Passenger Vessel Operator Financial Responsibility Requirements for Nonperformance of Transportation, 58227-58236 [2011-23906]

Agencies

• Federal Maritime Commission

[Federal Register Volume 76, Number 182 (Tuesday, September 20, 2011)]
[Proposed Rules]
[Pages 58227-58236]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-23906]



[[Page 58227]]

-----------------------------------------------------------------------

FEDERAL MARITIME COMMISSION

46 CFR Parts 501 and 540

[Docket No. 11-16]
RIN 3072-AC45


Passenger Vessel Operator Financial Responsibility Requirements 
for Nonperformance of Transportation

September 13, 2011.
AGENCY: Federal Maritime Commission.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Federal Maritime Commission proposes to amend its rules 
regarding the establishment of passenger vessel financial 
responsibility for nonperformance of transportation. Currently the 
amount of coverage required for performance shall not exceed $15 
million. The amendments would modify the current cap on required 
performance coverage from $15 million to $30 million over a two year 
period; adjust the amount of coverage required for smaller passenger 
vessel operators by providing for consideration of alternative forms of 
protection; revise the application form; add an expiration date to the 
Certificate (Performance); and make some technical adjustments to the 
regulations. Comments and suggestions are particularly sought regarding 
consideration of duplicative forms of protection without creating gaps 
that could leave consumers vulnerable.

DATES: Submit comments on or before November 21, 2011.

ADDRESSES: Address all comments concerning this proposed rule to: Karen 
V. Gregory, Secretary, Federal Maritime Commission, 800 North Capitol 
Street, NW., Washington, DC 20573-0001.
    Phone: (202) 523-5725.
    E-mail: secretary@fmc.gov.

FOR FURTHER INFORMATION CONTACT: Sandra L. Kusumoto, Director, Bureau 
of Certification and Licensing, 800 North Capitol Street, NW., 
Washington, DC 20573-0001.
    Phone: (202) 523-5787.
    E-mail: bcl@fmc.gov.

SUPPLEMENTARY INFORMATION:
    Submit Comments: For non-confidential comments, submit an original 
and five (5) copies, and if possible, send a PDF of the document by e-
mail to secretary@fmc.gov. Include in the subject line: Docket No. 11-
16 Comments on PVO Financial Responsibility. Confidential filings must 
be submitted in the traditional manner on paper, rather than by e-mail. 
Comments submitted that seek confidential treatment must be submitted 
in hard copy by U.S. mail or courier. Confidential filings must be 
accompanied by a transmittal letter that identifies the filing as 
``confidential'' and describe the nature and extent of the confidential 
treatment requested. When submitting comments in response to the NPRM 
that contain confidential information, the confidential copy of the 
filing must consist of the complete filing and be marked by the filer 
as ``Confidential-Restricted,'' with the confidential material clearly 
marked on each page. When a confidential filing is submitted, an 
original and one additional copy of the public version of the filing 
must be submitted. The public version of the filing should exclude 
confidential materials, and be clearly marked on each affected page, 
``confidential materials excluded.'' The Commission will provide 
confidential treatment to the extent allowed by law for those 
submissions, or parts of submissions, for which the parties request 
confidentiality. Questions regarding filing or treatment of 
confidential responses to this NPRM should be directed to the 
Commission's Secretary, Karen V. Gregory, at the telephone number or e-
mail provided above.
    Section 3 of Public Law 89-777 (Section 3),\1\ 46 U.S.C. 44101-
44106, requires passenger vessel operators to establish financial 
responsibility to indemnify passengers for nonperformance of 
transportation.
---------------------------------------------------------------------------

    \1\ Section 3 provides, in pertinent part:
    (a) No person in the United States shall arrange, offer, 
advertise, or provide passage on a vessel having berth or stateroom 
accommodations for fifty or more passengers and which is to embark 
passengers at United States ports without their first having been 
filed with the Federal Maritime Commission such information as the 
Commission may deem necessary to establish the financial 
responsibility of the person arranging, offering, advertising, or 
providing such transportation, or, in lieu thereof, a copy of a bond 
or other security, in such form as the Commission, by rule or 
regulation, may require and accept, for indemnification of 
passengers for nonperformance of the transportation.
---------------------------------------------------------------------------

