Economic Loss at Maritime Choke Points

Economic Loss at Maritime Choke Points

Ever had a bad week? At least you’re not the captain of the Ever Given—the Empire State Building-sized container ship that brought the global economy to its knees for nearly six days by getting stuck in the Suez Canal. Heralded as “the ship that launched a thousand memes,” the Ever Given sparked some of 2021’s best online content so far. Hilarious and absurd? Definitely. But a joke? Absolutely not—the blockage cost $9.6 billion to global trade each day. The Ever Given operators attributed the disaster to the high winds of a sandstorm. But the Suez Canal Authority speculated that weather was not the primary culprit, suggesting instead that human error played a role. Indeed, mindful of the sandstorm’s foreseeable dangers, at least one other ship chose to delay traversing the Canal.

The Suez Canal blockage is not your typical traffic jam, to be sure. But it raises important questions about the legal rules that shape maritime behavior. Among them is whether the interconnected nature of global commerce calls for a new look at the economic loss doctrine in maritime tort law. The Ever Given saga suggests that it does—at least for torts occurring in key canals, locks, and straits. We argue that carriers passing through “choke points”—narrow but vital maritime shipping channels like the Suez Canal, the Panama Canal, and the Saint Lawrence Seaway—should be liable for certain economic losses arising from their negligence.

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Application of the economic loss doctrine in maritime law dates back nearly a century. In the 1927 decision Robins Dry Dock & Repair Co. v. Flint, the U.S. Supreme Court categorically barred maritime tort recovery from vessels that cause purely economic losses—without any physical harm—on waterways, absent an independent duty of care. This is good news for the Ever Given, but bad news for the ships that were languishing in the Suez. While the Ever Given jammed the Canal, more than 420 vessels stranded on either side of the waterway incurred sizable economic costs, from delayed cargo shipments to wasted fuel. But because ships do not ordinarily owe each other duties of care (save for collisions), the stranded vessels cannot recover against the Ever Given through tort law. The economic loss doctrine bars them from recouping damages that result from spoiled goods, missed delivery deadlines, or extra labor and fuel costs.

Granted, there are strong policy reasons for the economic loss doctrine in the maritime context. Shipping delays are part of the business. As a result, players hedge their risks through insurance. In such a financialized landscape, massive maritime insurers will tend to absorb the costs of individual mishaps, avoiding the expensive process of figuring out who owed whom a duty of care.

But the Suez fiasco demonstrates that not all marine traffic jams are created equal. Some occur at critical commercial junctures where billions of dollars are on the line and rerouting is impracticable. In these high-stakes situations, carving out an exception to the economic loss doctrine would provide behavioral checks that are sorely lacking at present. Though debacles of Ever Given proportions are few and far between, groundings in the Suez Canal are quite common—much too common for comfort.

More is needed to deter ships like the Ever Given—and numerous others that unwisely risked gusty winds before it—from causing bottlenecks of global dimensions. True, there is the reputational embarrassment of being known as the vessel that singlehandedly ground international supply chains to a halt. But the deterrent role of reputational damages only goes so far. Commercial vessels are generally well insured and contract away financial damages resulting from delay. The Ever Given, for example, holds over $3 billion in protection and indemnity insurance. And the five-figure penalties meted out by the Suez Canal Authority are chump change in a world where the estimated damage from a multiday Canal disruption reaches the billions.

Carving out a maritime bottleneck exception to the economic loss doctrine—a Suez suit, if you will—would move two ships with one tugboat. First, waiving the liability bar when vessels negligently block key choke points would permit innocent parties—like the ships whose perishable goods were destroyed while they waited for the Suez Canal to clear—to recover their losses from the tortfeasor ship. Negligence would be determined under the well-established tort law regime: duty, breach, causation, and harm.

Second, a choke-point exception to the economic loss rule would encourage socially optimal behavior. Clogging a major shipping lane imposes huge spillover costs on third parties—costs that are generally not covered by insurers. Vessels should be especially careful when navigating these choke points because the prospect of negligence can be so financially catastrophic. And even if carriers were to insure against these accidents, the positive behavioral incentives would remain: insurers could offer reduced insurance premiums, such as additional safety training for helmsmen. Indeed, risk management methods are already commonplace among maritime insurers.

A frequent defense of a blanket economic loss rule is that determining who should recover for economic losses can be especially difficult in the absence of concrete physical harm. However, limiting the exception to ships that were already en route through the choke point—and where turning back is no longer a reasonable option—would prevent spurious or attenuated tort claims. Thanks to modern ship tracking tools, determining this class is particularly easy. Applying classic tort law principles of foreseeability and proximate cause would further cabin the exception, distinguishing between marine bottlenecks that are the foreseeable consequence of negligence and those that result from a series of wild and unpredictable disasters. Indeed, some courts have proposed redrawing the bounds of the economic loss doctrine with an eye towards foreseeability. A maritime choke point exception would limit recovery to instances where the harm is proximate (suffered by nearby ships unavoidably stuck in transit) and foreseeable (not the result of unpredictable accidents).

Further, creating a maritime choke point exception to the economic loss rule would not be completely unprecedented. A well-established carveout already exists for commercial fishermen, allowing them to recover for purely economic damages resulting from lost fishing opportunities—for instance, in the event of an oil spill.

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The Ever Given’s adventure in the Suez Canal offers a cautionary tale for boats navigating through major maritime choke points. But perhaps the current tale is not cautionary enough. Though reputational damage has some power to deter, more is needed to steer a 200,000-ton vessel sailing at 13.5 knots. Allowing an exception to the economic loss doctrine could change the tide. Holding vessels accountable for the economic damages they proximately and negligently cause at high-stakes choke points would improve maritime behavior and compensate injured third parties in the process. The only downside? An end to a wellspring of excellent Twitter content.

Sam Heavenrich and Noelle Wyman are J.D. candidates at Yale Law School.

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