Five Rules for Owning Marine InsuranceJune 14, 2012
The business of insurance began with marine insurance. In 700 A.D. the Rhodian Sea Code contained insurance law, and the business of pooling the risk of maritime ventures apparently existed many centuries earlier.
Maritime insurance differs from homeowners and other shoreside insurance in important respects, respects that can void your coverage. Here are a few rules for buying and maintaining the policy.
1. Remember your obligation to fully disclose. I’m not big on law-Latin, but here’s a term I can’t resist: “Uberrimae Fideri”. It means “utmost good faith”, and it describes the ship owner’s obligation to disclose material facts to the insurer. By “material facts” I mean facts that could reasonably affect an insurer’s decision whether to issue the policy for the quoted premium.
Example: You own a dragger, but every winter you rig for mahoganies, a dredge fishery. You forget to tell the insurer, the policy issues, and next season the dredge hangs in a sea and over she goes. You tender the claim, and instead of a check you get a lawyer letter containing just that Latin phrase.
The problem is you didn’t disclose the dredge fishery, and dredging can be riskier than dragging. It doesn’t matter that the omission was an oversight, that you forgot to mention the dredging, not in an attempt to get cheaper coverage. Even an unintentional omission of a fact a reasonable insurer would want to know is enough to void marine insurance coverage.
2. Read your declarations page. The “dec page” summarizes your coverage. It will spell out the named insured, whether there is a “loss payee” (a lender), and, critically, it will state the coverage limits, both for “hull” (loss or damage to the ship) and “protection and indemnity” (“P and I”, covering personal injury, or damage to another).
Take a close look at the coverage limits and make sure you are OK with them. As a boat’s fishing operations change so may the recommended P and I limits. In a recent New Bedford case, there was a bad accident on a scalloper and the liability limit for injury or death was just a half a million. The injured man had a maritime lien for his injury, and after receiving the full $500,000.00 he foreclosed on the lien and the owner lost a valuable boat and permits.
3. Read your endorsements and exclusions. This is critical. Endorsements and exclusions are paragraphs, sometimes appearing in documents separate from the body of the policy, which limit or occasionally broaden coverage in some specific way. There are several endorsements and exclusions common to marine policies, and more seem to appear every year.
A “geographic endorsement” will state the area in which the boat is covered. If the boat has a loss outside the area there is no coverage (unless perhaps force of weather caused the boat to leave the geographic area). A yacht policy may contain an endorsement excluding coverage for damage occurring during a race.
Endorsements can sneak up on you. Your policy, which you have had for years, may cover your boat south to latitude of the Cape Cod Canal entrance, which may not matter to you at all because you fish in the Gulf of Maine. But if one winter you scallop out of Stage Harbor you won’t have coverage.
Many policies include a master’s endorsement, stating who the master will be. Even if the loss is one no captain could have averted, coverage doesn’t exist if the boat is skippered by a person not named in the endorsement.
There are many other endorsements which may appear in your policy, and you must read and understand them. An email to your agent can get you an extended endorsement, should you need to amend an endorsement to keep coverage.
4. Maintain your boat. Don’t depend on your policy to protect you if your boat sinks because of a lack of maintenance. Suppose a seacock is rotten with electrolysis and lets go, sinking your boat. There is a better than good chance the insurer would decide that the loss was due not to an “insured peril” (fire, collision and the like), but rather to decay and deterioration, and decline coverage.
5. Communicate with your broker in writing. If you need to expand your geographic endorsement to cover a trip to George’s Bank, email your broker and ask him or her to get the coverage. Better yet, if the George’s trip is out of the ordinary for you, email the broker and tell the broker what you are doing, and tell him to make sure you are covered, and make sure before you make the trip you get an email or fax of the endorsement showing the coverage. Same goes for a change in your fishery, adding crew, or any other operational change. If all you do is call, at least keep a careful note of the call, but written communications are a much better idea.
This advice applies particularly if your operations are a little out of the ordinary. Suppose you lobster some, urchin some, and maintain summer moorings too, maybe even move yachts around. There are all kinds of different risks implied in these operations, and the savvy waterman will write his broker a detailed description of the operations and close with “Make sure I’m covered.”
One final word. Lots of new companies are getting into the marine insurance game, and all manner of odd clauses, exclusions and endorsements are appearing, all obviously intended to reduce coverage. This is especially true with yacht policies, but I see it in commercial policies as well. I have seen a yacht policy which specifically excluded coverage for a loss caused by “lack of reasonable care or due diligence, in the operation or maintenance of your yacht.” So you have a bad day, another boat appears under your jib and you T-bone him. No coverage, under the strict language of that policy.
The solution is to stick with traditional marine insurers and good marine insurance brokers. I’m not going to name names here, but there are brokers up and down the coast who know the marine insurance business and who know better than to saddle you with a marine policy issued by a cut rate auto carrier.
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