on 
its website with instructions for how a passenger might file a claim 
asserting ``nonperformance of transportation.''
    In this final rule, the Commission is revising part 540.9 to 
include a new paragraph (f) describing the process a passenger can use 
to obtain a refund in the event of nonperformance. Also, a new 
paragraph (i) will require PVOs to provide clear instructions on their 
websites for how passengers may obtain refunds in the event of 
nonperformance. The Commission believes that asking PVOs to provide 
this type of information on their websites will provide passengers with 
clear and concise instructions to follow when requesting refunds for 
nonperformance of transportation.
    The Commission will also include the PVOs' active web page address 
to the Commission's own website. Additionally, Form FMC-131 
``Application for Certificate of Financial Responsibility'' will be 
updated to provide a required field for PVOs to provide the web page 
address of their refund instructions for nonperformance of 
transportation.
5. Mutually-Agreed Settlements
    Mutually-agreed settlements were not specifically discussed in the 
NPRM. However, CLIA requested as part of their comments that the 
Commission add a new paragraph reading, ``Nothing in this rule shall be 
interpreted to preclude the passenger and the PVO from entering into an 
alternative form of compensation in full satisfaction of a required 
refund, such as a future cruise credit.'' The Commission agrees with 
CLIA that the added paragraph makes it clear that claims may be 
resolved between the passenger and the PVO as an alternative form of 
compensation. The Commission's proposed definition of nonperformance 
does not preclude alternative forms of compensation, such as a future 
cruise credit. Thus, the Commission adopts CLIA's suggestion.
6. Small Business Accommodations
    The Regulatory Flexibility Act analysis below suggests that the 
rule may have a substantial economic impact on small PVOs. The 
Commission has elected to delay the implementation of this rule with 
respect to small entities. This accommodation for small businesses will 
be discussed in depth in Section V, Regulatory Analyses.

B. Other Comments

1. Passenger Declaration With Refund Application
    CLIA recommends that passengers applying for refunds sign and 
submit with the application a declaration that they have not received 
compensation from an alternative party. CLIA believes that the 
following statement should be included, ``Under penalty of perjury, 
that the passenger, to the best of his/her/their knowledge, is due the 
refund sought and has not recovered and will not recover any portion of 
the refund sought from the cruise line or any other source, such as 
cancellation insurance or a credit card refund, and the passenger has 
not accepted an alternative form of compensation from the PVO, such as 
a future cruise credit, in full satisfaction of the refund.'' The 
Commission understands CLIA's concerns for possible duplicative refund 
claims by passengers. The Commission, however, does not regulate 
financial instrument providers. Financial instrument providers may 
follow their own claim procedure, and it is up to them whether to 
require the suggested declaration from passengers submitting claims.
2. Legal Authority
    PVA restated that it does not believe the Commission has legal 
authority to issue a rule on nonperformance of transportation and 
refund policy. PVA claims that 46 U.S.C. 44102 does not grant legal 
authority to the Commission to address the matter of what constitutes 
nonperformance. PVA further asserts the Commission lacks the legal 
authority to issue a rule mandating when and how passenger refunds are 
payable in the event of nonperformance of transportation.
    The statute requires PVOs to file with the Commission evidence of 
financial responsibility to indemnify passengers for nonperformance of 
transportation. 46 U.S.C. 44102. The statute states that satisfactory 
evidence includes the information the Commission considers necessary 
and must be filed in the forms required by the Commission's regulation. 
46 U.S.C. 44102 (a)-(b). Further, the Commission has broad authority to 
``prescribe regulations to carry out its duties and powers.'' 46 U.S.C. 
46105(a).
    To satisfy the statutory mandate of protecting passengers from 
nonperformance of transportation, the Commission believes that it must 
clarify what constitutes nonperformance and what is UPR. Without clear 
definitions of those terms, the cruise industry and passengers may 
continue to experience confusion as to when and how to indemnify 
passengers for nonperformance under the submitted financial 
responsibility instruments. This final rule does not regulate PVOs' own 
practice or policy of indemnifying passengers for nonperformance. 
Rather, the Commission clarifies when and how nonperformance may be 
covered under the financial responsibility instruments that must be 
submitted to the Commission by PVOs. The Commission has the statutory 
authority to implement these changes.
3. Sureties' Discretion To Require a Final Court Judgment
    SFAA recommends that the Commission add to the rule the surety's 
authority to require a ``final court judgment'' prior to paying a 
claim. SFAA recommends that the provision providing that authority be 
included in the new proposed bond form. It recommends that Commission 
add that authority to the Commission's regulations to make clear that 
only judgments finally adjudicated by a court are acceptable.
    The Commission does not adopt SFAA's recommendation. The Commission 
believes that it is better to allow the sureties establish their own 
claim procedures satisfying their obligation under the surety bonds 
submitted to the Commission.
4. Passengers' Own Cancellation
    The Commission received a comment from Mr. Fredric Lazarus who 
stated that refunds should take place when (a) the passenger cancels a 
booking after the declaration by the Secretary of Health and Human 
Services of a nationwide Public Health Emergency and (b) the scheduled 
sailing is ultimately delayed or cancelled by the passenger vessel 
operator (PVO).
    Presently, PVOs are required to file with the Commission evidence 
of financial responsibility to indemnify passengers for nonperformance 
of transportation. 46 U.S.C. 44102. The adopted definition of 
nonperformance also provides that it means cancellation

[[Page 15130]]

or significant delay of voyages by PVOs. Passengers' own cancellation 
does not constitute a nonperformance by PVOs that should be covered by 
the PVOs financial responsibility instruments for nonperformance.

IV. Rulemaking Analyses

Regulatory Flexibility Act

Final Regulatory Flexibility Analysis
    Under the Regulatory Flexibility Act (RFA), whenever an agency 
promulgates a final rule after being required to publish a proposed 
rulemaking under the Administrative Procedure Act (5 U.S.C. 553), the 
agency must prepare and make available a Final Regulatory Flexibility 
Analysis (FRFA) describing the impact of the rule on small entities, 
unless the head of the agency certifies that the rulemaking will not 
have a significant economic impact on a substantial number of small 
entities. 5 U.S.C. 604-605. Below is the FRFA for this final rule.

Need for and Objectives of the Passenger Vessel Financial 
Responsibility Regulation

    This rulemaking stems from the Commission's Fact Finding 
Investigation No. 30: COVID-19 Impact on Cruise Industry on PVO refund 
policies. Fact Finding 30's Interim Report concluded that clearer 
guidance is needed to determine whether a passenger is entitled to 
obtain a refund if a PVO cancels a voyage, makes a significant schedule 
change, or significantly delays a voyage. As part of the report, the 
Fact-Finding Officer recommended making regulatory changes with respect 
to the definition of nonperformance and to make clear how passengers 
may obtain refunds under the PVOs' financial responsibility instruments 
filed with the Commission.
    This final rule establishes when passengers are entitled to a 
refund for nonperformance of transportation. First, the rule 
establishes a timeline for when a refund request can occur and requires 
PVOs to provide clear and precise instructions on how passengers may 
request refunds in the event of nonperformance. Second, it clarifies 
that nothing in the rulemaking precludes the passenger and PVO from 
entering into a mutually agreed settlement such as a future cruise 
credit. Third, it creates a small business accommodation by delaying 
implementation of the new UPR definition by two years for small 
entities. Fourth, it adds a definition of nonperformance which entitles 
passengers to a refund of their prepaid fares when voyages are canceled 
or delayed for three or more calendar days and the passenger does not 
opt to accept an alternative voyage. Finally, it changes the definition 
of UPR to include ancillary fees such as airfare, hotel accommodations, 
and tour excursions if the PVO offers and collects monies from the 
passenger for such services.

