The Baltimore Bridge Collapse: Who’s Liable for the Insurance Payout?

The collapse of the Francis Scott Key Bridge following a collision with the container ship Dali could result in the most expensive marine insurance payout in modern history, potentially exceeding $1 billion. The ship owners and their insurers, however, may not be liable for the total cost of this devastating accident.

What’s going on?

Six bridge workers tragically died, and the accident has significantly disrupted the Port of Baltimore. The city is suing the cargo ship operators that caused the bridge’s collapse. The FBI has opened a criminal investigation into the deadly incident. Maryland's Attorney General is also seeking legal action to address environmental damage and recover costs.

President Biden launched a federal effort to rebuild the Key Bridge. $60 million in emergency funds were released for initial repairs and design, while Maryland seeks full federal funding through the Baltimore BRIDGE Relief Act.

How the Limitation of Liability Act impacts bridge collapse lawsuits

An important piece of legislation sits at the center of the complex legal battles surrounding the bridge disaster: the Limitation of Liability Act of 1851. Originally intended to support the fledgling American shipping industry and place it on equal footing with the international shipping community, this law caps shipowners’ liability at the vessel’s post-accident value. This means that even though the damages may be vast, the vessel’s insurers might only have to pay a fraction of the total losses.

To limit financial responsibility after a maritime incident, a shipowner files a petition in court to limit its liability to the value of the ship after the accident plus pending freight. Claimants will then try to prove that an act of negligence or condition of unseaworthiness caused the accident. If the claimant does prove this, the burden shifts to the shipowner to prove a lack of privity or knowledge of those acts.

In the infamous case of the Titanic, this maneuver drastically reduced the compensation the survivors and victims' families received.

What does this mean for the Baltimore bridge collapse disaster?

The ship’s owners have already filed a petition for limitation of liability, stating the vessel's value after the incident is $43 million.  The Limitation Action could allow the vessel to limit its liability for personal injury claims and property losses.

The Mayor and City Council of Baltimore filed an answer and the first claim in response to the petition on April 22, 2024, alleging that the vessel was unseaworthy and the shipowners’ actions were negligent, resulting in destruction of its property and associated costs. On April 25, 2024, American Publishing, LLC also filed a class action claim alleging that the negligence of the ship owner caused financial losses to its business and other businesses similarly affected.

Navigating complex insurance claims

Any potential insurance payouts resulting from this disaster hinge on several factors:

• Damage to the bridge: Rebuilding a structure of this size could easily exceed $100 million. While the federal government has already pledged $60 million, how this interacts with potential insurance claims and the Limitation Action remains unclear. Taxpayers might end up footing a large portion of the bill.
• General Average: This ancient maritime law dictates that the costs incurred for the benefit of all to achieve a safe arrival at final destination, including salvage operations to clear a wreck, are shared by all stakeholders. This extends financial responsibility beyond the ship and its insurers to include cargo owners and their respective insurers.
• Liability: Proving the vessel was negligent or unseaworthy is crucial for those seeking damages due to loss of life, injuries, and bridge damage. This will require a thorough investigation into the ship's condition, maintenance records, the Port Captain’s and the crew's actions before the collision.
• Business Interruption: The Port of Baltimore is a major economic hub, and the extended closure disrupts a vast supply chain. Affected businesses may hold business interruption policies, but insurers are likely to contest payouts. While businesses might try to sue the ship owners to recover their losses, such lawsuits have limited chances of success due to ships' general immunity from liability for pure economic losses.

Lessons from the El Faro ship incident

A more recent example of the Limitation of Liability Act in action is the El Faro case. After the container ship sank near the Bahamas during Hurricane Joaquin in 2015, the owners, TOTE Maritime, also sought to limit their liability.

Despite being found liable for damages, the court allowed the company to limit its total payout. TOTE Maritime reached a settlement with the families of the deceased crew members and survivors, each party receiving $500,000. The National Transportation Safety Board's (NTSB) investigation found the primary cause of the sinking was the captain's poor decision-making but also blamed TOTE Maritime for safety lapses and inadequate oversight.

Risk management

The Key Bridge disaster serves as a stark lesson in the importance of proper risk management. If your business could be vulnerable to similar disruptions, immediate risk mitigation is essential to prevent costly consequences. Here are a few key approaches for proactive strategies to avoid costly disruptions and losses:

• Make a thorough risk assessment: Identify potential risks across all stages of the shipping process. This includes natural disasters, geopolitical instability, cyberattacks, cargo damage, and theft. Analyze the likelihood and potential impact of each risk to focus mitigation efforts.
• Plan (and respond): Develop detailed plans for the most impactful risk scenarios. Outline clear communication channels, alternative routes, emergency procedures, and the roles and responsibilities of key personnel. Conduct regular simulations to refine these protocols.
• Establish robust partnerships: Build strong relationships with reliable carriers, logistics providers, and insurance companies. Transparent communication and contracts that clearly define liability can minimize disputes and protect all parties.
• Adopt technology: Incorporate technologies like real-time tracking systems, cargo sensors, and predictive analytics. This improves visibility, enables data-driven decision-making, and allows early intervention if problems arise.
• Foster safety culture: Encourage open reporting of near-misses and potential vulnerabilities to enable proactive solutions.

What the Key Bridge disaster means for tomorrow

While the initial $60 million pledged by the US government to begin the rebuild of the bridge is welcome news, questions remain about how this will interact with existing insurance claims. Due to lawsuits and evidence gathering, determining the true extent of the ship's liability will likely take years.

The Baltimore Bridge disaster brings to light the unique legal complexities and enormous potential financial fallout that haunt the modern shipping industry. While time will tell the lasting ramifications of this disaster, a solid risk management plan can keep you one step ahead of similar incidents.

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