    On December 3, 2009, the Commission issued a Notice of Inquiry 
(NOI) \2\ to solicit information and comments on whether the passenger 
vessel financial responsibility regulations in 46 CFR Part 540, Subpart 
A, should be amended. The NOI focused on three subjects: (1) The Cost 
of Complying with Nonperformance Regulations; (2) Adequacy of 
Nonperformance Coverage; and (3) Practices of Sureties, Credit Card 
Companies and Others. On March 3, 2010, the Commission held a public 
hearing to receive further information regarding passenger vessel 
operators' financial responsibility.\3\
---------------------------------------------------------------------------

    \2\ Federal Maritime Commission, Notice of Inquiry Regarding 
Passenger Vessel Responsibility, 74 FR 65125 (December 9, 2009).
    \3\ Federal Maritime Commission, Notice of Public Hearing, 
Passenger Vessel Financial Responsibility, 75 FR 7599 (February 22, 
2010).
---------------------------------------------------------------------------

    A number of comments received in response to the NOI contend that 
the $15 million cap disproportionately affects small U.S.-flagged PVOs 
and gives preferential treatment to larger PVOs who are only required 
to cover a small percentage of unearned passenger revenue (UPR) versus 
the 110% of coverage required for small PVOs with UPR below the $15 
million cap. Several PVOs suggested that the Commission examine the 
financial health of a PVO to assess its risk of nonperformance and 
adjust the required coverage accordingly. Several respondents requested 
that the Commission consider travel insurance and protection for credit 
card payments to offset the required financial coverage for 
nonperformance. The Commission now proposes to amend its current rules.

Background

    The $15 million cap currently set forth at 46 CFR 540.9(j) has been 
in place since 1991, when it was raised from $10 million.\4\ In 1994, 
the Commission proposed to remove the $15 million cap. Following 
receipt of comments opposing this proposal, the Commission revised its 
proposal by proposing a sliding scale requirement that would increase 
the amount of coverage required for those PVOs exceeding $15 million in 
UPR, without requiring coverage of the total amount of UPR.\5\ The 
Commission later discontinued Docket No. 94-06 without making any 
revisions to its regulations.\6\
---------------------------------------------------------------------------

    \4\ See Docket No. 90-01, Security for the Protection of the 
Public, Maximum Required Performance Amount, 55 FR 34563 (August 23, 
1990).
    \5\ See Docket No. 94-06, Financial Responsibility Requirements 
for Nonperformance of Transportation, 59 FR 15149, March 31, 1994.
    \6\ Docket No. 94-06, Financial Responsibility Requirements for 
Nonperformance of Transportation, 67 FR 19535 (April 22, 2002).
---------------------------------------------------------------------------

    Since the cap was raised in 1991, UPR of many cruise lines has 
increased substantially. Since September 2000, fifteen PVOs that had 
been covered by the Commission's regulations have ceased operations: 
Premier Cruise Operations Ltd. (Premier), New Commodore Cruise Lines 
Limited (New Commodore), Cape Canaveral Cruise Lines, Inc., MP 
Ferrymar, Inc., American Classic Voyages Company (American Classic), 
Royal Olympic, Regal Cruises, Ocean Club Cruise Line, Society 
Expeditions, Scotia Prince, Glacier Bay, Great American Rivers,

[[Page 58228]]

RiverBarge Excursion Lines, Inc., Majestic America Line, and West 
Travel, Inc. d/b/a Cruise West.
    Of those, three had UPR in excess of the present $15 million cap at 
the time their operations ceased: Premier, New Commodore, and American 
Classic. Premier and New Commodore passengers were reimbursed through a 
combination of credit card refunds and surety bond payments. Without 
credit card reimbursement, the surety bonds in place at the time would 
have covered roughly two-thirds of outstanding UPR. The third line, 
American Classic had the highest UPR at $51 million. It is estimated 
that approximately 60% of its passengers were reimbursed through credit 
card issuers and travel insurance. After ten years of bankruptcy 
proceedings, the remaining 40% of passengers who had paid by cash or 
check finally received some reimbursement, up to $2,100 each. American 
Classic fares for their standard-length cruises were up to $3,435 per 
person, and were required to be paid sixty days in advance.\7\
---------------------------------------------------------------------------

