Baltimore, Maryland, and the entire mid-Atlantic region are still reeling from the disaster that occurred early on March 26, when the container ship The Dali rammed and caused the collapse of the Key Bridge – the gateway to Baltimore’s Port and the famous Inner Harbor. As with many disasters, there is a rush to obtain information, sometimes at the expense of accuracy. This is an attempt to clear up some of the factors in play as respects the transfer of risk, and the assignment of responsibility, relative to this tragedy.
Risk – the chance that something unforeseen and bad happens – can be mitigated, assumed, or transferred. Insurance is a vehicle used to transfer risk to another entity for a fee; the entity is an insurance carrier in most cases.
The first type insurance involved an approach different than that used previously – people and entities assumed the risk of loss. Insurance arrived during the last millennium – a contingent capital concept. Based on the perceived chance that a ship was to encounter trouble (or not), capital was pledged on a document, and those who signed under the terms assumed the risk (and the concept of “underwriter” was born.)
Much of marine insurance has remained unchanged for centuries. Common U.S. concepts of liability, workers’ compensation, and loss of property are very different from marine insurance. Language in Ocean Marine policies is often centuries old. Even when marine insurance policies are subject to the admiralty jurisdiction of the United States federal district courts, the courts tend to rely on and cite to English common and statutory law.
Primary elements of Ocean Marine Insurance (as differentiated from “Inland Marine” insurance, which is triggered when goods are on land and in transit):
Protection & Indemnity (P&I) Insurance: P&I insurance protects ship owners or operators against third-party claims for property damage or bodily injury arising from the operation of a vessel. Unlike many modern third-party insurance policies, P&I insurance is indemnity coverage, not liability coverage. Consequently, P&I policies typically do not require the insurer to defend the policyholder against a lawsuit or to reimburse a policyholder for loss unless the policyholder has actually paid a third party. It would be P&I that would come into play were The Dali found at fault for the damage to the Key Bridge, the economic damages of related enterprises, and the injuries and deaths of those injured. P&I also pays for the bodily injury of the crew – very different from the US concept of workers’ compensation. As a comparison, P&I is a combination of liability (Bodily Injury and Property Damage) and workers’ compensation.
Ocean Cargo Insurance: Covers the goods and material being shipped. This is often assumed by the shipper and/or the owners of the goods and is rarely transferred to the shipping operator.
Hull Insurance: Covers damage to the ship itself. Hull insurance policies also offer limited protection for the ship owner’s liability resulting from collision damage.
There are may others affected by this tragedy - among them, the lost business related to the Port of Baltimore, and the surrounding supporting industries and businesses. Additionally, the incident will cause people to lose jobs, and extra transportation cost will be incurred for those attempting to get material from point to point (about $80 billion in cargo moves through the port annually).
Much of that risk is being assumed by those affected.
Insurance plays an important roll in the spread of risk, allowing commerce to flow when it otherwise could not. That said, insurance policies are contracts, and other contracts shift liability between and among parties. Higher tiered parties with more leverage often push liability down to those doing work on their behalf. Additionally, negligence is ultimately determined in the court system after considering all variables. In this case, while it may be convenient to blame The Dali for this incident, three things are already in play (and there may be more): The ship’s engine was just serviced at port, the ship recently passed inspection, and Maryland Bay Pilots were in control of the ship at impact.
The largest Marine related claim in history was the Costa Concordia, (cruise line Carnival), when it hit rocks close to the island of Giglio off Tuscany in January 2012, killing 32 people. The salvage — righting, removing, and scrapping of the ship; as well as payment of damages and environmental restoration — cost $2 billion and took more than two years. It is less than 72 hours after the Baltimore event, but early estimates exceed $3 billion . . .
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