Marine Insurance

Express Warranties and Implied Warranties

by Twain Braden

We have all made an application for boat insurance at some point prior to purchasing a boat. It is one of those tasks on the mental checklist that often occurs in the final hours of a transaction, in which the purchaser realizes that the risk of boat ownership will soon be switched to his or her name once the Bill of Sale is signed. The scenario usually goes something like this: The closing is scheduled for Thursday, and so you place the call to the broker a day or two before. You provide the necessary information by phone, such as name, official number, tonnage, horsepower, and anticipated range of use. You may get a few questions about the value of the boat and therefore what the policy limits should be, and how much those monthly or quarterly premiums will cost as a result. A few hours later, you get an email attachment requesting your review and signature. You print out the signature page, send it back, and then forget all about it, probably not even opening the fat envelope that comes in the mail a week or so later containing the full policy. Until you have to make a claim. This column is intended to inform that process a little so that you can protect yourself from obvious mistakes that can be the difference between a smooth claim that is promptly investigated and paid by the insurance carrier versus one that is denied for a lack of coverage.

There are actually two policies that you have on your boat, the hull policy (covering damage caused to your boat) and the liability policy (also called the “Protection & Indemnity” or “P&I” policy), which covers damage that is caused by your boat to things other than your boat, such as a passenger, another boat, or a dock. Both policies have warranty provisions that you are representing to the insurance carrier and seriously impact coverage – even if the warranties have nothing to do with the cause of the loss.

Here is a commonly-quoted section from Admiralty and Maritime Law by Thomas J. Schoenbaum as to how a warranty is defined in maritime law: “Warranties in marine insurance contracts are conditions whereby the assured [that’s you, the boatowner] undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts.”

Express Warranties

An express warranty in a marine insurance policy is a representation by you, as the boat owner, about your history and your use (intended and actual) of the vessel. For example, you may represent to the carrier when you apply for coverage that you anticipate using the boat within 10 miles of shore. But then you might find that you occasionally travel beyond 10 miles. It is worth calling up the agent and requesting a change in the navigational range.

There are a number of warranties that you make to the insurance carrier in the application process that are so important that they will void coverage if they are incorrect or misrepresented. In fact, in New England (referred to as the First Circuit in legal parlance) a warranty does not even need to relate to the loss itself in order to void coverage. The operating factor on whether or not an insurance can deny coverage for a misrepresentation is whether it would have charged a higher premium had it known the truth. If so, it provides the carrier basis with denying coverage. Using the above example, if you have coverage on the boat extending out only 10 miles, but you go on a fishing trip that brings you out to 30 miles or more from shore, you might find your claim denied even if the loss occurred within 10 miles from shore. This is because, by taking your vessel beyond the strict 10-mile limit stated in the policy you increased the risk of loss and likely would have incurred higher premiums.

Here’s another common example: On the phone call to the agent you tell him that you have never made a claim on a marine insurance policy. It turns out, of course, that 10 years before you had actually made a minor insurance claim and either forgot about it or figured that because it was minor it therefore didn’t matter. However, misrepresenting a fact in the process of applying for marine insurance is a violation of the admiralty law doctrine of uberimae fidei – the doctrine of “utmost good faith.” In this example, you might have been considered an increased risk, which could affect your premiums. In other words, when calling your agent and applying for coverage, think very carefully about your answers, since they will be scrutinized in the event you make a claim. There are also continuing warranties that you have represented to the insurance carrier to uphold throughout the policy period, such as the number of passengers or crew and whether or not you intend to take passengers for hire or engage in commercial-assistance towing. Just be sure that the use of the vessel matches what you have previously represented to the insurance carrier.

Implied Warranties

There are also implied warranties that you make to your insurance carrier. The most common one is the implied warranty that your vessel is, and remains throughout the time of the policy period, in all respects seaworthy. Seaworthiness is a nebulous term, but in the words of Mr. Schoenbaum, it is “the single most important warranty in the law of marine insurance.”

Here is how it works in practice. One of the risks your hull policy covers is for “perils of the sea”. However, this does not mean that whatever happens to your boat on the water is the result of a peril of the sea. If the vessel sinks on her mooring on a calm day in the middle of a summer afternoon, there is no “peril,” and the vessel is presumed to have been unseaworthy because it sank in benign conditions. There can be any number of problems that create an unseaworthy condition, such as a loose or broken hoseclamp or a lack of an anti-siphon loop, or a through-hull on a bilge-discharge hose that is installed close to the waterline and allows waves to enter and flood a vessel’s bilge. In other words, even if you buy a brand-new boat, it can be deemed unseaworthy by your insurance carrier for a careless, poorly-designed, or otherwise “unseaworthy” condition.

The most common violation of this warranty, however, is a lack of maintenance on the part of the boat owner. Therefore, it is important to understand that an insurance policy is not a replacement for a good maintenance plan. In fact, a good surveyor performing an investigation into a marine casualty can usually identify any number of maintenance problems that likely contributed to the loss of the boat, thereby giving the insurance carrier the opportunity to deny coverage as a result of the breach of the implied warranty of seaworthiness.

Twain Braden is a summer relief captain for Portland Schooner Co. and is an admiralty and maritime lawyer at the Portland firm, Thompson Bowie & Hatch, LLC.