from The Teaser, Summer 2008
by Tabby Watt
Partner & Executive Vice President, International Special Risks, Inc. (ISR)
Your first decision is picking an agent from the independent agency network. How do you know if your agent is working with your best interests in mind or if your agent is simply commission driven? I suggest you ask questions and learn more about your options.
The insurance market for pleasure craft has become more specialized and complex. lt is not as simple as boats and motors and dawn until dusk operation anymore. Agents and insurers are facing uniquely designed hulls built of space age material with sophisticated electronic engine monitoring devices as the norm. More and more yachts are capable of reaching far flung destinations. And they are all bigger and cost more! As the yacht market has evolved, insurance professionals still have to navigate through the exposures including hurricanes, lightning damage, crew injuries, groundings, fire etc. There is much more consideration and dollar amounts at stake. Many agencies and insurance companies have responded by dedicating specialists for the insurance of yachts and boats.
Work with your agent to provide up to date documents like severe storm plans, itineraries, captain and crew's resumes of experience, owner/operaror's resumes, surveys and/or closing statements. If your agent is asking for these documents, it is a good sign that they are trying to obtain the best policy coverage for your particular risk along with competitive pricing. It's also really important to convey any changes in your plans to your agent immediately. Depending on the type of change, it could make the difference in a covered claim or a declination in coverage. Let's face it, you not only need your agent to be responsive, trustworthy and have YOUR best interests in mind but you also need marine insurance expertise! Marine is not regulated like your personal lines policies ... homeowners and auto. It's a specialty risk and you need experts in the field in the event that you sustain a loss!
We've discussed one part of the puzzle, the agent. 'What about the underwriting company/carrier and the policies available? I have been been working in the marine insurance industry for twenty years and I have to admit that this question doesn't have a simple answer. Underwriting companies are bought, sold and merged, departments are closed or reconfigured. Yachts can be written out of personal lines or commercial lines divisions and sometimes both! Your agent may have access to one division but not another. To further complicate the subject, each division may be selling different policy forms. Who does your agent have access to for carriers? Who are you currently written with and which policy form? Can your agent explain the differences in forms? The specialist yacht agent will also be aware of the insurers who have dedicated expertise in underwriting and claims to this specialty line of insurance. At the end of the day, you need a company and a policy form that will perform when you need it most!
What coverage should you look for on your policy form? The first item to review on your declaration page would be deductibles, which are your out of pocket expenses in the event of a loss. Check your hull deductible. Also, it is common for insurers to apply windstorm deductibles. The percentage against hull value can range from 0.25% for typical hull losses to upwards of 25% for wind storm!!
Ask about other deductibles that may be included in the policy. Quality policies will provide a lower deductible for tenders, personal effects and electronics. For example, one quality yacht policy would be the Quay Marine Agreement provided by the Travelers Luxury Yacht Department. Electronics, tenders and personal effects are not subject to a deductible. Will your policy waive the hull deductible for losses that are not your fault such as fire not originating from your vessel or a collision caused by another vessel? The Quay Marine policy waives the deductible for both of these scenarios. Their hull property damage deductible is reduced by 25% at the first renewal if you are loss free. Make sure that in addition to your personal property limit, there is also an additional fishing tackle limit subject to a reduced deductible. Do you have a sufficient limit for your rods, reels and tackle? The Quay Marine policy automatically provides coverage above and beyond the personal effects coverage limits to repair or replace loss of or damage to fishing tackle owned by you, your guests, your captain or your crew for up to $50,000 subject to a lower deductible. Higher limits are also available.
The second item to review on your policy should be your navigation limits, exclusions and restrictions. I can’t stress this enough! 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. Also, check for exclusions for certain countries. This is where an updated yearly itinerary and severe storm plan comes into play. When your agent requests this information, they are protecting your interests. It’s important that they work with the carriers to provide the required coverage. For example, a typical navigation exclusion would read, “transit of Panama Canal and the navigable, coastal/tidal waters of Cuba, Haiti, Guatemala, Nicaragua, Colombia, Venezuela and El Salvador”. With a good itinerary and experienced captain and crew, your agent can approach the underwriters and most likely provide Panama Canal transits, navigation extensions to Guatemala and/or Venezuela along with fuel stops in San Andreas, Colombia.
