ASK THE EXPERT: Choosing Yacht Insurance

Published: Monday, May 7, 2018
By: Cary R. Wiener, President of Pantaenius America Ltd.

Question:

When shopping for a yacht insurance policy, what should I be looking for beyond the bottom line?

Answer:

Everyone loves a bargain, but when it comes to insuring your yacht, price shouldn’t be the deciding factor.

There is nothing standard about a yacht policy. Its terms and conditions are not regulated by state authorities, and every insurance company provides different coverages and exclusions. Even if the terms seem similar, a careful reading of the policies will reveal their differences. Here’s a partial checklist of some of the terms and conditions you should be looking for (some of these conditions are even hidden in a yacht policy):

Is only the named insured covered or are family members and guests also covered?
Is the policy an all risk policy, covering sudden or unexpected or fortuitous events unless excluded (exclusions)? Is the policy a named perils policy, covering only those risks that are specifically named? Watch out, as some all risk policies will cover only for certain named perils in the event of certain losses, so it then becomes a hybrid policy.
Secret Implied Warranties. When you sign on the dotted line of a marine insurance policy, you are offering a promise, a “warrant,” to the insurer that your vessel is, in fact, in seaworthy condition on the commencement date of your policy. A warranty of seaworthiness is implied into most hull insurance policies by force of law. Most insurers, without informing their clients upfront or mentioning such warranties in the terms of their policies, may invoke “hidden” warranties of seaworthiness to deny coverage when faced with a claim. If this is of concern to you, make sure the insurance company you’re dealing with expressly disclaims Implied Warranties of Seaworthiness in its policy.
Cruising Areas. Every insurance company has different cruising areas, which provides the navigational limits permitted for the vessel to operate. One insurance company’s cruising area may be broader than another for the same, or close to the same, price. Insurance companies have restrictions on time of seasons or storm restrictions; these restrictions are critical and must be reviewed to ensure they meet your cruising needs. No two insurance companies’ restrictions are identical. Some insurance companies make you remove your vessel from the water, which is called a lay-up period. Does your insurer tell you when to take your yacht out of the water and when you can put it back in the water?
Wear and Tear. Most yacht insurance policies exclude from coverage equipment that fails due to wear and tear. This is because the failure is expected and, therefore, not covered because it is anticipated that parts or equipment have a normal life expectancy. However, while the part that is worn due to wear and tear is almost always excluded, resulting damage is treated differently. If the policy uses phrases like “any and all damages arising” from wear and tear are excluded, that means that if a part fails - for example, your rudder due to wear and tear — then the resulting grounding will not be covered. Other policies cover the resulting damage. So, you see, it’s all in the wording, and that is why it’s imperative to read your policy before you buy it.
Latent Defects are hidden, physical defects in the material of a part or component existing at the time the vessel was built or rebuilt, which is not discoverable by ordinary observation by the owner or competent surveyor. Once again, insurance companies treat these defects differently. Some companies exclude latent defects and resulting damage, while some others exclude latent defects, but do cover resulting damage, and yet others will cover both latent defects and resulting damage.
Agreed Fixed Value vs Fair Market Value. A policy that states that your vessel is insured based on agreed fixed value means that in case of a total loss or a constructive total loss (when the insurance company says they are considering the vessel a total loss), the owner will get exactly what is stated on the policy as the agreed value. With a policy based on fair market value, there is uncertainty as to the amount the insurance company will pay you. They will look at the current market value of your yacht, which can fluctuate depending on the economy and demand for used yachts.
Will you have paid crew onboard your yacht, even for an hour? If so, will your insurance company allow you to purchase crew coverage? Additionally, if you will be chartering your yacht, does your insurance company allow you to add charter coverage to your policy? Not all companies will allow this, so it is essential to review your options.
Claims Service… isn’t this what you’re paying for when you purchase a yacht insurance policy? Does the insurance company have a 24/7 claims service, where you are actually speaking with the adjusters, or is it merely an answering service? How quickly are claims processed, so that you can return to your cruising itinerary? Inquiring about the claims-handling process is crucial prior to purchasing the policy.
Negotiating for Better Terms. When examining multiple policies and trying to find the right one for you, you will observe many common restrictions. However, you may be able to negotiate for better terms in some of the following areas: deductibles, navigational limits, avoiding hazardous areas, etc. Additionally, rates for newer vessels may be less expensive than those for older vessels. Some policies even have no deductibles for fire and lightning claims.

There are no good or bad policies, merely different policies. You must find the policy that covers your needs and your appetite for financial risk. When comparing yacht insurance policies, you cannot simply compare premiums, because the coverages will always be different. Read carefully and always ask questions; your insurance provider should always be willing to assist you to better understand the coverages you’ve been offered.

Do you have a question for our expert about boat/yacht insurance or maritime law? If so, please send your inquiries to [email protected].

Cary R. Wiener is President of Pantaenius America Ltd. and a maritime lawyer who has worked on many famous cases, including the Exxon Valdez. He is licensed in all fifty states and is passionate about safety on the water.