Let me start by stating right up front that the premise of this article is to get all boat owners to take a few minutes to read their vessel insurance policy- and if an owner is not insured, to strongly recommend obtaining a policy. Also, this is not an open call to each and every "what if" situation out there.
I am a vessel insurance broker- our company was started in 1989, and we have a combined experience on staff of nearly 100 years in insuring all types of marine risks- from marinas, to ocean marine cargo, inland marine cargo, private pleasure and commercial risks, marine artisan policies, and more. We do only marine coverage- this is our area of expertise. Also, this is not an attack on any company to garner us business.
Your vessel insurance policy is a legal document that outlines the specific duties of each party- the insurer and the insured. If a claim goes to court, the policy (with declarations and endorsements) will be the document referred to- not what your agent/broker promised you, not an email from the agent (without supporting documents) assuring you you have coverage.
First, for our purposes, a watercraft insurance policy can be broken down into 2 distinct types- a yacht policy and a boat policy. The terms "yacht" and "boat" have nothing to do with the size of the vessel, but are based on how the policy language covers you.
First terms to learn: "All Risk" vs "Named Perils"
Think of this analogy- You have 2 five gallon buckets from the big box hardware store of your choice, and a drill. Your instructions:
Bucket #1- you can only drill holes in the top 5 inches of the bucket by the handle.
Bucket #2- you can drill holes anywhere but the bottom 1/3 of the bucket.
Bucket #1 is an All Risk yacht policy- When you fill the bucket up, you will have almost a full bucket. On an all risk policy, if a claim is not in the exclusions, or if the policy language is silent on an issue, you have coverage.
Bucket #2 is a Named Perils boat policy- you fill the bucket,and water flows from the holes except for the bottom 1/3 of the bucket. On a named perils policy, you have coverage only if the peril is named in the policy language. If the policy language is silent on an issue, you have no coverage.
A boat policy is very similar to an automotive insurance policy. A yacht policy is specifically written to cover the unique circumstances that confront vessel owners.
Does your head hurt yet? 
Coverages to look for-
Hull coverage- the amount the vessel is valued at including any hard additions ( navigation equipment, downriggers, upgrades, etc). Valuation can be purchase price including additions, or survey market value.
Agreed value coverage vs Actual cash value coverage- AV means that the vessel value is determined at policy inception. ACV means that the vessel value is determined at time of loss.
Example- you purchase a 10 year old boat for $200k. A year later, there is a fire and the boat is a total loss.
Agreed Value= you receive a settlement check for $200k.
Actual Cash Value = the insurance company negotiates the value of the vessel based on the NADA, BUC guide, etc (like your car policy).
A yacht policy includes agreed value coverage.
A boat policy is generally ACV coverage.
Liability (also called Protection & Indemnity)- Does 2 things:
1) protect others against the damage you can cause to them
2) protects you against the legal actions other take against you
Liability coverage should be a single amount (ie., $300k) vice a split amount ($100k/$300k). Split means the first amount is what is paid on your behalf per single event, to a max of the second number per year.
Example- there is a fire on your boat, and you are found liable. You are responsible for $225k in damages to the dock and surrounding boats.
Single= the policy pays up to the $300k policy limit on your behalf.
Split= the policy pays the first $100k-you pay the rest out of pocket.
Yacht- combined single limit.
Boat- split limit.
Pollution liability- this is to protect against environmental damages that you are responsible for.
Yacht- pollution is part of the standard policy form as a separate sublimit.
Boat- pollution may or may not be included in the general liability coverage.
Salvage/wreck removal- you, as a vessel owner, are responsible for removing the wreckage of your vessel in the event of a sinking/grounding/other calamity. This is the coverage that pays for said removal.
Yacht- you have up the the vessel's agreed value in wreck removal coverage.
Boat- generally not covered.
Now, let's put it all together into a real world scenario:
Vessel is a 12 year old Bayliner (owned since new) insured for $295k: NADA value is $140k. Ships mortgage owed is $185k. Liability coverage is $300k.
You get a phone call at 2am- a frantic voice is telling you that your boat is on fire, along with part of the dock and a 17' runabout in the next slip. You get to the marina- you boat is a total loss, as is the runabout. The loss is investigated, and you are found liable. Estimated dock damage $250k, estimated runabout damage $35k. The marina manager has called the police and environmental folks to boom the boat and start the cleanup and environmental impact assessment. The manager tells you you need to arrange to be the boat removed ASAP.
Days later, you receive 2 statements in the mail- environmental cleanup/impact assessment of $250k, and an invoice for removal of wreckage for $135k.
How does your policy handle the above loss? If the answer is anything other than the following, you need to have a heart to heart with your agent:
1) you receive a loss settlement check for $295k (agreed value).
2) your policy pays for the dock damage and loss of the runabout ($285k).
3) your policy pays for the environmental invoice ($250k).
4 your policy pays for the removal of wreckage ($135k).
My infrequent posts about insurance have often ended with a plea for all to read your policy. We all need to have the proper coverage, and the worst time to find out how your policy covers you is at time of a loss. There is a company that has policy language about loss as follows:
"We will cover any sudden accidental physical damage to or loss of the insured vessel from any external cause subject to the exclusions."
That one word, "external" gives the company wide ranging latitude to deny a claim if they cannot determine the cause of loss was from outside the vessel. Overheat because of a failed belt or water circ pump? Claim can be denied because the cause is not external of the vessel.
Lose a transmission (non-impact related)? Claim can be denied because the cause of loss is not external of the vessel.
Engine failure due to a failed valve keeper or timing chain? Again, if the cause of loss cannot be determined by the company to be external of the vessel, claim can be denied.
As part of your checklist for the upcoming season, please take the time to read your policy, and talk to your agent about how you are covered. Make sure your agent has your best interest at heart, and doesn't see you as just a paycheck.
For liveaboards, you should check the following:
If your insurer charges additional premium for liveaboards coverage, what does that premium gain you?
Liability coverage- does it cover/extend over you worldwide like a homeowners policy? Most liability coverages on yacht policies will cover liability incidents onboard the vessel including on load and offload.
Personal effects- same as above.
Last edited by pau-hana; Today at 12:55 PM.
Source: http://www.thehulltruth.com/boating-forum/483337-vessel-insurance-101-very-simplified.html
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