    \7\ See American Classic Voyage Co. Prospectus Statement at S-
31. S-33 (Feb. 16, 2000).
---------------------------------------------------------------------------

Level of Unearned Passenger Revenue

    There has been no increase in the coverage cap level since the 
present cap was established in 1991. The amount of coverage required of 
a PVO is 110% of its highest UPR earned within the most current two 
year period, up to the cap. In 1990, total two year high UPR for all 
PVOs regulated by the Commission exceeded $1 billion. Total financial 
coverage provided at that time was slightly more than $250 million. 
Thus, approximately 25% of outstanding UPR was protected by financial 
instruments filed with the Commission in 1990. Since then, total two-
year high UPR for all PVOs in the Commission's program has more than 
tripled to $3.7 billion, while total financial coverage for all such 
PVOs under the Commission's program has increased to only $308 million, 
providing coverage for approximately 8% of the total UPR now in the 
hands of PVOs.
    The Commission is required to ensure adequate financial 
responsibility to reimburse passengers in the event of nonperformance. 
The concern is the availability of funds to reimburse passengers for 
nonperformance of cruises, as the amount of passenger funds collected 
by PVOs well before scheduled voyages continues to increase. Moreover, 
as the size of vessels deployed by these PVOs increases, failure to 
perform a single voyage could have a significantly bigger impact.
    While the risk of some cruise lines' failing may be low, the 
potential losses could be high, the risk of which is determined by the 
premiums charged to PVOs by their sureties. The more financially viable 
a given PVO, the less an issuer of bonds or guaranties would presumably 
charge for providing coverage. This concept is reflected in the 
responses to the Commission's NOI last year, which indicated that the 
largest PVO incurs premiums substantially less than other lines. 
Moreover, as with insurance policies, coverage may be available only 
when the client is of sound health. Premiums can increase exponentially 
with increased risk, to the point where coverage is no longer available 
for clients that are not financially or operationally sound. Once there 
appears to be significant risk of failure, the ability to increase 
coverage becomes problematic as increased coverage may not be 
available, or may be so costly as to tip the PVO over the financial 
brink and create the very nonperformance the Commission seeks to 
prevent.

The $15 Million Cap

    The Commission has examined its current $15 million cap in light of 
the above circumstances. Since 1967, when the cap was set at $5 
million, the Consumer Price Index has increased more than five-fold. 
Simply keeping pace with that index would require a cap of over $25 
million if adjusted from the last increase in 1990 or to approximately 
$33 million if adjusted from 1967 (In 1967, 100% of all UPR was 
covered). Yet the cruise industry itself and the amount of UPR 
outstanding at any one time have increased to a much greater degree. A 
coverage requirement capped at $25 million (much less $15 million) 
would be far less than 100% coverage for cruise lines whose fleets 
consistently have outstanding UPR in the hundreds of millions of 
dollars.
    Finally, recent experience has demonstrated that increased coverage 
requirements should be put in place before a PVO begins to experience 
financial difficulty. It appears that once a PVO becomes financially 
unstable, any Commission action requiring a certificant to increase its 
coverage may not be possible.
    For these reasons, therefore, the Commission now proposes to 
increase the cap on required evidence of financial responsibility in 46 
CFR 540.9(j) from $15 million to $30 million. In order to allow the 
industry time to adjust, the proposed rule includes a phase-in period 
of two years for the adjustment. By the end of the first year, the 
limit will adjust to $22 million, and by the end of the second year it 
will adjust to $30 million. Every two years after the limit on required 
financial responsibility reaches $30 million, the limit shall 
automatically adjust to the nearest $1 million based on changes as 
reflected in the Consumer Price Index.
    Prior to any change in the amount of financial responsibility, the 
proposed rule would require that notice be provided. This notice will 
be published on the Commission's Web site and in the Federal Register, 
affording PVOs time to post the correct amount of financial 
responsibility.
    In recognition of the disparity between small and large cruise 
lines in the percentage of unearned passenger revenue for which 
evidence of financial responsibility is required, the proposed rule 
also includes a provision whereby the Commission may, on a case by case 
basis, recognize additional protections submitted by an applicant in 
consideration of a reduction in the amount required to be furnished. 
This proposal would provide that PVOs with UPR not exceeding 150% of 
the cap may request relief from coverage requirements otherwise 
provided for in these rules by substituting alternative forms of 
protection. The PVO would submit its request to BCL, which would 
coordinate with the applicant, evaluate the request, and submit the 
request with its analysis for Commission consideration. The Commission 
invites comments on how this regulatory relief proposal could be 
improved to most effectively avoid duplicative coverage without 
creating gaps that leave cruise passengers vulnerable.
    The Commission also invites comments on other proposals that will 
ensure adequate financial responsibility of cruise vessels in the event 
of nonperformance, such as modeling nonperformance financial 
responsibility requirements on current financial requirements for 
casualty administered by the Commission by: (1) Calculating the revenue 
generated by the top two rate tiers of berths on a first-class or 
premium voyage for an appropriate number (for example the five largest 
vessels) of each PVO's fleets; and (2) applying appropriate discount 
factors to prevent coverage that exceeds UPR.
    The proposed rule also includes updates and improvements to the 
Commission's existing financial responsibility rules and forms.

