Five Rules for Owning Marine Insurance

by Nicholas Walsh, PA

The business of insurance began with marine insurance. In 700 A.D. the Rhodian Sea Code contained insurance law, and the business of pooling the risk of maritime ventures apparently existed many centuries earlier.

Maritime insurance differs from homeowners and other shoreside insurance in important respects, respects that can void your coverage. Here are a few rules for buying and maintaining the policy.

1.Remember your obligation to fully disclose. I’m not big on law-Latin, but here’s a term I can’t resist: “Uberrimae Fideri”. It means “utmost good faith”, and it describes the ship owner’s obligation to disclose material facts to the insurer. By “material facts” I mean facts that could reasonably affect an insurer’s decision whether to issue the policy for the quoted premium.

Example: You own a dragger, but every winter you rig for mahoganies, a dredge fishery. You forget to tell the insurer, the policy issues, and next season the dredge hangs in a sea and over she goes. You tender the claim, and instead of a check you get a lawyer letter containing just that Latin phrase.

The problem is you didn’t disclose the dredge fishery, and dredging can be riskier than dragging. It doesn’t matter that the omission was an oversight, that you forgot to mention the dredging, not in an attempt to get cheaper coverage. Even an unintentional omission of a fact a reasonable insurer would want to know is enough to void marine insurance coverage.

2.Read your declarations page. The “dec page” summarizes your coverage. It will spell out the named insured, identify the “loss payee” (you or a lender), and, critically, it will state the coverage limits, both for “hull” (loss or damage to the ship) and “protection and indemnity” (“P and I”, covering personal injury, or damage to another).

If your boat secures a vessel mortgage, your policy names the lender as a loss payee “as its interests may appear”, often abbreviated ATIMA. That means if the boat is lost the lender gets the insurance payment to the amount it is owed money on its loan.

Take a close look at the coverage limits and make sure you are OK with them. There’s not too much you can do about the agreed value of the boat itself – that value will be determined by a “condition and value” survey – but for injury claims you can choose how much insurance coverage you want. In a recent New Bedford case, there was a bad accident on a scalloper and the liability limit for injury or death was just a half a million. The injured man had a maritime lien for his injury, and after receiving the full $500,000.00 he foreclosed on the lien and the owner lost a valuable boat and permits.

3.Read your endorsements and exclusions. This is critical. Endorsements and exclusions are policy clauses which limit or occasionally broaden coverage in some specific way. Typically endorsements are in a separate attachment to the policy, while exclusions are in the policy itself. There are several endorsements and exclusions common to marine policies, and more seem to appear every year.

A “geographic endorsement” will state the area in which the boat is covered. If the boat has a loss outside the area there is no coverage, unless perhaps force of weather – a species of “force majeure” - caused the boat to leave the geographic area. A yacht policy may contain an endorsement excluding coverage for damage occurring during a race, and most New England yacht policies state the earliest spring launch date and the latest date by which the yacht must be hauled for the winter.

Endorsements can sneak up on you. Your policy, which you have had for years, covers your boat south to latitude of the Cape Cod Canal entrance, which may not matter to you at all because you fish in the Gulf of Maine. But if one winter you scallop out of Stage Harbor you won’t have coverage.

Most fishing boat policies include a master’s endorsement, stating who the master will be. Even if the loss is one no captain could have averted, coverage doesn’t exist if that trip the boat is skippered by a person not named in the endorsement. That strict rule is typical of marine insurance, so different from the insurance homeowners and motorists are familiar with.

Every marine insurance policy excludes coverage to the shipowner for barratry, the intentional wrecking of the ship. If there is a lender, the lender will make the boatowner pay a little extra for a “breach of warranty” endorsement, and the policy will then pay the lender even if the owner drives her onto the rocks.

Many other endorsements and exclusions appear in your policy and you must read and understand them. An email to your agent can get you an extended geographic, master or other endorsement, should you need to amend an endorsement to keep coverage.

4.Maintain your boat. Don’t expect your policy to protect you if your boat sinks through lack of maintenance. Suppose a seacock is rotten with electrolysis and lets go. There is a good chance the insurer would decide that the loss was due not to an “insured peril” (fire, storm, collision and the like), but rather to decay and deterioration or other “inherent vice”, and decline coverage.

5.Communicate with your agent in writing. If you need to expand your geographic endorsement to cover a trip to George’s Bank, email your agent and ask him or her to get the coverage. Better yet, if the George’s trip is unusual for you, email the broker and tell the agent what you are doing, and tell him or her to make sure you are covered, and make sure before you make the trip you get an email or fax of the endorsement showing the coverage. Same goes for a change in your fishery, adding crew, or any other operational change. If all you do is call, at least keep a careful note of the call, but written communications are a much better idea.

This advice applies particularly if your operations are a little out of the ordinary. Suppose you lobster some, urchin some, and maintain summer moorings too, maybe even move yachts around. There are all kinds of different risks implied in these operations, and the savvy waterman will write his or her agent a detailed description of the operations and close with “Make sure I’m covered.” And don’t bend the facts to minimize the risk. Remember, “uberrimae fideri.”

One final word. Lots of new companies are getting into the marine insurance game, and all manner of odd clauses, exclusions and endorsements are appearing, all obviously intended to reduce coverage. This is especially true with yacht policies, but I see it in commercial policies as well. I have seen a yacht policy which specifically excluded coverage for a loss caused by “lack of reasonable care or due diligence, in the operation or maintenance of your yacht.” So you fail to keep a good lookout, another boat appears under your jib and you T-bone him? No coverage, under the strict language of that policy.

The solution is to stick with traditional marine insurers and good marine insurance brokers. I’m not going to name names here, but there are agents up and down the coast who know marine insurance and who know better than to saddle you with a marine policy issued by a cut rate auto carrier.

Nicholas Walsh is an admiralty attorney with an office in Portland, Maine. He may be reached at 207-772-2191, or nwalsh@gwi.net.