Maximum Exposure: Why Boats Need Insurance
If tradespeople or other professionals are working on your boat, are they insured for any damage they cause by accident or negligence? It’s a serious question, given how many boats are damaged or even sunk in marina accidents. If the insurance companies are right, they probably aren’t.
One day you get a call on your cellphone from the marina where your pride and joy is moored. Two words gut you: “She’s sinking.”
You rush over to find a desolate gap in the moorings row where your 66’ (20 m) cruiser used to be. Only its flybridge protrudes out of the scum. The salvage bill? $35,000. The problem is, you’re not insured. But at least you know who was responsible: a contractor you had working on the engine. He had taken out a water filter but not refitted it properly, causing a slow leak.
Well, “At least he’ll be covered by insurance,” you think. He does have a public liability policy that he says covers his work on boats. But after a call to his insurance company and a closer look at the small print, he comes back with the news that his policy covers only boats up to 33’ (10 m). The result? Either you foot the repair bill or you send your lawyers into action against someone who may lack the assets to recover more than a fraction of it.
Fully Exposed
Your boat can be exposed to danger even when far from the sea and your presence at the helm. Take the case of the marina operator juggling boats who shifted a boat out of the repair yard so another vessel could be moved. Unfortunately, a repair job on the boat was still underway and the shafts were drawn out. The result? A six-figure water damage bill.
Apart from these specific worst-case scenarios, fire is an often unrecognized hazard of repair and maintenance work, with so much electrical gear packed into enclosed spaces with gas and inflammable substances. For example, the Nomex used as a core for veneers burns readily when heated and gives off a highly corrosive smoke: all you need, is a source of heat on the other side of a bulkhead — from a spot of welding, for example.
There have been many examples of boats catching fire while under construction in recent years, i.e. Graeme Hart’s MV Ulysses, only days prior to hand-over in a U.S. yard and Star Fish at the McMullen & Wing yard while well into the fit out stages of construction. Both sustained catastrophic damage, but nothing that couldn’t be fixed. Ulysses was rebuilt in Australia and Star Fish is currently well into its rebuild.
Accidents happen, and with the increasing sophistication of modern pleasure craft leading to an increasing range of people needed to administer to them — engineers, painters, cabinet makers, electricians, interior decorators and computer technicians just for starters — the opportunities for accidents are not diminishing. Which leads us to insurance.
It seems that not all tradespeople, brokers and marina operators who board boats longer than 33’ (10 m) in a professional capacity are covered.
Land or Sea Coverage
The increasing value of pleasure craft, in particular, must lead to some soul searching in businesses that service the marine industry. The insurance premiums paid by a contractor are driven by its staff numbers, turnover and the maximum and average values of the boats they work on. So if the pleasure craft a company services follow the general trend by getting bigger, more electronics-based and more luxurious, insurance costs go up.
The incidence of uninsured tradesmen on boats probably owes something to the ‘helping out a mate’ and ‘give anything a go’ ethics so well known within the recreational boating world.
But tradesmen are not the only people who work on boats without insurance. Marina and yard operators and brokers will often move a boat on behalf of its owner without being covered for accidents. It’s because of this that they may ask a boat owner to sign a “no-blame” or “hold-harmless” waiver, which means the operator or broker accepts no responsibility for damage to the boat and/or damage caused by the boat to third party property while they are on it.
These waivers are dangerous things to sign because if you’re not insured, they prevent you from suing for damages in the event of an accident. If you are insured, signing will be in breach of your policy conditions because it means your insurer loses its right to seek recompense. Never sign one of these waivers.
Area of Exposure
Another example of what insurance companies call an “area of exposure” to risk are delivery crews, such as those that return a boat after its owner has completed a month-long summer cruise in Fiji and has flown home. It is not uncommon for a boat owner to entrust his boat to a mate of uncertain skill level.
How much of a concern should all this be to boat owners?
In general, if your boat is insured you shouldn’t have too much to worry about in financial terms if uninsured people working on your boat cause damage to your boat or third party property. Collecting damages from them will be your insurer’s headache. However, it does pay to read the small print before signing an insurance policy.
While your boat should be covered for damage regardless of who is aboard, some insurers may insert an exclusion relating to third-party property damaged from or by your boat — in this case the policy may cover it if you are responsible, but not if someone else is. Plus, of course, you need to make sure you are operating the boat within the terms of the policy: for example not using a vessel insured as a pleasure craft for commercial benefits.
