The Federal Maritime Commission issued an Advance Notice of Proposed Rulemaking (ANPRM) to seek comment on potential regulatory changes to its passenger vessel operator (PVO) / cruise line financial responsibility requirements. These changes were recommended in an Interim Report issued by the Fact Finding Officer in Commission Fact Finding 30: COVID-19 Impact on Cruise Industry.

The proposed rule changes seek to define nonperformance of transportation, the process for obtaining refunds from PVO after nonperformance of transportation including deadlines for requesting refunds, deadlines for PVO to issue refunds, as well as the method of refund. Finally, the Commission seeks a recommendation regarding passenger refunds when the passenger cancels their booking and the voyage is subsequently canceled as a result of a governmental orders or declarations, such as the CDC’s No Sail Order.

The executive summary states that before a passenger vessel operator (PVO) may arrange, offer, advertise, or provide transportation on a vessel, the PVO must file with the Federal Maritime Commission evidence of responsibility to indemnify passengers in the event of nonperformance of transportation. Satisfactory evidence includes a copy of a bond, insurance, guaranty, or escrow agreement meeting the Commission’s requirements in 46 CFR part 540. The Federal Maritime Commission reviews the PVO’s submission and if it meets the Commission’s requirements, it will issue the PVO a Certificate of Financial Responsibility for Indemnification of Passengers for Nonperformance of Transportation.

Following the arrival of Coronavirus disease 2019 (COVID-19) in the United States, the Centers for Disease Control and Prevention (CDC) issued a “No Sail Order and Suspension of Further Embarkation,” (CDC No Sail Order) causing PVOs to cease all operations and raising questions regarding passengers’ ability to obtain refunds of monies paid for transportation disrupted by COVID-19. In response, the Commission initiated Fact Finding 30: COVID-19 Impact on Cruise Industry, on April 30, 2020.

The Fact Finding Officer issued an Interim Report on PVO Refund Policies on July 27, 2020, concluding that clearer guidance is needed in determining whether a passenger is entitled to obtain a refund if a PVO cancels a voyage, makes a significant schedule change, or significantly delays a voyage. The Fact-Finding Officer proposed, among other things, that the Commission provide a clear interpretation of nonperformance of transportation and modify the appropriate provisions of the Commission’s PVO regulations to make clear how passengers may obtain refunds under the PVOs’ financial responsibility instruments filed with the Commission. The Commission voted on August 10, 2020, to initiate a rulemaking to implement the recommended changes. The Commission is requesting comment on these recommended changes and their effects on PVOs and passengers. In addition to general comments, the Commission is requesting focused comment on the issues identified below in the Proposed Changes and Request for Comments section.

Proposed Changes and Request for Comments

A. Defining Nonperformance of Transportation

As discussed above, 46 U.S.C. 44102 requires that PVOs file with the Commission evidence of financial responsibility to indemnify passenger for nonperformance of transportation. The Commission’s regulations in 46 CFR part 540 do not expressly define what constitutes nonperformance of transportation, but the substantive provisions and required financial responsibility instrument terms indicate that it means the PVO’s failure to provide transportation or other accommodations and services subject to part 540, subpart A, in accordance with the terms of the ticket contract between the PVO and passenger.

As noted in the Fact Finding 30 Interim Report, what constitutes nonperformance of transportation under the current regulations depends on the specific terms of each PVO’s ticket contract and may vary from PVO to PVO or from contract to contract. Accordingly, the Interim Report recommended interpreting nonperformance of transportation under 46 U.S.C. 44102 to include: (1) Canceling a voyage; and (2) delaying passenger boarding by 24 hours or more. Similar to the U.S. Department of Transportation’s policy (cited in the Interim Report) addressing when airline passengers are entitled to refunds from air carriers, a delay would only constitute nonperformance if the passenger chooses not to embark on the delayed voyage.

The Commission is seeking comment on adopting this definition of nonperformance of transportation. The Commission anticipates that implementing this change would involve amending the regulations in part 540, subpart A, to include the definition and revising the language of the forms for financial responsibility instruments (surety bonds, guaranties, and escrow agreements) to reflect coverage in situations under the definition. To that end, the Commission has developed the following draft definition:

Nonperformance of transportation means: (1) Canceling a voyage; or (2) delaying the boarding of passengers by more than twenty-four (24) hours if the passenger elects not to embark on the substitute or delayed voyage.

