Looking at many of the ways the collapse of the Francis Scott Key Bridge in Baltimore have and will continue to affect the individuals and businesses that made that area a part of daily life speaks volumes as to the need for adequate insurance for not only property but potential liabilities as well. Here, we will briefly discuss what happened, take a look at who is involved from an insurance and liability perspective, and what we know about the exposures and their coverage implications. |

Tragic day

Around 1:30a.m. on March 26, 2024, a 985-foot container ship registered in Singapore as the Dali apparently lost propulsion, affecting steering, and ultimately struck one of the support pillars of the Francis Scott Key Bridge in Baltimore as it was leaving port. The bridge then collapsed into the river. Eight construction workers were on the bridge at the time of the collapse, two were rescued, two bodies have been recovered, and four are presumed dead after a lengthy search. The National Transportation Safety Board investigators have recovered the voyage data recorder, which is similar to the black box recorders found on airplanes. The investigation is ongoing. NTSB has said it will look at the structure of the bridge and surrounding protective devices around the pylons, as well as the ship's safety history and records. The bridge was 1.6 miles long. The steel portion of the bridge was through truss construction, which in common terms was structured in integrated sections that spanned the bridge, and so when one section collapsed the connectivity caused the rest of the structure to collapse almost immediately. The entry part of the bridge that was concrete appears to remain intact. The Maryland Port Administration suspended vessel traffic into and out of the Port of Baltimore until further notice. However, while the port is closed to marine traffic, they are still processing trucks inside of the terminals. Vehicle traffic is being rerouted to alternate routes. Efforts to open the river are underway. Container ships originally routed to Baltimore, and those forthcoming will need to be discharged at other ports on the Eastern Seaboard, such as New York/New Jersey and Norfolk. The port of Baltimore is important in the movement of goods into and out of the country. It's the closest port to the Midwest, and goods worth $100-$200 million move through the port daily, and $80 billion worth of cargo a year. It's the ninth busiest port for international trade in the country. Fortunately, other hubs along the East Coast should be able to fill the gap left by the port being inaccessible. However ships move slowly, and rerouting can delay the delivery of various goods. The bridge is part of I-695, a major thoroughfare around Baltimore. Vehicle traffic on the bridge averages at least 30,000 vehicles a day, and it serves as a major route for hazardous chemicals that cannot be transported through the area tunnels. The loss of the bridge is significant. It will take time to clear the debris from the river, and until that can be done port traffic will be halted. The Corps of Engineers has mobilized more than 1,100 specialists to clear the debris, but it will take time. Local jobs may be affected while shipping is halted. There are 8,000 jobs directly associated with port operations, generating $2 million a day in wages. Loading and unloading makes up a large portion of employed workers, and none of that is happening now. The closure as a whole costs $191 million per day in lost economic activity. The state has set up a dedicated unemployment line for affected workers, and the state Senate president has promised to sponsor emergency legislation to provide income relief for workers. But it's not just the longshoremen and port workers affected. There are smaller marinas in the river, boat tour companies, and many restaurants and shops that are all impacted. While there will be a delay in opening for the summer season, the tourist operations are anticipated to rebound rather quickly. A small channel has been opened as of April 2 to allow limited shipping. The channel is 11 feet deep and will allow tugs and commercial barges to travel in and out of the port. A tugboat pushing a fuel barge passed through the afternoon of April 1. However, the primary benefit of this first, shallow channel is for the responders to provide access to the wreckage and ship. Authorities expect to open three progressively deeper temporary channels to allow bigger ships and more traffic at the port. The channels will be marked with lights to ease navigation, but no time frame has been given for when these channels will be available. Estimates are that the loss could reach $1.2 billion for the bridge itself. Other liabilities could range from $350-$700 million for wrongful death, business interruption and other related expenses. S&P Global Ratings estimates the total loss to be as much as $3 billion, making this tragedy the largest marine insurance loss ever recorded. Some sources have estimated the total loss amount to be as high as $4 billion. The Governor of Maryland declared a state of emergency which made the state eligible for federal emergency funds. Federal transportation officials have authorized $600 million for immediate relief from the Transportation Department's emergency relief fund. The Army Corps of Engineers and other federal agencies will assume the cost of clearing the debris of the bridge out of the river. Under the Transportation Department's emergency relief fund, most of the costs to divert traffic from the collapsed bridge and to design and rebuild a new bridge will be covered. Under the program, 90 percent of the cost of repairs is covered by the relief fund, while 10 percent falls to the state. Federal agencies will reimburse 100 percent of repair work that is conducted within the first 270 days after the disaster in order to restore travel through the waterway, minimize damage, and protect remaining facilities |

Potential liabilities

There will be other interests, but these are the main ones known so far: |

• The State of Maryland: The Brawner construction workers were hired by the state to make repairs to the bridge surface. In that connection, the state and the construction company bear responsibility to provide a safe workplace for those workers, so vicarious liability will likely be assigned to both.
• Brawner Company: The employer of the construction workers, who will be liable for workers compensation benefits to the eight workers or their families. Wrongful death suits will likely be filed by the families of the deceased workers.
• Grace Ocean Pte. Ltd., Singapore: Owner of the Dali and Synergy Marine Pte. Ltd. - Singapore - Manager of the Dali - Covered by the Britannia Steam Ship Insurance Association Ltd., or Britannia P&I Club. Protection and indemnity (P&I) clubs are mutual insurance organizations that insure and pool liability for the global shipping industry. Britannia Club is a member of the International Group of P&I clubs, a U.K. based association of 12 P&I clubs that provides marine liability cover for 90% of the world's ocean-going tonnage. Part of the P&I insurance has been confirmed to be covered by Marine Mutual Britannia.
• A.P. Moller-Maersk A/S: Denmark-headquartered Maersk, the world's second-largest shipping company, confirmed that it had chartered the Dali for Synergy Marine. However, seeing as it didn't own or manage the ship, the company likely has no liability.

