Oil spills can cause disastrous long-term effects on the environment, but they can also have major financial implications. That’s why the United States federal government has imposed numerous pollution regulations on the shipping industry. Hoping to protect the environment and ensure that the responsible party has the resources to pay for any damages.
U.S. pollution regulations have historically been defined by the disasters that have preceded them. Whether it was the 1967 Torrey Canyon 32-million-gallon oil spill that resulted in the Water Quality Improvement Act of 1970, or the 1989 Exxon Valdez 750,000-barrel spill that brought about the most substantial law changes the industry has seen since the Oil Pollution Act of 1990 (OPA90).
OPA90 not only increased limits of liability, fines, and penalties, including natural resource damage. But it also placed strict liability upon the discharging vessel’s owner/operator for the cleanup and damages.
To ensure the vessel owner/operator has the financial means to pay for this, OPA90 required certain vessels to obtain a Certificate of Financial Responsibility (COFR) from the U.S. Coast Guard/National Pollution Fund Center.
What is a COFR?
The COFR program was designed to hold vessel owners/operators responsible for clean-up costs associated with a water pollution incident, like a chemical spill or oil leak. The program issues the certificate only once the vessel owner/operator has provided an application and proven they have the financial means to cover expenses associated with “worst-case spill scenarios” outlined by the Oil Pollution Act.
The level of financial responsibility required depends on factors such as the type of vessel and its carrying capacity. For instance, tankers and large barges with a cargo capacity of 150,000+ barrels of oil must prove one billion dollars in financial responsibility, while nontank vessels must demonstrate 300 million dollars.
Examples of financial responsibility include insurance, letters of credit, surety bonds, and Protection and Indemnity Club membership. Certificate applicants must submit annual evidence of financial responsibility to maintain active certificates.
Who Needs a COFR?
Every vessel over 300 gross tons is required to have a COFR to operate legally within the Exclusive Economic Zone, or EEZ, waters of the United States. Also, any vessel, regardless of tonnage, that is lightering or transhipping oil in the EEZ of the United States, must have a COFR.
According to the National Ocean Service, the EEZ “extends no more than 200 nautical miles from the territorial sea baseline and is adjacent to the 12 nautical mile territorial sea of the U.S .” This designation also applies to territories over which the U.S. exercises sovereignty, like Guam and Puerto Rico.
How to Obtain a COFR
Although applicants can apply for a COFR in a variety of ways, the easiest is to apply online. They can log on to the USCG website, where the entire application process can be electronically filed. If approved, vessel owners/operators will receive their certificates within 30 days. And the certificates are valid for up to two years.
Once they have obtained a COFR, they can renew, apply for a new or supplemental COFR, and make online payments to USCG. Best of all, an electronic COFR is accessible by regulatory personnel, making paper copies unnecessary.
Why Should You Obtain a COFR?
Although procuring the certificate might seem like a time-intensive process, it’s worth it. Those who don’t obtain a COFR could face the following penalties if caught operating without one. Detainment, denied entry into their destination, fined up to $30,000 daily, and potentially having to forfeit their vessel.
Interested in learning more about vessel pollution insurance? At Falvey Insurance Group, our insurance coverage types include COFRs, along with global vessel pollution, marinas, shipyards, non-vessel owners, and blue cards.