Federal Maritime Commission Draft definition for Nonperformance of transportation

The Commission predicts that this interpretation may change the situations in which passengers could make claims for refunds against the PVO’s financial responsibility instrument. In addition to a request for comments on the draft definition provided above, the Commission requests comments on:

• Necessary changes to the Commission’s regulations, including the financial responsibility instrument forms, to implement the revised definition of nonperformance of transportation;
• Whether this change will increase or decrease claims for refunds against PVO financial responsibility instruments (i.e., bond, insurance, guaranty, or escrow agreement), and if so, the magnitude of the increase or decrease (including number of claims and total dollar amounts paid to passengers);
• Whether this change will increase or decrease the cost to PVOs of obtaining compliant financial responsibility instruments (e.g., higher or lower premiums or collateral requirements), and if so, the magnitude of the increase or decrease (i.e., dollar amount);
• Other effects of this change the Commission should consider.

B. Process for Obtaining Refunds From PVO Instruments for Nonperformance of Transportation

1. GENERAL

Although the Commission regulations require certain coverage and terms to be included in financial responsibility instruments, the regulations do not include uniform procedures regarding how and when passengers may make claims for refunds against the various financial responsibility instruments. The Fact Finding 30 Interim Report recommended that the Commission revise its regulations to make clear how passengers may obtain refunds under these instruments and include specific provisions related to such claims and the timing of refund payments.

Neither part 540 nor the financial responsibility instrument forms provide specific instructions on how or when passengers may obtain refunds under a PVO’s financial responsibility instrument. For example, the Guaranty Form (Form FMC-133A) provides that Guarantor will make refund payments to passengers when: (1) The PVO and passenger enter into settlement agreement, approved by the Guarantor; or (2) the passenger obtains a final judgment against the PVO and the PVO does not make payment within 21 days. Similarly, the suggested language for Escrow Agreements states that an Escrow Agent will make refund payments to passengers when either: (1) The PVO provides written instructions to the Escrow Agent to make such payment; or (2) the passenger obtains a final judgment against the PVO, the PVO does not make payment within 21 days, and the Escrow Agent receives a certified copy of the court order.

The Fact Finding 30 Interim Report recommended the following general procedure: (1) The passenger makes a request for a refund from a PVO financial responsibility instrument when nonperformance has occurred; and (2) the refund payment is made within a certain period, depending on certain conditions. Under this procedure, the passenger would not need a final court judgment in order to obtain a refund. The Commission anticipates that implementing these changes would involve amending the regulations in part 540, subpart A and the language of the financial responsibility instruments forms to reflect the new procedure. The Commission requests comment on the following issues related to this procedure that would need to be resolved in any proposed revisions to the Commission’s regulations:

• To whom passengers should submit requests for refunds under the revised procedures.
• Should passengers submit refund claims to the financial responsibility instrument providers directly (e.g., surety company, insurer, guarantor, or escrow agent)? Alternatively, should passengers submit refund claims to the PVO, and the PVO in turn authorizes payment from the financial responsibility instrument (similar to the current procedure for escrow agreements)?
• Information passengers will need to provide to obtain a refund.
• Should the Commission specify the information necessary for passengers to submit to obtain refunds from a PVO financial responsibility instrument, or should those decisions be left to the individual PVOs and their financial responsibility providers?
• If the Commission should specify the necessary information from passengers, what information should be required beyond evidence of payment to the PVO, ticket contract, and evidence of cancellation or delayed boarding?
• Necessary changes to the Commission’s regulations, including the financial responsibility instrument forms, to implement the revised process for obtaining refunds.

The Federal Maritime Commission is also requesting comments on the effects of the recommended changes described including:

• Whether these changes will increase or decrease claims for refunds against PVO financial responsibility instruments, and if so, the magnitude of the increase or decrease (including number of claims and total dollar amounts paid to passengers).
• Whether these changes will increase or decrease the cost to PVOs of obtaining compliant financial responsibility instruments (e.g., higher or lower premiums or collateral requirements), and if so, the source and magnitude of the increase or decrease (i.e., dollar amount).
• Other effects of these changes the Commission should consider.

2. DEADLINE FOR SUBMITTING REFUND REQUESTS

Federal Maritime Commission regulations do not currently prescribe how long passengers have after a scheduled voyage to seek a refund from a PVO financial responsibility instrument. The Fact Finding 30 Interim Report recommended that the Commission specify that a PVO may set a reasonable deadline for passenger refund requests but the deadline may not be less than six months after the scheduled voyage. The Commission has developed the following draft provision to reflect this recommendation:

A passenger must submit a request for refund no later than 180 days after nonperformance occurs, unless the ticket contract or other passenger vessel operator policy allows a longer period of time for such requests.