The third item to review is the paid crew coverage on your policy. If you have paid crew on your yacht, convey to your agent the number of paid crew employed. Are they employed on a part time or full time basis? What are their responsibilities onboard the yacht? What position do they hold? Are they licensed and if so, is the license up to date? What does the captain and/or crew have for prior experience including loss history? The insurance carrier will pay for your liability, up to the amount of liability coverage on your declaration page, to your paid captain and your paid crew as required by the Jones Act, general Maritime Law or Death on the High Seas Act that results during the policy period arising out of the ownership, use, or maintenance of your yacht. Jones Act is defined as a federal law which covers injuries to crewmen at sea, gives jurisdiction to the federal courts and sets up various rules for conduct of these cases under Maritime Law. It’s very important to check the number of crew on your endorsement and to check the amount of liability that you are carrying on your policy. Do not depend on your umbrella policy to cover your crew! If your personal lines agent tells you that your crew are covered under your umbrella, therefore, you only need $300,000 to $500,000 liability on your yacht policy, make sure they prove to you that the umbrella is covering your crew!! At the very least, get a quote to show you the cost to increase your liability under your yacht policy. The cost is minimal compared to the coverage afforded.
Federal Longshore and Harbor Workers Compensation Act is provided under the yacht policy up to the liability limit. The Longshore and Harbor Workers Compensation Act (LHWCA) is defined as the statutory workers’ compensation scheme that covers certain maritime workers including most dock workers and maritime workers not otherwise covered by the Jones Act. Going back to the example of the Quay Marine Agreement, this policy automatically covers a temporary crewman. Have you ever hired a captain to assist in any deliveries of your boat, additional crew for a tournament, or someone to simply wash down your yacht? You would automatically have coverage for this scenario under this policy.
Pay attention to the hull exclusions which differ quite a bit from policy to policy. A private pleasure policy should be written on an all risk yacht policy which covers all perils with a few named exclusions. For example, the Quay Marine Agreement is an all risk policy which 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. This is an important section of your policy to be aware of and again, you shouldn’t be on a ‘named perils’ policy in lieu of an all risk policy unless you are operating your vessel in a commercial capacity like full time chartering. Another exclusion to be aware of is for manufacturer’s defect. The Quay Marine Agreement not only protects you in case of a manufacturers defect; they will agree to eliminate the deductible in a case of a provable manufacturer’s defect.
The fifth item to check on your policy is coverage for pollution. Again as an example, the Quay Marine policy includes pollution under the liability coverage as follows: “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 that you have coverage for pollution up to the full limit of your liability! Be very careful to make sure you have this coverage for at least $800,000 which is required by the Coast Guard & Maritime Transportation Act of 2006. $800,000 is the statutory limit. An example of a pollution claim would be if you ran aground and punctured your fuel tank resulting in an accidental fuel spill. The authorities would be summoned to contain and clean up the spill for which you would most likely be held legally liable for those costs of containment and cleanup.
Another item often overlooked but very important is the depreciation terms in the policy for payment of partial losses. These terms can vary greatly from carrier to carrier, particularly for items like machinery. Will your policy replace older engine parts with new parts or will they only pay you for the depreciated value of your engine? The same goes for your personal effects and fishing tackle; will they replace your lost items with new ones should you have a claim. This can make a huge difference in the amount received for your claim! The Quay Marine Agreement does not depreciate inboard engines or personal property including fishing tackle regardless of age.
The most comprehensive yacht policies have varying degrees of additional coverage that should be noted. Some policies offer coverage, up to a certain dollar amount, for safeguarding and/or hauling out your vessel where a named storm watch or warning has been declared. This is an important coverage to have considering the frequency and incomprehensible damage that named storms have wreaked over the past few years.
Coral Reef or Marine Environmental Damage Coverage is another hot topic and an important coverage. It’s important to note the amount of coverage for damage and the amount available for fines and penalties. It could be one limit or two separate limits. If your policy is silent on the subject, beware because there will most definitely be an exclusion for fines and penalties on your policy.
I have seen claims paid under a Substitute Yacht coverage if your yacht is out of commission from a covered loss and, due to matters beyond your control, cannot be repaired and available for your private pleasure use for a specified amount of time from the date of loss. The company will pay up to a specified amount for your charter of another yacht, again for a specified amount of time. With the world we live in, if you want coverage for a ‘certified act of terrorism’, please make sure you have a war and confiscation endorsement. Terrorism is covered under the confiscation endorsement.
Another specialty coverage that we can provide for our sportfishing clientele is tournament fee reimbursement coverage. In other words, if your yacht is out of commission from a covered loss and, due to matters beyond your control, cannot be repaired and available for participation in a bona fide fishing tournament, the insurance company will pay up to a certain dollar amount for your prepaid tournament entry fees. The tournament date would generally have to be within thirty (30) days of the date of your covered loss.
I realize that when you hear the words, “insurance agent” or “insurance underwriter ... negative images come to mind like actuarial types with pocket protectors, black rimmed glasses, an obnoxious laugh and a permanent seat on your front step! We are in the business of making sure you enjoy your boats. Hopefully, as an industry we can improve the mental imagery and show you that we really are friend not foe! Give us a chance to earn your business......... we might surprise you! I asked an underwriter how they responded to all the evolving coverage needs of the yachts and owners. He paused and said, “I guess we listened.”