Recent decades have seen a phenomenal increase in the popularity of pleasure boating on salt water, on the coastal waters bordering the United States and Canada and on their inland lakes and rivers.
This growth represents not only the innumerable watercraft that are owned or rented by individuals and families but also the many types of objects plying the waters, some of which are disputed by insurers as being the type of watercraft for which homeowners and special package policies were introduced to cover.
Watercraft are viewed as coming in various shapes and sizes and could include dinghies, rafts, rowboats, kayaks, canoes, outboard and inboard motorboats, houseboats, sailboats or yachts. Certain watercraft, such as jetskis and wetbikes, are disputed by some insurers as even being watercraft.
Given that it is the insurer that accepts risks, there is no disputing that it is the underwriter who has the final word on what is a watercraft and whether it is eligible and acceptable for insurance purposes. Of course, it is not only the watercraft in question that will be scrutinized by the underwriter. He/she also will be looking at many other factors, just as an underwriter does in determining the acceptability of an applicant for auto insurance.
The problem with watercraft is that operators generally are not specifically licensed to operate watercraft and they may have little or no experience, particularly about the rules of the water. Severe losses, furthermore, are not necessarily limited to the perils of the seas. Land perils, such as fire, windstorm, theft, vandalism and malicious mischief, and earthquake can be equally as devastating as perils on the water. Exposures of liability for having collided with other watercraft, fixed or floating objects, and swimmers also can cause financial hardships or even bankruptcy among those who own or who are otherwise responsible for the use of watercraft.
Thus, the chances of financial loss to insurers that accept risks and to owners or operators of watercraft are tremendous. It is not difficult to understand why owners and operators of many watercraft not only purchase special watercraft package policies, but also personal umbrella policies to protect their assets against watercraft liability.
Nature of coverages available
The coverages available for both physical loss or damage and liability arising from the operation and use of watercraft are many and varied. These coverages range from those automatically provided by homeowners policies, to endorsements expanding the basic coverages of the homeowners policy, to special package policies for various boats, including yachts.
Homeowners policies
Considering that many insurers offer their own versions of homeowners policies today, it is impossible to be precise about the scope of these policies in terms of the coverage they provide for watercraft physical loss and liability.
It is safe to say, however, that the coverage for many owners and operators of watercraft is inadequate because these package policies do not commonly include coverage for many of the so-called "perils of the seas." What's more, the watercraft are covered subject to a low sub-limit, commonly $1,000; are not covered for loss by windstorm or hail, unless the watercraft is in an enclosed structure; and theft coverage does not apply while the watercraft is away from the premises of domicile.
From the standpoint of liability, homeowners policies do not commonly cover liability arising from inboard motor boats owned by the insured, or, if such craft are rented by the insured, are in excess of a certain horsepower, commonly more than 50 horsepower. Also outside the scope of most homeowners policies are outboard motorboats with more than 25 horsepower, as well as sailboats that are 26 feet or longer in length.
The foregoing are some of the common limitations of homeowners policies. There may be many more, depending on the form in question. For example, in the case of State Farm Fire & Casualty Co. v. Johnson, 1992 C.C.H. (Fire and Casualty) 11,057, no coverage applied under an insured's homeowners policy for injuries and damage arising out of the operation of the insured's Yamaha Wave Runner. The reason was that the policy excluded from coverage bodily injury or property damage arising out of watercraft "designated as an airboat, air cushion, jet ski, or similar type of craft."
The appeals court, in reversing the decision in favor of the insurer, stated that the term "jet ski" is often used as a generic term for all personal watercraft despite the fact that it is a registered trademark of Kawasaki. The court pointed out, for example, that in the case of Ruano v. Water Sports of America, Inc., 578 So.2d 385 (Fla. 3d DCA 1991), the court in this case described a "wave jammer" (manufactured by Yamaha) as " a jet ski that requires the operator to remain seated."
Sometimes, insurers offer an endorsement to expand coverage of an otherwise eligible watercraft under their homeowners policies. The effect of the endorsement is to enlarge physical loss or damage coverage from other perils or to expand the coverage for bodily injury and property damage liability, as well as medical payments.
Special package programs
A number of insurers offer their own boatowners package policies to those whose watercraft, for one reason or another, does not qualify under homeowners policies. If one of these policies had been purchased on an airboat, it might have avoided the issue of whether an airboat is covered by a homeowners policy or is specifically outside the scope of that policy, since an airboat is an inboard motor-powered watercraft. This was one of the key questions in the multi-death case of Lantier v. Aetna Casualty & Surety Co., 614 So.2d 1346 (Ct.App.La.3rd Cir. 1993).
