Options and Comparative Pricing for COFR Requirements

(Editor’s Note: The following article is an amalgam of interviews, conversations with principals and written contributions. Special credit deserves to go to the following attorneys: Joseph G. Braunreuther, a partner with Watson, Farley & Williams in New York, Arthur Dimopoulos and Stephen Flott of the firm Flott, Rosner & O’Brien in Washington, D.C.)

With only 50 some days to the deadline for COFRs, vessel owners and operators must ready evidence of financial responsibility for the U.S. Coast Guard. While a small portion of vessel owners may be in a position to provide a guaranty for their ships (i.e. Mobil’s subsidiary to provide bonds as guaranties for its owned or chartered vessels), most shipowners must rely on outside sources for a guaranty required to obtain COFRs. Several facilities are being offered to provide guaranties, including bonding companies, sureties and full insurance companies. The following is a full discussion of COFR requirements and the prominent facilities available to fulfill the rules proving those requirements can be met.

The Coast Guard’s Interim Final Rule for financial responsibility requirements established under OPA has determined that it will enforce the previously unenforced financial responsibility requirements under CERCLA. The Interim Final Rule is based largely upon the Notice of Proposed Rulemaking issued by the Coast Guard on September 26, 1991. OPA and CERCLA each contain provisions requiring vessels over 300 gross tons to obtain COFRs establishing their ability to pay claims under those statements in order to enter the U.S. waters. To obtain a COFR, owners and operators must show evidence of financial responsibility sufficient to meet the aggregate OPA and CERCLA liability limits for oil and hazardous substances pollution damage of $1,500 per gross ton for tank vessels and $900 per gross ton for non-tank vessels.

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