Dali collision set to test insurance limits

The collision which destroyed Baltimore’s Francis Scott Key Bridge has the potential to become the biggest marine insurance accident claim in history and has raised major concerns over the safety of the world’s mega containers ships.

The bridge collapsed after being struck by the Singapore-registered vessel Dali last week with the tragic loss of six people who were working on the bridge at the time.

It has left one of the United States’ busiest ports completely blocked with experts saying it will take months for the channel to be cleared and for access to the port to be restored.

The Dali is said to been blighted by refrigerated containers on the vessel shorting its electrical systems while it was in port before its planned voyage to Sri Lanka. US officials say there are over 50 containers in the vessels which were described as containing potentially hazardous cargo.

For the owners of the Dali, and its insurers, the costs of the incident are set to be record breaking.

Marine insurance is split into two clear parts. The insurance of the vessel, its hull and machinery and the vessel’s liability risks which are covered by mutual professional & indemnity (P&I) clubs. Any marine accident in which a vessel with cargo on board is stranded will be covered by General Average (GA). GA  was developed in the 19th century as a system in which the costs of cargo and recovery are shared equally by the owners of the cargo on board. It was created to halt individual cargo owners hiring salvors to remove their cargo before others on a stricken vessel.

Chair of the Association of Average Adjusters, Burkhard Fischer, told Emerging Risks that the claims will be significant.

The recovery operation will be covered by the GA meaning that the insurers of the containers in board will share the costs of the process.

“The GA will be implemented for those cargo owners which have cargo on board at the time of the incident,” he explained. “It may have been bound for Sri Lanka but it is likely it was to visit other ports of call on the way to its destination.”

Fischer said once the vessel has been refloated should there be the need for the vessel to be repaired in order to complete its journey then the GA will also apply.

It is likely that should it require a dry dock it may need to be moved to Florida given the lack capacity on the US east coast.

However the major costs are likely to land at the feet of its P&I club.

As the liability insurers the club will face a raft of claims from cargo owners and shipping companies which find their vessels and cargo stranded inside the Port of Baltimore or unable to access the port and forced to head to other destinations in order to continue their journey.

The Francis Scott Key Bridge has been completely destroyed and at the time of construction cost over £550 million. While US President Joe Biden has moved swiftly to say the federal government will meet the cost of the bridge’s reconstruction it is likely that the Dali’s P&I club will face a claim for the costs.

The vast majority of the world’s P&I clubs are part of the International Group of P&I Clubs (IG) which operates a pooling system in which claims which are above a certain level are met equally by the IG membership to a limit, which if breached is then met by the group’s reinsurance programme which remains one of the world’s biggest.

The collision which is said to have been caused by the loss of power which left the vessel unable to be steered. It had reignited concerns over the limitation that large container vessels have when it comes to their ability to operate its rudder.

One leading salvage expert has told  Emerging Risks: “The vessel’s rudder needs the force of the propellor to operate. If there was a loss of power the rudder would have been of no use in efforts to alter the Dali’s course.

“These very large container vessels require a minimum speed of 12 knots to allow the rudder to operate. It translates to 15 mph, and there have been concerns expressed in terms of the navigation for access to some major ports in Germany the UK and Europe given the speed which these vessels need to be travelling as they arrive in the port.”