While brain-storming with our assistant, Ms. Anna Rosvall, on subject matter for a newsletter, she suggested this subject. As we have been assisting with marine insurance claims for over two decades, she thought we could write something that would be informative, helpful and interesting. Well, two out of three is not bad.
Along with every insurance policy issued is a declarations page. The declarations page identifies the insured, the vessel, the inception date (most policies are annual), the policy number and the various details of coverage and policy limits. The policy which follows the declarations details the various coverage provided and is very useful if battling insomnia. Compared to an insurance policy this article is a “thriller.”
Review of a declarations page from a major player in the boat insurance market revealed nine separate coverage areas. They include: property, liability, pollution, medical, tender, personal effects/sport equipment, towing, uninsured boaters and longshoremen/harbor workers. Most policies will not include all of these options and a review of your policy may reveal an unexpected exposure. An understanding of the coverage will allow you to utilize your policy better.
The appropriate time to file an insurance policy varies depending on the policy, coverage and the event details. Some decisions are easy: IF – your boat burns, sinks or is involved in an accident, THEN – you file a claim. If a guest falls and is seriously injured; file a claim. But, what if your engine fails?
The most often used portion of boat insurance policies is the property damage coverage. It provides coverage for damage to the boat itself. The property damage portion of the policy includes a deductible. Deductibles vary and are often a percentage of the boat’s value and are the amount the insured will pay toward any covered loss, prior to the insurance company’s contribution. If the property damage loss is less than or equal to the deductible, there is no benefit to filing a claim. If in doubt get a repair estimate prior to filing a claim.
Damage to a boat’s engine is addressed under the property damage section of the policy. It is an area of coverage that is often misunderstood. Most recreational vessel insurance policies are “all risk”, versus “named peril” as is the case for many commercial policies. An “all risk” policy provides coverage for virtually any cause of loss, except those causes which are specifically excluded. Thus, many insurance claims on engine failures are covered. While there are policies which exclude mechanical break down, filing a claim for an expensive engine repair is generally worth the potential, limited downside. We are continually amazed at what is covered with respect to engine claims.
For a most interesting conversation ask your dock buddies if the damage to your boat or engine is covered by insurance. This subject is second only to corrosion for the prevalence of misinformation.
Another benefit of a boat insurance policy is the ability to shift responsibility for primary payment and recovery if your boat is damaged by a third party. A classic example is when a vessel is damaged in transit on a truck or a ship. While the shipping company may be liable for the damage, pursuing and obtaining payment is often difficult. By filing a claim with your own insurance carrier, they will assume the responsibility for payment of the repair invoice and recovery from the responsible party (called subrogation in the industry).
Another area with surprising benefits is undiscovered or latent defects in the vessel. A latent defect is: a flaw or other imperfection in any article which is discovered after delivery; usually, latent defects are inherent weaknesses which normally are not detected by examination or routine tests, but which are present at time of manufacture and are aggravated by use. (McGraw-Hill Science & Technology Dictionary)
While some policies will exclude latent defects and the damage resulting from the defects, others will provide coverage for resulting damage, which is often the most significant cost of the repair.
As a general rule of thumb the property damage portion of the policy covers sudden, accidental and fortuitous events and excludes normal wear and tear.
The liability coverage on your policy protects you from exposure from claims filed by others arising out of the ownership, operation and maintenance of your vessel. Basically this coverage requires negligence on your part and financial damages arising from personal injury or properly damage to an uninsured party, but may also cover such things as loss of income or loss of use suffered by a third party. This is the coverage in the policy which will pay for your legal expenses for defense and any judgment, up to the limit of your policy. We strongly encourage you to exercise this benefit rather than face any potential law suit personally. It reduces stress and in the unfortunate, but far too common event of a law suit, it is why you paid your premium.
The medical coverage or “med pay” portion of your policy does not require negligence on your part. It provides payment for cost for medical care arising from almost any injury aboard your vessel. Virtually all policies cover your guests though some exclude the owners specifically and most exclude paid professionals. It has been our experience that adjusters are very liberal in disbursing funds from the “med pay” portion of the policy, as it is an easy way to prevent personal injury lawsuits. In most cases it should be offered up with no hesitation, though the limit is low it establishes “good will” quickly.
Paid professionals are generally expected to carry their own insurance and are often covered under the Jones Act, a marine equivalent to worker’s compensation. If you wish to cover professionals on your vessel you may purchase longshoremen and harbor workers coverage, referred to as LS & H.
Pollution is an ever growing area of coverage on boat insurance policies. While some policies may exclude the cost to clean up the pollution and the fines related to it, others will provide specific coverage, separate from the liability protections. Not only is it a good idea to keep oil in the engine, discharged oil is bad for the environment and your bank account.
The property damage portion of your boat insurance policy generally covers property that is normally aboard the vessel and used for the operation and maintenance of the vessel exclusively. It does not cover personal effects such as jewelry, laptops and sporting equipment. While this type of property may be adequately covered by your homeowners insurance, it is wise to discuss any components of value which are brought aboard the vessel with your agent. High value art work aboard mega yachts is often covered by specific riders for that piece of art.
Small boats, including trailer boats and tenders, often have separate coverage and thus opportunities for claims, which are different from larger yachts. Outboard engines are often covered separately, with their own deductible. Trailers are almost always covered separately, though a skilled negotiator may persuade the adjuster to buy the trailer along with the “totaled boat”. Every spring we see several claims resulting from small boats filling from winter rain water. Many of these are covered losses. A tender on a larger boat usually has a much smaller deductible and thus filing a claim for a smaller amount may still provide relatively significant benefit.
Uninsured boaters coverage is an option offered by many underwriters. While some carriers use this coverage only for excess medical expenses, others may allow this coverage to waive your deductible for property damage caused by an uninsured boater. If you have this coverage, don’t forget to request its benefits, which may be overlooked by your busy adjuster.
There is very little downside to filing an insurance claim. The worst outcome is generally a denial. Being told “no” and not receiving compensation for the financial exposure is generally worth any loss of your “no claim discount”. Many policies provide a “no claim discount” upon issuance of a policy; some provide a similar discount upon renewal. The loss of this credit is miniscule compared to the amount of the average claim. Multiple claims, however, can result in difficulty in obtaining insurance and cancellation of a policy.
Stay tuned for an exciting follow up, “How to file and manage a boat insurance claim”.
This article was edited on February 26, 2016.