B-107600, JUL. 30, 1958

B-107600, JUL. 30, 1958

TO HONORABLE CLARENCE G. MORSE, MARITIME ADMINISTRATION:

REFERENCE IS MADE TO YOUR LETTER OF JANUARY 20, 1958, ENCLOSING COPIES OF A PROPOSED GENERAL ORDER AND APPENDIX WHICH WOULD ESTABLISH THE VALUES FOR WAR RISK HULL INSURANCE PURPOSES UNDER SECTION 1209 (A) OF THE ACT, COMPUTED IN ACCORDANCE WITH SUBSECTION 902 (A) OF THE ACT AS INTERPRETED BY THE GENERAL ACCOUNTING OFFICE PURSUANT TO THE DEPARTMENT OF COMMERCE AND RELATED AGENCIES APPROPRIATION ACT, 1958, PUBLIC LAW 85-52, 85TH CONGRESS.

IN OUR DECISION OF FEBRUARY 11, 1952, WE STATED, IN PERTINENT PART, AS FOLLOWS:

"IT APPEARS CLEAR THAT THE APPLICATION OF THE PROHIBITED ENCHANCEMENT CLAUSE TO THE PRESENT EMERGENCY WOULD REQUIRE THE ESTABLISHMENT OF A "CRITICAL DATE" AFTER WHICH ENHANCEMENT DUE TO THE CAUSES NECESSITATING THE TAKING OF THE VESSELS WOULD NOT BE ALLOWED IN FIXING THE VALUE THEREOF, OR IN THE ALTERNATIVE, BACK TO WHICH THE APPRAISER WOULD BE REQUIRED TO GO IN DETERMINING THE AMOUNT OF SUCH ENHANCEMENT TO BE DEDUCTED FROM A VALUATION ESTABLISHED AS OF A LATER DATE. IT ALSO APPEARS THAT, FROM THE STANDPOINT OF AN ADMINISTRATIVE OFFICE, AT LEAST, THERE SHOULD BE LITTLE DIFFERENCE IN THE NET RESULT OF A VALUATION MADE AS OF THAT "CRITICAL DATE," WITH ALLOWABLE ENHANCEMENT ADDED THERETO AND A VALUATION MADE AT THE DATE OF TAKING OR LOSS, WITH PROHIBITED ENHANCEMENT FROM THE "CRITICAL DATE" TO THE DATE OF TAKING OR LOSS SUBTRACTED THEREFROM.

"IT FURTHER APPEARS THAT THE APPLICATION OF THE PROHIBITED ENHANCEMENT CLAUSE WOULD REQUIRE THE ESTABLISHMENT AND MAINTENANCE OF INDICES OF NORMAL COST INCREASES FROM AND AFTER THE "CRITICAL DATE" ESTABLISHED AND OF SHIP SALES PRICES AND CHARTER HIRE RATES FROM AND AFTER THAT DATE, AND OF OTHER DATA HAVING TO DO WITH VESSEL VALUATIONS - FOR THE PURPOSE OF DETERMINING WHAT ENHANCEMENT IS ALLOWABLE AND WHAT IS PROHIBITED UNDER THE CLAUSE. FINALLY, IT WOULD REQUIRE THE PROMULGATION OF REGULATIONS FOR THE APPLICATION OF THE CLAUSE TO GIVEN CASES - WITH SPECIAL CONSIDERATION BEING GIVEN TO THE PROVISION TO BE INCLUDED IN INSURANCE POLICIES CONTAINING A FIXED VALUATION TO ENSURE THAT THE AMOUNT PAID THEREUNDER FOR THE LOSS OF A VESSEL WOULD, IN NO INSTANCE, EXCEED THE AMOUNT PAYABLE UNDER THE RESTRICTIVE LANGUAGE HERE UNDER CONSIDERATION.'

