A DO-IT-YOURSELF FAILURE
Ronald was on the Illinois River when his motorboat collided with mud and debris. In order to free the propeller from the mud, he tried a variety of approaches to his dilemma. Eventually, the motor shut down and he was towed to shore. He submitted a claim for the destroyed propeller and its assembly, but Erie Insurance refused to honor the full claim. It argued that most of the damage was caused by Ronald and not by the collision
Here is how the court ruled.
Ronald Richey was insured under a property policy from Erie Insurance Group when he had a boat accident. While boating on the Illinois River, his boat collided with sub-surface mud and debris. He alleged that his propeller and related assembly was damaged by the collision. The boat stopped and in his following efforts to resume travel, he operated the boat motor until it shut down. After the powerless boat was disentangled via Richey using an oar to pry things free, Richey and his boat were towed to dock by another boater.
Richey filed a claim with Erie after he paid for propeller repairs and a new motor as the old motor was irreparably damaged. As it turned out, while running the boat motor to free the boat, the water pump and subsequently the motor were destroyed. Erie inspected the loss and determined that the majority of the damage was caused by Richey’s attempt to get the boat dislodged. It rejected the claim. Both parties filed opposing motions and trial court granted a partial summary judgment in favor of Erie. Richey appealed.
Richey challenged the lower court decision obligating Erie only to pay for the damages attributed to the initial collision. The higher court found that its view aligned with the lower court’s finding. In both courts’ opinion, the total damages involved those caused by the collision with the mud and debris and then, the damage caused by Richey’s attempt to free the boat. In review of the policy wording, the court found that the language obligated Erie to respond to accidental loss and excluded incidents of mechanical breakdown. The trial court ruling finding the insurer only responsible to the collision damage was affirmed.
Ronald Z. Richey, Plaintiff-Appellant, v. Erie Insurance Exchange, and Erie Insurance Co., Defendants-Appellees. Appellate Court of Illinois, Third District No. 3-02-0688. Filed June 25, 2003. Affirmed. Westlaw 791 N.E. 2nd 1313
Was the loss excluded?
Rushing to the exclusions in order to determine whether or not coverage applies can lead to a wrong conclusion. Starting at the top of a policy coverage and reading it through can prevent too hasty a decision. The ISO Watercraft Policy Part D Insuring Agreement explains what type of damage is covered. Only after determining that the damage might be covered under the insuring agreement should the exclusions be consulted.
Read the pertinent parts of PF&M analysis of the ISO Watercraft Policy.
Many persons who need protection for watercraft property and its related liability handle things by modifying their homeowner policy. However, a separate policy is a more comprehensive method. In addition to offering broader coverage, a dedicated policy is necessary because many types of boats do not qualify for coverage under a homeowner form. HO coverage is restricted to boats of modest size, power and value.
Related Court Case: “Boat Exclusion Not Affected By Fact That Outboard Motor Could Not Generate 50 HP At Time Of Loss.”
This article analyzes some features and issues found in Insurance Services Office’s WT 00 01–Watercraft Policy (01 10 edition).
PART D – Coverage for Damage to Your Watercraft
- Insuring Agreement
- Typically, a watercraft policy’s physical damage section will provide protection against a wide variety of loss sources that may damage or destroy covered property. Under this policy, protection against tangible, accidental loss is provided for any property that meets its definitions of:
- “your covered watercraft”
- “boating equipment”
However, coverage is subject to the policy’s applicable deductible. That deductible only applies once per a given loss. In other words, if an insured suffers a loss to her boat and then, on another date, to her boating equipment, the deductible would apply to each loss. If she experienced a loss to her boat AND equipment in a single loss, then the deductible would only be applied once.
- The Watercraft policy defines what it means by boating equipment, but only with regard to the coverage offered under this section. The policy does not consider outboard motors to be boating equipment. However, it does classify property that is owned by the insured and which is related to the covered watercraft due to being a part of its normal operation or maintenance as boating equipment. This status is conferred whether such equipment is used within or outside of the applicable, covered watercraft.
The policy offers the following items to illustrate what is considered to be boating equipment:
|Anchors||Electronic navigation equipment||Life preservers||Pumps|
Items similar to the above would also qualify as boating equipment.
