Passenger Vessel Responsibility

In recent months the cruise industry has been in the headlines.  Not so much due to the lifestyle of fun, luxury and glamour which is the trademark of the brand, but due to casualties that have resulted in loss of life and injury.

Forty-five years ago, in 1967, the United States Congress passed legislation to protect the interests of those persons sailing on commercial vessels used in the passenger trade.  The initial House Bill was introduced in 1965 with the intent to provide passengers a means of recovery in the event that their cruise was cancelled or otherwise interrupted due to financial insolvency of the cruise ship owner.  Then in late 1965 and early 1966 two foreign flagged cruise ships with U.S. citizens onboard caught fire in the Caribbean.  One fire resulted in the death of ninety passengers, causing Congress to become increasingly concerned for the safety of the American traveling public and lack of industry safety concerns.  Then President Johnson ordered several executive agencies, including the Department of Commerce, Maritime Administration, State Department, Treasury Department, U.S. Coast Guard and the Federal Maritime Commission to collaborate in creation of legislation to not only protect the financial interests of passengers who have lost the cost of their tickets in the event of the vessel owner’s insolvency, but to also protect the financial interests of passengers who are killed or injured.  After lengthy debate, the Act, known as the Passenger Vessel Financial Responsibility Act, became law.  46 C.F.R. 540.

The modern cruise industry bears little resemblance to that which existed in 1967.  Since the 1970’s the cruise industry has experienced an increasing popularization, becoming a major part of the tourism sector, and reaching a level of enormous significance world wide as an economic factor.  It has matured and is one of the most outstanding examples of globalization, with an increasing number of ports of call and new destinations around the globe, multinational clientele, and new vessels whose size and passenger capacity was not imaginable twenty years ago.  The industry has made the cruise the vacation of choice for those who would not have considered it in past decades.  As a consequence, the Act is more relevant than ever.

The Act consists of two parts.   Subpart A provides the passenger with financial security in the event that the vessel owner ceases operations due to insolvency or otherwise and the passenger’s cruise (for which he has already paid) is cancelled or interrupted.  Subpart B provides the passenger with similar financial security should he be injured or killed while on the voyage and the vessel owner claim financial hardship.

To provide this security, the Act requires persons in the United States who arrange, offer, advertise, or provide passage on a vessel having berth or stateroom accommodations for fifty or more passengers and embarking passengers at U.S. ports to provide proof of financial responsibility that is filed with the Federal Maritime Commission.  Such a passenger vessel may not call on U.S. ports unless it has filed an application with the Federal Maritime Commission which demonstrates it has the financial ability to respond to passenger’s claims.  By its application, the vessel owner is guaranteeing that it has the financial wherewithal to respond to its passenger’s claims.  The guaranty is backed by proof of either insurance, a surety bond, self- insurance or an escrow account.  The amount of the guaranty depends on the number of passenger accommodations aboard the vessel and evidence of the owner’s passenger revenue collected in the two prior fiscal years.  After its analysis of the application, if the FMC finds that the cruise line’s proof of financial solvency is backed by the appropriate security, it will issue Certificates of Performance and Casualty to the owner.  Only then will the cruise line be allowed to call on U.S. parts and take on passengers.  Should a passenger have grounds to make a claim against the cruise and the cruise line is out of business or otherwise unable to or refuses to respond, the passenger can contact the FMC to procure the information necessary to make his claim against the guaranty or security posted by the owner.

The Act makes no distinction as to the citizenship of the passenger or the flag of the ship.  Any person who embarks on a voyage from a U.S. port aboard a ship of any nation is protected.  The security or guaranty to reimburse the passenger for non-performance or indemnification due to injury or death remains outside the reach of the bankruptcy courts.  In other words, insolvency of the cruise line does not constitute a defense to the insurer that has provided the guaranty and the insurer agrees to pay any unsatisfied final judgments obtained on such claims.

Subpart B is more expansive in the class of individuals who may be covered by the guaranty.  It provides that the security posted must be sufficient to meet any liability which may be incurred for death of injury to passengers and “other persons” on voyages to or from U.S. ports.  Unfortunately, the Act does not define “other persons with any degree of certainty.  This raises the question of whether crew (the traditional Jones Act seaman) is covered.  Passengers, however, are defined as “any persons not necessary to the business, operation or navigation of the vessel.”  No courts have been asked to determine who “other persons” are.  The FMC, on its website, states that “other persons” “include, but are not limited to visitors, crew and temporary workers aboard ship.”  However, this statement does not carry the weight of law and who exactly is an “other person” has yet to be tested in a court of law.

The public should be aware of the act and the remedies it provides.  I would venture to say that the majority of the public is not.  The FMC provides significant information on its website. .

Considering a vacation cruise?  Take a few minutes, visit the website, and become informed.

Bon Voyage!!