Certificate of financial responsibility
How to prepare the financial guarantor letter to apply to
Oil spills can have long-term negative consequences for the climate. As a result, the federal government of the United States has imposed various rules on the shipping industry in the hopes of protecting the environment and ensuring that the responsible party has the financial means to pay for any damages. Historically, disasters have determined US pollution laws, whether it was the Torrey Canyon 32-million-gallon oil spill in 1967 that led to the Water Quality Improvement Act of 1970 or the 1989 Exxon Valdez 750,000-barrel oil spill that resulted in the most significant law changes the industry has seen since the Oil Pollution Act of 1990. (OPA90).
OPA90 not only increased liability limits, fines, and penalties for natural resource damage, but it also made the discharging vessel’s owner/operator solely responsible for the cleanup and damages. OPA90 required any vessel over 300 gross tons to receive a Certificate of Financial Responsibility (COFR) from the US Coast Guard / National Pollution Fund Center to ensure the vessel owner/operator has the financial means to pay for this.
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The Shipowners Insurance and Guaranty Corporation Ltd. (“SIGCo”) is a Bermuda-based limited liability company whose sole purpose is to provide COFR guarantees to the USCG on behalf of shipowners, as required by OPA 90 and CERCLA. SIGCo is a Bermuda Insurance Act Class 3 corporation with a paid-up capital of USD 25 million and is authorised by the USCG to act as a COFR guarantor.
SIGCo’s ordinary shares are held in trust for the benefit of its shipowner customers, who will have a stake in the company’s net worth as well as any profits generated by the premiums they pay.
Stockton Re, ACE Limited, Global Capital Re, and a number of shipping-related interests have all contributed capital in the form of preference shares. These shares are redeemable and will be phased out over time, leaving the Trust as the sole owner of SIGCo. The Trustee is a private trust corporation with a Board of Directors comprised of members of SIGCo shipowner clients.
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The COFR program is managed by the National Pollution Funds Center of the United States Coast Guard (NPFC). The NPFC’s Vessel Certification Division ensures that the parties responsible for a water pollution incident are identified and held accountable for the costs incurred.
Vessels larger than 300 gross tons and vessels of any size transferring oil between vessels or transporting oil in the Exclusive Economic Zone (EEZ) must comply with COFR rules in order to operate in US waters, with a few exceptions.
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The Department adjusts the required financial responsibility amount for inflation every three years. The adjustment is calculated using the Anchorage Consumer Price Index, according to AS 46.04.045. (CPI). Please see Current financial obligation dollar amounts for the most up-to-date figures.
The only facilities that may have a deductible are non-tank vessels. A $50,000 deductible is the maximum amount that can be deducted. A deductible of $50,000 or more for a nontank vessel, or any deductible for all other equipment, necessitates supplementary coverage. Please see 18 AAC 75.271(d) or 18 AAC 75.250 for more information (d). Other appropriate proof (see “What kind of proof is accepted?” above) can be used to provide additional coverage. A “first dollar” deductible provision may be permissible (see 18 AAC 75.250(d) or 18 AAC 75.271(d)).