Significant Comments in Response to the IRFA

    The Commission discussed comments received in response to the NPRM 
in Section IV above. Two commenters touched on issues related to the 
Initial Regulatory Flexibility Analysis (IRFA), and the commenters 
either are or represent small PVOs. The PVA believes that small PVOs 
may be disproportionately impacted by the regulation based on the 
regulation's broadening definition of UPR. PVA argues that by including 
ancillary fees for services collected by the PVO in the definition of 
UPR, UPR will increase. PVA states that large PVOs will not have to 
demonstrate any additional financial responsibility because of the cap 
on coverage demonstrating financial responsibility for UPR. The cap is 
currently set at $32 million and many large PVOs likely exceed the cap 
while small PVOs likely do not. PVA contends that UPR should not 
include ancillary fees collected by PVOs and expresses concerns 
companies offering financial instruments may leave the market because 
of the regulation. The SFAA also expressed concerns that some of the 
proposed changes in the regulation may reduce the number of surety 
companies offering financial responsibility instruments to PVOs. ADC 
expressed similar concerns regarding UPR. ADC believes the increased 
costs of instruments to demonstrate financial responsibility for UPR 
could be as high as $1-$1.5 million for the small family-owned 
business. Both PVA and ADC asked for the rule to not be adopted.
    As part of the IRFA, the Commission considered alternatives for 
small entities including exemption from the rule, delayed compliance 
with the rule, and an alternative definition of nonperformance. The 
Commission ultimately decided the best way to balance the need for 
consumer protections while minimizing the impact on small entities was 
to delay the new definition of UPR for small entities. Therefore, the 
new definition of UPR created by this rulemaking will apply to small 
entities two years after the effective date of the regulation for all 
other PVOs. During this two-year period, the existing definition of UPR 
prior to this proposed rulemaking will remain in effect for small 
entities. The Commission believes the delay will lessen potentially 
disproportionate impacts of the regulation on small PVOs.
    The Commission defines and identifies small entities according to 
the Small Business Administration (SBA) regulations in 13 CFR 121.201. 
PVOs typically fall under the classification of the North American 
Industry Classification System (NAICS) code 483112, Deep Sea Passenger 
Transportation, and under this classification, businesses with a total 
number of 1,500 employees or less qualify as small. PVOs operating 
exclusively on coastal, the Great Lakes, and inland waterways fall 
under NAISC codes 483114 and 483212 and qualify as small if they have a 
total number of 500 employees or less. Although there may be PVOs that 
report employees of less than 1,500, lines that are subsidiaries of 
much larger companies would not qualify as small entities for the 
purpose of receiving regulatory relief under the RFA. See 13 CFR 
121.106(b).
    As noted above, small PVOs expressed concerns about the regulation 
increasing the costs of financial responsibility instruments to 
demonstrate financial responsibility for nonperformance. Part of the 
concern is the uncertainty around how financial responsibility products 
will be priced given the expanded definition of UPR and new definition 
of nonperformance. A two-year delay of the new definition of UPR for 
small PVOs will allow the market for financial responsibility 
instruments to adjust. Providers of such financial responsibility 
instruments can analyze how the new definitions of UPR and 
nonperformance will impact large PVOs and better price such products 
for small PVOs after the delay. Large PVOs are likely better able to 
absorb potential costs of the regulation due to larger volume of sales, 
likely higher cash reserves, and the monetary cap on the amount of 
financial responsibility for nonperformance. The two-year delay will 
also allow small PVOs the chance to have two full seasons of operation 
to adjust to the coming regulatory changes. Small PVOs will have the 
opportunity to evaluate their business practices for potential changes 
that may make it less costly to comply with the regulation's 
requirements and learn from changes already implemented by large PVOs.

Description and Estimate of the Number of Small Entities Effected

    As part of the IRFA, the Commission estimated the number of small 
entities, small PVOs, to which the proposed rule would apply. The same 
methodology from the IRFA was used for the FRFA.

[[Page 15131]]

The Commission does not believe market conditions have changed to 
impact the number of small PVOs nor has the regulation changed enough 
between the IRFA and the FRFA that additional small PVOs would be 
impacted.
    The SBA has established regulations to determine whether businesses 
qualify as small entities. 13 CFR part 121. The regulations use the 
NAICS with codes and descriptions to classify businesses and measure 
their size by either annual receipts (gross annual revenue) or number 
of employees. See 13 CFR subpart A--Size Eligibility Provisions and 
Standards (January 1, 2020). The calculation of total annual receipts 
or number of employees for the purpose of determining the size of a 
business includes those of the business itself plus those of its 
domestic and foreign affiliates. See 13 CFR 121.104 and 121.106.
    The final rule modifies the regulations in 46 CFR part 540 
governing evidence of PVOs financial responsibility for nonperformance 
of transportation. The regulated businesses that the rule applies to 
are PVOs. At present, there are a total of 43 PVOs with certificates of 
financial responsibility for nonperformance issued by the Commission. 
Pursuant to the SBA regulations in 13 CFR 121.201, PVOs fall under the 
classification of NAICS codes 483112, 483114, and 483212. For Deep Sea 
Passenger Transportation, businesses with a total number of 1,500 
employees or less qualify as small. For coastal, the Great Lakes, and 
inland waters passenger transportation, businesses with a total of 500 
employees or less qualify as small. Accordingly, the Commission 
estimates that 14 out of the 43 PVOs (or 33 percent) qualify as small 
businesses under the size standard of the SBA. While there may be PVOs 
that report employees of less than 1,500 or 500 depending on where the 
PVO operates, lines that are subsidiaries of much larger companies 
would not qualify as small entities for the purpose of receiving 
regulatory relief under the RFA. See 13 CFR 121.106(b).

