from The Teaser, Spring 2010
By J.P Williamson
“What was that? Did we just hit something?” “I heard a loud crack, saw a blue flash and then everything just stopped!” Anything can happen out there, but worrying about how a claim will play out shouldn’t be one of them. Hopefully you won’t ever have to experience any of these scenarios but if you do, you shouldn’t have to worry about anything more than getting home safely. You set out to sea with plans in place for dealing with emergencies. Preparing for the possibility of a claim shouldn’t be any different. As in boating, many things can happen during a loss and the subsequent claim if you don’t handle the situation properly or if you are not prepared. You know that exclusions and various deductibles could apply to your claim, but how and when will always depend on what is found to be the nature and cause of your loss. A poorly handled loss could result in increased repair expenses and possible coverage issues. I’m sure that most would agree that the worst case scenario would be if your claim was denied. Here are a few tips for helping you to avoid some of the most frequent pitfalls and surprises.
Be sure to report your loss as soon as practicable. It is best to contact your agent to discuss the loss but if you can’t reach them right away, be sure to know how to report a claim directly to the insurance company, just in case. Don’t wait to make the report, seek advice if needed but early and detailed notification to the insurer is one of the best ways to avoid surprises down the road. It is extremely important to notify your insurer if there is a potential for a third party claim from an outside party, be it another vessel, a salvor or an injured crewman or guest. If it is an environmental claim, such as a fuel spill, or damage to a coral reef, early reporting lessens the chance that fines and penalties will be assessed against you for failing to respond to the damage and mitigate it. In some instances, fines and penalties may not be covered so be certain to know if they are covered under your policy.
Familiarize yourself with the policy. Know your navigational limits, not just for your yacht but for any additional vessels that you may have included on your policy, such as that 37’ Intrepid that you keep behind your house. Is it required to be north of 35°N latitude during hurricane season just like the yacht? Are you required to obtain approval from the insurer when selecting a captain? What if you need to replace the captain? Did you notify your agent of that change?
Know your deductibles to find out where and when they apply. Did you look to see whether depreciation might be applicable to any damage to items such as sails, canvas, isinglass, outboard motors, tenders, or propulsion machinery over a certain age? Some policies apply depreciation to your engines if they are over five, or sometimes seven years of age. Does a larger deductible apply in a windstorm, or while you’re towing your tender? If your vessel is stolen, do you have a theft deductible that is based on a percentage of the insured value or a fixed number such as $10,000, whichever is GREATER!?
An important part of the policy review will include a solid understanding of the definitions used to explain the terms utilized in the contract. Are you aware that navigation and communication electronics do not include engine monitoring and management systems? The policy may have a smaller deductible or no deductible for losses to navigation and communication equipment, which by definition is used to safely direct a vessel or to communicate the vessel actions only as it relates to the vessel in navigation. Another example of a frequently misunderstood policy definition is the difference between a latent defect and a manufacturer’s defect. A latent defect is a hidden flaw in the material used in the construction of the vessel and in the construction of her fittings, components and systems, whereas a manufacturer’s defect is an error in the actual assembly of the components. Be familiar with the way in which these definitions might apply to your loss. You may feel that reading a policy is like watching paint dry, but you can only be prepared if you are familiar with the product. It is likely that you have read the manual on that new plotter unit with the combination radar, GPS and bottom machine prior to getting underway so you know how it works before you put them to use. You should do the same with your policy so you know how it works before you have a loss.
Mitigation is the best way to keep your loss from being denied. Every policy has a provision that requires that the insured or their representative take measures to protect the property from further damage. Failure to do so can greatly impact how the policy will address any damages suffered as a consequence of not acting to safeguard your yacht. Deductibles are a way in which you share the costs of a loss with the insurance company but you should always approach a loss situation as if you had no insurance. If you were uninsured and you had a flooding incident aboard your vessel, you would take all reasonable measures and incur reasonable expenses to prevent the interior from suffering more damage from saltwater and moisture. An example of this would include such things as hiring a remediation company. If you do not act to protect your property from further damage, the claim for the resulting or consequential damage could be denied.