If your boat isn’t insured, all this constitutes a significant area of exposure to risk. Regardless of whether your boat is insured, before you let a contractor do the work aboard, ask to see his/her insurance coverage certificate; it will show the limits of his/her policy. And if you’re going offshore bear in mind that a ship repairer’s coverage should be global.
If you don’t feel comfortable asking for documentation, for example, if it’s a mate helping you out, remember how much you’ve invested in your boat. You might also bear in mind that if an uninsured tradesman on your boat damages someone else’s vessel, the owner of that vessel or his/her insurer will be taking aim at everyone in sight to recover costs, which will include you.
Transparent Cover
Insurance can be a mind-numbing subject and it can arouse negative emotional reactions based on the fact that the premiums cost money without giving you anything back unless you have a disaster. In addition, anecdotal evidence suggests many boat owners feel they’re safe enough without insurance in any case since they only boat in sunny, calm weather and rarely go out of sight of land.
The result is that a surprising proportion of pleasure craft longer than 33’ (10 m) are uninsured. In New Zealand, it is suggested that is 35% to 40% and in Australia, industry experts estimate there are some 200,000 to 220,000 insured boats there of all sizes. Assuming most of Australia’s 850,000 registered vessels are trailer-sized, this might put the proportion of uninsured Australian luxury boats in line with New Zealand’s.
Whether you Choose to Insure Your Boat, it Would be Wise to Take Into Account Certain Facts.
First, the need to be careful who you contract to work on your boat.
Second, No matter where you boat, weather is renowned for its fickleness. Just ask the Maritime Safety Authority how many boaters have been happily sunning themselves on a blue and silver day just off the coast only to be overwhelmed by a squall that came out of nowhere.
Third, storms aren’t confined to the sea. Among the casualties of the one that devastated the Lyttelton marina in 2002, was a $1 million vessel that has the dubious distinction of being the single biggest uninsured loss in New Zealand history. In February 2011, Hinchinbrook Marina was demolished by Cyclone Yasi, leaving over unprecedented carnage that saw well north of 50 boats totally written off or severely damaged.
Fourth, pleasure craft are jam-packed these days with all kinds of expensive goodies, both technological and decorative and are vulnerable to four- or even five-figure damage from quite humble origins, such as a welding accident.
Fifth, the ocean isn’t as big as it used to be. There are an estimated 12,000,000 pleasure craft ranging in size from superyachts to kayaks wandering around U.S. waters. With no obligatory registration or licensing, the standards to which these vessels are operated can be highly variable. The equivalent figure for Australia is perhaps about 1.4 million. The good news is that if you do get into trouble, help is more likely to be close at hand than ever before. The bad news is that collisions are a more likely cause of getting into trouble than ever before.
Private or Commercial
Your insurer will be your best friend in the event of a disaster. Two key rules apply when buying insurance.
The first rule is transparency. Just as in a marriage, communication is vital.
An insurance contract is an agreement of the utmost good faith. Insurers rely on establishing the mutual trust that allows communication. With the Australasian maritime scene still small enough for word to get around concerning the seaworthiness, seamanship and trustworthiness of individual boats and owners, specialist marine insurers keep their ears close to the water and may decline business in some instances.
From the boat owner’s perspective, transparency means being up-front before signing on the dotted line and afterwards whenever the condition or operation of your boat changes.
For example, if a boat is being hauled, keep your insurer in the loop if you’re going to have work done on your boat. Some work may not be covered by your standard marine insurance policy. In particular, for major renovations, refits or extensions, a “contract works” or “builder’s risk” cover is needed. Make sure you’re clear with your insurer on the distinction it draws between general maintenance — such as paint jobs, a new shaft or new electronics — and major refits that need this special cover. If you’re putting on a new flying bridge and a sudden downpour ruins the electronics and carpet, your standard marine insurance policy may not cover it.
Another area for transparency is the commercial use of boats. A vessel insured as a pleasure craft may not be used commercially. Insurance companies follow government regulations, which are strict. For example, say you run a beachfront hotel and the guests get free use of your boat as part of the service. Does this constitute commercial use? Maritime New Zealand is quite clear on this. According to it, the boat is being used to enhance your business. For this reason, it won’t be covered by a pleasure craft insurance policy.