Projected Reporting, Recordkeeping, and Other Compliance Requirements

Cost to Government
    The Commission estimates the total annual cost of this final rule 
to the Federal government to be $145,356, offset by the collection of 
$64,482 in filing fees, for a net annual cost of $80,874.
Recordkeeping and Filing Costs to PVOs
    The final rule would require that PVOs submit additional semi-
annual reports on their instances of nonperformance. The estimated 
annual cost of the additional reports would be $41,670.
Other Costs to PVOs
    As part of the IRFA, the Commission discussed the types of costs 
likely to be incurred by PVOs and the challenges associated with 
accurately quantifying these costs. The Commission sought comments on 
additional data and methods that could help quantify compliance costs. 
ADC was the only commenter who responded with an estimate of compliance 
cost and believes the increased costs of instruments to demonstrate 
financial responsibility for nonperformance could be as high as $1-$1.5 
million for their small family-owned business.
    In the IRFA, the Commission discussed what it believes to be the 
current costs to demonstrate financial responsibility for 
nonperformance. Based on interviews with PVOs as part of the 
investigation in Fact Finding No. 30 and its additional research, the 
Commission estimates the cost of premiums for nonperformance coverage 
to range from $75,000 for the smallest of PVOs to around $600,000 for 
the largest. The total cost of current nonperformance coverage for all 
PVOs is estimated to be around $9,830,000. The Commission believes the 
regulation may increase the cost of nonperformance coverage to PVOs by 
25 percent due to the change in the definition of nonperformance and 
UPR. The Commission estimates the percentage increase in premiums based 
on discussions it had with members of the financial services industry. 
Assuming a 25 percent increase, nonperformance coverage would increase 
by $2,457,500 to a total of $12,287,500. Breaking down the costs 
increases by size of PVOs, the total increase for small PVOs would be 
$425,000 for a total cost of $2,125,000 and for large PVOs would be 
$2,032,500 for a total cost of $10,162,500.
[GRAPHIC] [TIFF OMITTED] TR17MR22.000

    Determining exactly how much premiums will rise as a result of this 
regulation is difficult. Several factors impact the cost of premiums 
such as the incidence rate of nonperformance, how many customers would 
choose refunds over future cruise credits, and the total amount of 
ancillary fees collected by PVOs under the new definition of UPR. While 
the Commission was able to find data on rates of nonperformance, it was 
not able to find the other types of data necessary to fully quantify 
the costs of the regulation on PVOs. To minimize potential impacts to 
small PVOs, the Commission decided to delay compliance with the 
regulation for small PVOs. Based on the delay, the increase in the cost 
of premiums for small PVOs may be less than the initially estimated 25 
percent increase.

[[Page 15132]]

Steps To Minimize Significant Economic Impacts on Small Entities

    As part of complying with the RFA, the Commission estimated the 
number of small entities that would be impacted by this rulemaking. The 
Commission was not able to ascertain that the proposed rule would not 
have a significant economic impact on a substantial number of small 
entities and thus provided an IRFA in the NPRM. As part of the IRFA, 
the Commission considered three alternatives for small entities 
including exemption from the regulation, delayed compliance with the 
regulation, and a separate definition of nonperformance with a longer 
time period. The Commission decided that the best way to minimize the 
economic impacts on small entities while maintaining consumer 
protections would be to delay for two years the new definition of UPR 
in the rulemaking for small entities. Small entities will have two 
additional years before they have to comply with the new definition of 
UPR during which time they will have the opportunity to better 
understand and adjust to how the new definition will impact their 
businesses. The Commission believes the delay will lessen potential 
impacts stemming from the regulation on small entities.
National Environmental Policy Act
    The Commission's regulations categorically exclude certain actions 
rulemakings from any requirement to prepare an environmental assessment 
or an environmental impact statement because they do not increase or 
decrease air, water or noise pollution or the use of fossil fuels, 
recyclables, or energy. 46 CFR 504.4. The final rule discusses 
amendments to Commission's program for certifying the financial 
responsibility of PVOs. This rulemaking thus falls within the 
categorical exclusion for ``[c]ertification of financial responsibility 
of passenger vessels'' under 46 CFR 504.4(a)(2). Therefore, no 
environmental assessment or environmental impact statement is required.
Paperwork Reduction Act
    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA) 
requires an agency to seek and receive approval from the Office of 
Management and Budget (OMB) before collecting information from the 
public. 44 U.S.C. 3507. The agency must submit collections of 
information in proposed rules to OMB in conjunction with the 
publication of the notice of proposed rulemaking. 5 CFR 1320.11.
    The information collection requirements in part 540 are currently 
authorized under OMB Control Number 3072-0012. In compliance with the 
PRA, the Commission submitted the proposed revised information 
collection to the Office of Management and Budget. Notice of the 
revised information collections was published in the Federal Register 
and public comments were invited. See 86 FR 47441 (Aug. 25, 2021).
    No comments specifically addressed the revised information 
collection in part 540.
Executive Order 12988 (Civil Justice Reform)
    The Commission will ensure that any proposed or final rule issued 
in this proceeding meets the applicable standards in E.O. 12988 titled, 
``Civil Justice Reform,'' to minimize litigation, eliminate ambiguity, 
and reduce burden.
Regulation Identifier Number
    The Commission assigns a regulation identifier number (RIN) to each 
regulatory action listed in the Unified Agenda of Federal Regulatory 
and Deregulatory Actions (Unified Agenda). The Regulatory Information 
Service Center publishes the Unified Agenda in April and October of 
each year. You may use the RIN contained in the heading at the 
beginning of this document to find this action in the Unified Agenda, 
available at http://www.reginfo.gov/public/do/eAgendaMain.

List of Subjects in 46 CFR Part 540

    Insurance, Maritime carriers, Penalties, Reporting and 
recordkeeping requirements, Surety bonds.

    For the reasons stated in the preamble, the Federal Maritime 
Commission amends 46 CFR part 540 as follows:

PART 540--PASSENGER FINANCIAL RESPONSIBILITY

0
1. The authority citation for part 540 continues to read as follows:

    Authority: 5 U.S.C. 552, 553; 31 U.S.C. 9701; 46 U.S.C. 305, 
44101-44106.


0
2. Amend Sec.  540.2 by:
0
a. Revising paragraph (i); and
0
b. Adding Paragraph (m).

    The revision and addition read as follows:


Sec.  540.2  Definitions.

* * * * *
    (i) Unearned Passenger Revenue means: (1) Passenger revenue 
received for water transportation and all other accommodations, 
services, and facilities that have not been performed by the PVO. 
Passenger revenue includes port fees, taxes, and all ancillary fees 
remitted to the PVO by the passenger;
    (2) From March 17, 2022 through March 17, 2024, for small 
businesses that operate in deep sea waters and have 1,500 or fewer 
employees or operate exclusively in coastal, Great Lakes, and inland 
water ways and have 500 or fewer employees, Unearned Passenger Revenue 
means passenger revenue received for water transportation and all other 
accommodations, services, and facilities relating thereto not yet 
performed; this includes port fees and taxes paid, but excludes such 
items as airfare, hotel accommodations, and tour excursions.
* * * * *
    (m) Nonperformance of transportation means cancelling or delaying a 
voyage by three (3) or more calendar days, if the passenger elects not 
to embark on the delayed voyage or a substitute voyage offered by the 
passenger vessel operator.

0
3. Amend Sec.  540.9 by
0
a. Adding paragraph (f);
0
b. Revising paragraph (h); and
0
c. Adding paragraph (i).

