Boat / Marine
- Small craft policies typically provide protection under four main areas:
- property loss and/or damage covering the vessel, the contents thereof and, usually as a separate sum insured, personal effects which are the property of the policyholder and the policyholder's family. Generally, the personal effects insurance is not on an agreed value basis and is therefore subject to average, the condition that proportionately reduces a claim in line with any underinsurance
- reasonable costs of recovering a vessel or preventing, averting or minimising pollution following physical loss or damage to the vessel and legal liability to pay salvage charges. This could include wreck recovery and associated legal costs
- third party liability cover providing protection against legal liability claims arising from the policyholder's ownership and/or use of the vessel. The policy protection will usually extend to indemnify other persons navigating or in charge of the vessel with the policyholder's express permission
- personal accident benefits covering anyone on board the vessel other than employees of the policyholder. Some policies only provide cover for emergency medical expenses rather than specified personal accident benefits.
- The use of words like 'comprehensive' and 'all risks' suggest that everything is covered by a policy but, as with every type of policy, there are general exclusions and also specific exclusions and limitations of cover.
Marine pleasure craft covers are no different and in fact perhaps have more unique terms than most other types of personal general insurances.
Loss Of And/Or Damage To Property
As we have already seen, the policy definition of the vessel will include the machinery, boat(s), gear and equipment that would normally be sold with the vessel, for example, dinghies and tenders, outboard motors, sails and rigging. The vessel's sum insured must cater for these additional items.
The property sections of most marine pleasure craft policies are usually subject to an overall excess and possibly upper limits of cover on the additional equipment and accessories. The excess may not apply to actual or constructive total loss claims.
Policies cover accidental loss or damage to the vessel, including any outboard motors, trailers or other gear and equipment.
Rather than the modern style accidental loss wording, some policies cover the traditional marine perils, for example external accident, grounding, sudden water incursion, fire, theft and malicious damage.
An allowance for wear and tear may be deducted from claims for damage to masts, sails and the like although some policies will not make such a deduction if they are less than three years old.
Theft of gear, equipment or machinery is only insured in the following circumstances:
- the items are permanent fixtures of the vessel
- the theft involves forcible entry into (or included under some policies, exit from) the vessel or a locked storage area either on the vessel itself or ashore
- the items are stolen at the same time the vessel is stolen.
Insurers may apply similar theft restrictions to all personal effects insured or only to the more attractive items such as water skis, diving equipment or fishing gear.
The application of relatively low limits any one item (sometimes as low as £250) means that 'valuables' such as watches and jewellery should be insured under the personal possessions section of the policyholder's household contents insurance policy.
Theft of tenders and other boats may only be insured if they are permanently marked with the name and/or number of the parent vessel or have a unique identification feature.
Loss or damage to vessels in transit by road within the United Kingdom is usually included automatically although some policies exclude the transit cover for larger vessels say, over 9 metres in length.
Theft of the trailer and any insured property on it may be excluded when detached from the vehicle, or whilst attached unless the trailer is fitted with a suitable anti theft device.
For the yacht and small craft owner, a combined property damage and liability policy would provide the maximum cover and be the preferred option, but third party liability cover can be purchased in isolation.
Third Party Liability
Third party insurance is not a legal requirement although at certain locations, the operating authority may insist on cover being arranged and evidenced to them, prior to use of the water facilities.
The liability section indemnifies the policyholder against legal liability owed to third parties arising through the use or ownership of the craft.
This includes liability for the death of or injury to anyone getting on or off, or travelling on the vessel, and damage to other people's property, including other boats, piers, docks, wharves, jetties or pontoons. The policy will also pay the policyholder's agreed defence costs.
Liability arising out of injury to employees is specifically excluded as separate employers' liability insurance is required.
Policies generally extend to indemnify anyone else who is navigating or in charge of the vessel with the policyholder's permission.
The liability cover is subject to a limit of indemnity, typically £1 million or £2 million any one claim.
The personal accident section usually insures the policyholder and anyone else on board the vessel. A range of specified benefits are payable following accidental bodily injury occurring while the insured person is on board or is getting on or off the vessel.
The benefits are usually restricted to capital (lump sum) benefits rather than weekly payments. The agreed benefit, which can vary from policy to policy, becomes payable should the accident result in:
- loss of one or more limbs, which usually includes the loss of use of the limb
- loss of all sight in one or both eyes
- permanent total disablement. This is when the policyholder is unable to carry out any occupation for a specified period (often 12 months) and no improvement in their health is likely.
The benefit is usually only payable once; the policyholder is not paid twice if they lose an eye and a limb or they are permanently disabled after 12 months.
Policyholders should not be encouraged to rely too much on the personal accident insurance provided by their pleasure craft policy. Typically the level of benefits supplied is relatively low (for example, £10,000) and no cover is provided for death or disablement due to illness.
If the policyholder is seriously concerned about death and/or disablement insurance they should consider more appropriate life assurance, critical illness, permanent health and/or personal accident and sickness policies.
Not all policies will provide personal accident cover. Some policies may provide emergency medical expenses cover instead of personal accident benefits. This covers medical expenses arising out of incidents occurring while the insured person is on board or is getting on or off the vessel.
