The collapse of the Francis Scott Key Bridge in Baltimore on March 26 after it was hit by a container ship is expected to result in the costliest marine insurance loss ever.
Six construction workers died when the 984-foot cargo ship Dali lost power and crashed into a support pylon of the bridge resulting in the collapse of the structure into the Patapsco River.
Some analysts put the insured loss at up to $4 billion. While this is manageable for the industry, it would surpass the 2012 Costa Concordia disaster that resulted in a record marine insurance loss of around $1.5 billion.
Most claims are expected to be directed toward the marine insurance market initially, with multiple policies affected, including protection and indemnity insurance, which covers third-party property damage and liability; marine hull insurance, which covers physical damage to the vessel; and marine cargo. Business interruption, inland marine, property and workers compensation policies may also be triggered. London-based marine mutual insurer The Britannia P&I Club provided P&I cover for the ship.
The costs of cleaning up the bridge and container debris, moving the vessel so that the channel and Port of Baltimore can safely reopen to shipping traffic, and a lengthy process to rebuild the bridge, will add to the scale of the loss.
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Ancient maritime provisions add another layer of complexity and are likely to make this a particularly lengthy and costly claim. Grace Ocean Private Ltd., the ship’s Singapore-based owner, has declared “general average” — a long-standing maritime principle whereby all parties involved in a voyage share in any damage or expenditure incurred. General average claims can take years to resolve.
Under the terms of general average, cargo owners pay a contribution — based on a percentage of their own interests’ value — to cover the damages or costs of others involved in a voyage. Some cargo insurance policies include coverage for general average, which means the insurer will post a bond to secure the release of cargo.
There are mixed views on this unwieldy process. The International Union of Marine Insurers has lobbied against it over the years. General average has a significant impact on cargo customers because, if it is declared, the time it takes to release cargo is exponentially longer on a large container vessel, Allianz Global Corporate & Specialty SE said in its recently published annual shipping loss review.
Given the litigious nature of the U.S. system of commerce, a lengthy legal fallout is inevitable. By April 1, the shipowner and Synergy Marine PTE Ltd., the vessel’s management company, had filed a petition in federal court in Baltimore under the Limitation of Liability Act of 1851, known as the Titanic law, seeking to limit their liability for damage in the incident to the value of the vessel plus its freight. The city of Baltimore has since filed suit in the same court seeking to hold the owner and manager liable and alleging that the disaster was the result of “carelessness, negligence and recklessness.”
Meanwhile, rumors swirl about the cause of the incident. The FBI has opened a criminal investigation into the crash. A U.S. National Transportation Safety Board probe is ongoing. The findings of these investigations will be critical to determining the cause of the loss and how claims, including general average, are handled.
With so much at stake for the numerous parties involved, it is imperative that the investigative process is transparent and the lessons learned from the collision are incorporated into marine safety protocols to prevent similar tragedies in the future.