    The additions and revision read as follows:


Sec.  540.9  Miscellaneous.

* * * * *
    (f) Process for obtaining refunds from the financial instrument in 
the event of nonperformance. (1) The passenger must make a written 
request for a refund from the PVO in accordance with the respective 
PVO's claims procedure.
    (2) In the event the passenger is unable to resolve the claim 
within 180 days, or such shorter claim resolution period for which the 
PVO's claims procedure provides, after nonperformance of transportation 
occurs or if the claim is denied by the PVO, the passenger may submit a 
claim against the financial instrument as per instructions on the 
Commission website. The claim may include a copy of the boarding pass, 
proof and amount of payment, the cancellation or delay notice, and 
dated proof of properly filed claim against the PVO or written 
notification as required in paragraph (f)(1) of this section. All 
documentation must clearly display the vessel and voyage with the 
scheduled and actual date of sailing.

    (3) Nothing in this rule shall be interpreted to preclude the 
consumer and the PVO from entering into an alternative form of 
compensation in full

[[Page 15133]]

satisfaction of a required refund, such as a future cruise credit.
* * * * *
    (h) Every person who has been issued a Certificate (Performance) 
must submit to the Commission a semi-annual statement of any changes 
with respect to the information contained in the application or 
documents submitted in support thereof or a statement that no changes 
have occurred. Negative statements are required to indicate no change. 
These statements must cover the 6-month period of January through June 
and July through December and include a statement of the highest 
unearned passenger vessel revenue accrued for each month in the 6-month 
reporting period as well as any instances of nonperformance of 
transportation. Such statements will be due within 30 days after the 
close of every such 6-month period. The reports required by this 
paragraph shall be submitted to the Bureau of Certification and 
Licensing at its office in Washington, DC by certified mail, courier 
service, or electronic submission.
    (i) Information on How to Obtain Refunds. (1) PVOs shall provide on 
their websites clear instructions on how passengers may obtain refunds 
in the event of nonperformance of transportation; and
    (2) PVOs shall submit an active web page address with their refund 
instructions for nonperformance of transportation to the Commission for 
publication on the Commission's website.
    (3) Form FMC-131 ``Application for Certificate of Financial 
Responsibility'' will include a required field for PVOs to provide the 
web page address of their refund instructions for nonperformance of 
transportation.
* * * * *

0
4. Revise Form FMC-132A to Subpart A of Part 540 to read as follows:

Form FMC-132A to Subpart A of Part 540

FORM FMC-132A
FEDERAL MARITIME COMMISSION

Passenger Vessel Surety Bond (Performance)

Surety Co. Bond No.----------------------------------------------------

FMC Certificate No.----------------------------------------------------

    Know all persons by these presents, that we _____ (Name of 
applicant), of (City), _____ (State and country), as Principal 
(hereinafter called Principal), and _____ (Name of surety), a company 
created and existing under the laws of _____ (State and country) and 
authorized to do business in the United States as Surety (hereinafter 
called Surety) are held and firmly bound unto the United States of 
America in the penal sum of _____, for which payment, well and truly to 
be made, we bind ourselves and our heirs, executors, administrators, 
successors, and assigns, jointly and severally, firmly by these 
presents. Whereas the Principal intends to become a holder of a 
Certificate (Performance) pursuant to the provisions of 46 CFR part 
540, subpart A, and has elected to file with the Federal Maritime 
Commission (Commission) such a bond to insure financial responsibility 
and the supplying transportation and other services subject to 46 CFR 
part 540, subpart A.
    Whereas this bond is written to assure compliance by the Principal 
as an authorized holder of a Certificate (Performance) pursuant to 
subpart A of part 540 of title 46, Code of Federal Regulations, and 
shall inure to the benefit of any and all passengers to whom the 
Principal may be held legally liable for any of the damages herein 
described. Now, therefore, the condition of this obligation is such 
that if the Principal shall pay or cause to be paid to passengers any 
sum or sums for which the Principal may be held legally liable by 
reason of the Principal's failure faithfully to provide such 
transportation and other accommodations and services 46 CFR 540, 
Subpart A made by the Principal and the passenger while this bond is in 
effect for the supplying of transportation and other services pursuant 
to and in accordance with the provisions of subpart A of part 540 of 
title 46, Code of Federal Regulations, then this obligation shall be 
void, otherwise, to remain in full force and effect. Whereas this bond 
is written to assure compliance by the Principal as an authorized 
holder of a Certificate (Performance) pursuant to 46 CFR part 540, 
subpart A, and shall inure to the benefit of any and all passengers to 
whom the Principal may be held legally liable for any of the damages 
herein described. Now, Therefore, the condition of this obligation is 
that the penalty amount of this bond shall be available to pay damages 
made pursuant to passenger claims, if:
    (1) The passenger makes a request for refund from the Principal in 
accordance with the ticket contract.
    (2) In the event the passenger is unable to resolve the claim 
within 180 days, or such shorter claim resolution period for which the 
PVO's claims procedure provides, after nonperformance of transportation 
occurs or if the claim is denied by the PVO, the passenger may submit a 
claim against the bond as per instructions on the Commission's website. 
The claim may include a copy of the boarding pass, proof and amount of 
payment, cancellation notice, and dated proof of properly filed claim 
against the Principal. All documentation must clearly display the 
vessel and voyage with scheduled and actual date of sailing. And, 
Surety reserves the discretion to require a judgement prior to 
resolving the claim.
    (3) Valid claims must be paid within 90 days of submission to the 
Surety.
    The liability of the Surety with respect to any passenger shall not 
exceed the passage price paid by or on behalf of such passenger. The 
liability of the Surety shall not be discharged by any payment or 
succession of payments hereunder, unless and until such payment or 
payments shall amount in the aggregate to the penalty of the bond, but 
in no event shall the Surety's obligation hereunder exceed the amount 
of said penalty. The Surety agrees to furnish written notice to the 
Federal Maritime Commission forthwith of all suits filed, judgments 
rendered, and payments made by said Surety under this bond.
    This bond is effective the __ day of ____, 20 _, 12:01 a.m., 
standard time at the address of the Principal as stated herein and 
shall continue in force until terminated as hereinafter provided. The 
Principal or the Surety may at any time terminate this bond by written 
notice sent by certified mail, courier service, or other electronic 
means such as email and fax to the other and to the Federal Maritime 
Commission at its office in Washington, DC, such termination to become 
effective thirty (30) days after actual receipt of said notice by the 
Commission, except that no such termination shall become effective 
while a voyage is in progress. The Surety shall not be liable hereunder 
for any refunds due under ticket contracts made by the Principal for 
the supplying of transportation and other services after the 
termination of this bond as herein provided, but such termination shall 
not affect the liability of the Surety hereunder for refunds arising 
from ticket contracts made by the Principal for the supplying of 
transportation and other services prior to the date such termination 
becomes effective.
    The underwriting Surety will promptly notify the Director, Bureau 
of Certification and Licensing, Federal Maritime Commission, 
Washington, DC 20573, of any claim(s) or disbursements against this 
bond.


