[S. 1878, 83d Cong., 1st sess.]

A BILL To amend the Merchant Marine Act of 1936, as amended

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That (1) section 1209 (a) of the Merchant Marine Act, 1936, as amended (U. S. C., title 46, sec. 1289 (a)), is amended to read as follows:

"(a) (1) Subject to the provisions of paragraph (2) of this subsection (a), the Secretary, in the administration of this title, may issue such policies, rules, and regulations as he deems proper and may adjust and pay losses, compromise and settle claims, whether in favor of or against the United States, and pay the amount of any judgment rendered against the United States in any suit, or the amount of any settlement agreed upon, in respect of any claim under insurance authorized by this title.

"(2) In respect of hull insurance, the valuation in the policy for actual or constructive total loss of the vessel insured shall be such amount as the Secretary shall determine to be the fair and reasonable value of the vessel at the time of the attachment of the insurance under said policy: Provided, however, That the insured shall have the right within sixty days after the attachment of the insurance under said policy, or within sixty days after determination of such valuation by the Secretary, whichever is later, to reject such valuation, but shall continue to pay premiums upon such valuation at the rate provided for in said policy. In the event of the actual or constructive total loss of the vessel, if the insured has so rejected such valuation, the insured shall be paid 75 per centum of such valuation so determined by the Secretary and shall be entitled to sue the United States in a court having jurisdiction of such claims to recover such a further amount as added to said 75 per centum would be equal to the just compensation which such court determines would have been payable if the vessel had been requisitioned for title under section 902 at the time of the attachment of the insurance under said policy. In the event of such court determination, premiums under the policy shall be adjusted on the basis of the valuation as finally determined and of the rate provided for in said policy."

(2) All war risk insurance issued under title XII of the Merchant Marine Act, 1936, which is in force on the date of the enactment of this Act, shall, as of the beginning of such date, be deemed to have been amended to conform to the requirements of this Act unless the insured, within ten days after such date, objects to such amendment.

SEC. 2. The tenth paragraph under the heading "OPERATING DIFFERENTIAL SUBSIDIES" in title II of the Independent Offices Appropriation Act, 1952, and the Third Supplemental Appropriation Act, 1951, are hereby amended by striking out the words "by this or any other Act" and inserting in lieu thereof "by this Act or by any other Act enacted prior to the date of the enactment of this Act." I don't know if it would be desirable to have those favoring the bill testify first or have Mr. Casey testify as to the substitute. Mr. MORGAN. I would like to hear from Mr. Casey.

Senator MAGNUSON. All right. I understand there have been some substitutes arranged, and you want to explain that.

STATEMENT OF RALPH E. CASEY, ASSOCIATE GENERAL COUNSEL, GENERAL ACCOUNTING OFFICE

Mr. CASEY. Mr. Chairman, before I begin my testimony this morning I should like to say that since Mr. Louis Rothschild took office as Chairman of the Federal Maritime Board last July, I have had occasion many times to sit down with him and his staff and work out troublesome problems affecting the merchant marine. Each time I have found him to be sincere and conscientious in his administration of the laws. He has displayed equal zeal for fostering the merchant marine and for the taxpayers.

Our association has been most satisfactory, and productive, I believe, of extremely beneficial results. This is, of course, as it should be, and I have every confidence it will continue.

In fact, I feel that as this particular hearing develops, it will become apparent that this war risk insurance problem is one that can and probably should be worked out administratively.

However, since so may bills have been proposed, are being proposed, by the industry, and a substitute which we, ourselves, proposed last year, and now I understand from the report of Secretary Weeks that the Maritime has a still different version. I believe this subcommittee will want to know exactly what the problem is and satisfy itself as to the most desirable solution to it.

As you probably know, the Comptroller General has already submitted two reports on these bills to the committee, and while I had originally intended reading those reports, I see no useful purpose to reading them, since they are already in the record of the subcommittee.

The sponsor of these proposals, the Association of American Ship Owners, addressed a letter to the chairman of the full committee in which he made certain comments with respect to the Comptroller General's report. The substance of the letter was to the effect that the purpose of S. 1148 was to repeal the appropriation rider which appeared in the Appropriation Act for the Maritime Administration for the past 3 years. We have given careful consideration not only to S. 1148, but also to the bill introduced by yourself, S. 1878, which I understand is the same bill introduced in the House of Congressman Allen.

