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Sunken vessel after a hurricane
Sunken vessel after a hurricane

Marine Insurance, What’s Covered and What’s Not?

What would happen if your boat and personal property aboard were damaged or suffered a partial or total loss due to an accident, theft or storm? Your homeowners’ policy may provide limited coverage of typically no more than $1,500 to pay for loss by theft or physical damage to a small boat, it’s outboard motor, trailer, and any other equipment or accessories. But many limitations apply and often require that the theft occur from your home. To adequately protect against loss or damage to your boat and its equipment, you must purchase a marine insurance policy.

Deciding what type of marine insurance to purchase, the limitations, conditions, and exclusions which may apply can be daunting. Selecting a knowledgeable marine insurance agent is imperative. Agents are equipped to deal with many exposures including hurricanes, lightning damage, crew injuries, groundings, fire, theft, sinking and the like. But navigating through and understanding a marine policy before a loss occurs is always the owner’s responsibility.

The first step in obtaining marine insurance, whether it is for a 17-foot boat or a 100-foot yacht, is to ensure that every aspect of the policy application is 100 percent accurate. The law surrounding marine insurance starts with the application. In maritime law, the owner has the duty to provide accurate information about the vessel, owner(s), operator(s), yachting experience and competency, intended territory and use, mooring location and condition of the vessel, under the concept of uberrimae fiedi (Latin for “utmost good faith”). Under uberrimae fidei, a material misrepresentation on an application for marine insurance is grounds for voiding the policy. A misrepresentation – even if it is the result of “mistake, accident or forgetfulness” – is attended with the rigorous consequences that the policy never attach and is void.

A misrepresentation is material if “it might have a bearing on the risk to be assumed by the insurer.” Materiality is “that which could possibly influence the mind of a prudent and intelligent insurer in determining whether he would accept the risk.”

Uberrimae fidei does not permit the use of the principles of waiver and estoppel to provide coverage where there has been a material misrepresentation on the application. This concept of law is often employed by marine insurers following a loss where the insured misrepresented the “number of years boating” in a collision case, “intended location of berth” in a theft case, or “the condition of a vessel” in a sinking case.

Typically, a private pleasure craft policy is written as an “all risk” yacht policy, which covers all perils, with a few named exclusions. In finding the right coverage for your boat, you should first review the deductibles, which will be your out of pocket expenses, in the event of a loss.  Many policies provide for a “hull” deductible and a lower deductible for tenders, personal effects (fishing gear) and electronics. This is highly significant, as hull exclusions differ greatly from policy to policy and some “all risk” policies will not provide property damage coverage for any loss or damage caused by or resulting from wear and tear, electrolysis, lack of maintenance, corrosion, deterioration, mold or fiberglass blistering or manufacturer’s defects. This is an important section of your policy to read and re-read.

Another form of coverage is the “named perils” policy, which is generally used in a commercial context. It is important to note whether your marine insurance policy is a “stated value” or “fair market value” policy. In a “stated value” policy, in the event of a total loss, the hull and engines are valued as set forth in the policy. With a “fair market” value policy, only the fair market value of the vessel and engines is paid in the event of a loss. In the later case, what started out as the original purchase price of your vessel may drop dramatically within a few years due to depreciation, and essentially becomes a hidden deductible above and beyond your stated deductible.

Another important concern is the policy navigational limits. Your insurance carrier may require that your yacht is north of a location on the Eastern Seaboard during hurricane season. These are typically called “north/south warranties” or “snowbird” endorsements. Navigational limits are particularly important if you are traveling to the Bahamas and your policy does not include the waters of the Bahamas. Usually, an endorsement may be purchased for the Bahamas by contacting the agent. The effect of having a loss in a non-covered territorial area can be devastating, as your vessel may be covered when it left the U.S. port, but as it navigated into Bahamian waters, coverage for your vessel is suspended – only to be reinstated as it re-enters U.S. waters.

If you have a paid crew on your yacht, even part-time, convey to your agent the number employed, responsibilities onboard, position held, whether licensed and up-to-date, the captain’s and/or crew’s prior experience, including loss history. The insurance carrier will pay for your liability, up to the amount of stated coverage on your declaration page, to be paid to your captain or crew in the event of injury or death, as required by the Jones Act, General Maritime Law, or Death on the High Seas Act.

Another item to determine is coverage for pollution. If covered, the policy will likely read:  “We will pay sums a covered person is legally obligated to pay as damages for bodily injury, property damage, or pollution that result during the policy period arising out of the ownership, use, or maintenance of your yacht.”

This means you have coverage for pollution up to the full limit of your liability – which under the Coast Guard & Maritime Transportation Act of 2006 has a statutory limit of the greater of $950 per gross ton or $800,000. A pollution claim can result if you have an accidental fuel spill and, as owner, by law, you become liable for the cost to contain and clean up the spill. Coverage, depending on policy wording, may also be available for fines and penalties.

Some yacht policies offer coverage, up to a certain dollar amount, for safeguarding and/or hauling out your vessel during named storm watches or warnings. Generally the coverage exclusions are clearly stated in your policy.

Typical exclusions are:
•    Overheating of engines
•    Corrosion or rust
•    Weathering
•    Marring
•    Scratching
•    Chipping
•    Denting
•    Damage during repair or servicing
•    Normal wear and tear
•    Gradual deterioration
•    Mold, infestation or damage from insects, vermin or marine life

Usually the type of excluded property is:
•    Beverages and other perishables
•    Cameras or video recorders
•    Cellular phones
•    Clothing
•    Food
•    Jewelry and other personal articles
•    Para-sails, hang gliders or other devices designed for flight
•    Portable televisions
•    Stereos, tape decks or other instruments for recording or reproducing sound
•    Scuba and other diving equipment
•    Sails, masts, or spars while boat is operating in an official race or speed contest
•    Watches
•    Water skiing equipment

Hence, as you can see, purchasing your marine insurance policy can be as important a decision as purchasing your vessel. All boaters, regardless of experience, should read their policy to determine the coverage available under the policy and the exclusions which apply. This is the responsibility of a prudent boater before a loss occurs as after a loss, it may be too late!

Capt. Robert L. Gardana is a licensed U.S.C.G. master and maritime attorney for over 30 years (website: www.BoatLawyer.com). If you have a question you would like to see addressed in a future column, e-mail it to Gardanalaw@gmail.com.

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