[[Page 15134]]


    In witness whereof, the said Principal and Surety have executed 
this instrument on __ day of ____, 20 _.

Principal

Name-------------------------------------------------------------------

By---------------------------------------------------------------------

(Signature and title)

Witness----------------------------------------------------------------

SURETY

[SEAL]

Name-------------------------------------------------------------------

By---------------------------------------------------------------------

(Signature and title)

Witness----------------------------------------------------------------

    Only corporations or associations of individual insurers may 
qualify to act as surety, and they must establish to the 
satisfaction of the Federal Maritime Commission legal authority to 
assume the obligations of surety and financial ability to discharge 
them.


0
5. Revise Form FMC-133A to Subpart A of Part 540 to read as follows:

Form FMC-133A to Subpart A of Part 540

FORM FMC-133A
FEDERAL MARITIME COMMISSION

Guaranty in Respect of Liability for Nonperformance

Guaranty No.-----------------------------------------------------------

FMC Certificate No.----------------------------------------------------

    1. Whereas ____ (Name of applicant) (Hereinafter referred to as the 
``Applicant'') is the Owner or Charterer of the passenger Vessel(s) 
specified in the annexed Schedule (``the Vessels'''), which are or may 
become engaged in voyages to or from United States ports, and the 
Applicant desires to establish its financial responsibility in 
accordance with 46 CFR part 540, subpart A, provided that the Federal 
Maritime Commission (``FMC'') shall have accepted, as sufficient for 
that purpose, the Applicant's application, supported by this Guaranty, 
and provided that FMC shall issue to the Applicant a Certificate 
(Performance) (``Certificate''), the undersigned Guarantor hereby 
guarantees to discharge the Applicant's legal liability to indemnify 
the passengers of the Vessels for nonperformance of transportation 
within the meaning of 46 CFR part 540.2, in the event that:
    (1) The passenger makes a request for refund from the Principal in 
accordance with the ticket contract.
    (2) In the event the passenger is unable to resolve the claim 
within 180 days, or such shorter claim resolution period for which the 
PVO's claims procedure provides, after nonperformance of transportation 
occurs or if the claim is denied by the PVO, the passenger may submit a 
claim against the Guaranty as per instructions on the Commission 
website. The claim may include a copy of the boarding pass, proof and 
amount of payment, cancellation notice, and dated proof of properly 
filed claim against the Principal. All documentation must clearly 
display the vessel and voyage with scheduled and actual date of 
sailing. And, Guarantor reserves the discretion to require a judgement 
prior to resolving the claim.
    (3) Valid claims must be paid within 90 days of submission to the 
Guarantor.
    2. The Guarantor's liability under this Guaranty in respect to any 
passenger shall not exceed the amount paid by such passenger; and the 
aggregate amount of the Guarantor's liability under this Guaranty shall 
not exceed ____ $.
    3. The Guarantor's liability under this Guaranty shall attach only 
in respect of events giving rise to a cause of action against the 
Applicant, in respect of any of the Vessels, for nonperformance of 
transportation within the meaning of 46 CFR 540.2, occurring after the 
Certificate has been granted to the Applicant, and before the 
expiration date of this Guaranty, which shall be the earlier of the 
following dates:
    (a) The date whereon the Certificate is withdrawn, or for any 
reason becomes invalid or ineffective; or
    (b) The date 30 days after the date of receipt by FMC of notice in 
writing delivered by certified mail, courier service or other 
electronic means such as email and fax, that the Guarantor has elected 
to terminate this Guaranty except that: (i) If, on the date which would 
otherwise have been the expiration date under the foregoing provisions 
(a) or (b) of this Clause 3, any of the Vessels is on a voyage whereon 
passengers have been embarked at a United States port, then the 
expiration date of this Guaranty shall, in respect of such Vessel, be 
postponed to the date on which the last passenger on such voyage shall 
have finally disembarked; and (ii) Such termination shall not affect 
the liability of the Guarantor for refunds arising from ticket 
contracts made by the Applicant for the supplying of transportation and 
other services prior to the date such termination becomes effective.
    4. If, during the currency of this Guaranty, the Applicant requests 
that a vessel owned or operated by the Applicant, and not specified in 
the annexed Schedule, should become subject to this Guaranty, and if 
the Guarantor accedes to such request and so notifies FMC in writing or 
other electronic means such as email and fax, then, provided that 
within 30 days of receipt of such notice, FMC shall have granted a 
Certificate, such Vessel shall thereupon be deemed to be one of the 
Vessels included in the said Schedule and subject to this Guaranty.
    5. The Guarantor hereby designates ____, with offices at ____, as 
the Guarantor's legal agent for service of process for the purposes of 
the Rules of the Federal Maritime Commission, in accordance with 46 CFR 
part 540, subpart A
-----------------------------------------------------------------------
(Place and Date of Execution)

-----------------------------------------------------------------------
(Type Name of Guarantor)

-----------------------------------------------------------------------
(Type Address of Guarantor)

-----------------------------------------------------------------------
By

-----------------------------------------------------------------------
(Signature and Title)

Schedule of Vessels Referred to in Clause 1
Vessels Added to This Schedule in Accordance With Clause 4

0
6. Revise Appendix A to Subpart A of Part 540 to read as follows:

Appendix A to Subpart A of Part 540--Example of Escrow Agreement for 
Use Under 46 CFR 540.5(b)

ESCROW AGREEMENT

    THIS ESCROW AGREEMENT, __ made as of this ___day of (month & 
year), by and between (Customer), a corporation/company having a 
place of business at (``Customer'') _______ and (Banking Institution 
name & address) a banking corporation, having a place of business at 
(``Escrow Agent'').

Witnesseth:

    WHEREAS, Customer wishes to establish an escrow account in order 
to provide for the indemnification of passengers in the event of 
non-performance of water transportation to which such passengers 
would be entitled, and to establish Customer's financial 
responsibility therefore; and
    WHEREAS, Escrow Agent wishes to act as Escrow Agent of the 
escrow account established hereunder;
    NOW, THEREFORE, in consideration of the premises and covenants 
contained herein and other good and valuable consideration, the 
receipt and sufficiency of which is hereby acknowledged, the parties 
hereto agree as follows:
    1. Customer has established on (month, & year) (the 
``Commencement Date'') an escrow account with the Escrow Agent which 
escrow account shall hereafter be governed by the terms of this 
Agreement (the ``Escrow Account''). Escrow Agent shall maintain the 
Escrow Account in its name, in its capacity as Escrow Agent.
    2. Customer will determine, as of the date prior to the 
Commencement Date, the amount of unearned passenger revenue, 
including

