Paying for the Key Bridge is going to be expensive

 

It's too early to speculate, but the destruction of the Francis Scott Key Bridge in Baltimore is going to be very expensive to insurers, according to Lloyd's List.  (A "club", mentioned in the report, is a consortium or syndicate of insurers.)

According to the IG database, Dali [the ship that struck the bridge] is entered with Britannia, a London-based marine mutual. Britannia has been approached for confirmation.

The largest element of any payout will be the value of the Francis Scott Key Bridge, which was built in 1977 at a cost of $60m at the time, equivalent to over $300m today.

However, construction inflation has far outstripped consumer price inflation over the intervening period, and the replacement cost could be substantially higher.

No deaths have yet been reported, but fears are growing for the seven people still missing.

The lives of US citizens are deemed to be worth far greater compensation than the lives of third-world seafarers. P&I clubs generally offer single-digit million dollar payouts to victims' families, preferring the certainty of a quick settlement to costly protracted litigation in the US.

Delays to other vessels are not a P&I liability, although prudent shipowners will have delay cover. P&I clubs often offer delay cover as a sideline and will find themselves on the hook for much of it.

Britannia will be responsible for the first $10m of any claim on its own account. Once the bill exceeds this layer - as is certain to be the case with Dali - it is shared among IG affiliates through the pool scheme.

In the simplest possible terms, the other 11 members will chip in pro rata for the $10m-$30m tranche, after which liability is reinsured through Bermuda-based captive vehicle Hydra.

The general excess of loss programme, known as GXL in industry jargon, kicks in at the pool ceiling of $100m. GXL, which is funded by shipowners through a levy imposed per gross tonne, provides an additional $2bn of reinsurance in a three-layer structure.

A further $1bn of reinsurance cover - known as 'the collective overspill' - is purchased by the IG to provide protection in respect of claims exceeding the upper GXL cover limit of $2.1bn.

Major marine casualties are long tail events and it is often years before the full cost can be assessed.

There's more at the link.

The cost isn't limited to the ship and the bridge.  Business Insider reports:

Baltimore is among the busiest ports in the nation, seeing more than a million shipping containers pass through each year. The collapse — which closed the port to all maritime and most road traffic until further notice — is already beginning to wreak havoc on the supply chain.

The cost of building the bridge back fast enough to offset diversions as much as possible could saddle the government with a more than $600 million bill, David MacKenzie, chair of engineering and architecture consultancy COWIfonden, told Sky News.

The container ship, the Dali, is owned by a Singapore-based firm. The ship's charterer, Maersk, confirmed to Business Insider that vessel company Synergy Group operates the ship. 

However, the companies with cargo aboard the Dali will ultimately be responsible for the ship's damages and cargo costs.

. . .

An ancient maritime law known as "general average" dictates that companies with even a single container aboard a ship have to split the damages pro rata based on the number of containers, ensuring all the stakeholders benefiting from the voyage are splitting the risk, Petersen said.

The principle dates back hundreds of years and was originally meant to ensure sailors on board a ship weren't worried about specific cargo if a disaster required them to start throwing containers overboard, according to Petersen.

The majority of the financial fallout is likely to lay primarily with the insurance industry, according to media reports.

Industry experts told FT that insurers could pay out losses for bridge damage, port disruption, and any loss of life.

The collapse could drive "one of the largest claims ever to hit the marine (re)insurance market," John Miklus, president of the American Institute of Marine Underwriters, told Insurance Business.

He told the outlet that the loss of revenue from tolls while the bridge is being rebuilt will be expensive, as will any liability claims from deaths or injuries.

Again, more at the link.

If you add up all those costs and expenses, it's not impossible that insurers could be staring down the barrel of a $3-$4 billion dollar payout, perhaps even higher.  One hopes the insurers "laid off" at least part of the risk onto reinsurers, or some of them might end up bankrupt.

Peter