On March 26, 2024, Baltimore's Francis Scott Key Bridge collapsed after being struck by the cargo ship, the Dali, as it was departing from the Port of Baltimore. In the aftermath of the collapse and continuing to a certain extent today, the city itself, the county, and many businesses have suffered tremendous financial losses because of the bridge loss.
Subsequently, numerous lawsuits were filed seeking damage recovery for their financial losses. On August 25 of this year, U.S. District Senior Judge James K. Bredar dismissed most of the economic damage claims by the city and county of Baltimore and eight consolidated private entities, including insurers. The basis for the dismissal was a 1927 Supreme Court opinion (Robins Dry Dock & Repair Co. V. Flint) which Bredar found that the suing public and private entities are not entitled to economic damage losses because they had no proprietary interest in the bridge or other property. Instead, Dali owner Grace Ocean Private Ltd. And operator Synergy Marine Group can only be held liable for economic losses if there was damage to property owned by the claimant.
While business interruption insurance is available for an insured's loss of income stemming from a direct physical damage loss affecting their operations, the business interruption coverage does not extend to cover loss of income due to a loss of other properties not owned by the insured.
Contingent business interruption coverage is available which would extend business interruption coverage to cover loss of income due to loss at a dependent property. This can be from a covered physical damage loss to customers' or suppliers' property or to property on which the insured depends to attract its customers.
There are several situations for which this type of coverage is often sought, such as if an insured depends on certain manufacturers for their products, or where operations depend upon one or just a few suppliers, when operations or sales depend upon limited or specific purchasing groups, in supply chains where the damages at one of those supply chains may impact insured operations, or when an insured depends on neighboring businesses to attract customers to their product, known as a leader property.
The key is that the insured operations must have a direct connection to the dependent properties; the connection may not be incidental in nature, nor a third-party connection. In the case of the Key Bridge, it was a mode of transportation for the suppliers, vendors, customers, distributors, etc., but the bridge itself was not a dependent property to any of the specific entities who were suing for economic damage losses.
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Karen Sorrell, CPCU
Karen Sorrell, CPCU is an editor and insurance technical resource for FC&S Expert Coverage Interpretation, a division of National Underwriter Company and Arc Network. Karen has an extensive background in commercial and specialty lines underwriting and product management spanning over 30 years. Her technical underwriting skills combined with her research and analysis skills in insurance product development are a winning combination for her role of insurance editor and in the area of insurance policy language interpretation for Arc Network.