In 1998 American Robert Gardiner in his book ‘Titanic: The ship that never sank’, first postulated the theory that on the 14th of April 1912, a hundred years ago today, that RMS Titanic was scuttled for the Insurance money.
More importantly it wasn’t even the Titanic that sank, but her older decaying and seriously damaged sistership, RMS Olympic, in what would become one of the greatest insurance frauds of all time – if proved to be true!
Insurance Blogger whilst initially thinking what a load of ……, decided to look deeper into the ‘conspiracy’ and in particular the question of marine insurance for the vessel.
In order for the possibility of an insurance fraud to have taken place answers must be given to the following questions:-
Did the Owners, Company or individuals stand to benefit from the total loss of a ship?
Could the Titanic have been swapped for the Olympic as Gardiner proclaims?
What evidence is there to prove that the ship lying two and a half miles down at the bottom of the Atlantic is indeed the Olympic ?
Incredible as it first seems, the more you look into the assertations, the more feasible the fraud becomes!
And there is some amazing evidence to suggest that persons or persons unknown conspired to defraud the insurers of £1 million of hull cover, unknown P & I liability losses and cost life insurance and personal accident companies nearly £3 million.
Titanic – The Case for Insurance Fraud
Before we discuss the evidence for fraud in the sinking of the Titanic it is important to set the economic scene for 1912.
In particular the fight for the most lucrative transport routes at the time, not dissimilar to the airline struggles of today with the exception that sea travel had a monopoly on trans-atlantic trade, there was no alternative.
The White Star Line was ultimately owned by International Mercantile Marine (IMM) and after years of struggling to win trade, they commisioned the Olympic class liners in 1907 to try to take the luxury end of the market.
For the previous fifteen years the lucrative passenger sea traffic to and from the US from the UK, France and Europe was dominated by the super-fast German mercantile fleets that held the Blue Riband for the fastest crossings.
The SS Kaiser Wilhelm der Grosse and SS Deutschland (1900) owned respectively by the Norddeutscher Lloyd and the Hamburg America Line HAPAG, the two German top shipping companies.
In the UK, Cunard rose to the challenge with the launch of the RMS Mauretania and her ill-fated sister ship, the RMS Lusitania. The ships were very fast and the Mauretania went on to keep the coveted Blue Riband for more than twenty years, from 1907 to 1929.
The White Star Line, who had been losing money for years, struck back with the Olympic class and the upgraded Titanic was supposed to be the largest and fastest of the luxury ocean liners to rival the Maurtania for speed.
Construction of Olympic started in December 1908 and Titanic in March 1909.
The two ships were built side by side at Harland and Wolff’s Belfast Shipyard.
The construction of a third ship the RMS Gigantic began in 1911 after the commissioning of Olympic and Titanic’s launch.
Following the sinking of Titanic, Gigantic was renamed Britannic, and the two remaining vessels underwent many changes in their safety provisions. The Britannic was sunk by a mine in 1916.
What was Covered?
Willis Faber & Co. (today part of the Willis Group) are reported to have brokered the deal for underwriting the hull and cargo insurance for the Titanic. The original boat insurance slip was passed to Lloyds Mercantile Dept for underwriting, but is since reported lost to this day.
There is some dispute about the value of the Willis contract however all newspaper reports of claims paid out and enquiries staged immediately after the sinking report that the Hull was underwritten for loss and liability at Lloyds for $5,000,000.
In 1912 both the USA and the UK were on the Gold standard and the exchange rate was always very close to $4.87 to the £1 or 0.21. This meant that the policy for the hull was insured for around £1,050,000. Perhaps more importantly, the actual cost of building or replacing the vessel was £1,680,000 or $8m, meaning that the hull was significantly under-insured and the owners were bearing a third of the risk as captive. This was an unusually high amount of risk taking. At the time marine insurance would usually only provide for three quarters of the risks, as P & I Clubs (ship owners collective pools) always carried a quarter of the collision liability risk and provided accident cover for the crew, and still do to this day.
It is unknown what if any cover was paid out by White Star to a P & I Club for staff liability. What became evident after the event to many of the 800 plus families of the Crew that perished, who were nearly all from Southampton, was that they received paltry or little compensation for their losses and years of subsequent poverty.
In addition to the hull cover, the marine insurance policy issued by Lloyd’s to the White Star Line for the Titanic included total loss cover for cargo at $600,000 and personal effects at £400,000, which equates to £126,000 marine cargo and £84,000 for personal effects. Both these sums insured proved to be inadequate following the disaster.
What Was Lost?
In an act of incredulous speed all claims by the White Star Line for loss of the Titanic, were paid out within a week of the ship sinking and the Lutine Bell being rung at Lloyd’s on the 15th of April.
The company was reimbursed for the loss in a straightforward process that was completed long before any official enquiries heard evidence as to the cause of the sinking.
Claims for loss of life and personal effects were taking a little longer.
Imagine that today, when you have to wait weeks for compensation for just a minor car insurance claim!
The New York Times of one week after the disaster, reported the speed of the claims payouts and lists all the amounts claimed and the processes involved in the claim.
The list of Claims losses paid out were:
Titanic Hull Insurance – Actual loss $8,000,000 – Paid out $5,000,000
Titanic Cargo Insurance – Actual Loss $420,000 – Paid out $400,000
Titanic Personal Effects – Actual Loss $1,000,000 – Paid out $600,000
Life Assurance Passengers - Actual Loss >$4,000,00 – Paid out $2,125,000
Over 119 Life insurance companies paid out the largest of which was the Travelers Insurance company of Hartford, Connecticut.