There are a variety of instances when physical damage protection is denied, specifically the following:
- Loss involving business activity which includes insureds who rent their craft to others, who receive income from transporting property (cargo) or persons or who make their craft available for charter trips.
|Example: Linzie’s sailboat is damaged when the pilot smashes into a steel dock. Linzie’s insurer turns down her claim when they find out that the boat was being returned by a group who frequently rent the boat.|
2. Losses that solely involve the following are disqualified from coverage:
- a. Any source of loss that can be attributed to regular wear and tear, aging, property defects and/or due to breakdown are excluded
- Loss that is attributable to the insured’s failure to properly maintain covered craft
- Damage from scratching, marring, denting and chipping
- d. Damage caused by either extreme heat or freezing
- e. Loss due to temperature extremes including improper winterizing. However, an exception exists for damage occurring to winterized craft IF the process was performed by a competent source.
- f. Damage caused by icing to a covered craft either while afloat or while moored
- g. Loss that is indirect, due to loss of use or similar incidents
- Loss caused by the physical nature and defects of the covered property (inherent vice/latent defects)
- i.Breakdowns, both electrical and mechanical
- There is no coverage for loss related to using or preparing watercraft for racing; however, there is an exception for sailboats. It is likely that the exception is due to the fact that, even in racing, the handling of a sailboat is not likely to significantly increase the exposure to loss; also, sail boat operators tend to have much more experience in boating than their motorized peers.
- Loss due to any type of war, military activity, nuclear or radioactive activity or event is ineligible for coverage, including a loss that is covered by any special nuclear energy policy
- Loss or damage (including confiscation) of property by any government agent due to an insured’s illegal activity.
Note: This exclusion does not affect payments to which loss payees may be entitled. However, such payments would likely result in subrogation activity by the insurer against the insured.
- Diminished value is not covered
|Example: Lindsay’s boat, a 2009 Puddlepounder, was just repaired by her insurer. A week after she gets it back, she decides to sell it and she goes to a nearby dealer for help on establishing a sales price. The dealer says that, since it had been damaged and repaired, she should list it for at least $2,500 less than a comparable boat that had never been in an accident. This loss in her boat’s market value is not eligible for coverage.|
Asking the right questions
A watercraft purchase may be a well thought out plan or it may be an impulse buy. However it happens, an agent must be prepared for that phone call inquiring about needed coverage. The Homeowners policy offers extremely limited coverage but many insurance carriers offer policies for boats and yachts. However, these carriers will provide coverage only if the correct answers are provided.
Here is a review of the watercraft specific questionnaire from the Producer’s Personal Lines Risk Evaluation System that could help you get started.
List all owned watercraft.
|Unit #||Year||Manufacturer||Type||Power Type||Horsepower||Length|
Using the unit number from above, where does each watercraft operate? (%)
|Unit #||On Premises–Lake||On Premises–River||On Premises–Ocean||Off Premises–Lake||Off Premises–River||Off Premises–Ocean|
|1.||_____ %||_____ %||_____ %||_____ %||_____ %||_____ %|
|2.||_____ %||_____ %||_____ %||_____ %||_____ %||_____ %|
|3.||_____ %||_____ %||_____ %||_____ %||_____ %||_____ %|
|4.||_____ %||_____ %||_____ %||_____ %||_____ %||_____ %|
|5.||_____ %||_____ %||_____ %||_____ %||_____ %||_____ %|
|6.||_____ %||_____ %||_____ %||_____ %||_____ %||_____ %|
Using the unit number above, what is the watercraft’s lay-up period and where is it stored during lay-up?
|Unit #||Lay-up time period||Lay-up location|
Is the watercraft available for charter by others? ___ Yes ___ No
If yes, identify the watercraft and describe the type of charter.
Is any watercraft used for business purposes? ___ Yes ___ No
If yes, identify the watercraft (s) and describe the business purpose.
Is the watercraft available for rent or loan to others? ___ Yes ___ No
If yes, identify the watercraft and describe the rental or loan terms and conditions?
Is any watercraft used for racing? ___ Yes ___ No
If yes, identify the watercraft, the operator(s), the frequency, and the types of events?
List all operators who the household. Include students who are away at school.
|Name||Age||Years of Experience||Student? (Yes or No)||Operates Watercraft #|
Does any operator use non-owned watercraft? ___ Yes ___ No
If yes, identify the operator(s) and describe the type of watercraft.
