03 May 2024
Navigating the Aftermath:
The MV Dali Bridge Collision
In the early hours of March 26th 2024 the 9,962 teu container vessel “MV Dali” allided with the southwest pier of the central truss arch span of the Francis Scott Key bridge in Baltimore Maryland whilst travelling at around 8 knots. The vessel was leaving the port of Baltimore bound for Colombo, Sri Lanka carrying some 4,700 containers. The allision resulted in the collapse of a 1.6 mile section of the bridge, part of which fell onto the ship’s bow causing it to ground.
The incident appears to have been related to an electrical power failure on the vessel, but it is still being investigated by the National Transportation Safety Board (“NTSB”) whose deliberations also involve a review of the bridge design, which was built in 1972.
Prompt actions by the crew in calling a Mayday alert enabled the bridge to be closed to traffic shortly before the collapse happened. Notwithstanding this, six construction workers were working on the bridge refilling potholes. Three of these are confirmed deceased with the other three still missing. On board the vessel itself, one crewman was injured.
The port of Baltimore was closed, and it is anticipated it will not fully reopen to deep draught vessels until the end of May at the earliest.
The Vessel
MV Dali, Container Vessel, Flag Singapore, GT 95,128
Owner: Grace Ocean Pte Ltd
Manager: Synergy Marine Pte Ltd
Charterers Club: Gard
P&I Insurer: Britannia for owners' risk
Political response
In the aftermath of the incident, President Joe Biden pledged federal funds to rebuild the bridge as a matter of urgency and to provide USD60 million in federal emergency relief funds. A Unified Command structure was established to clear the wreckage.
City of Baltimore has announced its intention to bring “significant economic and environmental loss claims against owner, manager/operator, charterer, manufacturer and others”.
Subsequent actions
Grace Ocean and Synergy have asserted that they had no “privity or knowledge” of faults with the vessel and have petitioned that any liability for the incident is limited to USD43.67mn under the 1851 Limitation of Liability Act. Whilst this seems an archaic act, it has been under subsequent review and was in fact codified as recently as 2022 under Title 46 of the US Code. The question of whether this petition stands, or whether limitation can be broken, will no doubt take many years to resolve.
The USA is not a signatory to the 1976 IMO Convention of Liability for Maritime Claims (“LLMC”), however, Singapore is. Using the calculation matrix under the 2012 amendment to the 1996 protocol to LLMC, liability under this convention would be limited to approximately USD57mn for property damage, USD114mn for personal injury and loss of life.
On April 12th 2024, General Average was declared with Richards Hogg Lindley being appointed as the average adjuster. This will have the effect of shifting a greater share of the cost of the casualty onto cargo interests. The limitation petition, above, estimated salvage costs of USD19.5mn as well as repair costs to the vessel of USD28mn in deriving the USD43.67mn limitation amount.
Insurance implications
The overall cost of the incident, including hull repairs, GA/salvage, loss of life, crew injury, repairs to the bridge, business interruption etc have been variously estimated at between USD2 billion and USD4bn. Whilst this range is vast, even at USD2bn this would make the incident most likely the biggest maritime casualty ever, exceeding the costs of the Costa Concordia or the Ever Given to cite recent examples.
The question therefore is, who pays? Central to the question is whether the limitation petition can be sustained or broken. If the shipowner limitation value is sustained, then this will by definition limit the P&I Club exposure – although clearly there will be significant claims handling costs involved as well.
The table below illustrates how a claim of different levels might be shared. Amounts used are for illustration purposes only here and do not constitute claims estimates in any way.
If the limitation is broken, then the claim to P&I will look very different – for example, the bridge itself had an insured value of USD1.2bn and repair costs have been estimated at more than USD600mn. The bridge is insured by Chubb Corporation and they would no doubt subrogate against stakeholders in the vessel resulting in a substantially larger claim against P&I. Similarly, the business interruption insurers for the port of Baltimore might seek to take similar actions.
Should limitation be sustained, then the claim itself may be contained within the International Group Pool (USD100mn including club retentions). Even if handling costs mean that the pool limit is breached, then the open market reinsurers are protected by an Annual Aggregate Deductible (“AAD”) underwritten by Hydra Insurance – effectively the 12 Clubs collectively - although not all of the International Group reinsurers benefit from this protection.