[[Page 15135]]

any funds to be transferred from any predecessor Escrow Agent. 
Escrow Agent shall have no duty to calculate the amount of unearned 
passenger revenue. Unearned Passenger Revenues are defined as that 
passenger revenue received for water transportation and all other 
accommodations, services and facilities relating thereto not yet 
performed. 46 CFR 540.2(i).
    3. Customer will deposit on the Commencement Date into the 
Escrow Account cash in an amount equal to the amount of Unearned 
Passenger Revenue determined under Paragraph 2 above plus a cash 
amount (``the Fixed Amount'') equal to (10 percent of the Customer's 
highest Unearned Passenger Revenue for the prior two fiscal years. 
For periods on or after (year of agreement (2009)), the Fixed Amount 
shall be determined by the Commission on an annual basis, in 
accordance with 46 CFR part 540.
    4. Customer acknowledges and agrees that until such time as a 
cruise has been completed and Customer has taken the actions 
described herein, Customer shall not be entitled, nor shall it have 
any interest in any funds deposited with Escrow Agent to the extent 
such funds represent Unearned Passenger Revenue.
    5. Customer may, at any time, deposit additional funds 
consisting exclusively of Unearned Passenger Revenue and the Fixed 
Amount, into the Escrow Account and Escrow Agent shall accept all 
such funds for deposit and shall manage all such funds pursuant to 
the terms of this Agreement.
    6. After the establishment of the Escrow Account, as provided in 
Paragraph 1, Customer shall on a weekly basis on each (identify day 
of week), or if Customer or Escrow Agent is not open for business on 
(identify day of week) then on the next business day that Customer 
and Escrow Agent are open for business recompute the amount of 
Unearned Passenger Revenue as of the close of business on the 
preceding business day (hereinafter referred to as the 
``Determination Date'') and deliver a Recomputation Certificate to 
Escrow Agent on such date. In each such weekly recomputation, 
Customer shall calculate the amount by which Unearned Passenger 
Revenue has decreased due to (i) the cancellation of reservations 
and the corresponding refund of monies from Customer to the persons 
or entities canceling such reservations; (ii) the amount which 
Customer has earned as revenue as a result of any cancellation fee 
charged upon the cancellation of any reservations; (iii) the amount 
which Customer has earned due to the completion of cruises; and (iv) 
the amount by which Unearned Passenger Revenue has increased due to 
receipts from passengers for future water transportation and all 
other accommodations, services and facilities relating thereto and 
not yet performed.
    The amount of Unearned Passenger Revenue as recomputed shall be 
compared with the amount of Unearned Passenger Revenue for the 
immediately preceding period to determine whether there has been a 
net increase or decrease in Unearned Passenger Revenue. If the 
balance of the Escrow Account as of the Determination Date exceeds 
the sum of the amount of Unearned Passenger Revenue, as recomputed, 
plus the Fixed Amount then applicable, then Escrow Agent shall make 
any excess funds in the Escrow Account available to Customer. If the 
balance in the Escrow Account as of the Determination Date is less 
than the sum of the amount of Unearned Passenger Revenue, as 
recomputed, plus an amount equal to the Fixed Amount, Customer shall 
deposit an amount equal to such deficiency with the Escrow Agent. 
Such deposit shall be made in immediately available funds via wire 
transfer or by direct transfer from the Customer's U.S. Bank 
checking account before the close of business on the next business 
day following the day on which the Recomputation Certificate is 
received by Escrow Agent. The Escrow Agent shall promptly notify the 
Commission within two business days any time a deposit required by a 
Recomputation Certificate delivered to the Escrow Agent is not 
timely made.
    7. Customer shall furnish a Recomputation Certificate, in 
substantially the form attached hereto as Annex 1, to the Federal 
Maritime Commission (the ``Commission'') and to the Escrow Agent 
setting forth the weekly recomputation of Unearned Passenger Revenue 
required by the terms of Paragraph 6 above. Customer shall mail or 
fax to the Commission and deliver to the Escrow Agent the required 
Recomputation Certificate before the close of business on the 
business day on which Customer recomputes the amount of Unearned 
Passenger Revenue. Notwithstanding any other provision herein to the 
contrary, Escrow Agent shall not make any funds available to 
Customer out of the Escrow Account because of a decrease in the 
amount of Unearned Passenger Revenue or otherwise, until such time 
as Escrow Agent receives the above described Recomputation 
Certificate from Customer, which Recomputation Certificate shall 
include the Customer's verification certification in the form 
attached hereto as Annex 1. The copies of each Recomputation 
Certificate to be furnished to the Commission shall be mailed to the 
Commission at the address provided in Paragraph 25 herein. If copies 
are not mailed to the Commission, faxed or emailed copies shall be 
treated with the same legal effect as if an original signature was 
furnished. No repayment of the Fixed Amount may be made except upon 
approval of the Commission.
    Within fifteen (15) days after the end of each calendar month, 
Escrow Agent shall provide to Customer and to the Commission at the 
addresses provided in Paragraph 25 below, a comprehensive statement 
of the Escrow Account. Such statement shall provide a list of assets 
in the Escrow Account, the balance thereof as of the beginning and 
end of the month together with the original cost and current market 
value thereof, and shall detail all transactions that took place 
with respect to the assets and investments in the Escrow Account 
during the preceding month.
    8. At the end of each quarter of Customer's fiscal year, 
Customer shall cause the independent auditors then acting for it to 
conduct an examination in accordance with generally accepted 
auditing standards with respect to the weekly Recomputation 
Certificates furnished by Customer of the Unearned Passenger 
Revenues and the amounts to be deposited in the Escrow Account and 
to express their opinion within forty-five (45) days after the end 
of such quarter as to whether the calculations at the end of each 
fiscal quarter are in accordance with the provisions of Paragraph 6 
of this Agreement. The determination of Unearned Passenger Revenue 
of such independent auditors shall have control over any computation 
of Unearned Passenger Revenue by Customer in the event of any 
difference between such determinations. To the extent that the 
actual amount of the Escrow Account is less than the amount 
determined by such independent auditors to be required to be on 
deposit in the Escrow Account, Customer shall immediately deposit an 
amount of cash into the Escrow Account sufficient to cause the 
balance of the Escrow Account to equal the amount determined to be 
so required. Such deposit shall be completed no later than the 
business day after receipt by the Escrow Agent of the auditor's 
opinion containing the amount of such deficiency.
    The opinion of such independent auditors shall be furnished by 
such auditors directly to Customer, to the Commission and to the 
Escrow Agent at their addresses contained in this Agreement. In the 
event that a required deposit to the Escrow Agent is not made within 
one Business Day after receipt of an auditor's report or a 
Recomputation Certificate, Escrow Agent shall send notification to 
the Commission within the next two Business Days.
    9. Escrow Agent shall invest the funds in the Escrow Account in 
Qualified Investments as directed by Customer in its sole and 
absolute discretion. ``Qualified Investments'' means, to the extent 
permitted by applicable law:
    (a) Government obligations or obligations of any agency or 
instrumentality of the United States of America;
    (b) Commercial paper issued by a United States company rated in 
the two highest numerical ``A'' categories (without regard to 
further gradation or refinement of such rating category) by Standard 
& Poor's Corporation, or in the two highest numerical ``Prime'' 
categories (without regard to further gradation or refinement of 
such rating) by Moody's Investor Services, Inc.;
    (c) Certificates of deposit and money market accounts issued by 
any United States bank, savings institution or trust company, 
including the Escrow Agent, and time deposits of any bank, savings 
institution or trust company, including the Escrow Agent, which are 
fully insured by the Federal Deposit Insurance Corporation;
    (d) Corporate bonds or obligations which are rated by Standard & 
Poor's Corporation or Moody's Investors Service, Inc. in one of 
their three highest rating categories (without regard to any 
gradation or refinement of such rating category by a numerical or 
other modifier); and
    (e) Money market funds registered under the Federal Investment 
Company Act of 1940, as amended, and whose shares are registered 
under the Securities Act of 1933,

