Maritime and Reinsurance Law and the Baltimore Bridge Collapse

In the early morning of March 26, the Singapore-registered container ship MV Dali, after losing power, collided with a main pier of the Francis Scott Key Bridge that spans the Patapsco River and the outer Baltimore Port in Baltimore. The estimated insured loss related to the accident is between $3B and $4B. If Grace Ocean Pvt. Ltd., the owner of the Dali, is liable much of the claim would fall on 80 global reinsurers of the International Group of P&I Clubs (“International Group”), a risk-sharing mechanism of which the ship’s liability insurer, Britannia P&I Club, is a member. The Francis Scott Key Bridge disaster highlights the importance and idiosyncrasies of federal maritime and reinsurance law, and how those different regimes will respond to these historic losses.

Owners of the DALI Seek to Limit Their Liability to $42.5 Million

On April 1, the owners and managers of the M/V DALI filed a “Petition for Exoneration from or Limitation of Liability” in the U.S. District Court for the District of Maryland seeking to limit their liability to $42.5M, which represents the value of the vessel and pending freight at the time of the accident. Limitation of liability is a historically important aspect of admiralty law, which acknowledges that the maritime business is perilous, and an accident could result in the financial ruin of a vessel owner. Under this backdrop, the federal Limitation of Liability Act (“Act”) was enacted in 1851 to protect the American maritime industry and make it more competitive with other countries where similar limitations applied. The Act has been invoked in a wide variety of cases involving different vessel types and sizes including such well-known maritime disasters as the RMS Titanic, the Deepwater Horizon oil spill, and, more recently, the sinking of the dive boat MV Conception off the coast of California in 2019 and the 2021 oil spill off the coast of Newport Beach, California. This type of action operates almost like a bankruptcy action in that it requires all claims to be made in a single forum – here the federal district court in Maryland – including claims for wrongful death of the workers on the bridge, claims involving the cargo and all other anticipated claims arising out of the destruction of the bridge. While under certain circumstances claimants can seek to prosecute their case in state court, the federal court retains jurisdiction over the vessel owner’s right to limitation under the Act.

Limitation to the value of the vessel is allowed only if the collision or act that led to the loss was done “without the privity or knowledge of the owner.” While it will take time to determine what caused the DALI to lose power and collide with the bridge, early reports indicate that investigators are looking into, among other things, contaminated fuel, an electrical chain reaction causing the generators to go down, or computer failure on board the ship. These causes would support limitation so long as they were not within the knowledge of the owner or its managing agents, officers, or supervising employees.

Maritime Law and the Problem of Pure Economic Loss

A large consideration with respect to the allowable claims against the vessel is that maritime law – as held by the U.S. Supreme Court in Robins Dry Dock v. Flint (1927) – prohibits the recovery of pure economic loss in the absence of physical damage. Therefore, claims for business interruption related to the inability to access the Port of Baltimore or to simply operate a business that is shut down due to the destruction of the bridge may not be recoverable against the owners of the DALI. Claimants therefore will need to determine whether there are any other potential defendants to recover their losses who are not protected by maritime law and may have played a part in the accident.

Reinsurance

As with most major catastrophes in the U.S., reinsurance will likely cover the majority of any loss. The Dali’s primary insurer would be obligated to pay the first $10 million of loss. The other members of the International Group would collectively pay the next $90 million. International Group’s reinsurance program, which is led by AXA-XL, covers $3 billion in losses per event, above the $100 million retention. Carriers and their reinsurers have undoubtedly already sent precautionary notices, estimated ranges of loss, and reviewed their contracts for applicable limitations and exclusions while monitoring the proceedings in Maryland federal court.

How We Can Help

Clark Hill’s cross-border Insurance & Reinsurance Practice can assist carriers and their reinsurers in assessing their liability related to the Francis Scott Key Bridge catastrophe, preserve and enforce their rights, and stay abreast of developments on the ground in Baltimore. Because the regional, national, and international scope of the catastrophe implicates multiple legal regimes and forums, our team is prepared to assist and represent insurers and reinsurers in mediation, litigation, and arbitration, here and abroad.

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