In his letter of April 24, 1953, former Senator Ball stated:

We are not wedded to the valuation formula proposed in section 1 of S. 1148; in fact, the same language which appears in section 902 (a) of the 1936 act would be perfectly acceptable to us.

This statement encouraged us to think that possibly if, in fact, the shipowners have been placed in a dilemma by reason of the appropriation rider and the interpretation placed upon it by the Maritime Administration, some remedial legislation might be worked out which would solve the dilemma but nevertheless retain the safeguards intended by the Congress.

We have prepeared a substitute bill, Mr. Chairman, which we think will accomplish those objectives and would like to offer it for the consideration of the committee at this time. I should like to explain briefly the thinking upon which this proposal is based. Neither the Senate nor the House bills thus far introduced would impose specifically upon the administrative determination of the value of the vessel to be stated in the policy for actual or constructive total loss purposes the limitations of section 902 (a) of the 1936 act. In one bill the amount payable under the insurance policy would be the fair and reasonable value of the vessel at the time the policy attached and in the other it would be no more than just compensation under the fifth amendment.

At indicated in Mr. Warren's report, the President thought when he signed the War Risk Insurance Act of 1950 that this language that is the words "fair and reasonable value" referred to the nonenhancement valuation of the vessel. In other words, the valuation deter

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mined would be with due regard to the limitations of the enhancement clause in section 902 (a).

Admittedly, however, the language of the bill does not make the enhancement limitation specifically applicable to administrative determinations. Under S. 1878, there is a proviso which would authorize the insured to object to the valuation stated in the policy and in the event of the actual or constructive total loss of the vessel thereafter to accept 75 percent of the valuation administratively determined and sue in the courts for such further sum as added to 75 percent would equal just compensation determined under the provisions of section 902 (a) of the 1936 act. Thus, in that bill the enhancement limitation is made applicable to the amount recoverable in the courts but not specifically made applicable to the determination by the Secretary of Commerce.

We, in the General Accounting Office, see a real meaning and effect in this enhancement limitation. There is no question but that during World War II the language was not viewed generally by the courts as having the effect which we feel sure the Congress intended. We have hopes that during the present or future emergencies the courts will take a more enlightened view of this language. Consequently, in order to avoid any doubt as to whether it applies to administrative determinations of valuation for insurance purposes we have suggested that the nonenhancement features of section 902 be specifically written into the law.

Senator MAGNUSON. Why are you fellows so afraid of them going to court on enhancement? Why? The courts will decide it.

Mr. CASEY. Mr. Chairman, my bill permits them to go to court. Senator MAGNUSON. It does? I haven't read yours. But it still allows that?

Mr. CASEY. Yes.

Senator MAGNUSON. You don't oppose that per se.

Mr. CASEY. No, sir.

We agree with the proponents of these bills, however, that the insured should under those circumstances and now I am coming to the point you raised-have the right to recover as much for his vessel if lost under Government insurance as he would have been entitled to recover had the vessel been requisitioned under section 902 (a). At the same time, if the owner rejects the administrative determination the action in the courts should be a de novo proceeding. Under the present bills, and for that matter under section 902 (a) as it now reads, the owner is given the right to accept 75 percent of the administratively determined value and sue for such further amount as added to the 75 percent would equal just compensation. This raises some question as to what the result would be if a court should find that the 75 percent already paid administratively was in excess of the unenhanced value of the vessel. In such a case the owner should be required to pay back the excess but I have some question as to whether a court could render a judgment against the owner under existing law. In other words, when the owner elects to go to court it should be a two-way street. Consequently, we suggest that the language be changed so that the court action will be for the full amount of just compensation under 902 (a), with the amount previously paid to be regarded as an advance only, subject to increase or decrease according to the judgment of the court.

This brings us to section 2 of the proposals which would repeal the appropriation provision referred to insofar as the prospective effect of the rider is concerned. The proponents of this proposed legislation would have the Congress believe that this provision puts the Comptroller General in the position of determining the amount recoverable by the owner for vessels purchased, requisitioned, or lost while insured. It does no such thing. It provides, in effect, that the amounts payable shall be computed by the Maritime Administration in accordance with section 902 (a) as interpreted by the Comptroller General.

Let me make unmistakably clear just what this provision does as a practical matter. Section 304 of the Budget and Accounting Act of 1921 provides, in effect, that the head of any executive department or other establishment may apply for and the Comptroller General shall render his decision upon any question involving a payment to be made by or under them which decision when rendered shall govern the General Accounting Office in passing on the account containing the payment.