[[Page 15136]]

as amended, and whose shares are rated ``AAA'', ``AA + '' or ``AA'' 
by Standard & Poor's Corporation.
    10. All interest and other profits earned on the amounts placed 
in the Escrow Account shall be credited to Escrow Account.
    11. This Agreement has been entered into by the parties hereto, 
and the Escrow Account has been established hereunder by Customer, 
to establish the financial responsibility of Customer as the owner, 
operator or charterer of the passenger vessel(s) (see Exhibit A), in 
accordance with 46 CFR part 540, subpart A. The Escrow Account shall 
be held by Escrow Agent in accordance with the terms hereof, to be 
utilized to discharge Customer's legal liability to indemnify the 
passengers of the named vessel(s) for non-performance of 
transportation within the meaning of 46 CFR 540.2(m). The Escrow 
Agent shall make indemnification payments pursuant to written 
instructions from Customer, on which the Escrow Agent may rely, or 
in the event that:
    (1) The passenger makes a request for refund from the Principal 
in accordance with the ticket contract.
    (2) In the event the passenger is unable to resolve the claim 
within 180 days, or such shorter claim resolution period for which 
the PVO's claims procedure provides, after nonperformance of 
transportation occurs or if the claim is denied by the PVO, the 
passenger may submit a claim against the Escrow Account as per 
instructions on the Commission website. The claim may include a copy 
of the boarding pass, proof and amount of payment, cancellation 
notice, and dated proof of properly filed claim against the 
Principal. All documentation must clearly display the vessel and 
voyage with scheduled and actual date of sailing. And, The Escrow 
Agent shall make indemnification payments pursuant to written 
instructions from Customer, on which the Escrow Agent may rely, or 
in the event that such legal liability has not been discharged by 
Customer within twenty-one (21) days after any such passenger has 
obtained a final judgment (after appeal, if any) against Customer 
from a United States Federal or State Court of competent 
jurisdiction the Escrow Agent is authorized to pay funds out of the 
Escrow Account, after such twenty-one day period, in accordance with 
and pursuant to the terms of an appropriate order of a court of 
competent jurisdiction on receipt of a certified copy of such order.
    (3) Valid claims must be paid within 90 days of submission to 
the Escrow Agent.
    As further security for Customer's obligation to provide water 
transportation to passengers holding tickets for transportation on 
the passenger vessel(s) (see Exhibit A) Customer will pledge to each 
passenger who has made full or partial payment for future passage on 
the named vessel(s) an interest in the Escrow Account equal to such 
payment. Escrow Agent is hereby notified of and acknowledges such 
pledges. Customers' instructions to Escrow Agent to release funds 
from the Escrow Account as described in this Agreement shall 
constitute a certification by Customer of the release of pledge with 
respect to such funds due to completed, canceled or terminated 
cruises. Furthermore, Escrow Agent agrees to hold funds in the 
Escrow Account until directed by Customer or a court order to 
release such funds as described in this Agreement. Escrow Agent 
shall accept instructions only from Customer, acting on its own 
behalf or as agent for its passengers, and shall not have any 
obligations at any time to act pursuant to instructions of 
Customer's passengers or any other third parties except as expressly 
described herein. Escrow Agent hereby waives any right of offset to 
which it is or may become entitled with regard to the funds on 
deposit in the Escrow Account which constitute Unearned Passenger 
Revenue.
    12. Customer agrees to provide to the Escrow Agent all 
information necessary to facilitate the administration of this 
Agreement and the Escrow Agent may rely upon any information so 
provided.
    13. Customer hereby warrants and represents that it is a 
corporation in good standing in its State of organization and that 
is qualified to do business in the State. Customer further warrants 
and represents that (i) it possesses full power and authority to 
enter into this Agreement and fulfill its obligations hereunder and 
(ii) that the execution, delivery and performance of this Agreement 
have been authorized and approved by all required corporate actions.
    14. Escrow Agent hereby warrants and represents that it is a 
national banking association in good standing. Escrow Agent further 
warrants and represents that (i) it has full power and authority to 
enter into this Agreement and fulfill its obligations hereunder and 
(ii) that the execution, delivery and performance of this Agreement 
have been authorized and approved by all required corporate actions.
    15. This Agreement shall have a term of one (1) year and shall 
be automatically renewed for successive one (1) year terms unless 
notice of intent not to renew is delivered to the other party to 
this Agreement and to the Commission at least 90 days prior to the 
expiration of the current term of this Agreement. Notice shall be 
given by certified mail to the parties at the addresses provided in 
Paragraph 25 below. Notice shall be given by certified mail to the 
Commission at the address specified in this Agreement.
    16. (a) Customer hereby agrees to indemnify and hold harmless 
Escrow Agent against any and all claims, losses, damages, 
liabilities, cost and expenses, including litigation, arising 
hereunder, which might be imposed or incurred on Escrow Agent for 
any acts or omissions of the Escrow Agent or Customer, not caused by 
the negligence or willful misconduct of the Escrow Agent. The 
indemnification set forth herein shall survive the resignation or 
removal of the Escrow Agent and the termination of this agreement.
    (b) In the event of any disagreement between parties which 
result in adverse claims with respect to funds on deposit with 
Escrow Agent or the threat thereof, Escrow Agent may refuse to 
comply with any demands on it with respect thereto as long as such 
disagreement shall continue and in so refusing, Escrow Agent need 
not make any payment and Escrow Agent shall not be or become liable 
in any way to Customer or any third party (whether for direct, 
incidental, consequential damages or otherwise) for its failure or 
refusal to comply with such demands and it shall be entitled to 
continue so to refrain from acting and so refuse to act until such 
conflicting or adverse demands shall finally terminate by mutual 
written agreement acceptable to Escrow Agent or by a final, non-
appealable order of a court of competent jurisdiction.
    17. Escrow Agent shall be entitled to such compensation for its 
services hereunder as may be agreed upon from time to time by Escrow 
Agent and Customer and which shall initially be set forth in a 
separate letter agreement between Escrow Agent and Customer. This 
Agreement shall not become effective until such letter agreement has 
been executed by both parties hereto and confirmed in writing to the 
Commission.
    18. Customer may terminate this Agreement and engage a successor 
escrow agent, after giving at least 90 days written termination 
notice to Escrow Agent prior to terminating Escrow Agent if such 
successor agent is a commercial bank whose passbook accounts are 
insured by the Federal Deposit Insurance Corporation and such 
successor agrees to the terms of this agreement, or if there is a 
new agreement then such termination shall not be effective until the 
new agreement is approved in writing by the Commission. Upon giving 
the written notice to Customer and the Commission, Escrow Agent may 
terminate any and all duties and obligations imposed on Escrow Agent 
by this Agreement effective as of the date specified in such notice, 
which date shall be at least 90 days after the date such notice is 
given. All escrowed funds as of the termination date specified in 
the notice shall be turned over to the successor escrow agent, or if 
no successor escrow agent has been named within 90 days after the 
giving of such notice, then all such escrowed funds for sailing 
scheduled to commence after the specified termination date shall be 
returned to the person who paid such passage fares upon written 
approval of the Commission. In the event of any such termination 
where the Escrow Agent shall be returning payments to the 
passengers, then Escrow Agent shall request from Customer a list of 
passenger names, addresses, deposit/fare amounts and other 
information needed to make refunds. On receipt of such list, Escrow 
Agent shall return all passage fares held in the Escrow Account as 
of the date of termination specified in the notice to the 
passengers, excepting only amounts Customer is entitled to receive 
pursuant to the terms of this Agreement for cruises completed 
through the termination date specified in the notice, and all 
interest which shall be paid to Customer.
    In the event of termination of this Agreement and if alternative 
evidence of financial responsibility has been accepted by the 
Commission and written evidence satisfactory to Escrow Agent of the 
Commission's acceptance is presented to Escrow Agent, then Escrow 
Agent shall release to Customer all passage fares held in the Escrow 
Account as of the date of termination specified in the notice. In 
the event of any such termination where written