THE PROPOSED ORDER SUBMITTED BY YOU STATES THAT THE INSURANCE VALUES PROVIDED THEREIN CONSTITUTE JUST COMPENSATION FOR THE VESSLES TO WHICH THEY APPLY, COMPUTED IN ACCORDANCE WITH SUBSECTION 902 (A) OF THE ACT AS INTERPRETED BY THIS OFFICE. THE JUST COMPENSATION VALUES WHICH HAVE BEEN ESTABLISHED THEREUNDER, AND THOSE PROPOSED TO BE ESTABLISHED, ARE THE CURRENT DOMESTIC MARKET VALUES OF VESSELS, ON THE PREMISE THAT THERE IS NO PROHIBITIVE ENHANCEMENT SINCE THERE HAVE BEEN NO TAKINGS OR REQUISITIONING OF VESSELS SUBSEQUENT TO THE DECLARATION OF THE PRESENT NATIONAL EMERGENCY ON DECEMBER 16, 1950, AND BECAUSE THERE IS PRESENTLY NO REASONABLE PROSPECT OF TAKING. OUR EXAMINATION HAS DISCLOSED NO EVIDENCE WHICH WOULD LEAD US TO BELIEVE THAT YOUR CONCLUSIONS ARE INCORRECT.

THE ORDER ALSO PRESCRIBES BASIC INSURANCE VALUES FOR (1) STANDARD TYPES OF WAR-BUILT VESSELS SOLD UNDER THE MERCHANT SHIP SALES ACT OF 1946 AND FACTORS TO APPLY TO SUBTYPES, (2) BASIC INSURANCE VALUES PER DEADWEIGHT TON FOR VESSELS BUILT DURING THE PERIOD 1917-1934, AND CONTAINS GENERAL PROVISIONS FOR ADJUSTMENTS TO BE MADE TO BASIC INSURANCE VALUES FOR CONDITION, EQUIPMENT, SPEED, AND OTHER FACTORS PERTINENT TO A PARTICULAR VESSEL. IN GENERAL, THE VALUES DETERMINED BY THE SHIP VALUATION COMMITTEE APPEAR TO BE BASED ON APPRAISALS SECURED FROM FOUR INDEPENDENT APPRAISERS AS OF JULY 1, 1957, AND ON REPORTS AND TELEPHONE CONFIRMATIONS OF CERTAIN STANDARD TYPES AT A LATER DATE. THE JULY 1, 1957, VALUES WERE THEN ADJUSTED BY VARIOUS METHODS TO ARRIVE AT THE DOMESTIC MARKET VALUE AT NOVEMBER 15, 1957. FROM OUR REVIEW OF THE PROCEDURES AND METHODS FOLLOWED, THE BASIC INSURANCE VALUES DETERMINED FOR THE ABOVE TYPES OF VESSELS AT NOVEMBER 15, 1957, SHOULD BE FAIRLY REPRESENTATIVE OF THE DOMESTIC MARKET VALUES AT THAT DATE AND IN ACCORDANCE WITH THE PERTINENT STATUTES. ACCORDINGLY, THERE APPEARS TO BE NO BASIS FOR OBJECTION TO PUBLICATION OF THE PROPOSED GENERAL ORDER.

AS TO THE VESSELS VALUED AND OTHER VESSELS TO BE VALUED, WE WOULD SUGGEST, HOWEVER, THAT YOUR ADMINISTRATION PREPARE WRITTEN PROCEDURES AND METHODS TO BE USED IN FIXING FUTURE VALUES OF VESSELS FOR WAR RISK HULL INSURANCE PURPOSES, TO ASSURE CONSISTENCY IN THE BASIS FOR SUCH VALUES; AND, IN THIS CONNECTION, WE SHALL BE PLEASED TO REVIEW SUCH PROCEDURES AND METHODS AND TO LEND SUCH OTHER ASSISTANCE AS MAY BE APPROPRIATE. SUCH AN ARRANGEMENT WOULD, IN OUR OPINION, FACILITATE THE PERIODIC DETERMINATIONS BY YOUR ADMINISTRATION AND PROPERLY MAINTAIN OUR RESPONSIBILITIES FOR POST -AUDIT OF SUCH DETERMINATIONS.