Is watercraft taken outside United States territorial waters? ___ Yes ___ No
If yes, identify the operator(s) and the watercraft. Describe their navigation routes.
Talking about boats
July is a great time to talk about boats in your blog, newsletters or e-mail blasts. The following e-marketing articles could alert your clients that you are available to help them in their boating and other recreational coverage needs.
Note: These articles are subject to the Insurance Publishing Plus Copyright, so their use is limited to paid subscribers to E-marketing for Agencies.
Below is some wording you could use for two watercraft e-marketing articles.
The insurance approach for covering boats and boating property is quite like what is used to protect cars and homes. Essentially insurance is offered on a package basis, meaning that there is coverage for physical property as well as protection against the legal and financial consequences of injuring others or damaging property that belongs to others.
Property Coverage – Typically a boatowners policy covers:
- Boats – Refers to property designed to travel on water and includes sails, its permanent equipment, spars and fittings.
- Boating Equipment – Includes a wide variety of property that is used in conjunction with boats and it includes accessories. Items considered as equipment are property used for communication (radios), navigation, sonar, radar, outboard motors, dinghies, skis and sports equipment (recreational flotation devices) that are towed by boats and similar property. As a rule of thumb, the more related an item is to the ownership and use of a boat, the greater the justification to classify it as boating equipment.
- Boat Trailers – Trailers used (and designed) for transporting boats (as defined by the policy).
This property must be owned by the person who is named as the policyholder. There are limited instances when such property that is temporarily in the policyholder’s possession also qualifies for coverage.
Items and situations that aren’t covered include boating property that is used in business activity, losses that involve races or competitions (an exception is made for sailboats) and boats that are used, full-time, as residences.
Liability Coverage – Besides protecting boating property, a boatowners policy also responds to claims or lawsuits caused when another person is injured, and /or when another person’s property is damaged or destroyed. An example would be a collision where the owner of a large speedboat collides with a person on a jet ski, seriously injuring the rider and demolishing the jet ski. The policy would handle both portions of such a loss. The liability portion would also provide a legal defense against lawsuits.
Another important coverage under the liability section is medical payments. This provides reimbursement for, typically, emergency or immediate medical treatment expense. Consider a person who slips on a boat deck and needs transportation to an emergency for treatment of a broken bone or concussion. Such costs would qualify under medical payments.
As is the case with property coverage, there are liability situations that are NOT covered by a boatowners policy, including losses that involve business activity, transmission of communicable disease, unauthorized operation of boating property, intentional acts, and criminal activity.
Boating property is a substantial investment and boatowners coverage is an efficient, affordable way to guard against accidental losses.
Dead In The Water
One issue that may not occur to boaters until it happens is a stalled boat. When a larger boat loses power, it usually has to be located and towed back to harbor/shore. Tows are typically quite expensive. Towing charges are usually based upon the time the towing firm takes to depart from port, reach the boat needing assistance, and returning to port (portal to portal). Charges may reach hundreds of dollars per hour. Further, if your boat is grounded, additional charges apply.
While some equipment breakdowns are unavoidable, most calls for towing are due to events that are quite controllable, such as dead batteries and empty fuel tanks. As a precaution, boaters should keep their tanks full, besides avoiding running out of fuel; fuller tanks also avoid water condensation build-up that can cause fuel line blockage and motor failure. Stalling problems can be minimized or prevented by use of following tips:
- Use one (marine starter) battery for starting outboard motors and another for running onboard electronics
- Use a set of bilge pumps rather than a single pump which may be inefficient and overwhelmed
- Do not use items such as small appliances (particularly refrigerators) that can quickly drain batteries
- Avoid continuous use of non-essential boat powered electronics – portable devices with their own power is a smarter move
- Check batteries to assure that they are maintaining peak power, replace batteries when necessary
When a problem does occur, rather than depend on cell phones, it is more useful to have a boat equipped with a marine radio (which rescue services can track to aid in vessel location) or a GPS unit (which gives precise boat location). A cell phone may run out of power or, even when available, may delay rescue if the user cannot provide accurate location information.
You can keep the use of boats safe and fun by taking steps necessary to reduce the chances of being dead in the water.