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Bridge collapse could spur waves of coverage litigation


Coverage disputes stemming from the March 26 collapse of the Francis Scott Key Bridge in Baltimore after it was hit by the container ship Dali will come in waves, legal experts say, with initial fights arising from supply chain disruptions and contingent business losses.

Companies that had containers onboard the Dali and the recipients of the cargo will incur losses triggering insurance coverage. Disputes could also arise over how much policyholders can recover for costs related to the rerouting of goods and for delays staggering the flow of income.

Eric Ruzicka, a Minneapolis-based commercial litigator at Dorsey & Whitney LLP, said the accident will likely lead to wrongful death suits brought by the families of the construction workers who were on the bridge when it collapsed.

“There's a potential also for litigation relating to the actual loss of the bridge and also to business interruption losses in the area,” Mr. Ruzicka said.

The accident will trigger force majeure clauses in construction contracts involving projects for which materials were being shipped to or from the Port of Baltimore, though those disputes are often resolved through arbitration, he said.  

Washington-based policyholder attorney Michael S. Levine of Hunton Andrews Kurth LLP said the business interruption and supply chain impact of the incident will be significant, long-lasting and wide-ranging.  The cost to replace the bridge, including salvage and reopening the waterway, will also be enormous, he said.

The six-day closure of the Suez Canal in 2021 caused by the grounding of the Ever Given container ship provides a good illustration of the disruption that occurs when operations are interrupted, Mr. Levine said. He recounted that according to data from Certain Underwriters at Lloyd’s, the grounding interrupted $9.6 billion of trade per day, or $6.7 million per minute.

“What makes things even trickier is that companies affected by supply chain disruptions and contingent business interruptions may not immediately appreciate those losses as being a result of the incident, but over time the cumulative impact will become obvious. Now, is the time for affected policyholders to start quantifying their losses, small as they may be initially,” he said.

Michael Savett, a Philadelphia-based insurance coverage partner at Butler Weihmuller Katz Craig LLP, observed that “the biggest insurance-related component of the bridge reconstruction is going to be subrogation claims.”

Insurers that pay out for the rebuilding and replacement of the bridge will be looking to recover the costs of those claims from potentially responsible parties, he said.

“It's going to be a free-for-all with the number of entities and insurance companies involved on both sides of the subrogation aspect,” he said.

The amount insurers can recover from Grace Ocean Pte Ltd., the owner of the Dali, could be limited due to the Limitation of Liability Act of 1851, which says a vessel owner can limit damage claims to its value at the end of the journey plus pending freight as long as it can show it lacked knowledge of a problem beforehand.

On Monday, Grace and Synergy Marine, the company operating the Dali, filed a petition in federal court in Baltimore seeking to limit their liability for the collapse to $43.5 million. The companies said in the petition that they should not be held liable for any loss or damage because the event was not caused by their “fault, neglect, or want of care.”

Jon Werner, a partner at New York-based Lyons & Flood LLP who represents insurers in maritime coverage disputes, said all parties sustaining losses caused by the Dali will assert claims against Grace, which will then commence a proceeding in federal court in Baltimore asserting its right to limit its liability to the value of the Dali plus pending freight.

The claimants are likely to attempt to “break limitation” by arguing that their losses resulted from negligence caused by Grace’s management or that it knew or should have known about the Dali’s power issues. 

Mr. Werner said that if the claimants can break the limitation cap, they can access the full amount of P&I coverage available to Grace. 

“If limitation is not broken, however, the claimants will have to split a limitation fund which is probably under $50 million,” he said.

Mr. Werner said the act would not apply to first-party business interruption claims.

Additional coverage disputes will likely arise after the cause of the collision is determined, Mr. Levine said.  He said that with losses of this magnitude, insurers will be looking to allocate responsibility wherever possible. 

Mr. Savett said the costs associated with replacing the bridge will also have an adverse impact on an already hard insurance market.

“It’s already been tough for commercial entities to get affordable coverage. There’s no doubt that when renewals come around, you're going to see rate increases,” he said.