Wrangle over Baltimore bridge claim begins as shipowner seeks to cap liability

Who pays the insurance claim for the collapse of Baltimore's Francis Scott Key Bridge will hinge on whether the owner and manager of the ship that struck the bridge are successful in arguing that their collective liability should be capped at about $43.7 million.

The disaster, which resulted from Grace Ocean Pvt. Ltd.-owned container ship, the Dali, hitting one of the bridge's columns after losing power, could trigger one of the largest marine insurance claims in history. Speculative early estimates suggest an insured loss of up to $4 billion. If the shipowner is liable, much of the claim would fall on the approximately 80 global reinsurers of the International Group of P&I Clubs, a risk-sharing mechanism of which the ship's liability insurer, Britannia P&I Club, is a member. The International Group and its reinsurers can collectively pay a claim of up to $3.1 billion.

Under the US' Limitation of Liability Act of 1851, a shipowner can curtail its liability to the post-event value of the ship plus any payment earned for the transport of goods. "Whatever the value of the ship is and the freight, the owners would be entitled to set up a limitation fund in the US to try to limit liability," Martin Hall, partner at law firm Hill Dickinson, said in an interview.

Finding fault

On April 1, lawyers acting for Grace Ocean and Dali's manager Synergy Marine Pte. Ltd. filed a petition in the US District Court in Maryland. They argued that the owner and manager should face no liability as the accident was not caused by any fault, neglect or want of care on their part; or if the court finds they are liable, liability should be limited to the value of the vessel post-event plus pending freight. The ship's value has fallen to $42.5 million from its original $90 million after subtracting estimated repair costs of $28 million and estimated salvage costs of $19.5 million, and pending freight was about $1.2 million, the filing said.

The Britannia Steam Ship Insurance Association Europe, part of the Britannia P&I Club, will foot the bill plus 6% interest a year, the filing said.

To succeed, the owner and manager must demonstrate that any faults contributing to the loss were outside their "privity and knowledge," as they argued in the filing. "The limitation fund could be broken if there is fault and knowledge on the part of the owners," Hill Dickinson's Hall said.

Claims for loss of life will restrict how much the owner can limit liability. The owner may need to set aside additional funds for loss of life claims "if the limitation fund on the property damage is not enough to cover both property and lost life," Hall said.

Liability, or otherwise, of the shipowner "should be capable of being ascertained relatively quickly, in terms of weeks," Hall said.

The ultimate claim settlement could take years, as it will involve quantifying the business interruption and loss of life claims. The shipowner's right to limit liability may be challenged in court, and the various claimants would vie for a share of the limitation fund, Hall added.

The ultimate claims bill is still highly uncertain. While the claim for the destruction of the bridge, reportedly insured by Chubb Ltd., could be quantified quite quickly, a wild card is the business interruption, with debris from the destroyed bridge blocking the Port of Baltimore, where the Dali departed from. "Disruptions to port traffic will persist for months while the bridge debris is cleared and a new bridge is constructed," Fitch Ratings said in a report March 28.

The Port of Baltimore handled about 3% of all US East and Gulf Coast imports and 10% of US Northeast imports of containerized freight in the 12 months to Jan. 31, according to S&P Global Market Intelligence data.

– Read more from S&P Global Market Intelligence about the impacts of the bridge collapse on offshore wind, coal exports and the insurance industry.

Widely spread

The claim could shake up the marine insurance and reinsurance markets. If the event results in a large claim for the International Group, it will end a short period of relatively light large claims activity in the protection and indemnity market. The collective combined ratio for the 12 International Group members fell to 96.1% in the year to Feb. 20, 2023, from 106.1% the previous year, according to Market Intelligence calculations using data from Aon PLC. "As we approach the 2024 renewal, it looks like combined ratios for a good proportion of the Clubs are going to land below 100%," Aon said in its annual review of the protection and indemnity market.

S&P Global Ratings predicted that the International Group's cost of reinsurance "will most likely increase" as a result of the bridge collapse.

Because the loss will be spread among many insurers and reinsurers, the effect on individual companies will be limited. Fitch and S&P Global Ratings said companies' ratings are unlikely to be affected by the event.

An individual member of the International Group will pay the first $10 million of a loss, and members collectively pay the next $90 million, with support from the International Group's Bermuda-based captive reinsurer, Hydra Insurance Co. Ltd. The group's $3 billion reinsurance program kicks in if losses exceed $100 million. This program is provided by some 80 reinsurers, including over 20 of the world's top 25 reinsurers, according to a video on the International Group's website, with AXA SA subsidiary AXA XL as lead underwriter.

"Based on a preliminary assessment, AXA currently does not expect losses from the Francis Scott Key Bridge collapse to be material at group level," AXA XL said in an emailed statement. "We continue to monitor this closely."

Any losses that fall to Lloyd's of London, a big player in the global marine insurance and reinsurance markets, would be "not outside of the normal levels of expectations of what we should see in a given year," Lloyd's CEO John Neal told journalists on an earnings call.

A Munich Re spokesperson said via email March 27 that the reinsurer was not yet able to comment on claims. "Our experts are currently analyzing possible damage scenarios. This will take some time," the spokesperson said.

Swiss Re AG declined to comment at this stage, and a Hannover Re spokesperson said it was too early to comment on possible losses.

Losses exceeding $3.1 billion will be shared mutually across the International Group clubs and paid by levies on shipowners, S&P Global Ratings said in a report March 28.