Those were the words of US Congressman Garamendi when he learned that the Japanese shipowners of DALI had filed for limitation in the US under limitation laws dating back to 1851 potentially capping their (and therefore their liability insurers’ liability) at circa US$44M. Early projections are that the cost of rebuilding the Francis Scott Key Bridge and the related claims for personal injury and financial damages caused by the incident could top US$4 billion.
The Dali incident has ignited concerns about the US approach to limitation which has remained relatively unaltered for years. It also brings into question the wider purpose of limitation of liability for ship owners and others who use ships and are therefore potentially exposed to third party claims if things go wrong.
Why do we have limitation? Principally, the purpose is to ensure that shipping remains viable. If those who invest in shipping are exposed to potentially vast liability in the event of a catastrophe like the DALI incident, then they will need to spend substantially more on insurance to cover that liability. Many would say that’s fine and indeed the current position in the US is similar in many respects to the position under the 1957 Limitation Convention which does permit a third party to break limitation if there was “privity or knowledge” on the part of the ship owner that a casualty might occur. In other words, if the ship owner knew something was wrong with the ship and turned a blind eye then it might be said that he was privy to unseaworthiness that was likely to result in a casualty. So, the ship owner already carries liability which will protect them if limitation is unavailable. They do that via their P&I Club and those who stand behind the Club, namely the pool and the international insurance market.
It seems likely that the stage is set for a long battle in the Maryland Courts in an attempt to persuade the judge to allow the limit to be broken in the case of the DALI thus passing on the costs involved to the shipowners’ liability insurers. That case will stand or fall on the merits. However, many say that there was little the ship owner or crew could have done to prevent the incident from happening and/or fingers will be pointed at the lack of any protection around the bridge supports and/or lack of tug assistance as being the operative cause. Be that as it may, the words of Congressman Garamendi raise wider concerns for the shipping industry. The suggestion that the 1851 Limitation law in the US should be retrospectively changed to increase the limitation of liability for foreign flagged ships is alarming. If that happens then not only would it be unfair for those involved in the DALI given that the insurance premiums/ reinsurance costs were priced on the basis of limitation being available (something that will be retrospectively taken away), but it also means that the costs of foreign flagged ships trading to the US could increase exponentially. There could be an adverse impact on investment in shipping generally which will have an inflationary cost on everyone using ships (i.e. consumers) or possibly even to a levy on goods imported into the US (which may affect US consumers).
So, the question of removing limitation or vastly increasing the limit in the US compared to the limit set in other countries is not an easy one. It might seem like an attractive and obvious option but it could lead to US consumers paying more in the long run. The better option may be for those exposed to the losses to seek to break limit in the US which will be challenging in this case but that will at least leave the US laws in place.
Another issue which may be under consideration is the extent to which the insurers of the DALI (the P&I and reinsurance community) could seek to pass the costs on to others. The obvious target in the first instance might be the Charterers’ and their liability insurers. Some of those insurers may the same as the ones who insured the liabilities of the owners of the DALI so this could be a circular exercise. The benefits of such an exercise are likely to lie only in terms of loss records and future premiums. If that did take place for example based on some sort of unsafe port argument, then that in turn could come back to the US if the Charterers and their insurers were to bring tortious claims against the port, for example in connection with an argument that there was an unfair system in place for escorting large containerships under a bridge that was likely to collapse if there was any contact between those ships and the main support stanchions.
We will continue to keep an eye on this case as it plays out in the United States Courts but recourse actions may find their way into the English legal system via arbitration and/or Court battles. One thing is for sure – the legal path ahead is a long one for all concerned.
Nick Burgess
Partner
