Agents E&O Loss Prevention

Insuring personal watercraft and boats

Do some customers believe their HO policy provides the best coverage?

By Curtis M. Pearsall, CPCU, AIAF, CPIA

With spring preparing to show itself, there is a strong likelihood that many customers will look to get out on the water at the earliest possible opportunity. As a result, these customers will be contacting your agency to make sure their personal watercraft or boat coverage is in order—or will they? Do some of your customers believe the coverage their homeowners policy provides is sufficient?

How confident are you about your knowledge of the differences between insuring a watercraft on a HO policy vs. a policy specifically designed for this exposure? While there is a good chance the premium for this exposure under an HO policy will be less, there is an equally good chance the coverage will be less, too. Do you want to advise customers of the differences now or wait until after they have a claim?

What are some differences?

In most situations, the homeowners policy will provide liability protection, but no physical damage coverage. This is important because of the price tag of these "toys." Plus, there may not be any coverage for injury to passengers and others, as well as for the trailer and accessories. To ensure that your customers are more adequately covered (or at least to give them the option to consider), explain to them the benefits of insuring their boat/yacht with a specialty carrier. Some coverages often automatically included or available for a fee with specialty carriers are:

• 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.

There is no doubt that errors & omissions claims occur in this class.

Consider the following claim example:

An agency specializing in boat insurance provided a policy for a customer's yacht. The policy had a standard lay-up provision to cover the yacht while it was in winter storage. Just before storage season started, the yacht owner advised the agency that the yacht needed to stay in the water longer than the policy allowed. The agent agreed to make a change in the coverage provided by the insurer but unfortunately delayed in sending in the request. The yacht sank. When the claim was reported to the insurer, the insurer denied it, saying there was no record of receiving a request to modify the lay-up period.

Could the claim have been avoided? Certainly. Since there is a good chance with some specialty carriers that the agency will not have binding authority, the request should have been made promptly, with a follow-up to the carrier to determine if the request would be granted.

Issues and tips

There have been other E&O claims involving watercraft. Among the issues:

• Territorial restrictions—This can involve specific territories, such as Cuba. In addition, some watercraft policies contain limitations excluding coverage in certain types of water (fresh water vs. salt water) or sizes of water (rivers and lakes compared to larger bodies of water such as the ocean).

• Writing the physical damage coverage on an ACV basis—as opposed to the broader agreed-value approach.

• Hull coverage—Not writing the coverage on an agreed-value basis. This is certainly broader than ACV.

• Insufficient limits—Major accidents can occur. Secure higher limits and schedule this policy under the umbrella.

• Providing watercraft liability—as opposed to the much broader P&I liability (protection and indemnity) protection.

• Not understanding the binding guidelines relating to the age of the vessel—What are the specific survey requirements?

These types of E&O claims can be avoided. Some tips worth considering:

Completion of the application. Sit down with the customer to review each question. Did you explain all of the coverages in detail? If they did not choose the broadest protection, get their sign-off for the coverages they 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 everything is in order. The agency should also review the policy to ensure it matches what was requested.

Education and training. Both your staff and your customers can benefit. Spend a few minutes in the next week to review your agency's approach to insuring the various types of watercraft. The goal is to be certain the staff understands all of the coverages and how they apply before customers start calling. So this is a good time to get "up to speed" and learn the "A to Z" of boat insurance.

Spell out to your customers the benefits of a specialized policy compared to securing the coverage via the HO policy, and include this in your next newsletter and as a topic on your Web site. It's also a great topic to include in your personal lines reviews to ensure that customers know the differences.

The author

Curtis Pearsall, CPCU, AIAF, ARM, CPIA, is president of Pearsall Associates, Inc., a risk management consulting firm that specializes in helping agents protect themselves. He is also a special consultant to the Utica National Agents E&O program. He can be contacted at curtis@pearsallassociates.com or (315) 768-1534.