Federal Maritime Commission Draft provision for passenger refund requests

The Commission could include this provision in part 540 and require that the financial responsibility instrument specify the time period for passengers to file refund requests. The Commission requests comment on prescribing a minimum timeframe for refund requests, the amount of time recommended in the Fact Finding 30 Interim Report (six months) and the draft language provided above. As discussed above, the Commission also requests comment on the effects of this change.

3. DEADLINE FOR REFUND PAYMENT

Federal Maritime Commission regulations do not currently specify a time period within which passengers must receive a refund under a PVO financial responsibility instrument. The Fact Finding 30 Interim Report recommended that the Commission specify two different timeframes for payment depending on whether nonperformance was due to “a governmental order or declaration”: (1) When nonperformance is due to a governmental order or declaration, full refund payments must be made within 180 days after the passenger requests a refund; and (2) in all other cases, full refund payments must be made within 60 days after the passenger requests a refund. The Interim Report also recommended that a refund payment be deemed timely notwithstanding that the passenger may not immediately have access to the funds due to the rules and processes of any third party services provider.

The Commission requests comment on prescribing a deadline for payment of refunds from financial responsibility instruments as a general matter, establishing two different timeframes for payment depending on whether nonperformance is due to a governmental order or declaration, and the deadlines recommended in the Interim Report (180 days when there is a governmental order or declaration; 60 days in all other cases). The Commission also requests comment on the following:

• The types of governmental orders or declarations that would trigger the longer 180-day period for providing refunds.
• Should these include only U.S. federal, state, and local orders or declarations, or should foreign government orders and declarations also trigger the longer refund payment period?
• What types of governmental orders and declarations should qualify, i.e.,should this be limited to governmental orders and declarations that expressly prohibit embarking passengers and suspend passenger operations like the CDC No Sail Order? If not, what other types of governmental orders and declarations should trigger the longer refund payment period?
• The effects of this change as discussed above.

4. FORM AND AMOUNT OF REFUND PAYMENT

Commission regulations provide that the PVO financial responsibility instruments must provide coverage for “unearned passenger revenue,” which is defined as passenger revenue received for water transportation and all other accommodations, services, and facilities relating thereto not yet performed; this includes port fees and taxes paid, but excludes such items as airfare, hotel accommodations, and tour excursions. The regulations do not specify in what form refund payments must be made under PVO financial responsibility instruments.

The Fact Finding 30 Interim Report recommended the Commission specify: (1) That refund payments must include all fees, including ancillary fees, paid to the PVO by the passenger; and (2) refund payments must be made in the same manner as the passenger’s original payment, e.g., check, electronic funds transfer, or credit card chargeback.

Regarding the first recommendation, the Commission is requesting comment on whether to expand the definition of unearned passenger revenue and the scope of the ancillary fees to be included in any revised definition. The Fact Finding 30 Interim Report discusses the following types of ancillary charges paid by passengers to PVOs prior to sailing: Gratuities, shore excursions, pre-cruise onboard purchases, port fees, and taxes. Of these, the current definition of unearned passenger revenue expressly includes port fees and taxes and excludes excursions. The Interim Report does not discuss refunds for airfare or hotel accommodation.

To facilitate comment, the Commission has developed the following draft definition:

Unearned passenger revenue means that passenger revenue received for water transportation and all other related accommodations, services, and facilities relating thereto not yet performed; this includes port fees, taxes, and all ancillary fees remitted to the passenger vessel operator by the passenger.

Federal Maritime Commission Draft definition for unearned passenger revenue

The Commission requests comment on expanding the definition of unearned passenger revenue, including:

• What types of ancillary fees should be included as unearned passenger revenue subject to refund, and what types of fees should be excluded.
• For example, should the Commission include the types of fees mentioned in the Fact Finding 30 Interim Report (e.g., shore excursions, dining packages, other onboard packages, and gratuities)?
• Are there any types of fees that should be included?
• Should the definition continue to exclude airfare and hotel accommodations?
• The effects of this change as discussed above.

The Commission is also requesting comment on the recommendation to specify that refund payments must be made in the same manner as the passenger’s original payment. Specifically, the Commission requests comment on the following:

• Whether it is feasible for payment from a PVO financial responsibility instrument to be made in the same manner as the passenger’s original payment.
• Necessary changes to the Commission’s regulations, including the financial responsibility instrument forms, to implement this recommendation.
• The effects of this change as discussed above.