If the limitation is overturned, then the International Group could face its biggest claim ever. Whilst the 12 clubs would face a collective USD207.1mn claim, the bulk of the claim would fall on the group reinsurers – the main programme being led by AXA. The impact on rates for subsequent renewals of this reinsurance going forward may ultimately be substantial, effectively meaning that, in these circumstances, the group clubs could be paying for this casualty for many years to come, not so much in the form of claims incurred in a particular policy year, but rather in materially increased reinsurance rates for years to come.
In the extreme case of the casualty exceeding the reinsurance limit of USD3.1bn then the additional costs will overspill back to the individual clubs to collect from the membership – subject to any overspill reinsurance that may be in place. We understand that guidance from the International Group on this matter is forthcoming shortly. This in itself will take many years to unravel, but looking forward this may lead one to wonder if the current limit of USD3.1bn is still adequate.
Of course, if the limitation is successfully asserted, then the cost of this casualty will fall across a more generalised, wider group of primary insurers and reinsurers – i.e. it will not be limited to the maritime reinsurance market. In isolation this event would not have a major impact on the macro (re)insurance market, which is usually driven by significant natural catastrophe events.
Outlook
The legal determination of limitation is a lengthy legal process and one subject to various levels of appeal whatever the initial verdict. There may also be a question of choice of jurisdiction – whilst the US legal system will naturally seek jurisdiction, the owners and operators are not US corporations and thus might also seek limitation under the IMO LLMC convention, albeit under which there is a higher limit. There will be no quick resolution of this question meaning the claim itself will take a long time to hit the primary insurers let alone the reinsurers and retrocessionairres. Whilst it may seem irrational for such a sophisticated reinsurance market as we see today to react to the claim in its infancy, both IG reinsurers, individual Club non-poolable programme reinsurers and the wider reinsurance market may see it differently.
We do not see the P&I club core premium hardening significantly as a result of this claim - whether the limitation is successfully achieved or not. The first USD10mn of the claim will be retained by the holding club, subject to retention reinsurance. The next USD20mn will fall into pooling and anything exceeding this will fall on, sequentially, Hydra (as reinsurer of the next USD70mn of the pool, subject to a secondary club retention of USD3.75mn), Hydra (as reinsurer of the AAD) and the excess reinsurance market. The impact of the claim on owners’ core premium will be little different to that of any other modest pool claim: and so, we believe that general increases in the autumn of 2024 should not be particularly influenced by this claim, and our projection across the market remains averaging at a 5% general increase (inflationary based) for the 2025-26 renewal.
The impact on the cost of the group reinsurance charge passed on to members is more difficult to assess or determine now. It must be borne in mind that this charge includes two elements. Firstly, the cost of Hydra’s involvement, see above, and secondly, the cost of the open market reinsurance itself. How will the clubs reflect the cost of Hydra’s involvement in the claim in this charge, and how will the open market reinsurers react? The answer to these two questions may be different, with one perhaps more nuanced than the other. There may be some talk of a kneejerk reactions in the market, but it may be that the decision-makers will adopt a wait-and-see attitude.
Looking back to the Costa Concordia casualty in 2012 (USD1.5bn P&I casualty), the reinsurance market reacted with a sharp increase in 2013 due in part to the fact that the passenger operators were few and far between, in GT terms, compared to conventional blue water operators. The passenger RI rate moved as follows, but it is also of note to see how the average moved across the market during the subsequent 3 years:
Whilst this illustration provides some historical reference, the reinsurance premium in 2012 versus what is paid to the market in 2024 has also changed significantly. The world fleet tonnage has also increased by +54% (+730m GT) between 2012 and 2024, therefore logic would imply that the pay back to the reinsurance market on a USD2-3bn claim will be much quicker. We expect to see some GXRI movement in reinsurance costs at the next renewal, but not necessarily as high as those seen, in the wake of the Costa Concordia casualty.
However, as we are at the early stage of the claim, this may not consistently be the case. Many separate elements define the composition of the charge for reinsurance and these elements will differ if the limitation is successful or not. In addition, it is worthy of note to mention that the pay out of the claim will be spread out over many years as the case continues to evolve. Whilst, before this casualty, we would have expected to see reinsurance rates drop again for the 2025-26 renewal, the MV Dali incident may influence this expectation adversely.
Dealing with claims of this magnitude once more demonstrates why P&I insurance and the International Group Club system are so important in supporting the shipping industry as a whole during incidents with high potential exposures.
If you have any questions concerning this article, please reach out to the Gallagher P&I team.
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