Hull & Machinery Insurance Part 2: Common exclusions and requirements
This article is a continuation of ‘Hull & Machinery Insurance – Part 1. What is covered and terms you should know’ which was included in the December 2018 issue
As explained in Part 1, Hull & Machinery insurance is the portion of your insurance policy which covers physical damage to your own vessel. Having this coverage in place ensures that your boat is protected so that you don’t have to depend on someone else’s insurance or financial means to fix your boat. Part 1 in the December 2018 edition explained common coverage features and terms that you should be familiar with regarding hull & machinery insurance. This article will expand on common items that aren’t covered by the policy as well as common requirements.
Your insurance policy is a contract between you and the insurer to cover your vessel. Like any contract there are certain requirements which you must meet in order for it to be valid. Although marine insurance contracts vary there are some requirements which will be found on nearly every policy:
· Requirement that the vessel must be “seaworthy” – The term ‘seaworthy’ on its face seems to simply mean that the boat must be in a condition where it isn’t going to sink the moment it is put in the water or leaves the dock. What this really means is that the ship must be in an appropriate condition for the operations it is performing. A good minimum standard for seaworthiness is what the Transport Canada requirements are for a vessel of that size and operations
· Requirement that all Transport Canada requirements are met –This means that the CSI must be up-to-date (if required for your vessel), the vessel must be manned according to her manning document, and any required tickets for the master, engineer, and crew must be valid and up-to-date.
· Requirement that policy warranties (promises) are complied with – This means that the vessel is fishing within its trading limit (see Part 1 for a definition) and following any other provisions that the insurance company put in place when the policy was purchased, such as specified people running the boat or the boat only operating during certain parts of the year
· Requirement that survey recommendations be completed – This is a condition which many vessel owners don’t realize. Although marine surveyor reports say that they ‘recommend’ items be completed, often your insurance company will require that they are done within a certain timeframe (usually 30-60 days) of the survey being performed. It is important that if the surveyor includes a recommendation that you feel is unneeded or unreasonable that you speak with them about having it removed or get a second opinion on if the recommendation is required. Transport Canada regulations are useful for determining if a recommendation is valid. If it’s not required by Transport Canada for your vessel you have a good argument for having the recommendation modified or removed.
· Requirements after a loss– There are specific steps you must take if your boat is damaged and you would like to make a claim under your insurance. Following these steps gives you and the insurer the best chance of the claim being resolved quickly and smoothly:
1. Act to Prevent Further Damage – called ‘Sue and Labour’, if something happens to the vessel you must take steps to prevent further damage from occurring. This may mean dewatering the boat promptly if it is swamped or shutting down an engine where a part has failed.
2. Notify Promptly – Although it seems like an obvious requirement, when you are out fishing and want to get the boat back making money as quickly as possible reporting what seems like a minor bottom touch or engine problem can fall to the wayside very quickly. Even if you do not end up proceeding with a claim it is good practice to call your broker and put in a loss notice right away if there is an incident which might lead to a claim.
3. Allow Inspection before Repairs – Although this is in nearly every policy in practice a lot of fishermen don’t follow this requirement. Waiting for a surveyor to attend to look over damage that you want fixed right away is frustrating and delays getting your boat back in the water. If you have repaired a damaged item before having an adjuster view it, it is vital that you take clear pictures of the damaged items and do not dispose of them until you have been instructed it is alright to do so or have decided not to proceed with a claim.
4. Provide Evidence of Loss – this goes hand in hand with the allowance of inspection. If the property is repaired and the damaged parts are thrown away there is no way for the insurer to definitively determine the cause of the loss. You should keep damaged items until the adjuster or insurance company tells you they can be disposed of. Additionally, the insurer has the right to request records to verify the claim and its amount. This may include interviews with the master or the crew or requests for maintenance documentation
5. Cooperation – Losses are frustrating but it is important that you cooperate with the insurance company throughout the process of investigating, negotiating, and settling the claim.
By ensuring that you are in line with the requirements on your policy you minimize the possibility that something comes back to bite you when you do have a claim. It is a good idea to check with your broker if there are any additional requirements on your specific policy that must be followed.