The slideshow above illustrates specific commercial insurance exposures to consider as the aftermath of this event unfolds. |

Known insurance and layering

AON PLC handles coverage for the bridge and tunnels for the state of Maryland. Chubb Ltd. is reported to be the lead property insurer on the bridge, per analyst reports. The bridge coverage limit is $350 million for damage to the bridge and business interruption. The bridge's original cost in 1977 was $60 million, which would be $300 million in today's dollars. Current estimates are that costs to replace it could be $1.2 billion, but early estimates of the total loss are that it could be as much as $3 billion. The Insurance Information Institute reports that the bridge is valued at upwards of $1.2 billion, with projected cost to rebuild it at $400 million, depending on the design. The expected insured loss is between $1.5 and $3 billion. Individual P&I clubs retain $10 million on any claim, and claims in excess of $10 million are shared between the group clubs. Excess of $30 million, the International Group pool is also reinsured by Bermuda-domiciled group captive Hydra Insurance Co. Ltd., an incorporated cell company. Each of the 12 Group clubs has its own segregated account or cell ring fencing its assets and liability from the other club cells. The group also buys group excess of loss reinsurance cover up to $3.1 billion in the open market. Axa XL leads the group excess of loss cover, according to information posted on the International Group's site. There are roughly 80 insurers from across the globe involved in the reinsurance safety net, so no insurer is overly exposed to an extreme loss. So far Axa XL, a member of the unit, has said it thinks the loss is sizeable but also manageable. Analysts expect most of the loss to be borne by marine reinsurers. With so many insurers involved, the ratings of large reinsurers is not likely to be affected. So what this means is that there is layering, or stacking, of the limits of insurance. Each and every valid claim will be covered up to $10 million, then once the claim hits that threshold there will be an excess limit of insurance of $10 million that will be shared among the clubs. Above that would be the excess of $30 million layer. Then there is a reinsured layer that covers the amount above the entire loss (not the individual claims, but the whole loss amount). That reinsured layer is made up by various reinsurers for a total reinsured amount of $3.1 billion. It is unknown if the amount insured will be adequate to cover the total losses. The Brittania P&I Club has confirmed that the ship was insured by the club for protection and indemnity liability. There is also hull and cargo coverage in place by other insurers. Lloyds insurers are also involved. The estimated value of the Dali at the start of its voyage was $90 million, with over $1.1 million in freight income. The attorneys for the owners and managers of the Dali have submitted court filings asking a judge to excuse them from any liability or to cap the damages at $43 million, which is the value of the vessel minus damage and salvage. When it was enacted in March 1851, the Limitation of Liability Act (LOLA) was intended to protect American shipowners and incentivize them to invest in the domestic fleet. Today, foreign vessels outnumber U.S.-flag merchant ships in American ports, and the Act can be just as easily invoked to protect foreign shipowners - in this case, Grace Ocean, a Singaporean company. In their petition, the attorneys deny any liability for the accident, asserting that the disaster was not due to any fault, neglect or want of care on the part of the vessel or its owners and managers. This assertion indicates the possibility that the owners/managers will be seeking protection under the 19th century Limitations of Liability Act, commonly termed the Titanic Law because it was invoked by the owner of the Titanic to limit its payout when that ship sank. In this manner, while the owner of the Dali could face hundreds of millions in damage claims, those could be mitigated in that the 1851 law could cap the owner's liability to how much the vessel is worth after the crash, plus earnings collected from carrying the freight on board. If successful, this could set a new precedent in maritime law. However, expert admiralty lawyers say that the next few years of litigation over the Dali will likely center on whether the owner might have known about a causal factor behind the accident. If that could be proven, it would allow a judge to "break" the limitation of liability, and plaintiffs (potentially including the U.S. government) would be able to pursue far higher damage claims against the owner and insurers. |

The takeaway

Collisions between ships and bridges occur, although not often. Based on 2018 survey results by the engineering consultant firm of Moffatt & Nichol, there were 35 major collisions of ships or barges worldwide between 1960 and 2015, killing 342 people, of which 18 occurred in the United States. However, when such collisions occur that remove access to one of the busiest bridges in the country, it is time to consider how such accidents might be prevented or the effects minimized. Further still, if the ship owners are successful in limiting their liability to the value of the vessel after repairs and salvage, plus pending freight, this could set a precedent in maritime law and redefine liability limits. Its outcome could also govern future disaster response approaches and shipping industry business models. Regardless, the loss to insurers and reinsurers will be comprehensive and expensive, and will likely lead to changes and tightening in the marine insurance market. As for the bridge itself, federal guidelines currently require bridges over a navigable waterway to be protected from a potential vessel strike. Among the safeguards are "dolphins," or independent barriers, meant to deflect a straying ship away from a bridge's piers, and "fenders" that attach to piers to absorb a vessel's impact. The Key Bridge predates these guidelines, though it was built with a set of concrete and wood barriers around its vertical supports that absorbed a containership strike in 1980. This accident could lead to even greater requirements in the protection of bridge construction. Analysis brought to you by FC&S Expert Coverage Interpretation, the recognized authority on insurance coverage interpretation and analysis for the P&C industry. To find out more — or to learn how to find answers to YOUR coverage questions — click here! See also: |

• Baltimore bridge collapse may trigger historic marine loss, says Lloyd's CEO
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