The $30 Million Cap

    Each time the Section 3 cap has been increased by the Commission, 
the pressure inflation places on passenger tickets was raised as a 
primary

[[Page 58229]]

concern.\8\ In Docket No. 90-01, when the present Section 3 coverage 
cap was set at $15 million, the Commission stated that the increase was 
``predicated, for the most part, upon the increase in the consumer 
price index.'' \9\ The Bureau of Labor Statistics' Consumer Price Index 
for all Urban Consumers (CPI-U) is the most widely used measure to 
track changes in prices by federal agencies and financial institutions.
---------------------------------------------------------------------------

    \8\ See Docket No. 79-93, Final Rule, 45 FR 23428 (April 7, 
1980), and Docket No. 90-01, Final Rule, 55 FR 34564 (August 23, 
1990).
    \9\ Docket No. 90-01, Final Rule, 55 FR 34564, 34566 (August 23, 
1990).
---------------------------------------------------------------------------

    It is common practice for federal agencies to adjust user fees, 
fines and penalties using an inflation calculator on two or four year 
cycles.\10\ The proposed automatic adjustment based on the widely 
published and freely accessible CPI-U would provide PVOs with certainty 
as to their ongoing responsibilities to comply with the regulations. 
The proposed rule would thereafter automatically adjust the $30 million 
cap every two years based on changes in prices as measured by the CPI-U 
to the nearest $1 million.
---------------------------------------------------------------------------

    \10\ See 35 CFR 138.240 (procedure for calculating limit of 
liability adjustments for inflation).
---------------------------------------------------------------------------

Technical Changes

    A number of other revisions are also proposed. These changes would 
better refine the rules, based on the Commission's recent experience. 
For example, Section 540.4(b) and Section 540.23(a) would be modified 
to direct applicants to file application form FMC-131 with the Bureau 
of Certification and Licensing instead of with the Office of the 
Secretary. The current regulations in 46 CFR part 540 contain a sample 
Form FMC-131 (Application for Passenger Vessel Certificate) as well as 
a sample surety bond, guaranty, and escrow agreement. As proposed, Form 
FMC-131 would no longer be included within the regulations, but would 
be available from the Bureau of Certification and Licensing and the 
Commission's Web site. The sample escrow agreement would also be 
revised. The Commission also proposes to revise the application form to 
more closely comport with the information needed in an application and 
ultimately allow for the form to be completed electronically. Although 
the current rules require the submission of an application form, the 
current version for many years has not been useful to either the 
applicants or staff reviewing the filing, and rarely is completed. The 
new form will be streamlined and include a section that captures vessel 
information. Additionally, the Commission proposes a 5-year expiration 
period for each Certificate (Performance) issued. This proposed change 
would harmonize the Commission's PVO certificates with international 
certificates, such as those issued under The Safety of Life at Sea 
Convention and the International Convention on Load Lines, as well as 
with domestic certificates such as the U.S. Coast Guard's Certificate 
of Inspection.\11\ An expiration date would also provide clarity to 
U.S. Customs and Border Protection in determining the validity of a 
certificate, and would ensure that the Commission periodically confirms 
PVO information previously submitted to the Commission. Further, the 
proposed rule would also provide that the Commission, for good cause, 
could issue a certificate with an expiration date less than 5 years, 
which would provide for issuance of short-term certificates to PVOs 
that operate from U.S. ports for a short period.
---------------------------------------------------------------------------