Personal Accident Claims – Actual Loss >$2,000,000 – Paid out $1,564,000
Over 48 personal accident companies were involved in claims payouts.
The Olympic Switch
The case for an insurance fraud begins with the RMS Olympic. If a conspiracy to defraud existed it would have began sometime after September 1911 and before April 1912.
On September 20th 1911 while in the Solent returning to Southampton RMS Olympic was struck and severely damaged by a collision with cruiser HMS Hawke.
The Liner, despite being holed above and below the water-line in two places and damaged for 38 feet, made it the fifteen miles or so back to port under tug.
Eyewitness reports suggest that the route of the Hawke and the Olympic intersecting may not have been an accident at all. Interestingly, the Captain of the ship that day was none other than Edward J Smith, Captain of the ‘”Titanic” some seven months later. The ship was temporarily patched up and returned to dock in Belfast alongside the nearly complete Titanic.
White Star quickly had the damage assessed by marine engineers, and put in a claim. However beause it was well below a policy excess of $750,000, the claim was repudiated. In December White Star brought the claim to court, this time claiming $750,000 for loss and damage to the ship including lost passenger effects, to make up the difference to the excess.
The court ruled that the collision was entirely the fault of the Olympic, the only saving grace being that they would not have to pay damages to the Royal Navy as the Olympic was under compulsory pilotage at the time. A further appeal was rejected in 1913.
Unable to collect money for her repairs, White Star was left with a severely damaged ship, quite possibly a lot more damaged than originally thought, which was losing money by the day, by being unable to collect fares and fulfill bookings.
The basis of the case for conspiracy to defraud starts here.
Gardiner asserts that the damage to the Olympic was tantamount to a write-off. In particular the secondary damage to her starboard engines, drive-shafts and propellers which rendered her incapable of reaching speeds of more than ten knots as she limped back to Belfast for repair.
On closer inspection of the damage at Harland and Wolff it was realised that it would take six months to get her in the least bit seaworthy again. The repairs would have to be paid for by the White Star Line which was already committed to $16 million for the building of the Titanic and the half-built Britannic.
The costs of the repairs would in effect wipe out the White Star operating profit for that year, a third of the income of IMM, and the losses from having no ships at sea for six months would equate to another $500,000 plus.
The decision was taken by senior executives at both White Star Line and Harland and Wolff to swap the ships and bring into service, the very near to completion Titanic, as the Olympic.
If the decision had not been taken jobs would be lost and the shipyard and White Star would be threatened with closure.
Getting the Titanic a certificate of seaworthiness was at least six months away. Olympic already had one!
Ship swap is reported to be the most common form of marine insurance fraud practiced in the 19th century although this is as yet unsubstantiated.
It would only take a handful of ready picked dockers and tug operators and a skeleton crew to be involved in any movement and re-berthing of the ships, particularly as they were constantly being put to sea for tests.
Both ships were mysteriously painted in the same black and white livery, the Olympic having previously been painted all white.
After the repairs in Belfast including changes to cabins, without doubt the only outwardly visible reported differences between the two ships appears to be the layout of the 1st class passenger B deck, which was enclosed on the Titanic according to the original plans. Photos of the ‘Titanic‘ leaving Southampton and Queenstown show a different layout!
Fitters, Electricians, carpenters etc in Belfast would not necessarily know which ship they were on a short term contract for, and even if they did, they were kitted out almost identically. Final fittings and named objects could have been loaded on-board in boxes to both ships at anytime. In the closed shop world of the protestant dockyards of Belfast and the fraternal offices above, a conspiracy involving less people than the Great Train Robbery is not so hard to envisage.
None of the crew or staff would have been aware of what ship they were on when they signed on in Southampton. Just what the nameplate told them.
The “Olympic” put to sea and started earning off the North Atlantic run in early 1912. It was only two hundred miles from the “Titanic” returning to the UK, when the “Titanic” sank!
There is some excellent photographic evidence which shows the damage repairs to the Olympic following its collision with HMS Hawke and in later years where there is no sign whatsoever of repairs!
You can read more about the ship swap, see photographic evidence and watch a documentary at TitanicUniverse
You should also have a look at Mark Chirnside’s university dissertation which argues subjectively the case against a fraud.
Having looked at all the evidence Insurance Blog believes that a ship swap did take place, however not for the purposes of committing an insurance fraud but out of business economic necessity.
So how did what had been a business decision to hoodwink the Ministry of Transport turn into an insurance fraud?
Well the matter of an Iceberg for one thing!
Gardiner goes on to explain all sorts of incredulous reasoning about how White Star planned to scuttle the ship and had pre-arranged a collision in mid-Atlantic, however all this was unnecessary if the iceberg was just an accident.
This explains why the ship was under-insured, White Star never had any intention of scuttling the ship. The swap was purely to keep the company in business!
White Star did effectively gain out of the loss of the “Titanic”. The loss cost them just £680,000. A lot less than the $8 million required to fund a new vessel, which they did!
As an interesting footnote, Chairman of White Star J Bruce Ismay, the man William Randolph Hearst choose to bully and pillory as a coward, went on to hold prominent Director positions on the boards of the Liverpool and London Insurance Company, Globe Insurance Company, Royal Insurance Company and the Thames and Mersey Marine Insurance Company.