The March 26 collision between the Dali container ship and the Francis Scott Key Bridge, resulting in the bridge's collapse, has highlighted the complexity of insurance coverage for maritime operations. The collision resulted in extensive property damage, loss of life, and a significant disruption of shipping and vehicular traffic in and around the Port of Baltimore.
Three months after the bridge collapse, total losses from the event have not yet been quantified. And some important questions remain unanswered: How much will the incident ultimately cost marine insurers? Depending on how litigation and other events play out in the coming months and years, it could be as much as $4 billion — or as little as $44 million.
Limiting liability?
A variety of marine insurance coverages could be triggered by the bridge collapse. This includes various forms of insurance that are typically purchased by shipowners — including the Dali’s owner, Singapore-based Grace Ocean Private Ltd., and the owners of other vessels impacted by the port/bridge closure — along with cargo owners and marine and nonmarine businesses that may have been affected.
The biggest challenge stemming from the bridge collapse is the potential for third-party liability claims, which would be covered by the Dali’s P&I club, Britannia P&I. The estimated value of these damages is currently believed to be between $2 billion and $4 billion. If this proves to be accurate, it would be the largest P&I claim in history. Two unknowns, however, will determine whether this comes to pass.
First is whether parties that have sustained purely economic losses (and their subrogated insurers) will be able to successfully recover those claims. Under the U.S. Supreme Court’s 1923 opinion in Robins Dry Dock v. Flint and subsequent case law, a plaintiff must demonstrate a proprietary interested in damaged property in order to recover damages from economic loss. Many of the business interruption claims arising from the bridge collapse will likely not meet this standard.
Second is whether the Dali’s owner can successfully cap its liability. On April 1, 2024, the Dali’s owner and her manager filed a petition in federal court in Maryland seeking to do this by availing itself of the protections afforded under the Limitation of Liability Act of 1851, also known as the Limitation Act.
This law, enacted primarily to encourage maritime industry investment by limiting financial risks for shipowners, permits the owner of a vessel involved in a marine casualty to cap its maximum liability for damages at the value of the vessel immediately following the casualty plus pending freight — meaning the compensation paid to the vessel owner for the carriage of cargo or other services. This limitation applies regardless of the extent of the actual damages caused by the underlying incident.
Here, the Dali’s owner is seeking a cap of approximately $44 million; if it succeeds, claimants to whom the shipowner is found liable would be paid their proportional share of that amount. Many of the claims outlined above — particularly, the high-value claims involving personal injury and death, general average/salvage costs, damage to the bridge and other recoverable economic losses — would be subject to this limitation.
Filing a limitation of liability petition also serves to consolidate all claims in a single, multiparty federal lawsuit. Once all parties have appeared, the court will determine whether the Dali’s owner is entitled to limit its liability or whether it is responsible for the full value of all claims arising out of the incident. The difference between these two figures — $44 million if capped vs. as much as $4 billion if uncapped — is astonishing.
A difficult legal standard
To succeed in its petition, the Dali’s owner will need to prove that it lacked “privity or knowledge” of the negligence or fault that caused the incident. In the context of U.S. admiralty law:
“Privity” refers to a legal relationship or connection between parties — specifically, the shipowner and the person or entity responsible for the act or omission that caused the maritime incident.
“Knowledge” refers to the shipowner's awareness or understanding of the circumstances that led to the incident. This can include knowledge of any unseaworthy conditions of the vessel, negligence of the crew, or other factors contributing to the incident.
U.S. courts generally impute onto corporate shipowners the privity or knowledge of high-ranking corporate officials — such as land-based executives — and that of the master or the owner’s superintendent or managing agent, at or before the beginning of each voyage. This area of law, however, is far from straightforward.
For centuries, courts have struggled to apply the privity or knowledge standard, often referring to it as elusive and difficult. As such, U.S. courts will typically look at the specific facts of a given case, including such factors as crew competency and efforts made by the owner and crew to remedy defects in a vessel that are discoverable through reasonable diligence. Navigational mistakes or other errors caused by an otherwise competent crew, or latent defects in a ship, are typically not deemed to be within the shipowner’s privity or knowledge.
Even so, legal decisions in this area are far from consistent or predictable. Recent trends in U.S. courts have leaned toward holding shipowners seeking to limit liability to an extremely high standard.
At present, all reports indicate that the immediate cause of the incident was a power failure aboard the Dali moments before its collision with the bridge. If that power failure were the only causal link in the chain, the limitation petition would very likely be successful.
The National Transportation Safety Board, however, noted in its preliminary report that the Dali had experienced power failures prior to the bridge collapse incident. This could complicate the petition, potentially unraveling the shipowner’s defense and leaving it and its insurer liable for the full value of recoverable claims.
Potential insurance market and regulatory implications
The outcome of the Dali owner’s limitation petition and subsequent litigation will significantly impact all parties involved, including insurers, reinsurers, and claimants. More broadly, it could reshape the landscape of maritime insurance and U.S. admiralty law.
From a legal and regulatory standpoint, a notable concern is that Congress may seek to repeal the Limitation Act or amend it to expand liability for shipowners. Changes to the law would likely not apply retroactively to the Dali owner’s liability for the bridge collapse, but they would affect shipowners involved in future casualty events in the U.S.
There is some precedent for this. In response to the 2019 fire and sinking of the dive boat Conception, Congress passed the Small Passenger Vessel Liability Fairness Act (SVPA) in 2022. The SVPA specifically excludes owners of “small passenger vessels” from availing themselves of the Limitation Act’s protections.
Regardless of how much liability the Dali’s owner is eventually determined to be responsible for — along with any possible legislative action that is taken — the legal process related to the bridge collapse will undoubtedly drag on. It may ultimately be years before any third-party claims are paid out.
P&I clubs may well use this uncertainty as a reason to be more cautious going into 2025 renewals. P&I club reinsurance programme limits — currently at $3.1 billion — were previously thought to be more than adequate to meet the needs of the shipping community, but the potential exposure in the bridge collapse proves otherwise. Costs for the reinsurance purchased by the P&I clubs, known as the general excess of loss reinsurance programme, are likely to increase at the 2025 renewal, with that cost being passed along to shipowners in the P&I club system.
For now, shipowners and ship operators should focus on proactive risk management to mitigate risks from unforeseen maritime incidents. Owners and operators can prevent the occurrence of major casualty incidents and limit their scope and magnitude by establishing and following robust maintenance, training, safety, and risk standards. Documentation of these standards and related policies and procedures can also serve as a defence in the event claims arise.
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