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Once upon a midnight dreary: pondering the Baltimore bridge collapse and what comes next
2024 PRINDBRF 0199
• Practitioner Insights Commentaries
• April 15, 2024
(April 15, 2024) - Adrian Azer, Peter A. Halprin and Jacob Todd of Haynes Boone discuss insurance coverage and other issues raised by the collapse of Baltimore's Francis Scott Key Bridge.
The Francis Scott Key Bridge collapse: What happened?
The Key Bridge crosses the Patapsco River and is a four-lane, 1.6-mile span that was used by around 31,00 people daily.1 The bridge served as an important connection between Hawkins Point, on the south side of the waterway, and Dundalk, on the north. The Patapsco is a key waterway that, along with the Port of Baltimore, serves as a hub for East Coast shipping.
In 2023, the Port of Baltimore handled a record 52.3 million tons of cargo, worth $80 billion.2
On Tuesday, March 26, 2024, the Dali, a 948-foot-long cargo vessel, weighing 95,000 tons when empty, had just begun its journey toward Colombo, Sri Lanka. Unfortunately, early that morning, it struck one of the supports of the Francis Scott Key Bridge at 8 knots (9 mph).3 At the time of the accident, the ship was carrying nearly 4,700 containers. 56 of those containers held hazardous materials.4
Following the Dali's Mayday call, it was reported that police had just 90 seconds to stop traffic and evacuate people on the Key Bridge.5 The Key Bridge collapsed quickly, taking with it eight construction workers who were on the bridge at the time. Of these 8 workers, six have been confirmed or are presumed dead.
While, thankfully, none of the ship's crew reported injuries, the deaths of construction workers, the property damage caused by the allision, and the logistical consequences of cutting off the country's ninth largest port by trade volume, all point to loss or damages estimated as high as $4 billion.6
Despite the uncertainty surrounding the catastrophe, it is certain that the numerous parties impacted by these tragic events will look to hold each other, and others, liable for the loss and damage. Relatedly, insurers and insurance industry analysts are now assessing the likely losses borne by underwriters across several product lines, including property, cargo, marine, liability, trade credit, and contingent business interruption.7
Businesses impacted by this event will want to take a look at all potentially relevant insurance policies, indemnity agreements and contracts, as well as potential government assistance to mitigate the likely financial strain.
Relief through insurance
As a measure of bottom-line protection, businesses impacted by these events should not limit their review of insurance policies to specific lines of insurance. Rather, they should take a broad view as, per the examples below, a number of different types of coverages could offer assistance.
•Property: Commercial property insurance protects the property that an insured uses in its business against direct physical loss or damage.8 Property insurance works by paying the insured an amount of money to offset loss and damage. In this instance, property insurance could play an important role in rebuilding efforts, as well as in making insureds whole for lost revenue.
•Business Interruption coverage, generally, provides financial protection to businesses that have lost income due to covered loss or damage.9
•Contingent Business Interruption coverage, generally, provides financial protection to businesses that have lost income due to covered loss or damage involving suppliers or customers. It is thus differentiated from ordinary Business Interruption coverage which protects prospective earnings from interruption due to loss or damage to the insured's own property.10
•Civil or Military Authority coverage provides financial protection when an "act of civil or military authority" limits access to insured property.11 Civil or Military Authority coverage does not require an insured to suffer direct physical loss or damage; the loss or damage can be caused to the property of others nearby.
•Ingress/Egress coverage provides financial protection for loss of income due to a lack of ingress and egress to/from the insured's property.12 Like Civil or Military Authority coverage, Ingress/Egress coverage does not require an insured to suffer direct physical loss or damage; the loss or damage can be caused to the property of others nearby.
•Extra Expense coverage pays for additional costs in excess of normal operating expenses that an organization incurs to continue operations while its property is being repaired or replaced after having been damaged by a covered cause of loss.13
•Liability: Liability insurance provides protection against claims resulting from injuries and damage to other people or property. These policies cover any legal costs and payouts an insured party is responsible for if they are found liable, up to the policy limits. In this instance, various forms of liability coverage will be essential in covering both loss of life and damage to property.