[[Page 15137]]

evidence satisfactory to Escrow Agent of the Commission's acceptance 
has not been presented to Escrow Agent, then Escrow Agent shall 
request from Customer a list of passenger names, addresses, deposit/
fare amounts and other information needed to make refunds. On 
receipt of such list, Escrow Agent shall return all passage fares 
held in the Escrow Account as of the date of termination specified 
in the notice to the passengers, excepting only amounts Customer is 
entitled to receive pursuant to the terms of this Agreement for 
cruises completed through the termination date specified in the 
notice, and all interest which shall be paid to Customer. Upon 
termination, Customer shall pay all costs and fees previously earned 
or incurred by Escrow Agent through the termination date.
    19. Neither Customer nor Escrow Agent shall have the right to 
sell, pledge, hypothecate, assign, transfer or encumber funds or 
assets in the Escrow Account except in accordance with the terms of 
this Agreement.
    20. This Agreement is for the benefit of the parties hereto and, 
accordingly, each and every provision hereof shall be enforceable by 
any or each or both of them. Additionally, this Agreement shall be 
enforceable by the Commission. However, this Agreement shall not be 
enforceable by any other party, person or entity whatsoever.
    21. (a) No amendments, modifications or other change in the 
terms of this Agreement shall be effective for any purpose 
whatsoever unless agreed upon in writing by Escrow Agent and 
Customer and approved in writing by the Commission.
    (b) No party hereto may assign its rights or obligations 
hereunder without the prior written consent of the other, and unless 
approved in writing by the Commission. The merger of Customer with 
another entity or the transfer of a controlling interest in the 
stock of Customer shall constitute an assignment hereunder for which 
prior written approval of the Commission is required, which approval 
shall not be unreasonably withheld.
    22. The foregoing provisions shall be binding upon undersigned, 
their assigns, successors and personal representative.
    23. The Commission shall have the right to inspect the books and 
records of the Escrow Agent and those of Customer as related to the 
Escrow Account. In addition, the Commission shall have the right to 
seek copies of annual audited financial statements and other 
financial related information.
    24. All investments, securities and assets maintained under the 
Escrow Agreement will be physically located in the United States.
    25. Notices relating to this Agreement shall be sent to Customer 
at (address) and to Escrow Agent at (address) or to such other 
address as any party hereto may hereafter designate in writing. Any 
communication sent to the Commission or its successor organization 
shall be sent to the following address: Bureau of Certification and 
Licensing, Federal Maritime Commission, 800 North Capitol NW, 
Washington, DC 20573-0001.
    26. This agreement may be executed in any number of 
counterparts, each of which shall be deemed to be an original and 
all of which when taken together shall constitute one and the same 
instrument.
    27. This Agreement is made and delivered in, and shall be 
construed in accordance with the laws of the State of ____without 
regard to the choice of law rules.
    IN WITNESS WHEREOF, the undersigned have each caused this 
Agreement to be executed on their behalf as of the date first above 
written.
By:--------------------------------------------------------------------

Title:-----------------------------------------------------------------


By:--------------------------------------------------------------------

Title:-----------------------------------------------------------------

EXHIBIT A

    ESCROW AGREEMENT, dated ____by and between (Customer) and 
(Escrow Agent).

Passenger Vessels Owned or Chartered

ANNEX 1

RECOMPUTATION CERTIFICATE

To: Federal Maritime Commission
And To: (``Bank'')
    The undersigned, the Controller of ____hereby furnishes this 
Recomputation Certificate pursuant to the terms of the Escrow 
Agreement dated , between the Customer and (``Bank''). Terms herein 
shall have the same definitions as those in such Escrow Agreement 
and Federal Maritime Commission regulations.
    I. Unearned Passenger Revenue as of (``Date'') was: $ ____
    a. Additions to unearned Passenger Revenue since such date were:

1. Passenger Receipts: $-----------------------------------------------
2. Other (Specify) $---------------------------------------------------
3. Total Additions: $--------------------------------------------------

    b. Reductions in Unearned Passenger Revenue since such date 
were:

1. Completed Cruises: $------------------------------------------------
2. Refunds and Cancellations: $----------------------------------------
3. Other (Specify) $---------------------------------------------------
4. Total Reductions: $-------------------------------------------------

    II. Unearned Passenger Revenue as of the date of this 
Recomputation Certificate is: $ ____

a. Excess Escrow Amount $----------------------------------------------

    III. Plus the Required Fixed Amount: $ ____
    IV. Total Required in Escrow: $ ____
    V. Current Balance in Escrow Account: $ ____
    VI. Amount to be Deposited in Escrow Account: $ ____
    VII. Amount of Escrow Account available to Operator: $ ____
    VIII. I declare under penalty of perjury that the above 
information is true and correct.
Dated:-----------------------------------------------------------------
(Signature)------------------------------------------------------------

Name: ______

Title: ______

(Signature)------------------------------------------------------------

Name: ______

Title: ______


    By the Commission.
William Cody,
Secretary.
[FR Doc. 2022-05568 Filed 3-16-22; 8:45 am]
BILLING CODE 6730-02-P


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