Losses that involve other parties could result in those parties making a claim against you. You don’t always have to cause damage to someone else’s property or cause them injury. The other party may believe you have caused harm to them. If you are involved in a situation where someone has been injured or property has allegedly been damaged, don’t accept liability or make any statements that could be construed as accepting fault. There may be extenuating circumstances that would have the other party sharing the blame. Be contrite, but be cooperative, courteous and truthful when dealing with authorities such as the marine patrol or the USCG. Never fail the attitude test. As a case in point, if you were involved in a collision with another vessel, you should remember that every vessel has a duty to determine if a risk of collision exists, therefore, both parties are to blame. Leave it to the investigators to determine the amount of each party’s liability. Don’t share any policy information other than the name of your insurer, the policy number and any pertinent contact details of the various witnesses and persons involved. Photographs are a great way to document the situation and are very useful when defending claims made by third parties.
Only perform repairs that are needed to prevent further damage to the vessel. If you do repairs to the vessel, other than emergency temporary repairs, you may void the policy and your claim may be denied. It is crucial to allow the insurance company the opportunity to inspect the damages prior to repairing them. You should also advise the surveyor and adjuster if unforeseen damage is discovered during the course of repair. The extent of the hidden damage will most likely affect the amount of the final repair costs, therefore, a second inspection might be required. As much as you would like to believe that a red hot marlin bite is an “emergency”, it really doesn’t count.
If you make final repairs before the insurance company has had the opportunity to inspect the damage and conduct an investigation, it could prejudice their ability to determine the nature, cause and extent of the damage. This affects the insurer’s ability to confirm that damage was a result of the reported incident and it also affects the insurer’s ability to identify parties that may be responsible for the loss. Many policies specifically state that the insurer has the right to inspect the damage prior to making repairs. If possible, take photos of any damage prior to effecting temporary repairs or conducting mitigation efforts. Photos are again invaluable in documenting the situation. To illustrate the importance of allowing an inspection versus performing emergency mitigation efforts, let’s say a vessel grounded while entering the marina ahead of a tournament. The insured should contact his agent to report the incident before proceeding with repairs. It is possible that the repairs may not exceed the deductible, but what happens if they do and you’ve already completed most of the repairs? Perhaps, if you are trying to out run a hurricane and stopped in that inlet to grab fuel and get out of dodge, you might need those new wheels in order to get going. Make the call to your agent or the insurer and let them know why you need to get them ASAP.
Hold onto those maintenance and service records and be able to provide them quickly if they are requested. Often times you will be asked to show compliance with repair or service recommendations from a survey report. Even if you provide a statement confirming the replacement of those hose clamps on the raw water intake manifold, you may be asked to document the work via invoices if a clamp were to fail and the resulting flooding caused damage to your vessel. If it is an engine loss, you will most certainly be asked to show that you serviced the vessel in accordance with the manufacturer’s recommendations. If you or your captain performs the oil changes on the main engines and generators, be sure that you can show the receipt for the oil and filters.
Designate a representative. Will you or your captain be your representative? Will your captain be scheduling the repair vendors and the repairs? Who will be meeting with the repairers and the surveyor and who can get payments to the repairer in a timely manner? Who will be discussing the settlement with the adjuster? Is your captain going to be available throughout the entire repair process, or will he be running another boat while yours is laid up in the yard? Is he required to be with the vessel as the permanent captain per your captain warranty? When considering who to designate as the claim contact you should think about who will have access to the information and documentation that will be required to substantiate the loss. Whoever is selected as the claim contact should have the ability to respond to requests for information promptly and have the authority to make decisions. It is also important to establish an open flow of communication with the adjuster, the surveyor and your agent. They are there to help you through the claim process but they can only help if your communication is clear, concise, open and honest. It is very helpful if your agent has good relationships with the insurer’s claims department personnel, since it will help keep your claim on track and moving toward an amicable resolution. Knowledge is power, so don’t keep your agent in the dark. Providing information and documentation is the key to getting your loss resolved quickly and your settlement payments issued promptly. It is best to provide copies of correspondences and documents to all of the parties involved. If your agent has the same information that the adjuster and surveyor have, they may be able to identify any potential problems or roadblocks before they cause you problems. If your designated representative is incommunicado, it could delay repairs and increase the lay days at the yard, which can result in higher costs. Some costs resulting from delay might not be covered. The insurer wants to get you out of the yard and back underway as fast as possible and the adjuster will rely on the surveyor to report on the loss and determine if the repair costs are fair and reasonable. Will it be your responsibility or your captains to get the surveyor the estimates and invoices for review and approval?
