Who’s Paying for the Francis Scott Key Bridge Disaster?

Economic losses have been increasing since a cargo ship lost power and collided with a huge bridge in Baltimore last week, causing it to collapse and kill six people.

Source: Brew Review | Published on April 1, 2024

Huge losses expected from Baltimore Bridge disaster

Economic losses have been increasing since a cargo ship lost power and collided with a huge bridge in Baltimore last week, causing it to collapse and kill six people.

The horrific disaster has sunk transportation networks on land and ocean. The Francis Scott Key Bridge carried a portion of the I-695 roadway, and its fragments are currently impeding ship movement to and from the Port of Baltimore, the country’s 17th busiest port.

The sheer scale of the damage could make it one of the costliest maritime disasters in history:

  • The destruction of the 1.6-mile bridge could result in insurance claims for as much as $1.2 billion, Barclays says, and that doesn’t include the possible nine-digit price tag for compensating victims’ families and, potentially, the businesses impacted by the port’s indefinite closure.
  • Grace Ocean, the Singaporean company that owns the bridge-destroying vessel, Dali, and its insurer may face liability claims of up to $4 billion, according to ratings company Morningstar DBRS.

But there’s bound to be a battle over who has to pay (and how much), and it might all come down to whether an obscure 19th-century law once used by the Titanic’s owner applies.

So, who gets the bill?

The short answer is: Grace Ocean’s insurer Britannia P&I Club, most likely.

  • There’s one company associated with the disaster that we already know probably won’t have to pay: the Danish shipping giant Maersk that chartered the ship, since none of its employees were on board Dali.
  • The initial repair costs might be covered by the $350 million bridge insurance policy purchased by the state of Maryland, but the final tab will still probably go to Britannia P&I Club. (P&I stands for “protection & indemnity.”) President Biden has also said that the federal government will pay for bridge repairs to minimize delays in rebuilding.

Mutual insurance associations like the Britannia P&I Club allow shipowners to pool risk by teaming up to buy coverage from large insurance companies for accidents that result in losses beyond the ship itself. Such organizations insure about 90% of ocean-faring cargo traffic, according to the International Group of P&I Clubs.

The Britannia P&I Club offers coverage of up to $3.1 billion per ship, according to AM Best, with the cost of reimbursement borne by a group of about 80 reinsurance companies. This means that a single insurer won’t sustain debilitating losses from the Dali disaster, Moody’s Senior Credit Officer Brandan Holmes told the Wall Street Journal.

The legal loophole

As costs pile up, Grace Ocean and Britannia P&I Club will likely get hit with a flurry of lawsuits from various plaintiffs, including the victims’ families, the state of Maryland, and other affected parties who want to be made whole.

Legal scholars expect Grace Ocean to try to minimize its losses by invoking an arcane maritime law: The Limitation of Liability Act caps a ship owner’s liability at the cost of the ship and the value of the freight it was carrying. The US law was passed in 1851 to make maritime trade less financially risky. When it was enacted, most ships were made of wood and were probably incapable of taking down a sprawling truss bridge and paralyzing an international port.

Will it work? For Grace Ocean to benefit from this law, it cannot be found that the company knew about a technical defect that led to the crash beforehand.

Not everyone impacted will have equal chances of getting reimbursed. Businesses taking losses from the port closure might have a harder time making their case, as disaster compensation usually prioritizes victims physically harmed by the accident, UT Austin maritime law professor Michael Sturley told Bloomberg Intelligence.

Looking ahead…the first legal action is expected to kick off in Baltimore in the coming days, but it will likely be years before the various legal fights are resolved.