Let me explain just exactly what that means. When the head of an agency is in doubt as to whether or not a payment is legally objectionable, he can submit that question to the Comptroller General for decision. When the Comptroller General renders his decision on that question, it is binding not only upon the agency to whom he renders the decision, but upon the General Accounting Office when they audit the payment so that it sets at rest for all time any legal doubt.

That said section also provides that balances certified by the General Accounting Office upon the settlement of public accounts shall be final and conclusive upon the executive branch of the Government. The courts have held in numerous decisions that the effect of these provisions in section 304 of the Budget and Accounting Act is to make decisions of the Comptroller General in matters involving the expenditure of public funds binding and conclusive upon executive departments and agencies.

On January 18, 1952, the Secretary of Commerce requested a decision of the Comptroller General with respect to the interpretation of the enhancement limitation in section 902 (a) of the 1936 act in relationship to conditions existing during the present national emergency. A decision was rendered pursuant to this request, on February 11, 1952. As I have already pointed out, the Maritime Administration is constrained by the provisions of the Budget and Accounting Act of 1921 to follow the principles laid down in that decision in their determination of just compensation for requisitioned vessels.

We received a further communication from the Secretary under date of March 4, 1952, acknowledging receipt of the decision and stating that after the necessary data and statistics had been assembled, valuations would be determined and submitted to the General Accounting Office for a decision as to whether they were in accordance with section 902 (a) of the 1936 act as interpreted by the Comptroller General. Subsequently the Maritime Administration sent to us, for conference purposes only, a draft of a proposed general order which would establish such valuations. This draft was considered by our staff, and we advised the Administration that we were prepared to

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discuss it at their convenience. A conference took place on February 11 of this year.

It was brought out by the Maritime people at this conference that, in all likelihood, the present market values of all types of vessels were less than the values on December 16, 1950, the date the President proclaimed the existence of the current national emergency. A summary of the matters tentatively and informally agreed upon at the meeting reads as follows:

1. Maritime would obtain from expert appraisers, such as Francis S. Martin & Son, or Pillsbury & Martignoni, or both, their estimates of current market values of basic types of vessels, and values for the same types of vessels as of December 16, 1950, the critical date. If the current market values were (as it was believed they would be) less than the values on the critical date, no question of enhancement would be involved and the current market values could be incorporated and issued in a general order.

2. If any of the current market values were found to be in excess of the values on the critical date, consideration would then be given to a method of adjusting those values, if necessary, to exclude "prohibited enhancement."

3. Consideration would be given by representatives of the GAO and Maritime to a formula which could be agreed upon for adjusting periodically the values that would be prescribed in the original order, based possibly upon some currently maintained price index, such as one of the indexes maintained by the Bureau of Labor Statistics, Department of Labor.

4. It would be desirable for the "just compensation values" determined pursuant to section 902 (a) as construed by the GAO to be the same as the "fair and reasonable values" determined by the Federal Maritime Board, pursuant to section 1209 (a). Mr. Casey expressed the view that he could see no reason why these two valuations would not be the same. Reference also was made to former President Truman's statement when he signed the bill containing the term "fair and reasonable rates."

5. Insurance values should be determined promptly and prescribed in a general order. Thereafter, the valuation clause in the interim binders should be amended by endorsement to each binder to prescribe the agreed value of the ship covered by the binder as prescribed by the valuation order.

In other words, Mr. Chairman, it was agreed between us that they would verify the fact that values now were less than they were on December 16, 1950, by conferring with some of the outstanding vessel appraisers in the country, and that if in fact it turned out that values were less than they were December 16, 1950, then of course there could be no prohibited enhancement as is contemplated by section 902 (a), and for all practical purposes the General Accounting Office would be out of the picture insofar as stating valuations that were to be contained in the insurance policies that were issued.

But at the present time and pending that determination by consulting the appraisers, the insurance policies that are issued provide that in the event of a total or constructive total loss of the vessel, the owner shall be paid "the vessel's fair and reasonable value as determined in accordance with Public Law 763, 81st Congress, and any other applicable acts of Congress, provided that the amount payable shall not exceed the maximum sum which the Maritime Administrator, as underwriter, is authorized to pay under any applicable acts of Congress.

In other words, they have put in there a provision that merely says that at some future date, if war should break out and the policy should go into effect, that they will pay in accordance with whatever laws apply to the fixing of valuations for vessels under insurance.

It is the delay in fixing these valuations which accounts for the absence of any stipulated sum in the existing insurance policies. There