•Property Damage Liability coverage entails harm to another person's or business's property. Property damage claims arise from either: (1) damage to, destruction, or loss of tangible property or (2) rendering property temporarily unusable.14
•Bodily Injury Liability coverage pays for damages that a business or individual is liable for due to bodily injury to a third party. Bodily Injury Liability coverage can pay another party's medical expenses, lost income, pain and suffering or even funeral costs.
•Marine Liability: Marine Liability policies primarily focus on third-party liability involving claims made by individuals or entities against the insured.15 These claims can include bodily injury, property damage or economic losses caused by the insured's maritime operations. Some of the examples below highlight the potential importance of these coverages given what happened here.
•MOLL (Marine Operators Legal Liability) coverage is a component of marine liability insurance that addresses the legal liability faced by operators of vessels. It offers protection against claims arising from collisions, accidents, and other incidents involving the insured vessel.
•Protection and Indemnity coverage includes protection against liabilities arising from crew injuries, passenger claims, cargo damage, pollution incidents, collisions, wreck removal and others.
•Ocean Marine Hull coverage provides a safety net for various vessels. This coverage protects the policyholder from the repercussions of physical damage and addresses physical damage to the policyholder's vessel, including damage from collisions, accidents, and sinking.
•Ocean Marine Cargo coverage protects goods transported via sea routes, and safeguards them from risk of physical damage, theft and other forms of loss.
•Trade Credit: Trade credit policies are a method for protecting a business against its commercial customers' inability to pay for products or services.16 Trade credit insurance could be critical given the likely trade disruptions ahead.
•Pollution Liability: Pollution liability policies provide coverage for loss or damages resulting from environmental contamination claims.17 The losses or damages covered by pollution insurance usually arise in the form of claims against insureds for bodily injury, property damage, cleanup costs, and business interruption due to discharges of pollutants. While there is not yet reporting about any environmental damage, this may end up being an important part of the recovery efforts.
Relief beyond insurance: contractual relief
Contractual risk transfer, such as in the form of indemnification clauses, is also likely to come into play. Indemnification is an undertaking by one party (the indemnifying party) to compensate the other party (the indemnified party) for certain costs and expenses, typically stemming from third-party claims. Indemnification can also cover direct claims, which are claims or causes of action that one contracting party has against the other.18
One wrinkle of the maritime trade is the concept of the general average. According to one Baltimore-area cargo solutions company:
General Average means, literally, a general loss. When General Average is declared, not only are ocean carriers not liable for loss or damage to cargo, but every cargo owner is actually responsible, in part, for the cargo of others, as well as the ship itself.19
Another principle that could come into play when deciding who is responsible for paying what sort of compensation is the Limitation of Liability Act of 1851. The Act allows shipowners to limit their financial liability to simply the value of their vessel plus cargo after a loss, as long as they could prove that they didn't know of a problem beforehand.
When the Titanic sank, the ship's owner invoked the Act and asked courts to limit the damages the company would have to pay to survivors and family members of those who died. Those claims were consolidated and despite more than $16 million being sought in damages, only $664,000 was paid in settlement.
In fact, the Singapore-based Grace Ocean Private Ltd. has already made a joint filing with Synergy Marine Pte Ltd., the ship's manager, in an attempt to limit the companies' liability under the Act to roughly $43.6 million.20
Relief beyond insurance: government intervention
In addition to insurance and contractual risk transfer, impacted businesses may also be able to look to government assistance. President Biden said that the federal government will "move heaven and earth" to rebuild the bridge.21
The President further pledged to send Baltimore "all the federal resources they need as we respond to this emergency" and promised "we're going to rebuild that port together." In further remarks at the White House, he stated "It's my intention that the federal government will pay for the entire cost of reconstructing that bridge, and I expect the Congress to support my effort."
