Insuring your pleasure craft is good common sense. Most vessel owners have coverage or if you have just bought a vessel are looking for coverage. As a pleasure craft owner, you should be aware that all policies are not created equal.
Generally vessel insurance is separated into two parts; hull insurance and protection and indemnity insurance (or “p&i”). Much like an auto policy with collision and 3rd party liability coverage, hull insurance covers the vessel itself while p&i provides cover for any 3rd party claims made against the insured and the vessel. Most pleasure craft coverage will contain two policies (hull and p&i) in one document.
When determining coverage for your vessel, your broker should be able to provide you with a variety of options. Some of the things that you should consider and ask your broker before choosing the right policy are listed below.
Specifically for the hull coverage:
- Is the policy a valued policy or an unvalued policy?
Many owners do not understand the difference between a valued policy and an unvalued policy. Your vessel is usually insured up to a monetary limit which is set out on the declaration page. Depending on the wording of the policy in the case of a total loss, the insured may be paid the agreed value of the vessel (the valued policy) or the value of the vessel may be not be set but rather calculated based on a number of factors (an unvalued policy ). For an unvalued policy, the loss will generally be determined by a formula which usually includes some depreciation for use and age.
Just because the declarations page sets a limit for the vessel’s insured value, the policy itself may not be a valued policy. If you want a valued policy, you will have to look to the wording and terms of the insurance policy itself to be sure or ask your broker for confirmation.
- What is the condition of your vessel?
Unless your vessel is brand new, most insurers will require a survey of your vessel prior to insuring. If the insurer does not require a survey, ask yourself why not. A survey is a good way to establish the condition of your vessel at the time it was insured as well as whether there are any problems which must be disclosed. Remember, you as the insured have a duty to provide the insurer with truthful representations about the condition of the vessel and its intended use. These are called “material representations” and include “anything that would influence the judgment of a prudent insurer in fixing the premium or determining whether to take the risk.” A good survey will also set out the value of the vessel so you will know its insurable upper limit.
- What losses are included and what losses are excluded under the policy?
All policies will set out what losses are covered and what losses are excluded. Most vessel owners do not review the excluded losses and hence some are surprised when a loss occurs and the insurer denies coverage. Most policies will exclude such losses as ordinary wear and tear, faulty design, or repairer’s negligence. Be sure to check all exclusions to ensure that you have the coverage you want and require. Also be aware that some policies contain conditions of use such as who can operate the vessel and where such operation can take place. If these conditions or “warranties” are breached, an insurer may deny coverage.
- What are some of the types of losses under your policy?
Coverages for total loss and for personal effects fall under the hull policy while 3rd party liability provisions fall under the p&i policy.
A total loss can be the actual total loss or your vessel or a loss called a “constructive total loss”. Both actual total loss and constructive total loss are defined in the Federal Marine Insurance Act at sections 56(1) and 57 respectively. Basically, an actual total loss is the loss of your vessel beyond any retrieval (for example the sinking of the Titanic). A constructive total loss is deemed to have occurred when the costs of retrieval and repair exceed the insured value of your vessel. For example if your vessel which is insured for $50,000 sinks and the costs of refloating it and then performing all necessary repairs amounts to $75,000, then this would be viewed as a constructive total loss.
When obtaining a policy be aware of the differences between a valued policy and an unvalued policy as we discussed last article. The type of policy you obtain may have an effect on any monetary amount recoverable in the event of a total loss, actual or constructive.
Personal contents coverage is also provided under your hull policy. Before purchasing your policy, carefully read over what contents are covered and what are excluded. You should also be aware that there is usually a separate deductible for contents coverage along with a separate coverage limit. Most importantly, check to determine the basis for indemnity if you should need to make a contents claim. Is indemnity on the basis of ‘repair or replace without deduction for depreciation’ or some other method such as ‘actual cash value at the time of loss with deduction for depreciation’. If you want the comfort of replacement value without any depreciation subtracted, make sure you look to the wording and terms of the insurance policy itself to be sure or ask your broker for confirmation. Lastly, make sure you keep a list of all personal items kept onboard (along with copies of receipts if possible). If you are required to make a claim, you will need to accurately list your contents for the insurer prior to any indemnification.
Your p&i policy will contain the 3rd party liability provisions. These provisions provide coverage for accidental bodily injury or death, accidental property damage and damages to other vessels ( but not own vessel – this is hull coverage), wreck removal, in some cases environmental fines and the costs of defending any lawsuit brought against the vessel or you as owner/operator in the case of an accident. Like most other coverages, there will be separate limits of coverage. You should therefore ensure (just like your vehicle insurance) that you have adequate coverage ($1 to $2 million at least) for your own protection.