On the other hand, if your boat sinks while you’re using it to take a client out fishing on a deal sweetener, the insurer might consider it covered if there’s no direct correlation between boat use and income. In both cases, though, you would save yourself the stress of uncertainty by first being candid with your insurer concerning how you intend using your boat.
Offshore Coverage
Transparency also smooths blue water boating. As soon as you leave territorial waters the rules change. An insurer can cover you worldwide and but an additional premium to provide cover if you’re cruising across the Tasman rather than shipping it there may be imposed.
New Zealand boat owners intending to cruise in Australian waters need to be particularly aware of liability, since under Australian law you can be sued for damages and compensation if a court decides you were responsible for someone’s injury. While New Zealand injury payouts come from a common fund subsidized by all income earners through a government department, Australians leave it up to employer-financed employee insurance schemes or the courts. The result is that $10 million is a standard legal liability cover for pleasure craft.
New Zealanders also need to be aware that Australian insurance regulations and their legal interpretations vary from state to state. Anyone crossing the Tasman, in either direction, needs to remember they are entering a different legal environment. You should find out from your broker or underwriter exactly how well your policy will stand. A good policy should cover you across the Tasman for a certain period, but if your boat is going to be domiciled there you will be better off getting a local insurance cover.
Being transparent also applies to your insurance company. Every condition of the policy must be displayed on the document. Provided you’re familiar with the document the law requires that you get no surprises. The onus for your being familiar, however, lies with you.
Which brings us to the second rule of buying insurance…..knowing your policy. If you’re not sure about a clause, don’t guess, find out. Go through the policy with a fine-tooth comb. It’s your insurer’s job to answer all your questions; it’s up to you to have them.
Areas of Awareness
When choosing an insurance policy for your boat, you should be aware of the following.
Some policies will insure the boat on an “agreed value” basis — i.e. you and your insurer agree on the boat’s value, which is what you get in the event of a total loss. Other policies provide cover on a “market value” basis – i.e. although you are paying premiums based on the boat’s new value, the sum you get in the event of total loss will be a market value, which could be considerably less. Some insurers combine the two, offering an agreed value if your boat is a total loss and a market value if it is a partial loss.
There may be clauses relating to how the tenders and toys are secured to the boat. Some policies are strict on this. If the policy uses such words as “securely attached,” you should find out exactly what this means. There may also be restrictions concerning the size and maximum speed of a tender that the policy will cover.
The excess can be flexible, so negotiating for the lowest one you can is prudent. Also, ask for an excess that varies. The variable excesses offered by some insurers mean the excess of a claim on the equipment is lower than your hull excess.
Most policies exclude personal effects from the boat’s cover. Again, be sure you know what your insurer would include as ‘personal effects’. For example, how about a laptop that you use ashore but which is also part of the boat’s nav/comms system?
Some policies will exclude cover for damage to motors, connections and electrical equipment if caused by heavy weather.
If the vessel has a boat from which waterskiing takes place, you may need to extend the cover to include it. The same applies for fishing and diving gear. Fire damage won’t be covered with some policies unless the galley has an automatic fire extinguishing system. There might be a clause that states if you hit rocks no cover is provided for the propellers, struts, rudders or shafts.
Check how companies treat their no claims bonus. It is possible to get a permanent maximum no claims bonus after three years.
Find out if the insurer provides extra coverage for salvage charges over and above the sum insured. In this case, if your boat requires salvage you get paid not only the sum insured but also the salvage costs, which can be significant for larger vessels.
Some cheaper insurers will offer cover with high hidden deductibles that may affect you in the event of a claim. Be wary of choosing an insurance policy on the basis of cheap premiums. There is no more expensive insurance than a cheap insurance that does not pay a claim.
It is advisable to use marine specialists when buying insurance because you can be confident the cover they provide gives minimal exposure to risk. A broker with a specialist marine division will only use underwriters they are sure provide comprehensive cover and have a full understanding of boats. It’s far easier to discuss the technical aspects of a boat with specialists than with those who look at yacht insurance as part of a general portfolio, and they will also better appreciate your needs if it becomes necessary to appoint a surveyor to handle a claim.
Your insurance is your business. Just bear in mind the dangers your boat is exposed to can often come from unexpected quarters, and from sources you can’t control.