The media has been awash with theories as to how this terrible event occurred. It is to be hoped that the rescue operation can be completed soon and that subsequent investigations will reveal what happened and how steps can be taken to avoid any similar future occurrences. In the meantime the insurance industry is contemplating the issues raised by the disaster.
In the maritime world insurance takes several forms. It is understood that The Carnival Group which owns The Costa Concordia has two different types of insurance cover.
Hull insurance will cover damage to the ship. Typically such cover will be provided by several different insurers and will also mean a large insurance excess. Chicago based AON Corp brokered the hull insurance. According to Allianz Insurance "It is likely that the hull insurance claim will heavily depend on whether the ship can be salvaged and repaired and whether in the worst case the wreck will have to be disassembled on site".
The second type of insurance cover purchased by Carnival will have been for liability cover. The company said in a statement last week that it has a $10 Million deductible on that policy. That coverage would include any payments related to injuries and death and the cost of any environmental clean up.
Cruise liners and shipping companies typically join together in groups, known as Protection and Indemnity clubs (P & I Clubs), to spread out the risk. Each member of the club pays in dues, and claims are paid out from collective funds. Carnival insured The Concordia through two clubs, the Standard Club and Steamship Mutual. After that, cover is provided by a larger collective called the International Group P & I Clubs and a reinsurance policy. It is thought that Carnival did not take out insurance for loss of use of the ship.
It is important for insured companies to bear in mind that insurance contracts are governed by the doctrine of utmost good faith. Breach of this duty can in certain circumstances invalidate insurance cover. In the circumstances it is to be hoped that the future investigation of this tragedy will be confined to official channels rather than via comments apparently made by Francesco Schettino, the cruise ship captain, being leaked to the press.
It is also to be hoped that this event will not damage the cruise industry, particularly as this is traditionally its busiest time of year for bookings. According to Stewart Chiron, CEO of CruiseGuy.com "People understand this is an accident". To put matters in context it is estimated that roughly 19 million people took a cruise last year without incident.