Mary Lanning, who heads the ML&G consulting firm in New York City, raised the issue recently at a New York Assembly Insurance Committee hearing on the impact of the federal Terrorism Risk Insurance Act, which is administered by the U.S. Treasury Department.

Ms. Lanning said that, under Treasury's proposed guidelines for the measure, Circle Line would not be covered for terrorism with their present insurer which is a Luxembourg- based protection and indemnity club.

P&I clubs are quasi-assessable mutual insurance companies formed by shipowners to provide a broad form of liability and damage insurance. Clubs establish their own rules for notification of claims and various other administrative details.

Ms. Lanning testified that under Treasury's interpretation, most of the coverage that federally-approved non-U.S. insurers provide to corporate America would not be protected under the Act.

Some foreign insurers are part of the terrorism backstop program, if the vessel they insure is part of the federal government's Maritime Administration (MARAD) program. MARAD subsidizes U.S. flag fleet vessels with grants and other programs.

Because the Circle Lines boats are not part of MARAD, their insurance does not qualify, even though their insurer is approved to cover MARAD program vessels, Ms. Lanning said.

Several calls to Circle Line for comment were not returned.

Charles Landgraf, an attorney with LeBoeuf Lamb Green & MacRae in Washington, which represents 13 protection and indemnity clubs, said his firm is trying to convince Treasury to change its stance.

He said the current interpretation could have the same effect on oil rigs off the Gulf Coast.

When asked about the interpretation, a spokesperson for Treasury said there was nothing to prevent the vessels from obtaining insurance from a different carrier and that "the law is the law."

According to Ms. Lanning, a large proportion of Fortune 500 companies purchase difficult-to-place coverage from non-U.S. insurers.

Mutualizing risks through P&I clubs, she said gives vessel owners a "better level of control over cost and availability." Limiting federal terrorism insurance to coverage connected with a federal program "leaves huge gaps," she said.