5. PUBLISHING INFORMATION ON HOW TO OBTAIN REFUNDS

The Fact Finding 30 Interim Report recommended the Commission mandate that: (1) PVOs provide on their websites clear instructions on how passengers may obtain refunds; and (2) PVOs submit current website addresses for their refund instructions to the Commission for publication on the Commission’s website. The Commission envisions that this recommendation could be implemented by: (1) Revising the Form FMC-131, Application for Certificate of Financial Responsibility, to require PVOs to provide the uniform resource locator (URL) for their refund instructions; and (2) amending § 540.4 to require PVOs to amend their application if the URL changes. The Commission requests comment on this potential change, including:

• Whether the Commission should prescribe any specific content or format requirements for published PVO refund instructions.
• The nature of any additional regulatory burden associated with publishing refund policies on a PVO’s website or providing the URL for those instructions to the Commission, as well as the estimated cost to PVOs.

C. Passenger Cancellations

In addition to recommendations related to passenger refunds in the event of nonperformance of transportation, the Fact Finding 30 Interim Report also proposed that the Commission amend its regulations to ensure PVO financial responsibility in the event passengers cancel their booking with a PVO prior to or following certain governmental orders or declarations. Specifically, the Fact Finding 30 Interim Report recommended that: (1) A passenger be entitled to a refund if they cancel their booking no more than 60 days prior to a governmental order or declaration that results in the PVO canceling the voyage or delaying boarding of passengers by more than 24 hours; and (2) a passenger be entitled to a future cruise credit if they cancel their booking following the declaration of a public health emergency and the voyage occurs as scheduled.

The Commission requests comment on the recommendation regarding passenger refunds when the passenger cancels their booking and the voyage is subsequently canceled as a result of a governmental orders or declarations, including comment on the following:

• The types of governmental orders or declarations that would make a passenger eligible for a refund when they cancel their booking.
• Should these include only U.S. federal, state, and local orders or declarations, or should foreign government orders and declarations also trigger the longer refund payment period?
• What types of governmental orders and declarations qualify, i.e., should this be limited to governmental orders and declarations that expressly prohibit embarking passengers and suspend passenger operations like the CDC No Sail Order? If not, what other types of governmental orders and declarations should qualify?
• Information passengers will need to provide to obtain a refund.
• Should the Commission specify the information necessary for passengers to submit to obtain refunds from a PVO financial responsibility instrument, or should those decisions be left to the individual PVOs and their financial responsibility providers?
• If the Commission should specify the necessary information from passengers, what information should be required? Such required information could include evidence of payment to the PVO, ticket contract, evidence showing cancellation of the booking, Start Printed Page 65025evidence of a governmental order or declaration, and evidence of cancellation or delayed boarding of the voyage.

The Commission also requests comment on the recommendation regarding the provision of future cruise credit when the passenger cancels their booking following declaration of a public health emergency but the voyage occurs as scheduled, including comment on the following:

• Whether it is feasible for a passenger to obtain future cruise credit under a PVO financial responsibility instrument.
• The type of public health emergency declaration that would make a passenger eligible for a future cruise credit when they cancel their booking.
• Whether requests for future cruise credit should be subject to the same requirements as those recommended for refunds with respect to the deadline for requesting credit, the deadline for providing credit, and the amount of the credit.

The Commission also requests comment on the following related to both recommendations:

• Necessary changes to the Commission’s regulations, including the financial responsibility instrument forms, to implement these changes.
• Whether these changes will increase or decrease claims for refunds against PVO financial responsibility instruments, and if so, the magnitude of the increase or decrease (including number of claims and total dollar amounts paid to passengers).
• Whether these changes will increase or decrease the cost to PVOs of obtaining compliant financial responsibility instruments (e.g., higher or lower premiums or collateral requirements), and if so, the magnitude of the increase or decrease (i.e., dollar amount).
• Other effects of these changes the Commission should consider.

You may submit comments on or before November 13, 2020, identified by Docket No. 20-15, by via email addressed to secretary@fmc.gov. The instructions for comment submission request using the following subject line: “Docket No. 20-15, Comments on PVO Financial Responsibility Rulemaking.” Comments should be attached to the email as a Microsoft Word or text-searchable PDF document. There is no online submission form for this docket.