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This product is part of the RAND Corporation monograph series. RAND monographs present major research findings that address the challenges facing the public and private sectors. All RAND monographs undergo rigorous peer review to ensure high standards for research quality and objectivity. Maritime Terrorism Risk and Liability Michael D. Greenberg, Peter Chalk, Henry H. Willis, Ivan Khilko, David S. Ortiz The research described in this report was conducted by the RAND Center for Terrorism Risk Management Policy. Library of Congress Cataloging-in-Publication Data Greenberg, Michael D., 1969– Maritime terrorism : risk and liability / Michael Greenberg, Peter Chalk, Henry H. Willis, [et al.]. p. cm. Includes bibliographical references. ISBN-13: 978-0-8330-4030-5 (pbk. : alk. paper) 1. Merchant marine—Security measures. 2 Shipping—Security measures. 3. Passenger ships. 4. Container ships. 5. Terrorism—Prevention. 6. Pirates. 7. Hijacking of ships—Prevention. I. Chalk, Peter. II. Willis, Henry H. III. Title. VK203.G74 2006 363.325'9387—dc22 2006031873 The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors. R ® is a registered trademark. Cover photo: Getty Images © Copyright 2006 RAND Corporation All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from RAND. Published 2006 by the RAND Corporation 1776 Main Street, P.O. Box 2138, Santa Monica, CA 90407-2138 1200 South Hayes Street, Arlington, VA 22202-5050 4570 Fifth Avenue, Suite 600, Pittsburgh, PA 15213-2665 RAND URL: http://www.rand.org/ To order RAND documents or to obtain additional information, contact Distribution Services: Telephone: (310) 451-7002; Fax: (310) 451-6915; Email: [email protected] The RAND Center for Terrorism Risk Management Policy (CTRMP) CTRMP provides research that is needed to inform public and private decisionmakers on economic security in the face of the threat of terrorism. Terrorism risk insurance studies provide the backbone of data and analysis to inform appropriate choices for the government’s role in supporting the terrorism insurance market. The research on the eco- nomics of various liability decisions informs the policy decisions of the U.S. Congress and the opinions of state and federal judges. Studies of compensation help Congress to ensure that appropriate compensation is made to the victims of terrorist attacks. Research on security helps to protect critical infrastructure and to improve collective security in rational and cost-effective ways. CTRMP is housed at the RAND Corporation, an international nonprofit research organization with a reputation for rigorous and objective analysis and the world’s leading provider of research on terrorism. The center combines three organizations: • RAND Institute for Civil Justice, which brings a 25-year history of empirical research on liability and compensation. • RAND Infrastructure, Safety, and Environment, which conducts research on homeland security and public safety. • Risk Management Solutions, the world’s leading provider of models and services for catastrophe risk management. iii iv Maritime Terrorism: Risk and Liability For additional information about the Center for Terrorism Risk Management Policy, contact: Robert Reville Michael Wermuth RAND Corporation RAND Corporation 1776 Main Street 1200 South Hayes Street P.O. Box 2138 Arlington, VA 22202 Santa Monica, CA 90407 [email protected] [email protected] 703-413-1100, x5414 310-393-0411, x6786 A profile of the CTRMP, abstracts of its publications, and order- ing information can be found at http://www.rand.org/multi/ctrmp/. CTRMP Advisory Board Jeffrey D. DeBoer (Co-Chair) Bruce Kessler President and Chief Executive Executive Vice President and Chief Officer Underwriting Officer Real Estate Roundtable ACE USA Jacques Dubois (Co-Chair) Peter Lowy Chairman Chief Executive Officer Swiss Re America Holding Westfield Corporation, Inc. Corporation Jack D. Armstrong Kathleen Nelson Assistant Vice President and Senior Immediate Past Chair Regulatory Counsel International Council of Shopping Liberty Mutual Insurance Centers (ICSC) Company Kim M. Brunner, Esq. Art Raschbaum Executive Vice President and Executive Vice President and General Counsel Managing Director State Farm Insurance GMAC RE Andrew Coburn Kevin Scroggin Director of Terrorism Research General Director, Corporate Risk Risk Management Solutions, Inc. Management and Insurance General Motors v vi Maritime Terrorism: Risk and Liability Kenneth R. Feinberg, Esq. Hemant Shah Managing Partner President and Chief Executive The Feinberg Group, LLP Officer Risk Management Solutions, Inc. John Gorte Cosette R. Simon Executive Vice President Senior Vice President Dorinco/Dow Chemical Swiss Re Life and Health America Inc. Ken Jenkins Steven A. Wechsler Chief Underwriting Officer President and Chief Executive American Reinsurance Officer RiskPartners NAREIT Preface Intelligence analysts, law enforcement officials, and policymakers have become increasingly concerned about the possibility of future maritime terrorist attacks. The maritime environment possesses some unique characteristics that, in principle, could make it attractive to terrorist operations, including the extraterritoriality of the high seas and poor or inconsistent security measures that apply in coastal areas and facili- ties in many parts of the world. Maritime attacks have the potential to inflict significant harms on persons and property and, in at least some instances, could be highly disruptive to U.S. commerce. This book focuses on the study of terrorism risk and liability issues in connection with two general types of maritime terrorism scenarios: attacks that target passenger vessels and attacks that target (or leverage) containerized shipping. With regard to analyzing risk, this book explores underlying threats, vulnerabilities, and potential con- sequences, and then combines this information to construct a picture of the relative risks posed by different terrorism scenarios. With regard to analyzing liability, this book outlines key concepts, legal authori- ties, and ambiguities that would apply in determining civil liability for acts of maritime terrorism, focusing particularly on third-party (com- mercial) defendants. By combining the investigation of risk and liability into a single study, this book offers insights both into the nature of maritime terrorism risk, as well as the ways in which government might respond to that risk through the instrumentality of the civil justice system. This book would be of interest to anyone who is concerned with understanding and managing maritime terrorist risks. vii viii Maritime Terrorism: Risk and Liability This version corrects errors in the book first posted on the RAND Web site in October 2006 and available through January 1, 2007. Errata associated with that version appear on the Web site. The corrections affect Figures 6.2, 6.3, 6.4, and 7.2 and Tables A.5 and A.6. As a result of these corrections, the revised version of the book identifies an additional scenario as being high risk; USS Cole–style attacks involving ramming an improvised explosive device into a passenger ferry. This additional high-risk scenario is also reflected in the appropriate places in the text. This research was funded by CTRMP, a partnership between RAND and Risk Management Solutions, Inc. CTRMP is funded by voluntary contributions from several organizations that represent property owners and other insurance purchasers, reinsurers, and insurers. An advisory board that included representatives of the donor organizations was invited to comment on the book, but RAND alone determined the scope, analytical methods, conclusions, and recommendations. This research was conducted under the auspices of RAND Infra- structure, Safety, and Environment (ISE), a division of the RAND Corporation. The mission of RAND Infrastructure, Safety, and Envi- ronment is to improve the development, operation, use, and protec- tion of society’s essential physical assets and natural resources and to enhance the related social assets of safety and security of individuals in transit and in their workplaces and communities. Questions or comments about this monograph should be sent to the project leader, Michael Greenberg (Michael_Greenberg@rand. org). Information about CTRMP is available online (http://www.rand. org/multi/ctrmp/). Inquiries about CTRMP projects should be sent to the co-directors: Robert Reville Michael Wermuth RAND Corporation RAND Corporation 1776 Main Street 1200 South Hayes Street P.O. Box 2138 Arlington, VA 22202 Santa Monica, CA 90407 [email protected] [email protected] 703-413-1100, x5414 310-393-0411, x6786