Cruise Line Crises and Compensation

It was hard to miss the news about Carnival Splendor going dead in the water off the coast of Mexico last week.

Shortly after leaving from Long Beach, Calif., with nearly 5,000 passengers and crew members for a cruise along the west coast of Mexico, a fire broke out inside one of six diesel-driven electric generators. For reasons yet to be determined, the fire caused the ship to lose all of its electric power, including the power to its propellers. The cruise line, following a new international protocol that says a structurally- sound ship is its own best lifeboat, chose to tow the passengers onboard back to the closest U.S. port : San Diego.

Before the 75-hour trip to San Diego was complete, we already knew Carnival’s plans of compensation for the stranded cruisers. The line fully refunded the cost of the cruise to everyone, nullified all onboard charges made the first night out including casino losses, drinks and gift shop purchases. Carnival booked and paid for flights home for everyone and offered hotel rooms and meals to those who wanted to stay in San Diego. Finally, they gave everyone a free future cruise credit equal to what they paid for this cruise.

Cruise line compensation is always at the discretion of the cruise line, and in this case, Carnival went further than I have ever seen a cruise line go in terms of compensation for a failed cruise. But I have also never seen a cruise fail quite so miserably. With that being said, it is very unlikely that any lawsuits will result of this mess and even less likely that one would be successful.

The terms of a cruise contract every passenger accepts with their cruise documents, whether they realize it or not, makes it tough to sue the companies.  These days, especially with Carnival, most people get their cruise documents over the Internet from the cruise line’s Web site--much like checking in for an airline flight online. Cruisers check a box stipulating they have read, understood and accept the terms of the cruise contract.

That contract puts each passenger’s life and limbs in the hands of Carnival for the duration of the cruise. Whether there is a mechanical failure, natural disaster or any other crisis, the cruise line always reserves the right to “make the calls” to determine what will be done to fix the situation. In this case, the mechanical failure meant the cruise was cancelled and the next step was to get people home.

Civil attorneys specializing in maritime law are few and far between, most of them working in Miami due to venue restrictions by the top three cruise lines (Carnival, Royal Caribbean and NCL) that say all lawsuits must be filed within one year and in the state of Florida. Most of these attorneys cut their teeth working originally for the cruise lines and then switching sides. Earlier this week prominent private practice maritime attorney James Walker blogged “Three reasons why you will lose if you try to sue Carnival.”

First he says that there must be a personal injury, noting that “taking cold showers, smelling toilets that can't be flushed, eating Spam sandwiches in the dark or other similar "cruise from hell" stories are not compensable.”

Next, he notes that the cruise contract says “If the performance of the proposed voyage is hindered or prevented by . . . breakdown of the vessel . . . Carnival may cancel the proposed voyage without liability to refund passage money or fares paid in advance.”

Finally, he says “Carnival has already offered to refund the passengers' fare and travel expenses and a free cruise of equal value in the future.  So if you are foolish enough to file suit (in Miami), you simply will not do any better than what is already being offered now.”

Carnival had a few conceptual options after becoming stranded, including abandoning ship or going to the closest port in Mexico, but the latest standards developed by the International Maritime Organization’s SOLAS (Safety of Life at Sea) Agreement say that with the large capacity of passenger vessels, a ship is now considered its own best lifeboat.

Other ships were in the area and other ports were closer than San Diego, but the company decided that the safest thing to do to prevent exposure of even one person to unsafe conditions was to tow the ship back to the nearest U.S. port.

The U.S. Navy and Coast Guard provided food, water and other assistance while it took two tug boats three days to get the ship to San Diego. Three more tugs were standing by just to navigate the tricky entrance to the J-shaped harbor.

The bad news for Carnival is its estimated loss of revenue for a total of nine cruises that will add up to about $.07 a share in the fourth quarter in 2010, and negligible in 2011.

The good news for Carnival is that this story generated enough positive press about the extraordinary action of the crewmembers onboard that the avid cruising public is now looking at the line in a new light.

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I started writing about stock market investing for Motley Fool in 1995, but previously I worked aboard cruise ships. I co-founded CruiseMates.com, the first cruise travel guide on the Internet, in New York City in 1999. CruiseMates, still one the Web’s top cruise travel guides was acquired by Internet Brands (NASD: INET) in 2006. Once CEO, I am now the editor of CruiseMates.