Who Will Foot the Bill for the Baltimore Disaster?

Salvage personal work to clear debris from the Francis Scott Key Bridge in Baltimore on April 4, 2024. Kevin Dietsch/Getty Images

President Joe Biden has pledged to provide complete funding for the reconstruction of the collapsed bridge in Baltimore. Despite this assurance, congressional leaders have so far kept quiet about how they intend to fund the project, which may require billions of dollars.

On April 5, all eyes will be on Baltimore when the president visits to see firsthand the collapsed Francis Scott Key Bridge. While there, he is expected to emphasize the need for immediate federal action and urge Congress to unlock the funds to bring the historic port city back to life.

Several members of Congress raised concerns about spending taxpayer money and asserted that insurance companies should bear full responsibility.

“There will be insurance payments in part to cover this, but we don’t want to allow worrying about where the financing is coming to hold up reconstruction,” Treasury Secretary Janet Yellen told MSNBC in response to those concerns.

At about 1:30 a.m. on March 26, a giant container ship leaving the Port of Baltimore struck the historic Francis Scott Key Bridge, causing the bridge to collapse. The bridge, which opened in 1977, was named after poet Francis Scott Key, who wrote the lyrics for the U.S. national anthem.

The Dali, the 948-foot-long vessel that hit the bridge, is owned by Grace Ocean Private Ltd. and operated by Synergy Marine Group. Both companies are based in Singapore.

There will be a lot of litigation over this complicated disaster. However, industry experts have said that the insurers and reinsurers backing the giant ship will bear the bulk of the cost.

They will most likely be liable for any potential claims brought against the ship’s owner and operator, such as bridge and cargo damage and loss of life and business.

One of the busiest ports in the mid-Atlantic has come to a complete halt because of the collapse of the bridge. Following the accident, the harbor suspended vessel traffic.

The collapse killed six workers, with two bodies found and four still missing. The individuals were part of a work crew responsible for filling potholes on the road surface of the structure.

According to insurance experts, the tragedy could result in the most expensive marine insurance claim, involving physical damage and loss of life, topping the $1.5 billion paid out for the Costa Concordia disaster in 2012.

Ship owners have extensive insurance coverage because the maritime business is quite dangerous, according to John Driscoll, a director at the leading insurance broker Willis Towers Watson.

Mr. Driscoll focuses on the marine insurance industry.

Protection and indemnity (P&I) policies are provided for these types of accidents to cover any potential liabilities, he told The Epoch Times, citing the $3 billion of liability reinsurance that is provided to the Dali by the International Group of P&I Clubs.

The protection and indemnity policy of the ship may be asked to cover physical damage to the bridge, any resulting losses, debris removal, cargo damage, and loss of life and injuries, according to Mr. Driscoll.

“There are a lot of different aspects to this P&I. And this could possibly be the largest maritime event ever,” he said. “It’s going to affect the insurance market in a big way.”

How Does Insurance Coverage Work?

The International Group of P&I Clubs, which is a not-for-profit association, collectively insures about 90 percent of the world’s ocean vessels.

There are 12 P&I Clubs, and they use a three-tiered structure to insure ships, allowing them to offer the greatest degree of insurance coverage available to ship owners globally.

One of the International Group’s members, the Britannia P&I Club, has provided Dali’s indemnity insurance, which forms the first layer, covering up to $10 million in claims. The remaining 11 members of the group will share the majority of claims up to a maximum of $100 million, which constitutes the second layer. This is known as the international group’s pooling arrangement, which dates back to 1899.

The wreckage of the Francis Scott Key Bridge sits partially submerged in the Patapsco River in Baltimore on April 2, 2024. Chip Somodevilla/Getty Images

Beyond this level, the group purchases a general excess of loss reinsurance policy with a maximum coverage of $3.1 billion. AXA XL Insurance leads the reinsurance program, which brings together about 80 reinsurers from around the globe.

This reinsurance is purchased annually by the International Group on behalf of the clubs and their ship owner members.