The insurer argued that the phrase "in-board motor power," as used in its homeowners policy, encompasses an airboat. Its rationale was that when viewed from overhead, the airboat clearly is within the spatial boundaries of the hull, qualifying it as an inboard motor. The plaintiffs, on the other hand, countered that, when viewed from both sides, the front, and the rear of the airboat, the motor is outside of the spatial boundaries of the hull and thus is not an inboard motor.
In the final analysis, the court held that the homeowners policy exclusion was ambiguous because of the widely conflicting testimony given and the fact that, from the insurer's viewpoint, two reasonable interpretations of the exclusion were possible.
These special packages provide basic coverages usually consisting of physical loss or damage based on all perils, subject to those commonly excluded, nonfortuitous causes, liability and medical payments coverages.
A variety of other additional coverages also may be included with or without additional premium charge. For example, some of these policies could include (1) uninsured boaters insurance, which corresponds closely to the uninsured motorists coverage of automobile policies; (2) costs to remove wrecked, sunken, or stranded craft, sometimes regardless of legal liability, provided such event is covered by an otherwise covered cause. Most such special policies also include coverage for all equipment necessary or incidental to the operation of the watercraft, such as tools, furniture, life preservers, or protective coverings.
On the other hand, these policies are likely to exclude items that are better covered by homeowners policies or personal article floaters, such as cameras, radios and sporting equipment.
Yacht policies
These special package policies for watercraft may or may not include coverage for yachts. In some cases, it may be necessary to obtain a yacht policy, if for no other reason than to broaden the territorial scope of coverage. Both the special boat package policies and yacht policies can be written to longshore and harbor workers compensation, and employers liability for the larger craft owner who maintains a crew to operate the boat. This employers liability coverage is commonly referred to as Jones Act coverage and is made necessary by the Merchant Marine Act of 1920.
Readers must be careful not to equate the necessity of Jones Act coverage with large craft or yachts. A municipality, which was located on a peninsula in the United States, purchased a houseboat for use by its fire department to handle rescue missions into the federal waters bounding the municipality's shores. This municipality did purchase a special package policy for purposes of covering any physical loss or damage to the craft, as well as any liability arising from the fire department's rescue efforts. But what the municipality failed to realize was that when its fire fighters went into the federal waters, as members of the houseboat's crew, they were outside the state's workers compensation law. What the municipality should have purchased was Jones Act coverage under its package policy. Fortunately, none of the crew ever was involved in a mishap where there was injury.
Liability coverage exclusion
Finally, growing numbers of insurers are beginning to add what is referred to as a "liability coverage exclusion" to their boatowners policies. This term actually is an oxymoron. But the scope of this exclusion is not funny. Its intent is to be the equivalent of the household or intrafamily exclusion of personal auto policies but on a broader scale.
Acadia Insurance Co. v. McNeil, et al., 116 F.3d 599 (1st Cir. 1997) is one such recent case where the exclusion was the focal point of dispute. This case arose following an accident involving a boat operated by its owner. The owner's father, who was a passenger, sustained injuries and filed suit against his son. The boat owner's insurer denied coverage based on an intrafamily exclusion. The state court ruled that a New Hampshire statute, N.H.Rev.Stat. Ann., Sec. 412:2(ii) (Supp.1996), invalidated the intrafamily exclusion.
An appeal ensued based on whether or not state law applied to liability coverages within the jurisdiction of admiralty, since if both federal and state law collide, the federal law is said to prevail. The court of appeal held that the insured's yacht policy was an ocean marine policy within the jurisdiction of admiralty and that the federal court would certify to the state court whether the state statute barring intrafamily exclusions applied to ocean marine policies as well.
In the case of USF&G Ins. Co. v. Williams, 676 F.Supp. 123 (E.D.La. 1987), the intrafamily exclusion in a yacht policy was held to be ambiguous thus precluding the yacht's insurer from subrogating for damages against the operators of the craft.
Summary
While boating is a growing recreational activity, it can create many more hazardous exposures to owners, operators and members of the public. The nature of watercraft also has grown to be more complex and problematic in terms of determining the appropriate coverage to purchase.
Both boatowners and prospective insureds need to understand that there are limitations to insurance, just as is the case with automobile insurance. But considering that there are many automobile policies from which to choose, it is possible to tailor coverages for boatowners more today than ever before. *
©COPYRIGHT: The Rough Notes Magazine, 1999