Lending Association

Insurance claims linked to the Baltimore Bridge collapse begin to surface

Barclays reckons the cost could be $US3 billion – other estimates are higher as the global insurance industry – especially reinsurers – start toting up the claims that are already emerging after the container ship Dali destroyed Baltimore’s Francis Scott Key Bridge.

Insurers though stress it’s too early to be definitive about the best estimate of the cost – which will be high because America is a highly insured economy and highly litigious to boot.

And it is likely to involve a combination of insurance types, claims and negotiations that have rare been seen in the same incident.

Six people are still missing after a collision on Tuesday, forcing the closure of the Port of Baltimore with its $US82 billion a year cargo of imports (cars especially) and exports (coal).

But resolving the blame – if any- and sorting out compensation and other costs and then organising the payment of those amounts will take a long time, according to analysts and insurers.

“The economic disruption and pain felt by businesses and individuals in Maryland and the Baltimore economic area will be widespread and likely take years to fully comprehend and compensate those affected,” said Julien Horn, partner, Ports & Terminals and Logistics, at London-based insurance broker McGill and Partners said on Wednesday.

According to Horn, this is likely a millions of dollars per hours question, which suggests that it could be the largest example of port blockage seen by insurers and reinsurers in recent times.

It brings into question business interruption insurance, and specifically a less common form of coverage which protects against port blockage or denial of access to the port.

Horn explains that this type of business interruption insurance effectively covers “ships being unable to gain access to the quay whether the blockage is directly at, adjacent to or from an obstacle 500 miles away.”

Before there’s any insurance settlements, the stricken ship will have to be assessed, checked to see if it is seaworthy, the cargo taken from it (or as much as possible to allow it to be towed to a shipyard to be repaired, if it can be).

The owners of the cargo will demand quick compensation or re-routing of their containers and sent to Sri Lanka which is where the Dali was sailing to. The cost for this will be in the many, many millions of dollars with huge seagoing cranes to be chartered and smaller container barges or vessels found and organised to tranship the containers on the Dali. That will have to be paid for by the charter, Maersk, the Danish shipping giant, the Singapore based manager or the owner.

Media reports say Singapore-based company Grace Ocean is the listed owner of Dali. While the ship is managed by a firm called Synergy Group.

Insurers and analysts, brokers and regulators are now assessing the likely losses borne by underwriters across a series of insurance product lines including property, cargo, marine, liability, trade credit and contingent business interruption.

Some analysts warn that class actions should not be ruled out wirth the most likely sources being commuters, small businesses without the right or inadequate insurance cover (such as tourism operators).

“While the total cost of the bridge collapse and associated claims will not be clear for some time, it is likely to run into the billions of dollars,” said Mathilde Jakobsen, senior director, analytics at insurance ratings agency AM Best.

A key area of claims will come from the Dali and its owners, charterers and cargo owners. They are likely to be covered via what’s called ship liability insurance, which covers marine environmental damage and injury, is provided through protection and indemnity insurers known as P&I Clubs.

The International Group of P&I Clubs collectively insures approximately 90% of the world’s ocean-going tonnage and member P&I clubs mutually reinsure each other by sharing claims above $US10 million.

According to AM Best, the group holds general excess of loss reinsurance cover up to the value of $3.1 billion.

Moody’s Ratings analyst Brandan Holmes told Reuters approximately 80 different reinsurers provided that cover to the ship’s insurers.

“While the total claim is expected to be high, it is unlikely to be significant for individual reinsurers since it will be spread across so many,” he said.

Insurer Britannia P&I said in a statement that the container ship the Dali was entered with the club, adding that it was working closely with the ship manager and relevant authorities “to establish the facts and to help ensure that this situation is dealt with quickly and professionally”.

According to John Miklus, president of the American Institute of Marine Underwriters, the incident and especially the bridge collapse could drive “one of the largest claims ever to hit the marine (re)insurance market.”

Moody’s also issued a note saying the bridge disaster was a likely ‘credit negative’ event for coal group, Consolidated Coal which owns one of two coal export terminals in Baltimore Harbour (the other is owned by railroad giant, CSX).

Initial estimates of the cost of rebuilding the bridge, which is likely to be paid by the federal government, are at $US600 million, economic software analysis company IMPLAN said.

And data from giant German insurer, Allianz shows that while incidents of ships running into things in ports is sort of commonplace, total losses are very rare.

Allianz’s data shows that while ship collisions with bridges are rare, vessel collisions with port infrastructure such as harbour walls, piers and locks were the fourth most frequent cause of shipping accidents over the past decade, with nearly 2,000 reports of such collisions within that time, according to data from the insurer’s Commercial Safety and Shipping Review.

Total losses of vessels following collisions are rare, with Allianz reporting that over the the past decade, there have been only 30 total losses from incidents in which vessels collided with each other, and only four from incidents in which a vessel collided with port infrastructure.

Altogether, these account for only 4% of the 807 vessels lost between 2013 and the end of 2022, according to the insurer.