Since the Baltimore case involves a multibillion-dollar loss, reinsurers will be tapped to pay the majority of the claims.

“We are working closely with the vessel’s owner and manager and the relevant U.S. authorities as part of the investigation into the casualty,” the ship’s lead liability insurer, Britannia, said in a statement.

Lloyd’s of London

The disaster also shook Lloyd’s of London, a global insurance marketplace with a rich history spanning almost 340 years.

Lloyd’s was established by Edward Lloyd in 1688 at his coffee shop near the Thames River in London. The shop quickly gained popularity among sailors, shipowners, and merchants, establishing itself as a hub for purchasing insurance to protect ships and their cargoes from the dangers of the seas.

Lloyd’s has been a witness to numerous natural and manmade catastrophes throughout its history, including the tragic sinking of the Titanic in April 1912, which remains one of the most costly disasters.

The Titanic transformed the insurance sector, calling into question the appropriate pricing for insurance coverage on such a ship. Underwriters discovered that they had underpriced the risk. When the Titanic’s sister ship, Olympic, got coverage for its next transatlantic journey following the disaster, the cost of insurance reportedly more than doubled.

Similarly, the Baltimore disaster is likely to have ramifications for the reinsurance industry, according to Mr. Driscoll.

“I think it’s going to have a larger effect on the general marine insurance market because of this reinsurance program. It’s possibly going to max out the whole tower, which is about $3 billion,” he said.

Marine insurers are already struggling with the Houthi attacks in the Red Sea, and these new losses will further compound their ongoing woes.

Limiting the Liability

According to industry observers, companies will most likely jockey over ultimate responsibility for damages.

Given the high cost, parties involved in the accident would consider filing liability limitation lawsuits to cap their risk.

The cargo ship Dali is stuck under part of the structure of the Francis Scott Key Bridge after the ship hit the bridge in Baltimore on March 26, 2024. Maryland National Guard via AP, File

As expected, on April 1, Grace Ocean and Synergy Marine filed a “petition for exoneration from or limitation of liability” in the U.S. District Court in Baltimore.

“The casualty was not due to any fault, neglect, or want of care on the part of petitioners, the vessel, or any persons or entities for whose acts petitioners may be responsible,” the petition reads.

“Alternatively, if any such faults caused or contributed to the casualty, or to any loss or damage arising out of the casualty, which is denied, such faults were occasioned and occurred without petitioners’ privity or knowledge.”

There is an ongoing investigation into the crash by the National Transportation Safety Board. Investigators are reportedly collecting data on the vessel’s operations, safety history, safety record, and operator.

“The investigation will determine the cause of loss, the results of which will drive legal issues. All that is going to take a lot of time to figure out,” Insurance Information Institute spokesperson Loretta Worters told The Epoch Times.

The state of Maryland has $350 million in property and business interruption coverage for its bridges and tunnels, according to the Insurance Journal. But its claims are likely to be subrogated to the vessel’s insurers.

While it is unclear, some legal experts believe that there is a way for the vessel’s owner and operator to reduce liability under a 19th-century law. The Titanic’s owner used the statute to reduce its payout after the tragic sinking in 1912.

According to Grady S. Hurley, a maritime attorney with New Orleans-based Jones Walker LLP, it will take weeks, if not months, to evaluate the level of damage and determine who or what is at fault for the accident.

“You have to look at this as a multidimensional sort of chess with different interests at different levels,” he told The Epoch Times.

Ultimately, Mr. Hurley said, the landslide of lawsuits that will result from this disaster is likely to be “consolidated, probably in a federal court form, to handle all the various interests.”

In an interview with the Financial Times, John Neal, CEO of Lloyd’s of London, said insurers should “just get on with it” and pay for the Baltimore bridge collapse without prolonging disputes.

Rather than financial intervention from the federal government, Mr. Neal suggested that it would be “far better for the insurers to stand up and say, ‘Hey, let’s actually begin to deal with all of this.’”

John Haughey contributed to this report.