Marine insurance policies are governed by a matrix of maritime law, non-maritime law, and policy language that distinguish these policies from non-marine insurance (such as car insurance policies) in many ways. Consider the following issues.
Claim Denials
A marine insurance policy is not a warranty. The policy is not designed to protect against all failures that the vessel may experience. Instead, most marine insurance policies are designed to protect against “fortuitous” events. This basically means that you need to be able to point to some incident and say that the damage was caused by that incident.
An insurance claim may be denied if the casualty was caused by an incident which is expressly excluded from coverage under the terms of the policy, or if the boat owner failed to comply with certain obligations set forth in the policy.
One of the most significant obligations of a boat owner under a marine insurance policy is the requirement that the boat be maintained in a seaworthy condition. For example, coverage will almost always be challenged for a boat that sinks at the dock (this happens more than people realize), because seaworthy boats generally don’t sink at a dock. If certain maintenance items are overlooked, such as the proper adjustment of a stuffing box or battery maintenance, a serious problem may develop, particularly if the boat is unattended for a long time. These are in fact among the most common causes for a dockside submersion, and the insurance investigators will likely look to these issues first when they investigate a sinking.
A marine insurance claim may also be denied if the loss is caused by an event that is expressly listed in the insurance policy as an excluded cause. For example, a loss caused by gradual wear and tear will usually be expressly excluded from coverage, which may exclude engine problems, torn sails, or corrosion damage from coverage. Most policies also exclude manufacturing or design defects from coverage, which may lead to a denial of a claim for a structural failure.
When a boat owner submits a substantial claim to his or her insurance company, the insurance adjuster will appoint a marine surveyor to investigate the claim and determine the cause of loss. Boat owners should understand that the insurance company’s surveyor does not represent the interests of the boat owner. Insurance surveyors are hired by insurance companies, and while they are expected to conduct the investigation without bias, they owe no direct duty to the boat owner. In fact, the boat owner may never see a copy of the surveyor’s report. Therefore, if there is any uncertainty about the cause of the loss, the boat owner should consider hiring his or her own surveyor to participate in the investigation.
Utmost Good Faith.
Marine insurance policies are generally controlled by the doctrine of “uberrimae fidei,” requiring the parties to the policy (the boat owner and the insurance company) to deal with each other in “utmost good faith.” This doctrine technically applies equally to the insurance company and the yacht owner, but it is most often applied to the boat owner, whose disclosures at the time that he or she applied for the policy are carefully examined. Simply put, the yacht owner is required to disclose any information which may be related in any way to the coverage that is being considered, and the insurer may avoid the payment of a claim even if the failure to disclose was an innocent mistake, and even if the oversight had nothing whatsoever to do with the loss.
The disclosures by the boat owner are generally made through two avenues: The insurance application and the marine survey. The application will seek information regarding the background and experience of the yacht owner and the intended use of the vessel, while the marine survey will provide information to the insurance company about the condition and value of the vessel.
The information submitted on an insurance application must of course be truthful and complete, and any communication regarding the condition of the vessel must be equally forthcoming. Most insurance companies will require some action to be taken to correct the deficiencies noted in the survey report, and a misrepresentation or inaccuracy in that communication will be deemed a violation of the insured’s obligation to deal with the insurance company in “utmost good faith.”
Surveyor Recommendations Relating to the Purchase of a Previously-owned Vessel.
These are the recommendations listed by a marine surveyor near the end of a survey report. Be careful with this. Many boat owners are inclined to take care of the “important” items on the surveyor’s list of recommendations and save the other projects for another day. An owner may be inclined to believe that the delayed projects are “cosmetic” in nature, and that the insurance company will be unlikely to learn of the oversight. Unfortunately, the signed statement required by most insurance companies to confirm the completion of survey recommendations must be executed by the yacht owner in good faith, and a misrepresentation will probably lead to the denial of an insurance claim.
There may be some amount of flexibility in dealing with the survey recommendations, but the boat owner should contact his or her insurance agent to discuss a workable approach to the project. The insurance company may agree that the replacement of a cosmetic feature of the yacht’s interior is not necessary, but the yacht owner may void the insurance if he or she reaches that conclusion without the insurance company’s cooperation.
The responsibilities of a boat owner under a marine insurance policy are significant, and the failure to comply with those obligations will likely lead to the denial of an insurance claim, which may subject a boat owner to a catastrophic loss of thousands of dollars. Boat owners should spend some quality reading time with their marine insurance policy, and any questions or confusion about their rights and responsibilities under the policy should be discussed with an attorney experienced in marine insurance claims. Call us. We can help.