The United States Secretary of Transportation, Pete Buttigieg, said that the federal government has about $950 million in funds authorized for emergency use for the incident.
Whether this will provide relief to insurers or indemnitors is unclear. Guided by prior disasters, government grants are often tied to the requirement that insurance assets be pursued in full, and insurer attempts to claim such grants as offsets have generally been rejected.
For example, in Northrop Grumman v. Factory Mutual Insurance Co., the court emphasized Congress's intent in the FEMA statue to create incentives for companies to obtain private insurance instead of depending solely on FEMA.22 In the FEMA statute, Congress explicitly required FEMA funds to be reimbursed if "such assistance duplicates benefits available to the person for the same purpose from another source."
Likewise, in Kiln Underwriting v. Jesuit High School of New Orleans, the court found that the school's receipt of FEMA funding had no bearing on its ability to recover from its insurer.23
In K.C. Hopps, Ltd. v. Cincinnati Ins. Co., a federal district court recently found that the plaintiff's receipt of government relief in the form of Paycheck Protection Program (PPP) loans during the pandemic did not entitle the insurer to a "setoff" and that policy benefits owed for business income were not to be reduced by a governmental award of PPP loans.24
How will courts respond
In previous large-scale disasters, such as the Champlain Towers collapse, courts have quickly consolidated lawsuits with an eye towards reaching a global settlement. This is a possible outcome in any future litigation surrounding the Key Bridge.
First, the federal district court may set up a multi-district litigation. A multi-district litigation (MDL) is a type of civil procedure in the United States federal court system that is used when multiple lawsuits are pending against a defendant or defendants, and the lawsuits share common questions of fact.25
The MDL process begins when lawsuits are consolidated before one court and, once consolidated, the district court appoints a lead counsel for the plaintiffs and a lead counsel for the defendants. The goal of creating an MDL is to reduce the cost and delay of pretrial proceedings and to avoid inconsistent pretrial rulings.
Large-scale disasters like this have been handled in a consolidated fashion, like the class action settlements that were reached in the Champlain Towers collapse.26
How will the insurance market respond
Major disasters can cause insurers to make subsequent changes to their policies, such as adding exclusions, reducing coverage limits, or including sublimits. While it is unclear whether insurers will do so in this instance, it seems unlikely that insurance buyers would tolerate widescale changes to maritime or trade risks.
Conclusion
In the wake of this unfortunate tragedy, it is expected that there will be significant disputes regarding who bears responsibility (and how much responsibility) for the disaster and the follow-on effects.
While government and insurance are likely to play a key role in addressing these issues and aiding in recovery, the sheer magnitude of the loss may leave some entities without either form of support. Impacted entities should therefore work closely with elected officials, contract specialists, insurers, and their insurance professionals to try to minimize their out-of-pocket loss.
Notes:
1 Nick Perry, Baltimore Bridge Collapse Puts the Highly Specialized Role of Ship's Pilot Under the Spotlight, AP News (Mar. 28, 2024, 7:03 PM), https://bit.ly/4aNsaWW.
2 Megan Cerullo, Who Owns the Ship That Struck the Francis Scott Key Bridge in Baltimore?, CBS News (Mar. 26, 2024, 5:05 PM), https://bit.ly/3xwDXKS.
3 Weiyi Cai, How the Key Bridge Collapsed in Baltimore: Maps and Photos, NY Times (Mar. 26, 2024), https://bit.ly/3VO1jWp.
4 Kevin Shalvey, What We Know About Baltimore's Francis Scott Key Bridge Collapse, ABC News (Mar. 27, 2024, 2:59 PM), https://bit.ly/3vXzwYS.
5 Kelsey Kushner, NTSB Says Police Had 90 Seconds to Stop Traffic, Get People Off Key Bridge Before it Collapsed, CBS News (Mar. 28, 2024, 4:54 PM), https://bit.ly/3vMCi3a.