We have already mentioned some exclusions and conditions while we have been considering the policy cover. There are other exclusions and limitations applicable to yacht and small craft policies and this Topic considers some of the most significant ones not mentioned previously.
Loss Of And/Or Damage To Property
Policy wordings do vary but they will usually exclude losses due to:
- wear, tear, electrolysis, osmosis and corrosion including the ordinary action of the wind and waves
- mechanical or electrical breakdown or failure, unless caused by an insured peril, for instance, the sudden accidental incursion of water into the vessel
- malicious damage by the policyholder. Some policies further limit the cover by excluding malicious damage caused by the policyholder's passengers as well
- the vessel not being seaworthy
- sails or protective covers being split or blown away by the wind
- acts of deception against the policyholder, such losses being generally excluded from all types of insurance policy
- damage caused during major repairs or alterations. Some policies, however, limit this exclusion to the cost of making good any defect resulting from such repairs or alterations
- insects, marine borers, barnacles or marine growth; sometimes insurers refer to 'natural decay'
- frost damage to machinery may be excluded entirely but some insurers will cover frost damage if all reasonable precautions have been taken
- war, civil disturbance and terrorism.
Third Party Liability
Typically the policy will exclude liability arising out of:
- paragliding, water-skiing, bare-foot skiing, aqua-planing, towing toys, inflatables, wake boards or any similar activity. Some of these activities (such as water-skiing) may be included relatively easily by payment of an additional premium; others such as paragliding may not be available from many insurers
- an accident resulting in injury or damage to third parties, while the boat is in transit by road or while the trailer is attached to a road vehicle. This legal liability would be covered by a motor insurance policy
- incidents when the vessel is in the control of any marina operator, sales agent, mooring contractor, delivery contractor, slipway operator, shipbuilder or repairer, yacht club operator or any like operation. Such people and firms would have direct legal responsibility and have their own cover arrangements to protect them against any claims made on them. The policy will indemnify persons other than those listed above navigating or in control of the vessel with the express permission of the policyholder but it will not indemnify them against claims made by the policyholder themselves
- the vessel being used while let out on hire, charter or for reward. Cover for these activities may be available dependent on the insurer concerned and subject to payment of an additional premium. If charters are insured, the cover is usually subject to the charters being for pleasure purposes and the owner, or a professional skipper employed by the owner, being on board and in charge.
The whole policy will be subject to certain overall conditions and/or warranties:
The vessel will be:
- used only within the agreed geographical or cruising limits
- laid up or stored as agreed.
- The vessel will not be used:
- as a houseboat or place of residence
- for business purposes.
Whenever an incident occurs and another boat is involved it will, in marine styled language, test how watertight the policy cover is. All claims must be reported to insurers as soon as is reasonably possible.
Insurers will wish to clarify and satisfy themselves that the information disclosed at inception of the period of cover has remained factually relevant to the loss reported and the cover envisaged at that time by both the policyholder and the insurers.
They will check if any warranties or conditions precedent to liability contained in the policy wording have been breached and whether any policy cover exclusions are applicable.
Once satisfied that the policy cover applies to the reported incident, the practicalities of investigation, loss assessment, and negotiating settlement of the loss can begin.
The usual legal insurance principles of contribution, in the case of dual insurance, and subrogation, to allow the recovery of insured losses from responsible third parties, apply.
The claim form will request the policyholder's details, including the policy number and the date, time and place of the incident, plus the weather conditions if relevant.
Contact details of any other persons involved and of any potential witnesses to the incident will also be required. A police crime reference number should be included if the claim is for theft or vandalism.
If the reported incident is to be dealt with under the liability section, insurers will have to decide whether to defend the third party's claim or to settle it on the best possible terms. Once insurers have decided the policyholder will be expected to cooperate in achieving the desired outcome.
Settlement of property damage claims can, subject to policy limits and excess deductions, take the form of:
- repair or replacement
- reinstatement, with some insurers offering 'new for old' settlement for 'new' vessels
- a cash settlement basis.
Insurers will require estimates for the repairs or the replacement of the missing items. Copies of any available photographs of the damage may assist the claims handler.
The agreed value at inception should have represented the cost to replace the craft with a craft of similar age, type and condition. If the claim is for a total or constructive total loss, the sum insured, being the agreed value, will be the sum paid by insurers, irrespective of the actual value of the craft at the time of the loss.
On an agreed value basis, partial losses will be payable in full up to the total sum insured regardless of the vessel's value at the time of loss, as the average condition does not apply. As we have mentioned previously, claims for personal effects will usually be subject to average.
This concludes our examination of claims procedures and also, our Module. Now that you have reached the end you will be able to demonstrate your knowledge of:
- the types of craft, vessels and equipment that can be covered by yacht and small craft insurance
- the cover provided by a typical yacht and small craft policy
- the information required by an insurer in order to assess yacht and small craft risks
- policy conditions contained in a typical policy
- the main risks that are specifically excluded
- how a claim is processed following loss of or damage to a craft.
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