Ask A Maritime Attorney: Are there penalties for chartering my vessel for free veteran events?

Question:

            I have a non-profit company that is set up to take veterans out on fishing and boating excursions, and I have been using my 42-foot power boat for these events.  I don’t charge the vets directly for these trips, so I have never been too concerned about Coast Guard charter regulations.  My lack of concern may have changed, however, after reading one of your articles that was published earlier this year.  Will a charitable operation like mine be subject to Coast Guard charter regulations?  What are the penalties if I fail to comply with those regulations?

 

Answer

Our reader is referring to an article published in this column a few months ago where we provided an overview of the requirements for a legal and successful small passenger vessel charter operation.  We looked at some of the regulations, but we did not discuss the penalties for failing to comply with the regulations.  Let’s do that now, but let’s start with a quick review of some of the basics, starting with the definition of a charter.

Broadly speaking, a charter is a boat rental.  This can take many forms, including a “bareboat charter,” where the entire boat is rented with no captain or crew provided by the owner.  Our reader, however, is asking about a charter where he provides the captain and crew for charitable excursions.

Vessels which operate in U.S. waters and that carry at least one passenger for hire must comply with a long list of strict Coast Guard charter regulations, starting with regulations for the boat that will be used, and for the number of paying passengers that will be aboard.  If the boat is under 100 gross tons, it may carry up to six paying passengers (a “six-pack” charter) without the need for a Coast Guard “inspection.”  Most vessels that carry more than six passengers for hire must be inspected by the Coast Guard, which involves a comprehensive review of the vessel’s structural design and its mechanical, fuel, electrical and safety systems.  Coast Guard inspection is a very expensive endeavor, and it is usually cost-prohibitive to retrofit a boat to comply with Coast Guard inspection.  So, let’s assume that our reader is planning to carry six or fewer passengers for hire.

This takes us to the area where boat owners are most likely to stumble into an illegal charter.  What exactly is a passenger for hire?  A passenger for hire is a passenger for whom a payment by somebody to somebody is a condition for the passenger being aboard the boat.  This “by somebody to somebody” element is where boat owners, including our reader, may get in trouble.

“For hire” is not limited to a direct payment by the passenger to the boat owner.  It may include, for example, a donation by a donor to our reader’s charity.  The Coast Guard looks very carefully at these arrangements, and they may take a position that is more rigorous than would be required under a strict reading of the regulations.  We have worked with charities like our reader’s organization, where donations are made without regard to any particular passenger but are instead intended to cover general operating expenses such as fuel or business overhead.  This does not, technically, fall within the strict definition of “passenger for hire” because the payment is not a condition for a particular passenger to board the vessel.  But they did not agree, and our client was faced with an expensive appeal.  With this in mind, it is possible that our client’s operation will be deemed to be carrying passengers for hire, and therefore subject to charter regulations.  So, what are the penalties if he ignores those regulations?  The penalties are significant.

Here on the West Coast, the Coast Guard has not – for now – placed a high priority on tracking down illegal charters.  But it is different in Florida and New Orleans, where enforcement has been very strict over the past few years.  The Coast Guard takes the position that operators of illegal charters “directly endanger our citizens,” and in Florida and the Southeast United States in general, they have explained that “it is a top priority for the Coast Guard to ensure charter vessels operate safely and in full compliance with the law.”

Penalties may range from $5,000.00 or failure to provide a Coast Guard Certificate of Inspection for carrying more than six passengers for hire, or  $8,000.00 for failure of operators to be enrolled in a chemical testing program, to $95,000.00 or every day of failure to comply with a Captain of the Port Order (a Captain of the Port Order is a regulation enacted by the local Coast Guard office to deal with a specific local issue).  Yes, you read that right.  $95,000.00 per day.

Penalties are not limited to fines imposed by the Coast Guard.  Most insurance policies include a provision which calls for a claim to be denied if it arises from a boat that is involved in any illegal activity.  This is where boat owners on the West Coast may be in trouble even if the Coast Guard is not investigating every boat that they observe with a lot of passengers.  The denial of an insurance claim after a catastrophic incident may be more devastating to a boat owner than a Coast Guard fine.

I often close these articles with an admonition to boat owners to consult a qualified maritime attorney for information specific to their particular issues, but that consultation is especially important for people like our reader who plan to carry passengers aboard their boat that are not invited as friends or guests.  Even if they are confident that they are not subject to carter regulations.

 

David Weil is licensed to practice law in the state of California and as such, some of the information provided in this column may not be applicable in a jurisdiction outside of California. Please note also that no two legal situations are alike, and it is impossible to provide accurate legal advice without knowing all the facts of a particular situation. Therefore, the information provided in this column should not be regarded as individual legal advice, and readers should not act upon this information without seeking the opinion of an attorney in their home state.

 

David Weil is the managing attorney at Weil & Associates in Seal Beach. He is certified as a Specialist in Admiralty and Maritime Law by the State Bar of California Board of Legal Specialization and a “Proctor in Admiralty” Member of the Maritime Law Association of the United States, an adjunct professor of Admiralty Law, and former legal counsel to the California Yacht Brokers Association. If you have a maritime law question for Weil, he can be contacted at (562) 799-5508, through his website at www.weilmaritime.com,  or via email at dweil@weilmaritime.com.