B-155619 January 18, 1965

B-155619 January 18, 1965

The Honorable John Kunkel House of Representatives

Dear Mr. Kunkel:

Further reference is made to your letter of November 2, 1964, enclosing a letter of October 28, 1964, from Mrs. Andrew J. Loftus, Claims Examiner, Middletown Air Materiel Area, Olasted Air Force Base, Pennsylvania. Mrs. Loftus' correspondence concerns her suggestion to the United States Air Force entitled "Processing of Transportation Claims (Personnel Claims) - Chapter 6, AFM 112-1."

In essence, Mrs. Loftus has suggested that the Air Force allot to personnel, authorized to have their household goods transported at Government expense, an amount adequate to obain insurance covering the value of their household goods. In this manner, Mrs. Loftus believes the subsequent claims filed by military personnel under the Military Personnel Claims Act (10 U.S.C. 2732) and the associated administrative processing costs on the part of the Government could be eliminated. After consideration of the suggestion, Headquarters, United States Air Forces, concluded that the suggestion should not be adopted, because the cost to allot an amount adequate to have the owners obtain their own insurance would far exceed the net amounts paid by the Air Force for damage plus the administrative costs involved.

Our review of the Air Force evaluation and other information obtained in our analysis of the case, as set forth below, lead us to the same conclusion. In our opinion, the Air Force acted in the public interest in not adopting the proposal promoted by Mrs. Loftus.

The Department of the Air Force stated in its reply to Mrs. Loftus that, in its rotation of personnel during fiscal year 1964, it sponsored approximately $70,000 shipments of household goods and personnel effects. We were subsequently advised by the Air Force that this figure includes both actual shipments and an estimated 160,000 sets of baggage carried by servicemen travelling via common carriers during the year. Although personal effects carried as baggage on common carriers are protected by the Military Personnel Claims Act, provided the serviceman is on official duty, loss or damage attributable to carrier's negligence under those circumstances should normally be fully covered by the liability provisions of the regular common carriers' tariffs. Accordingly, the analysis of insurance costs compared to settlement and administrative costs under the Act should be directed to the approximately 310,000 shipments a year, wherein the carriers' liability for loss and damage is limited. Household goods and other personal property of military personnel which are shipped at the expense of the Government generally move under Government bills of lading and are released at the rate scaled to the lowest valuation, thus limiting the carriers' liability under the provisions of Condition 5 of the Government bill of lading which reads:

"This shipment is made at the restricted or limited valuation specified in the tariff or classification at or under which the lowest rate is available, unless otherwise indicated on the face hereof."

Therefore, on shipments of household effects in behalf of Air Force personnel, the carrier is liable for loss or damage in accordance with its lowest released valuation, currently 30 cents per pound, although most articles shipped have a considerably higher actual value. In view of this fact, Air Force personnel without any additional charges assessed against them are protected by the Government under the Military Personnel Claims Act (10 U.S.C. 2732) for loss and/or damage to their property incurred incident to their service up to the maximum amount of $6,500 based upon actual value.

In order to make prompt, just, and reasonable adjudication of all claims submitted under the Military Personnel Claims Act, the Secretary of the Air Force has adopted policies and procedures designed to afford the shipper, carrier, and Government adequate protection of their respective rights and interests. These procedures provide that, if the claim by the owner of the goods is substantiated, his claim may be paid or the property replaced in kind for full actual loss, damage, or injury up to the maximum acmount of $6,500, notwithstanding any limitation of liability or limitation of the amount of recovery under Government bills of lading and published tariffs.

In this connection, the report submitted to the Congress by the Secretary of the Air force for the fiscal year 1964, together with other information reviewed, showed that the Air force settled about 20,000 claims that year for loss and damage on shipments or temporary commercial storage of household goods and personal effects. The total amount allowed by the Air Force on these settlements are approximately $3.3 million. During the same year the Air Force recovered about $500,000 from carriers and warehousemen as their share of the liability incurred. Thus, the net settlement cost to the Air Force in fiscal year 1964 was approximately $2.8 million.

The administrative costs of processing Air Force loss and damage claims have been approximated from a survey conducted by the Air Force of the processing costs in the Judge Advocate General's Office at a large supply depot, and from a survey of inspection costs that we conducted at a large household goods transportation office in the Metropolitan Area of Washington, D. C. These surveys indicate that the total costs of processing about 20,000 claims in the various Judge Advocate General's Offices would amount to about $200,000; and that the cost of inspecting shipments, including those where damage is alleged as well as those where claims are actually filed, would amount to about $500,000 a year. We estimate, therefore, that the total direct costs to the Air force for processing these loss and damage claims under the Act was about $1 million, and the total direct costs for settlement and processing was about $3.6 million.

Our estimate of the comparative premium costs of full coverage commercial insurance is based on statistics of Air Force shipments of household goods and personal effects published by the Defense Traffic Management Service, the lowest available premium rates, and the generally accepted valuation of these commodities at $1 per pound. The premium rates for insuring these items are, for each $1,000 of value, $5 on shipments between points within the Continental United States, $10 on shipments to or between overseas points, $10 on all shipments of personal effects, and $1 per month for storage in the United States. At these rates, and based on the distribution and average weights of Air Force shipments reported by the Defense Traffic Management Service, we estimate that the total premium cost to fully insure the over $50,000 shipments made by the Air Force in fiscal year 1964 would have been nearly $6 million. We also estimate that the premium cost to insure those shipments held in temporary storage during the year would have been over $500,000.

On a comparison of direct costs alone, therefore, our survey indicates that the cost of fully insuring Air Force shipments in fiscal year 1964 would have exceeded $6 million, in contract to administrative and settlement costs of less than $4 million, or a difference of over $2 million. We have not endeavored to estimate the indirect costs involved in claims settlements, because in our judgment these would be more than offset by the administrative costs of an insurance program. Any indirect costs for claims settlements that have not been considered would, for example, be related basically to about 20,000 claims a year; whereas, allowing servicemen the premium costs for commercial insurance would involve certain additional administrative sections on each of over 300,000 shipments a year.

The possibility also exists that, under the arrangement suggested by Mrs. Loftus, service personnel, when provided with funds to purchase insurance for protection against loss and damage in the transportation of their household effects, might not purchase insurance coverage for monetary reasons or otherwise. If substantial loss or damage should then occur, the situation could very well result in serious family morale or financial problems with accompanying adverse effects on the military service involved. Moreover, certain risks are not insurable and are evaluated under Acts of God clauses in insurance contracts, and some provision would probably continue to be made to protect military personnel from this type of risk.

In view of the statement by Mrs. Loftus that the Government of Canada utilizes an insurance system similar to that suggested by her, we contacted the Canadian Joint Staff at the Canadian Embassy for information relative to the purchase of insurance for the movement of household goods of members of the Canadian Armed Forces incident to their service. We were informed that insurance, if desired, must be purchased by the member at his own expense and any settlement negotiations for loss or damage incurred are private matters between the insurance company and the member.

On the basis of our review, we believe the adoption of the suggestion of Mrs. Loftus would result in additional costs to the Government and at the same time lesson the protection afforded the military personnel by the Government. Accordingly, we believe the suggestion is not practical and that the Department of Air Force noted in the public interest is not adopting the proposal of Mrs. Loftus.

We trust that the above information will serve the purposes of your inquiry.

Sincerely yours,

Joseph Campbell Comptroller General of the United States