    \11\ On October 31, 1988, the International Maritime 
Organization (IMO) convened the International Conference on the 
Harmonized Systems of Survey and Certification to adopt the Protocol 
of 1988 relating to the International Convention for Safety of Life 
at Sea (SOLAS), 1974, and the Protocol of 1988 relating to the 
International Convention on Load Lines, 1966. By adopting these 1988 
Protocols, IMO standardized the term of validity for certificates 
and intervals for vessel inspections required by the Conventions. 
These 1988 Protocols entered into force as international law on 
February 3, 2000. See also 65 FR 6494 (February 9, 2000).
---------------------------------------------------------------------------

Voluntary Resolution of Passenger Claims in the Event of Nonperformance

    Though not part of this rulemaking, we desire to call the attention 
of the public to the services provided by the Commission's Office of 
Consumer Affairs and Dispute Resolution Services (CADRS), which 
provides a number of services designed to assist passengers with 
difficulties in dealing with cruise operators through its Ombudsman 
Service. The CADRS staff is trained to serve as third-party neutrals in 
a facilitative manner.

Regulatory Impact

    In 2003, the Commission adopted a presumption that PVOs generally 
are not small businesses under the Small Business Regulatory 
Enforcement Fairness Act amendments to the Regulatory Flexibility Act 
because they are generally large companies with more than 500 
employees, the measure used by the North American Industrial 
Classification System published by the Office of Management and 
Budget.\12\
---------------------------------------------------------------------------

    \12\ See FMC Policy and Procedures Regarding Proper 
Consideration of Small Entities in Rulemakings (February 7, 2003).
---------------------------------------------------------------------------

    Therefore, no small entities will be affected by the proposed rule.
    Any potential impact from the proposed rule would be relatively 
small. While the rule as proposed would require some PVOs to furnish an 
increased amount of proof of financial responsibility, the estimated 
cost of that increase is not significant. Additionally, Section 
540.9(j)(ii) of the proposed rule would enable those PVOs with UPR not 
exceeding 150% of the coverage cap to request that the Commission 
consider alternative forms of financial protection.
    The proposed rule would increase total net financial protections 
for cruise passengers by approximately $144 million while likely 
providing approximately $37 million in reduced bond requirements for 
smaller PVOs. Surety companies have informed the Commission that bond 
premiums typically range from 0.5% to 3% of a bond's face value, 
depending on a company's financial health, which results in a total net 
increase in premium costs of between $685,000 and $4.1 million. This 
includes a likely reduction in premium costs of between $186,000 and 
$1.1 million for small PVOs.
    Accordingly, the Chairman of the Commission certifies, pursuant to 
section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., 
that the proposed rule will not, if promulgated, have a significant 
economic impact on a substantial number of small entities. Members of 
the public may comment on this certification.
    This rule is not a ``major rule'' under 5 U.S.C. 804(2).
    The collection of information requirements contained in this 
proposed 46 CFR Part 540 have been submitted to the Office of 
Management and Budget for review under section 3504(h) of the Paperwork 
Reduction Act of 1980, as amended. Send comments regarding the burden 
estimate or any other aspect of the collection of information, 
including suggestions for reducing this burden, to Managing Director, 
Federal Maritime Commission, 800 North Capitol Street, NW., Washington, 
DC 20573, e-mail: OMD@fmc.gov, or fax: (202) 523-3646; and to the 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Attention: Desk Officer for Federal Maritime Commission, 17th 
Street and Pennsylvania Avenue, NW., Washington, DC 20503, e-mail: 
OIRASubmission@OMB.EOP.GOV, or fax: (202) 395-5806.

[[Page 58230]]

List of Subjects

46 CFR Part 501

    Administrative practice and procedure, Authority delegations, 
Organization and functions, Seals and insignia.

46 CFR Part 540

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

    For the reasons stated in the supplementary information, the 
Federal Maritime Commission proposes to amend 46 CFR parts 501 and 540 
as follows.