Although we wish that every claim could be covered there are certain causes of loss (called ‘exclusions’) which no insurer will cover (and if you find one that will stick with them!). These losses are simply considered to be inevitable or uninsurable due to some external reason such as likelihood of damage. Depending on your policy you may have additional exclusions such as repairer’s negligence, loss to jet drives or stern drives, or damage resulting from latent defects.
Common exclusions for a commercial marine policy include:
o Wear and Tear – something that gives out because it’s just old and worn out is not insurable. Eventually, everything will fail if it’s not maintained or replaced – from the engine to the hull itself. Insurance is meant to cover sudden and accidental incidents and not inevitable failures.
o Intentional Acts – There is an obvious reason for this exclusion. You can’t scuttle your boat for the insurance money any more than you can burn down your house to get a new one.
o Illegal or criminal activities – If you’re running drugs to Mexico and get caught in a storm the insurance company isn’t going to cover you.
o Operating the boat impaired – As operating vessels while intoxicated is illegal, damage that occurs due to the master or crew being drunk is not insured.
o The boat being unseaworthy at the time of departure -- it is a requirement for you to ensure your vessel is seaworthy and meets all Transport Canada requirements before you leave the dock to fish. If for some reason while the vessel is at sea it becomes unseaworthy (such as due to a storm) this is fine – the standard is that it was seaworthy at the time it left the dock.
o “Ice and/or freezing… on inland waters above ocean tidal influence” – it’s important to note that this exclusion for ice and freezing only occurs if the vessel is on non-tidal waters. Some policies will exclude damage due to ice and freezing on tidal waters as well so if freezing damage is a concern you should check what your policy wording says or ask your broker.
o Breach of warranty or condition that caused the loss – If the policy was purchased with the agreement that something wouldn’t be done and it was done there is no coverage
o Material Misrepresentation – This exclusion rears its head when, during the claim, a ‘Material Fact’ comes up that was not previously disclosed to the underwriter. As explained in Part 1, a Material Fact is something that, if the insurance company had known it before putting insurance in place they either would not have insured the vessel or they would have charged a higher premium. What is considered material can differ depending on the underwriter so it is important to ensure that you keep your broker up to date on any changes in your fishery, gear, skippers, or operating seasons – or anything else you think may be relevant – to avoid this issue emerging during a claim.
o Loss of or damage to Nets & Gear while in the water – You’re going to lose traps or tear a hole in your net at some point – it happens to the best of us. Because this type of loss and damage is considered a normal occurrence, and because there are so many hazards in the water that can’t be seen or controlled for, insurance won’t cover your nets & gear while they’re in the water even if you have nets & gear coverage included on your policy.
o Damage resulting from unrepaired damage – If you don’t completely repair damage to your vessel and further damage happens because of it, this isn’t insured. Additional damage that occurs due to not taking steps to prevent further damage after an incident is also not insured. It is your responsibility to make sure that you take steps to reduce the amount of the loss where possible.
o Asbestos, Terrorism, War, Seizure/Arrest, Explosions – All of these causes of loss are considered to be uninsurable by most every insurance company and they will not offer coverage for damage caused by them.
The contract of insurance is black and white – if your policy says it’s covered, it’s covered. If it says it’s not, it’s not. What is and is not covered has been laid out and, in marine insurance, been tested since the 1800s. The perception that insurance companies don’t want to pay claims is not correct. Insurance companies are more than willing to pay out valid insurance claims -- what they don’t want to do is pay for damage that’s not insurable. A good underwriter will approach your claim with an attitude toward “How can we cover this loss?” and not “How can we screw this guy over?”. Although it’s frustrating to have a claim be denied usually it’s been my experience that when denials happen it’s due to the cause of the loss not being covered under the policy (like wear & tear) or because a warranty was not followed.
You should understand your insurance as well as you understand the other operating systems on your boat. Insurance is there to work with you and protect you in the case of unforeseen events. Know what your requirements are under your policy and become familiar with its exclusions. Read through and make sure that you understand the coverage and if you have questions about something give your broker a call. When you know what you have you know what you’re going to get.