When was the last time you read your car's or homeowner's insurance policy? Not just the declaration page that shows you the dollar amount of coverage, but the actual policy that spells out what is and is not covered. Often boaters don't bother to read this literature until they suffer a loss, after which they check to see if it's covered. Don't make that mistake with your yacht.
You might reasonably assume that yacht insurance should cover loss or damage to your vessel as well as your liability for personal injury or property damage, kind of like auto insurance. However, yacht owners are faced with a host of other potential liabilities, partially from recent legislation enacted to protect the environment, but also from statutes and practices that have evolved in commercial shipping, some dating back to the days of wooden sailing ships. Policies issued by various insurers may have critical differences in terms of what risks are covered and what risks are excluded.
To help you know what to look for-and what to look out for-we consulted three experts in marine insurance and liability. Michael Moore, a maritime lawyer with the firm of Holland & Knight in Tampa, Florida, offered some insights on legal issues. Diana Fabozzi of Marsh spoke with us as a representative of one of the world's largest insurers of mega-yachts. Bill Glass of NBOA Services, an organization he describes as the AAA of the boating industry, discussed insurance for smaller yachts.
Read your policy. Understand exactly what coverage you have. Pay particular attention to exclusions: the things your policy specifically does not cover. Each company is different, so when you compare prices, make sure you're getting coverage for similar risks.
Look for an all-risk policy. As the name implies, this type of policy covers loss due to any peril (except those listed in the policy as exclusions). Policies often exclude liability for claims arising from pollution or damage to environmentally sensitive reefs, although this coverage can be added in return for an additional premium or obtained under a separate policy. In the United States, yachts of more than 300 gross tons require a certificate of financial responsibility, which includes a water-quality insurance certificate.
Be wary of a named-perils policy. This covers only losses that result from specific perils listed in the policy; i.e.., fire, theft, grounding, etc. If the cause isn't listed, the loss won't be covered. Some agents like to quote prices on named-perils policies because premiums are cheaper, but if you want full coverage, get a price for all-risk coverage.
Look for an agreed-value policy. This is the amount that the policy will pay for a total loss of the vessel. For a new boat it's usually the purchase price, and for a used boat it's the book value. To insure a yacht for more than book value, you must have a certified marine surveyor perform a value survey to substantiate the value claimed. Yachts more than 10 years old may also need to have a condition survey to get insurance.
Be wary of an actual cash value policy. The maximum amount the policy will pay is based on the depreciated value of your yacht and its contents, which is generally going to be less than the purchase price. Some companies like to quote prices for actual cash value policies because premiums are lower, but get a price for an agreed-value policy. The difference in cost may be surprisingly small.
Seek an insurer with experience in the marine business. Yacht insurance has become a lucrative field, attracting lots of new players. The company that insures your home or car may not be the best choice for your yacht. Ask your agent or broker about the company's claims experience and whether they have a network of adjusters who can get to you when you need them. Find out about the company's overall financial stability as well as its experience in marine underwriting.
Be sure the agent knows where you will use your yacht. As with car insurance, marine insurance premiums may vary depending on where the yacht is operated. But although a car insured in New York will still be covered driving in California, if your yacht policy states that your navigational area is limited to the Intracoastal and inland waterways, you may not be covered if you venture offshore. It is common for yacht policies to exclude coverage for losses occurring outside a stated navigation area. If you plan to take a yacht beyond the area stated in the policy, notify your agent; there may be no additional premium due, but the company must be advised for you to be covered.
Make sure your agent knows how you will use the yacht. He or she must know if you charter the yacht, if you have crew, and what kinds of activities the yacht engages in. Make sure things like swimming, diving, or operating watertoys are not listed as policy exclusions. If your yacht carries a motorbike or scooter, it will probably be covered while it's onboard, but you'll need a separate policy to cover it while it's ashore.
Understand the liabilities that come with a hired crew. Under the General Maritime Statutes, which have been recognized worldwide for centuries, an owner is held totally responsible for the welfare of crew. Originally enacted to protect seamen on sailing ships, these laws are in force today and apply equally to yacht owners with hired crew. More recent statutes, such as the Jones Act and the. Death on the High Seas Act, provide even greater protection for crew on U.S.flagged vessels, with corresponding liability for the owner.
In principle, a crew member can sue you for any injury sustained while in service to the yacht, even if the injury occurs ashore. Marsh recommends that owners carry a minimum of $10 million in Protection & Indemnity (P & I) coverage but that it's ideal to carry sufficient P & I to cover all assets. Coverage for legal defense costs should be in addition to the P & I limits so that liability coverage will not be eaten up by legal fees. Also consider separate health insurance coverage for crew members so that claims for medical benefits do not go against the yacht's P & I coverage.
Make sure your personal effects are covered. The limits on the Hull & Machinery policy should cover not only the yacht herself (including electronics), but also things like water-sports equipment, furnishings, art, and other items of value. Discuss these with your agent, and check on deductibles. As with your car insurance, the deductible is the amount you have to pay before the policy kicks in; for typical yacht policies, the deductible may range between one and three percent of hull value.
Check how disputes are resolved. Policy language may set forth procedures for -I handling disputes if a claim is denied. If , the owner elects to sue the insurance company, the policy may specify where the lawsuit will take place and where process is to be served. Try to avoid the possibility of having to litigate a dispute in a distant locale.
Last, but not least, read your policy! Or, did we already mention that?
From Power and Motoryacht, March 2000, by George Petrie. George L. Petrie is a professor of naval architecture at the University of New Orleans and provides maritime consulting services. His Web site is www.maritimeanalysis.com.
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