PART 501--THE FEDERAL MARITIME COMMISSION--GENERAL

    1. Revise the authority citation for Part 501 to read as follows:

    Authority: 5 U.S.C. 551-557, 701-706, 2903 and 6304; 31 U.S.C. 
3721; 41 U.S.C. 414 and 418; 44 U.S.C. 501-520 and 3501-3520; 46 
U.S.C. 301-307, 40101-41309, 42101-42109, 44101-44106; Pub. L. 89-
56, 70 Stat. 195; 5 CFR Part 2638; Pub. L. 104-320, 110 Stat. 3870.

    2. Revise Sec.  501.5(g)(2) to read as follows:


Sec.  501.5  Functions of the organizational components of the Federal 
Maritime Commission.

* * * * *
    (g) * * *
    (2) Through the Office of Passenger Vessels and Information 
Processing, has responsibility for reviewing applications for 
certificates of financial responsibility with respect to passenger 
vessels, reviewing requests for substitution of alternative forms of 
financial protection, managing all activities with respect to evidence 
of financial responsibility for OTIs and passenger vessel owner/
operators, and for developing and maintaining all Bureau database and 
records of OTI applicants and licensees.
* * * * *


Sec.  501.26  [Amended]

    3. In Sec.  501.26, amend the introductory text by removing the 
word ``redelgated'' and adding the word ``redelegated'' in its place.

PART 540--PASSENGER VESSEL FINANCIAL RESPONSIBILITY

    4. 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.


Sec.  540.1  [Amended]

    5. In Sec.  540.1(b), add the phrase ``by the Department of 
Homeland Security'' after the phrase ``clearance''.
    6. Amend Sec.  540.2 by revising paragraphs (a) and (i) to read as 
follows:


Sec.  540.2  Definitions.

* * * * *
    (a) Person includes individuals, limited liability companies, 
corporations, partnerships, associations, and other legal entities 
existing under or authorized by the laws of the United States or any 
State thereof or the District of Columbia, the Commonwealth of Puerto 
Rico, the Virgin Islands or any territory or possession of the United 
States, or the laws of any foreign country.
* * * * *
    (i) Unearned passenger revenue means that passenger revenue 
received for water transportation and all other accommodations, 
services, and facilities relating thereto not yet performed; this may 
include port fees and taxes, but excludes such items as airfare, hotel 
accommodations, and tour excursions.
* * * * *
    7. Revise Sec.  540.4 to read as follows:


Sec.  540.4  Procedure for establishing financial responsibility.

    (a) In order to comply with section 3 of Public Law 89-777 (46 
U.S.C. 44101-44102, 44104-44106) enacted November 6, 1966, there must 
be filed with the Federal Maritime Commission an application on Form 
FMC-131 for a Certificate of Financial Responsibility for 
Indemnification of Passengers for Nonperformance of Transportation. 
Copies of Form FMC-131 may be obtained from the Commission's Web site 
at https://www.fmc.gov, or from the Bureau of Certification and 
Licensing, Federal Maritime Commission, Washington, DC 20573.
    (b) An application for a Certificate (Performance) shall be filed 
with the Bureau of Certification and Licensing, Federal Maritime 
Commission, by the vessel owner or charterer at least 60 days in 
advance of the arranging, offering, advertising, or providing of any 
water transportation or tickets in connection therewith except that any 
person other than the owner or charterer who arranges, offers, 
advertises, or provides passage on a vessel may apply for a Certificate 
(Performance). Late filing of the application will be permitted without 
penalty only for good cause shown.
    (c) All applications and evidence required to be filed with the 
Commission shall be in English, and any monetary terms shall be 
expressed in terms of U.S. currency.
    (d) The Commission shall have the privilege of verifying any 
statements made or any evidence submitted under the rules of this 
subpart.
    (e) An application for a Certificate (Performance), excluding an 
application for the addition or substitution of a vessel to the 
applicant's fleet, shall be accompanied by a filing fee remittance of 
$2,767. An application for a Certificate (Performance) for the addition 
or substitution of a vessel to the applicant's fleet shall be 
accompanied by a filing fee remittance of $1,382. Administrative 
changes, such as the renaming of a vessel will not incur any additional 
fees.
    (f) The application shall be signed by a duly authorized officer or 
representative of the applicant with a copy of evidence of his or her 
authority.
    (g) In the event of any material change in the facts as reflected 
in the application, an amendment to the application shall be filed no 
later than fifteen (15) days following such change. For the purpose of 
this subpart, a material change shall be one which: (1) results in a 
decrease in the amount submitted to establish financial responsibility 
to a level below that required to be maintained under the rules of this 
subpart, or (2) requires that the amount to be maintained be increased 
above the amount submitted to establish financial responsibility.
    (h) Notice of the application for issuance, denial, revocation, 
suspension, or modification of any such Certificate will be published 
on the Commission's Web site at https://www.fmc.gov.
    8. Amend Sec.  540.5 as follows:
    a. Revise paragraph (a)(1)(i) to read as follows; and
    b. Amend paragraph (c) by adding a sentence at the end of the 
paragraph to read as follows.


