Marine Insurance Q&A

Ask an Expert...Marine Insurance Q&A
by Deane Tank of Tank/Matsock Insurance & Financial Services, deane@dhtankinsurance.com



Make sure you are covered for this situation!

For more information please check Deane’s website at www.dhtankinsurance.com. For more than 30 years the Tank/Matsock agency has served the insurance and investment needs of its many customers nationwide. The Tank/Matsock agency is an independent insurance agency which offers a carefully selected group of financially sound, reputable insurance companies from which to choose.

1) Why does the cost of insurance go up as the boat ages?
The marine insurance industry claim activity clearly tracks a positive correlation between a boat’s age and its claim activity. So, as a boat ages its claim activity goes up. There are actually several reasons for this correlation. Generally, the increase comes from machinery claims and submersion claims. Both types of claim increases are likely due to the parts of vessels aging such as thru hull fittings, hose clamps, standing rigging and running rigging fittings, and a host of other machinery related parts that fail as a result of age.

The second reason older boats cost more to insure is that there also is a negative correlation between a boat’s age and its market value.  This becomes a problem when a loss results because it costs the same or more to repair the part (or hull) on an old boat as it does on a new vessel. As an example, an older boat may have a style of cleat or toerail that is no longer available, so both sides would need to be replaced to make the boat match port to starboard. In addition, sometimes older boats have a system that is no longer made. For example, older rigging tang styles (attachment points for shrouds) are no longer manufactured, so both sides of the rigging would need to be replaced were one damaged.

Thirdly, since the value of the boat is decreasing as it ages and it costs the same or higher to repair, the insurance company must now charge a higher rate (per $100 of insured value) for older boats than for new boats to compensate for the same partial loss claim costs.

Lastly, also note that in the cases where the deductible is a percentage of hull value that the deductible on a new boat is going to be higher and the deductible on an aging boat will be shrinking as the value declines. This situation also adds to the rising claim costs on older boats.

2) Do you have to disclose live aboard status, if applicable?

General answer is that most boat/yacht insurance applications do ask the question. They do so because  the insurance companies are concerned with the increased opportunity for claim activity due to the exposure of increased or constant use by the live aboard’s activities such as cooking, increased electrical usage, space heaters, electronics use, etc.

If the applicant states they do not live aboard the vessel when in fact they do live aboard. This would be grounds for misrepresentation and could result in the declination of coverage or claim.

3)        What are the minimum insurance requirements for most marinas?

Generally speaking on a case by case basis it would be $500,000 dollars. Some might be as high as $1,000,000. It is also safe to say that most marinas would also be looking to be named as an additional insured as well.

Ed. Note: For winter storage Crowley’s required $1,000,000 liability and named as additional insured.

4)         How does salvage coverage work? Is it part of my regular policy?

Ed. Note: We asked Deane to answer this question after we had a few customers left having to cover salvage costs out of their hull policies. For your protection, please make sure you have the proper coverage for this type of loss.

Most yacht policies have a section identified as “Protection and Recovery Expense / Salvage Coverage”.

According to Maritime “salvage” law the award for a successful maritime salvage can be up to the full value of the vessel and its contents. Disregard contents for our application as salvage law was originally designed to provide financial incentive to salvors to (go out and risk their own life and limb and vessel) to rescue a vessel and her cargo and her passengers that were in imminent danger. (These laws are hundreds of years old)

Writers of this law figured if it had it not been for the successful efforts of the salvor the vessel and her contents would be lost…… so the value of the successfully salvaged vessel should be up to the (full value) of the rescued vessel and contents. And this kind of makes sense. That fact that the salvage may have also included the saving of human life just seemed to be a perk to those whose lives would be saved. How about that!

Fast forward to 2012 and the same salvage laws apply. Most “quality” yacht policies provide salvage coverage up to the full value of the insured hull and this coverage is in addition to the Hull coverage.

For example; you could have a vessel that collides with a submerged object and rips out the struts and shafts. Let us say, for example, she is taking on water and she satisfies one of the triggers for valid salvage claim; that being the vessel is now in imminent danger. (And if she is not rescued she will be lost).

Now for purposes of this example SeaTow speeds out to the foundering vessel and places big high volume water pumps on the sinking vessel…they stick an air bag in the boat and they employ a diver to make a patch repair over the whole bottom area where the strut and shaft were torn out and left a gapping hole.. Sea Tow then tows the now stabilized vessel back to shore where vessel is hauled out of water for permanent repairs.

For this example let us say the boat was a 30 foot cruiser insured with a $200,000 hull value. The cost to repair the damage to the vessel as a result of the collision with the submerged object is $150,000. We note the boat is not a total loss. We note Sea Tow submits a salvage claim for $75,000 for their Salvage efforts.

Under the hull coverage section the yacht insurance carrier would respond to the $150,000 in repairs to the vessel from the collision.

Under the yacht policy Hull coverage section/ Protection and Recovery Expense/Salvage coverage subsection/ the insurance carrier would respond to the valid salvage claim for the $75,000 expense to Sea Tow. (Technically the policy could have paid up to the full insured value of the hull in addition to cost of repairing the hull) That is the way this coverage works.

In summary the insurance company pays out $150,000 plus the $75,000 salvage claim on a vessel insured for $200,000. Sounds like it would have cost the insurance company less to just let the boat sink and pay out $200,000 (not $225,000) but that’s the way it works.

I should also note that “Wreck Removal Coverage” in an amount up to the full limit of liability coverage on the policy ….is also provided for in most quality Yacht Policies. (This is completely separate from Salvage coverage…and responds to the cost of raising a boat off the bottom when you are required to do so by Federal authorities). This is found in the Protection and Indemnity section of the yacht Policy. (This is a pretty critical coverage when your 110 foot houseboat burns and sinks at the dock)

It is important to review your yacht insurance policy for Salvage coverage as there could be significant differences in what different yacht insurance carriers offer in their policies. To review your policy or for any further inquires please contact me at deane@dhtankinsurance.com.