Dali owner file petition to cap liability in Baltimore bridge collapse at $43.7M

You know, it's funny you mention Warren Buffet. I asked the Berkshire Hathaway guys the same thing when I first started as a broker! Turns out they can't go asking Mr. Buffet for money in case they run out. He expects them to run a tight business and hold the proper amount of money on hand to pay out any potential future claims. The natural followup was me asking if the underwriter had ever met the man himself. The closest he ever got was an unrelated picture at the shareholder conference in Omaha where Buffet was off in the background autographing something. Back on topic, you may be wondering how does an insurance company know how much cash reserves to have? The answer is to hire a bunch of wicked smart actuaries who go to school for 8 years that can calculate all this stuff for you. They tend to do a very good job and are paid handsomely for their efforts. As a fun perspective, let's take a look at AIG's balance sheet [1] (A balance sheet is like a database summary of all the stuff the company owns and to whom they owe money). I pick AIG because they only do insurance so it's easier to tease out the insights we want from the data as BHS is a subsidiary of BH and gets mixed in with other companies. AIG's market cap right now is $53B, but they've got $540B of stuff they own! That's 10x their market cap. Most of that will be paid out in claims (hence the balance sheet showing liabilities, aka what they owe), but what's leftover is the residual value of the company. It's a neat finance trick that you can buy $540B of assets for only $53B by buying AIG outright. Regulators know this trick so don't think you and your friends can pull a fast one. It just goes to show how capitalized insurance companies are. If you really want to dig deeper, there are many rating agencies (AM Best or S&P being the most popular) that assess the ability of insurance companies to pay claims. Brokers don't advise clients to buy insurance rated worse than A.

Regarding ultimate insurers, you're spot on that the answer is a big ol' "it depends." People buy insurance for three reasons, listed in order of how important I think they are. First is balance sheet protection (I worked hard for my stuff, I can't afford to lose it). Second is for contractual obligations (Nobody will do business with me if I don't promise to make them whole if things go wrong). Last is because the government says you have to. When you think of a claim happening where there is no insurance available, run through that checklist to see what what could potentially happen. Since you listed a few concrete examples, I'll go through them and opine how things may play out (remember we're in imaginary land and without policies I can't really say anything for certain).

Fire damages - I think of the Camp fire. In 2018 California was set on fire because of some transmission lines caused a spark. This is a big claim caused by an individual entity, so the normal rules don't necessarily apply here. But in general, the way it works is if my house caught fire because of this Camp fire, my insurance policy on my house WILL cover the claim. Whoever writes my policy will cut me a check and replace my home (subject to policy terms). What will then happen is my insurance company will the subrogate the claim to the entity that caused it. Meaning that they will knock on the electric utility's door and ask for reimbursement (this is essentially subrogation). When the utility goes bankrupt, they're saying we can't pay, so ultimately your insurance carrier pays out of pocket with no reimbursement. The head property underwriter of Everest insurance spoke to us about the fire claims and said they really hurt his book. If I recall, they paid like a billion in fire claims in 2018, but budgeted nowhere near enough. Those well paid actuaries couldn't predict a fire would raze California! Luckily they budget a rainy day fund, so the company was ok. Fire insurance prices did go up significantly the following year. This is because they didn't realize just how on the hook they could be for fire claims. The whole insurance market systematically underpriced fire insurance in fire prone areas.

Crane collapse is another good example. My old client had a particularly nasty crane collapse that is ongoing, so I will not share any details around any crane collapses, hypothetical or not. However, there is an analogous claim that I did not work on that I can use as an example: the MGM shooting in Vegas (2017) [2]. Basically, the concert venue didn't have enough insurance to foot the bill. In the process of discovery, the lawyers saw that MGM Casinos (where the shooter perched) had an extensive casualty insurance tower. MGM's insurance ended up having to pay out the claim. They used up the full limits of every policy they bought that year (and not a penny more). I think because they weren't negligent, the lawyers didn't seek damages beyond their policy limits. When there is a bad claim, lawyers will always find whoever has the deepest pockets and make them pay. If you don't have enough insurance, courts will force you to pay out of pocket. If you don't have enough money out of pocket, the wronged party will have to eat the loss. This is why point #2 is an important reason for buying insurance.

Also- if your question regarding crane collapses is more geared towards someone losing a lot of value quickly, that is easy. My old boss insured a factory in tornado alley. Couple hundred million dollar factory was insured pretty cheap because tornadoes don't cause much damage and are considered low risk. A few weeks after the plant was finished, a tornado came through and ripped the building clean in half. Insurance company paid the near total loss, no questions asked. Remember, they're in the business of insuring against these freak accidents. They are comfortable with taking a lopsided deal. They earn plenty of premiums each year on factories that aren't violently introduced to tornadoes.

I had a wealthy client who purposely didn't buy insurance on his buildings. He'd buy the first $75M or whatever of insurance and would guarantee the rest out of pocket (did I mention he was wealthy?). This is hard to do because of points #2 and #3, but it can be done. In the biz, we call this "self-insurance" and while it may sound like I'm being tongue-in-cheek, it is a very sophisticated risk management strategy that can accomplish a client's risk transfer needs. Typically companies self insure the small claims (via a deductible), not the top end of claims.

I guess to directly answer the lead question, the ultimate insurer without any insurance backing is you, the owner. It's your stuff after all. If your stuff is important to other people (ie the public, or other companies) other stakeholders are gonna make you have insurance, otherwise you won't be allowed to control those resources. That's why the boat, the bridge, and the port all had good insurance. The system was working as intended.

Thank you for your great questions! I've got a few other responses in the thread that detail other insurance questions that you may find interesting.

[1] https://finance.yahoo.com/quote/AIG/balance-sheet/

[2] It's a little fucked up that I have to put the year so we know which one I'm talking about. At least I didn't need to clarify the month...

I'm not exactly sure how it all plays out, but if a company claims to not be able to pay, the lawyers will "pierce the corporate veil." Essentially they will ask for an ownership diagram and keep working their way up to the ultimate ownership entity. This trick doesn't work for real businesses, and only kinda works for fraudulent ones.

That was an entertaining read. Thanks.

Achievement unlocked I guess? A tragedy. But no you’re right, that is a Way to cause lots of damage with a car. Still involves Heavier vehicle tho