Homeowners and auto policies may pay when an insured makes an innocent mistake but hull insurance is not so generous. The duty to maintain a seaworthy vessel in the case outlined above is just one of many examples of how an insured may be surprised to discover differences in coverages. There are many more!

When asked about potential coverage gaps, Matt Anderson, vice president of marketing of Global Marine Insurance Agency said it best. “There are different markets available to cover all the gaps, depending on the needs of the customer and the vessel. It is the specialty marine insurance agency’s responsibility to adequately assess the risk and locate the correct market.” What types of gaps might there be? Thomas Conroy, marine director of Markel American Insurance Company identified one. “Every boat owner should carry liability and pollution coverages at a minimum. If a boat catches fire and the owner is found legally liable for a large marine fire that burns several other boats, not only will he or she be responsible for third party damages, but also for pollution.” He went on to recommend that owners look for a carrier that provides a separate limit for pollution rather than including that coverage in the liability limits.

Cary Breese, president of Trafalgar Marine Insurance Services, Inc., identified the lack of crew liability coverage as a potential coverage. The crew working on a watercraft is protected under the provisions of the so-called Jones Act, which acts much like workers compensation law and creates a liability to the vessel owner for any injured crewman, much the way an employer has liability to an employee injured on the job. Another important issue of is that of navigational warranty. Many yacht policies are issued with warranties that limit how and where the vessel can operate. Coverage is voided if the insured violates these warranties. The navigational warranty is similar to attaching a rider to an auto policy that provides coverage while the insured is traveling between New York and Los Angeles through Texas, but voids coverage if he decides to travel through Colorado instead. Requiring that a vessel be operated only by a licensed captain, i.e., a Captain Warranty, can also play a role in voiding coverage, similar to providing auto coverage to a teenager only when a parent is in the vehicle.

Crew liability can be purchased as part of Protection and Indemnity (P&I) coverage, one of the minimum coverages recommended by Jake Hill, director of sales and marketing of Seahorse Underwriters. He also recommends hull coverage at agreed value, all risk, pollution, on-water towing, personal effects and medical payments along with uninsured/underinsured boater’s liability. Damon Pesce, marketing manager of Maritime General Agency adds fuel spill and environmental damage coverage to his basic list.

The good news is that most boat and yacht coverage is placed with admitted carriers and most are very interested in writing the coverage. According to the experts, pricing has stabilized and is softening in some areas but not in all. Mr. Breese states, “The hull rate is primarily affected by mooring location which influences the exposure to wind, although age or vessel and its condition also come into play.” Hull rates can vary by as much as 200% to 300%, depending on the mooring location.” Mr. Conroy makes an interesting point. “After the storms, the marketplace aggressively sought non-storm exposed business, but since then the rates have stabilized.”

Each of these experts agreed that capacity is a concern in storm-exposed regions. Mr. Conroy states, “Markel American has aggregate available in these areas, although we are selective of the type of boat and experience of the owner, and prefer a risk be hauled ashore where the risk of wind is reduced.” Mr. Pesce notes that wind areas are a problem but nonadmitted and London markets are available to provide the coverage. According to Mr. Anderson, “Capacity is still an issue in the hurricane prone gulf coast states and Florida, but it has improved over last year.”

What are other obstacles to coverage? Mr. Pesce noted that large owner operated vessels are difficult to place, particularly when the owner doesn’t have the proper experience. Mr. Conroy agreed but then identified another concern…the performance boat category. He said, “Carriers will often start a program, not realizing the severity of losses associated with the class, and soon exit the marketplace. Performance boat owners invest a lot in their boats and should look for a carrier that has expertise and has demonstrated dedication to the performance boat industry.” Mr. Hill also added that older boats are more difficult to place.

An unusual element of boat and yacht coverage is its worldwide aspect. Boats may be moored in the United States but sailed to a number of other countries. Mr. Pesce points out that carriers attach a war zone exclusion to most policies and adds that boats and yachts moored in the Caribbean can be difficult to place due to wind exposures. Mr. Breese indicates that placing any risk moored outside of the United States can be difficult.

The question of experience touched on earlier came up again. Mr. Breese says, “Experience can affect rates a bit. However, most underwriters think of experience as being more of a qualifying factor rather than a rating factor. Notwithstanding the foregoing, attendance at boating classes and safety certificates do have a direct affect on rates in the form of nominal discounts." Mr. Conroy states that his company works with major boat builders and performance boat schools to encourage safe and competent boat operation. It appears that the larger the boat, the more experience matters. On larger boats, an experienced captain and crew may be a precondition to coverage.

Throughout the discussions, the capacity problem centered more on mooring location than limit. Liability limits from $300,000 to $1,000,000 are common with limits up to $10,000,000 available. The hull values could be as low as $10,000 and increase to $5,000,000. Mr. Anderson stated that he put no limit on the hull value he could place.

The boat and yacht market is open for business but each of the experts provided a word of caution. This is a specialty area with unusual forms, terms and practices. Their companies have years of experience in the industry and strongly recommend that agents work with them or similar companies having the knowledge and expertise to assist in building an attractive product that will protect an insured’s dream and not turn a claim into a nightmare.