Sec.  540.5  Insurance, guaranties, and escrow accounts.

* * * * *
    (a) * * *
    (1) * * * (i) Until notice in writing has been given to the assured 
or to the insurer and to the Bureau of Certification and Licensing at 
its office in Washington, DC 20573, by certified mail or courier 
service, and
* * * * *
    (c) * * * Copies of Form FMC-133A may be obtained from the 
Commission's Web site at https://www.fmc.gov or from the Bureau of 
Certification and Licensing.
* * * * *
    9. Amend Sec.  540.6(a) by adding a sentence at the end of the 
paragraph to read as follows:

[[Page 58231]]

Sec.  540.6  Surety bonds.

    (a) * * * Copies of Form FMC-132A may be obtained from the 
Commission's Web site at https://www.fmc.gov or from the Bureau of 
Certification and Licensing.
* * * * *
    10. Revise Sec.  540.7 to read as follows:


Sec.  540.7  Evidence of financial responsibility.

    Where satisfactory proof of financial responsibility has been 
established:
    (a) A Certificate (Performance) covering specified vessels shall be 
issued evidencing the Commission's finding of adequate financial 
responsibility to indemnify passengers for nonperformance of water 
transportation.
    (b) The period covered by the Certificate (Performance) shall be 
five (5) years, unless another termination date has been specified 
thereon.
    11. Amend Sec.  540.8 by revising paragraphs (a) and (b)(3) to read 
as follows:


Sec.  540.8  Denial, revocation, suspension, or modification.

    (a) Prior to the denial, revocation, suspension, or modification of 
a Certificate (Performance), the Commission shall notify the applicant 
of its intention to deny, revoke, suspend, or modify and shall include 
with the notice the reason(s) for such action. If the applicant, within 
20 days after the receipt of such notice, requests a hearing to show 
that the evidence of financial responsibility filed with the Commission 
does meet the rules of this subpart, such hearing shall be granted by 
the Commission. Regardless of a hearing, a Certificate (Performance) 
shall become null and void upon cancellation or termination of the 
surety bond, evidence of insurance, guaranty, or escrow account.
    (b) * * *
    (3) Failure to comply with or respond to lawful inquiries, requests 
for information, rules, regulations, or orders of the Commission 
pursuant to the rules of this subpart.
* * * * *
    12. Amend Sec.  540.9 by revising paragraphs (c), (e), (h), (j), 
and (k) to read as follows:


Sec.  540.9  Miscellaneous.