6 Supra note 4.
7 Id.
8 Mut. Ben. Group v. Wise M. Bolt Co., Inc., 227 F. Supp. 2d 469, 477 (D. Md. 2002).
9 GPL Enter., LLC v. Certain Underwriters at Lloyd's, 254 Md. App. 638, 659 (2022).
10 Millennium Inorganic Chemicals Ltd. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 893 F. Supp. 2d 715, 720 (D. Md. 2012), rev'd and remanded, 744 F.3d 279 (4th Cir. 2014).
11 Pathology Lab. Inc. v. Mt. Hawley Ins. Co., 552 F. Supp. 3d 617, 623 (W.D. La. 2021).
12 ARMC, The Next Level of Business Income Coverage, IRMI (Nov. 1, 2011), https://bit.ly/4aPje30.
13 IRMI, Extra Expense Coverage (April 5, 2024), https://bit.ly/3xsM0rT.
14 Casey Bond, What is Property Damage Liability Insurance?, Forbes (Oct. 5, 2023), https://bit.ly/4aArOmU.
15 § 137:10. Introduction, 9A Couch on Ins. § 137:10-16.
16 Peter Halprin, Maximizing Coverage Under Trade Credit Insurance Policies, Global Trade (Jan. 28, 2015), https://bit.ly/3JyhRdP.
17 NAIC, Environmental Insurance, Center for Insurance Policy and Research (June 23, 2022), https://bit.ly/4d5qMRx.
18 Thomson Reuters, Indemnification Clauses in Commercial Contracts, Reuters (April 2, 2024), https://bit.ly/3xDUKeN.
19 Shapiro, Cargo Insurance: What is General Average?, 360 Login, https://bit.ly/4cOChwr.
20 In the Matter of the Petition of Grace Ocean Private Limited et al for Exoneration from or Limitation of Liability, No. 24-cv-941, petition filed, (D Md. Apr. 1, 2024).
21 Christian Olaniran, Biden's Message to Baltimore After Bridge Collapse: "You're Maryland Tough. You're Baltimore Strong.", CBS News (Mar. 26, 2024), https://bit.ly/3PZMooq.
22 Northrop Grumman Corp. v. Factory Mut. Ins. Co., No. CV 05-08444 DDP PLAX, , at *5 (C.D. Cal. July 31, 2013).
23 Kiln Underwriting Ltd. v. Jesuit High Sch. of New Orleans, No. CIV.A. 06-4350, , at *5 (E.D. La. Oct. 24, 2008).
24 K.C. Hopps, Ltd. v. Cincinnati Ins. Co., Inc., 561 F. Supp. 3d 827, 841 (W.D. Mo. 2021), aff'd, 78 F.4th 1002 (8th Cir. 2023).
25 § 3864 Transfer for Coordinated Pretrial Proceedings Under 28 U.S.C.A. § 1407—Factors Influencing the Choice of a Transferee Forum and a Transferee Judge, 15 Fed. Prac. & Proc. Juris. § 3864 (4th ed.)
26 Randi Love, Florida Judge Finalizes Settlement For Victims of Surfside Condo Collapse, Reuters (June 23, 2024), https://bit.ly/3JeBxmH.
Adrian Azer is the managing partner of Haynes Boone's Washington, D.C., office. He represents corporate policyholders in a variety of complex insurance coverage matters. Clients seek Azer's representation in insurance recovery for cybersecurity breaches and mass tort claims, disputes over general liability coverage for various toxic tort and environmental claims, and disputes over directors' and officers' coverage. Azer also counsels clients in bankers professional liability matters. He can be reached at [email protected]. Peter A. Halprin is a partner in the insurance recovery practice group in the firm's New York office. He is a Chambers USA-ranked attorney, and is well-known for his work on issues such as business interruption, cybersecurity and wrongful death suits. He can be reached at [email protected]. Jacob Todd is a third-year law student at SMU and is interning with the insurance recovery group.
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Adrian Azer)
Peter A. Halprin)
Jacob Todd| End of Document | © 2024 Thomson Reuters. No claim to original U.S. Government Works. |