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Agents E&O Loss Prevention
Boating/personal watercraft risks
The right coverage makes for smoother E&O sailing
By Curtis M. Pearsall, CPCU, AIAF, CPIA
With spring on the horizon, your agency is likely to start getting requests for watercraft coverage—after all, with very few exceptions, most of us live within a short distance of an ocean, lake or river. But if you don’t have a lot of dealings with this exposure, you may find yourself run aground with an E&O claim. Here are a few tips on navigating the waters of boat insurance.
Why not simply place the coverage under a homeowners or renters policy? While this may be tempting, particularly if your client is looking to save some money, it’s not generally a good solution. While the premiums may be less, there is no doubt that the coverage is limited as well.
Can you identify the differences?
To start with, there are two key inadequacies to using a homeowners policy: physical damage and medical payments to others. In most situations, the homeowners policy will not provide any physical damage coverage to the boat, nor any coverage for the trailer and accessories. And while boating is fun, people do get hurt, and the typical homeowners policy coverage may be scant for injury to passengers and others.
Many homeowners carriers are now offering pleasure craft coverage, so certainly check these out; however, to secure the broadest protection, there is no doubt that insuring your clients with a specialty carrier is the way to go. Specialty carriers will provide some great additional coverages such as:
• Roadside assistance if your vehicle becomes disabled while towing your boat
• Coverage for fishing equipment and other personal effects such as water skis
• Fuel spill coverage—your clients may be legally liable—do they have the necessary coverage?
• Wreckage removal
• Medical payments, even for water skiers
E&O claims do happen in this class—such as this one: A client approached the agent for coverage for his powerboat, a Donzi 38-foot boat with three (that’s three!) 275hp engines with a maximum speed of over 60mph. The agent went through a broker, who secured the policy. The agent submitted an application which left blank the answers to the questions regarding the horsepower and speed of the vessel. When he sent the application to the broker, he stated that he attached the actual purchase order, which gave the specs that were missing from the application. When the policy was issued, a speed warranty of 35mph was part of the policy. The vessel’s speed capacity was well in excess of the limit.
About a month after the policy had been issued, the client noticed hull damage and submitted a claim. The carrier denied coverage. That denial was based on: 1) violation of the speed warranty; and 2) the fact that, in the carrier’s opinion, damage was not caused by a collision, but rather a latent manufacturing defect.
Experts disagreed as to whether or not the damage was caused by a collision as opposed to a latent defect. The hull damage was $68,000. The agent admitted through testimony that he had missed the speed warranty and had failed to inform his client of same. The case was settled for $68,000, with Utica (the E&O carrier) paying 50%, $34,000. The other $34,000 was split between the boat’s insurer and the broker.
In addition, here are some of the more common mistakes that agencies are alleged to have made when insuring boats—mistakes that ultimately brought about an E&O claim. As you read them, ask yourself: What could the agency have done better? Could these mistakes happen in your agency?
• Hull coverage—Not writing the coverage on an agreed value basis. This is certainly broader than ACV.
• Insufficient limits—Major accidents can occur. Be sure to obtain high limits and schedule this policy under the umbrella.
• Providing watercraft liability—as opposed to the much broader P&I liability (Protection and Indemnity) protection.
• Failure to advise the client of the navigational limits of the policy—If your client has a loss outside of the stated navigational limit, the policy may be voided.
• Failure to advise the client of any lay-up period—If a loss occurs when the boat should not have been in use, coverage will not apply.
• Not understanding the binding guidelines relating to the age of the vessel—What are the specific survey requirements?
Some tips worth considering:
Completion of the application—Make sure that you sit down with your customer to review each question. Did you explain all of the coverages in detail? If the customer did not choose the broadest protection, get him or her to sign off for the coverages he or she declined.
Receipt of the policy—Advise clients, verbally and in writing, that when they receive their policy, they need to review it to make sure that everything is in order. The agency should also review the policy to make sure that it matches what was requested.
Education and training—Both your staff and your customers can benefit. The goal is to be certain that the staff understands all of the coverages and how they apply. Spend a few minutes in the next week reviewing your agency’s approach to insuring the various types of watercraft. Also, include this as a topic in your next newsletter to your customers and include it as a topic on your Web site.
Let’s all have a safe boating season, free of E&O problems.
The author
Curtis M. Pearsall, CPCU, AIAF, CPIA, is a special consultant to the Utica National E&O Program. He can be reached at cmp53@verizon.net.
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