Salvage claims made by commercial assistance towing and salvage companies, such as Sea Tow or Towboat U.S. have been on the rise. If you require any assistance from one of these companies and the service is for something other than just a simple tow after you’ve broken down, be certain to ask the towboat captain for an estimate of his charges. A simple way to find out is to ask the towboat captain if your membership will cover all of the costs. If you are not a member, then ask the operator if all of the costs of his services would be covered if you were a member. If the answer is no, then be wary of signing any document unless it has been explained and you fully comprehend what it states. If the situation is not dire, it may be better to obtain a quote from another towing company. When in doubt, don’t sign any contract and ask the towboat operator to send you a bill and then report the incident as soon as possible to your agent or insurance company. Photographs of any damage and/or situation are invaluable. Take them if it is safe to do so and share them with your insurance company and agent. Be sure that you can provide as much detail regarding the incident as possible: sea state, wind, prevailing conditions and any actions by the salvor that you feel were extraordinary or to the contrary, not very helpful or lack results. Do not provide information relating to your policy limits or coverages. It is ok to provide the name of your insurer, a policy number and the name and address of the assured but providing coverage amounts is not advisable. It is best to obtain salvor’s contact details and inform them that you will have your insurer contact them.
If the name of the Assured on your policy is shown as the corporate entity established for the vessel, then it is best that you establish a bank account in the name of the corporation. In most instances, an insurance company cannot legally issue a settlement to any party other than the named assured. Any settlement check that is issued will appear on the check just as it is written on your policy. You might check with your bank before a loss to see if they would accept a check for the corporation. In some cases, an insurer can issue payment to another party or entity other than the named assured, but they will require your corporate documentation and they will also require a letter from all of the corporate share holders confirming that payment can be made to someone else. If your documentation is not readily available, payments can be significantly delayed. It may just be simpler to have an account set up in advance.
One of the most efficient ways you can learn about the available types of coverage is to find an agent that possesses an intimate knowledge of the products that they sell and of the insurance companies that they represent. You should also choose a policy that fits your particular endeavors. If you are serious about fishing, then you may want to have a policy that provides coverage for specialized risks like the reimbursement of tournament fees if you had a covered loss and could not participate or separate and higher limits for fishing gear. Don’t be afraid to ask what is available. The agent should be capable of comparing and contrasting the different policies and coverages available. However, nothing will better prepare you for a loss than reading the policy that you do choose and understanding what it provides.
An adjuster once told me that he would rather pay a loss than deny one because there are a lot less keystrokes involved. Contrary to what you might think about insurers, they generally don’t look to deny claims. The policy is a legal contract and therefore, if the insured fails to understand or follow the terms and conditions of the policy, there is a possibility that it could result in a denial of coverage for a loss that otherwise should have been paid. The fact of the matter is that it is easier for the insurer to pay a loss than to deny one. In most cases the denial must be reviewed by a number of parties before approval is granted to do so. If an insured knows what to do, and more importantly, what not to do, it can mean the difference between having a smaller covered loss with quick settlement payments, or a more costly situation, in terms of time and money. Claims happen, but if you are familiar with the coverage provided by the policy and the common mistakes made by an insured that could affect coverage, you can effectively keep the costs from getting out of control, lower the risk of receiving a denial, and get your boat back out on the water as quickly as possible.