by Richard Kamppari Baker and Jason Odgers of World Insurance
A major maritime incident was reported last week in Baltimore, Maryland, after the MV Dali collided with the Francis Scott Key bridge. Tragically, several people lost their lives, and the significant impact of this event will reverberate throughout the global supply chain and insurance industry for years to come.
Many predict this will be one of the costliest shipping incidents in history, with insurers anticipating USD3-4 billion in claims. The vessel’s P&I insurer, Britannia, will be required to pay for the damage to the bridge, which will almost certainly be shared within the International Group of P&I Clubs (IG), a mechanism between mutual insurers to share the burden of exceptional losses.
While it is still early in the process, we expect the vessel owners to seek to limit their liability via all means available, including limitations based on the tonnage of the vessel. This would be extremely bad news for cargo owners. When liability is limited, compensation is prioritized: first will be loss of life and injury claims; then lifesaving, pollution, and salvage expenses; next would be the bridge and business-related claims; and, finally, the cargo owner’s physical loss and damage claims. By the end, the available funds can be exhausted, leaving many uncompensated for their loss.
At the time of writing this article, the owners of the MV Dali have not declared General Average (GA), but it is likely they will. A GA is typically declared when exceptional expenses are realized or sacrifices are made to “save the voyage.” Since all participants in the voyage benefit from the expenditure, they are all required to contribute proportionally as their interest appears.
While recent GA assessments have averaged approximately 20% of the cargo value, they can be much higher in extraordinary circumstances. Some incidents, such as the MSC Flaminia, have exceeded 90% of the cargo value. When GA is declared, cargo owners are required to post security to obtain release of their goods. When insured, the cargo owner needs only to report the claim to the insurer who will make the necessary arrangements to guarantee charges and effect release of the cargo; however, the uninsured must post a cash deposit. GA assessments are considered a legal debt and cannot be avoided by cargo abandonment.
Another major issue for cargo owners is ongoing declarations of “force majeure,” i.e., “superior force” or “act of God.” Vessel carriers declaring force majeure are permitted to discharge cargo at alternate ports of convenience and terminate the contract of carriage. The merchant is then required to make separate arrangements to transport cargo to the intended destination at their own risk and expense. This may be extremely costly due to the indefinite closure of the Port of Baltimore, requiring thousands of containers to be re-directed to other ports of discharge.
Transportation intermediaries should endeavor to effectively communicate all developments to cargo owners. Each time force majeure is declared by the vessel owner, NVOCCs should consider a “back to back” declaration of same. While declaration by the vessel owner relieves them of obligations under their Master Bill of Lading (BoL), it does not automatically extend the same relief to NVOCCs who have issued a House BoL. Failure to declare force majeure may obligate the NVOCC to deliver cargo per the terms of their House BoL at their own expense. While NVOCCs are not required to “declare” General Average, any communications from the vessel operator should be communicated to the cargo owner as efficiently as possible, so necessary arrangements can be made.
The insured cargo owner should be well equipped to deal with this incident. Any physical loss or damage to cargo on board the MV Dali should be addressed and General Average contributions, if required, should also be deposited by the insurer. In specific, exceptional circumstances, there may even be some contributions to additional costs associated with Force Majeure.
Every transportation intermediary with cargo on board the MV Dali or other affected vessels should notify their insurance broker immediately to explore all potential options. In contrast, uninsured cargo owners face challenging times and significant unforeseen costs associated with this incident. Transportation intermediaries certainly should take this opportunity to open a fresh dialogue with their clients regarding the perils of international transit and the benefits of high-quality shipper’s interest cargo insurance.