* * * * *
    (c) The Commission's bond (Form FMC-132A), guaranty (Form FMC-
133A), and application (Form FMC-131) forms may be obtained from the 
Commission's Web site at https://www.fmc.gov or from the Bureau of 
Certification and Licensing at its office in Washington, DC 20573.
* * * * *
    (e) Each applicant, insurer, escrow agent and guarantor shall 
furnish a written designation of a person in the United States as legal 
agent for service of process for the purposes of the rules of this 
subpart. Such designation must be acknowledged, in writing, by the 
designee and filed with the Commission. In any instance in which the 
designated agent cannot be served because of death, disability, or 
unavailability, the Secretary, Federal Maritime Commission, will be 
deemed to be the agent for service of process. A party serving the 
Secretary in accordance with the above provision must also serve the 
certificant, insurer, escrow agent, or guarantor, as the case may be, 
by certified mail or courier service at the last known address of them 
on file with the Commission.
* * * * *
    (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. 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 20573 by certified mail, 
courier service, or electronic submission.
* * * * *
    (j) The amount of:
    (1) The insurance as specified in Sec.  540.5(a),
    (2) The escrow account as specified in Sec.  540.5(b),
    (3) The guaranty as specified in Sec.  540.5(c), or
    (4) The surety bond as specified in Sec.  540.6 shall not be 
required to exceed $15 million for one year after the effective date of 
this rule. Twelve (12) months after the effective date of this rule, 
the amount shall not exceed $22 million, and twenty four (24) months 
after the effective date of this rule, the amount shall not exceed $30 
million.
    (i) Every two years, on the anniversary after the cap on required 
financial responsibility reaches $30 million, the cap shall 
automatically adjust to the nearest $1 million based on changes as 
reflected in the U.S. Bureau of Labor Statistics' Consumer Price Index.
    (ii) A certificant whose unearned passenger revenue at no time for 
the two immediately prior fiscal years has exceeded 150% of the 
required cap may submit a request to the Commission to substitute 
alternative forms of financial protection to evidence the financial 
responsibility as otherwise provided in this part. The Commission will 
consider such requests on a case by case basis. In determining whether 
and to what level to reduce the required amount, the Commission may 
consider the extent to which other statutory requirements provide 
relevant protections, the certificant's financial data, and other 
specific facts and circumstances.
    (k) Every person in whose name a Certificate (Performance) has been 
issued shall be deemed to be responsible for any unearned passage money 
or deposits held by its agents or any other person authorized by the 
certificant to sell the certificant's tickets. Certificants shall 
promptly notify the Commission of any arrangements, including charters 
and subcharters, made by it or its agent with any person pursuant to 
which the certificant does not assume responsibility for all passenger 
fares and deposits collected by such person or organization and held by 
such person or organization as deposits or payment for services to be 
performed by the certificant. If responsibility is not assumed by the 
certificant, the certificant also must inform such person or 
organization of the certification requirements of Public Law 89-777 and 
not permit use of its vessel, name or tickets in any manner unless and 
until such person or organization has obtained the requisite 
Certificate (Performance) from the Commission. Failure to follow the 
procedures in this paragraph means the certificant shall retain full 
financial responsibility for indemnification of passengers for 
nonperformance of the transportation.
    13. Remove Form FMC-131 to Subpart A of part 540.
    14. Revise Form FMC-132A to Subpart A of Part 540 to read 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. ----------


[[Page 58232]]



Know all men 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 subpart A of part 540 of title 46, Code of Federal 
Regulations and has elected to file with the Federal Maritime 
Commission such a bond to insure financial responsibility and the 
supplying transportation and other services subject to subpart A of 
part 540 of title 46, Code of Federal Regulations, in accordance with 
the ticket contract between the Principal and the passenger, and


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 in accordance with the ticket contract 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.


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, D.C., 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.


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.

15. Revise Form FMC-133A to Subpart A of Part 540 to read follows:
FORM FMC-133A TO SUBPART A OF PART 540
FORM FMC-133A
FEDERAL MARITIME COMMISSION
Guaranty in Respect of Liability for Nonperformance, Section 3 of the 
Act
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 section 3 of Pub. L. 89-777, 89th Congress, approved 
November 6, 1966 (``the Act'') then, 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 section 3 of the Act, in the event that such 
legal liability has not been discharged by the Applicant within 21 days 
after any such passenger has obtained a final judgment (after appeal, 
if any) against the Applicant from a United States Federal or State 
Court of competent jurisdiction, or has become entitled to payment of a 
specified sum by virtue of a compromise settlement agreement made with 
the Applicant, with the approval of the Guarantor, whereby, upon 
payment of the agreed sum, the Applicant is to be fully, irrevocably 
and unconditionally discharged from all further liability to such 
passenger for such nonperformance.

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

[[Page 58233]]

transportation within the meaning of Section 3 of the Act, 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, subpart A of part 540 of 
title 46, Code of Federal Regulations, issued under Section 3 of Pub. 
L. 89-777 (80 Stat. 1357, 1358), entitled ``Security for the Protection 
of the Public.''

-----------------------------------------------------------------------
(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
    16. 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 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

[[Page 58234]]

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 e-mailed 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, 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 Section 3 of Public Law 89-777, 89th Congress, 
approved November 6, 1966 (the ``Act''). 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 Paragraph 3 of the Act. 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.
    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 of. 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

[[Page 58235]]

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