Boat and Watercraft Insurance – Discussion on exclusions
Whether you own a 60' luxury yacht, a sailboat, a 19' runabout or a personal watercraft, when most boat owners arrange their insurance they tend to first be concerned about the premium and then in doing business with a reputable broker or insurer. Often, the expectation is that all boat policies are created equal or at least "pretty much" the same. Well, the truth of the matter is they are not. If boats aren't already expensive enough to own and maintain, how would you like to suffer an unexpected and uninsured loss? If you think you are "fully" insured, read on –
Although some insurers will offer a very basic "major perils" e.g. fire, lightning, and explosion, type policy, which is seldom recommended, for the purposes of this discussion we will focus on the most popular type of hull (just the vessel) coverage commonly referred to as "all-risk". The quotation marks are used because strictly speaking there is no such thing as purely all risks i.e. insuring everything. Every "all-risk" policy is always subject to the exclusions the particular insurer will not underwrite or provide coverage for and they are specified in the policy.
Under the typical "all-risk" policy, rarely will you run into problems with most of the common causes of loss such as fire, theft, explosion or hitting submerged rocks or other objects. It's often the "less than obvious" losses that can cause you grief.
Consider for example an exclusion found in one popular watercraft policy – "excluded…transportation of the vessel overland on public roadways while in contravention of the applicable highway traffic act". Sounds simple. Nobody is going to purposefully break the law, right? So, you're towing your $50,000 bass boat and, sure we're all human, you miss a stop sign, hit another vehicle and cause considerable damage to your car and write the boat off. You are convicted of failing to stop (Highway Traffic Act). Well, with the same coverage, your car, and the other person's car are insured. Your boat? Not so lucky. You're out $50,000 and if you had borrowed the money it will be even more painful to pay it back over the next 10 years sans (without) boat.
Depending on where your boat is stored raccoons, mice, or other vermin causing damage could be a problem. Imagine the damage caused by a family of raccoons "snowbirding" for the winter in your comfy, tastefully decorated, cabin while your cruiser has been duly stored away from October to April. Insured? Some policies yes, some no.
Recently, friends were cruising on Georgian Bay with their twin engine, 3 year old cruiser in 300' of water. Upon hearing a sudden "bang" it was discovered a propeller shaft had literally broken away falling through the hull and leaving a gaping hole with water gushing in. Naturally they called in help then headed for the nearest shore with the remaining prop, about 20 miles away, as the boat began to fill with water. Their only choice was to beach it on rocks. For removal off the rocks, towing, and repairs the cost was over $50,000. Cause? Latent defect or mechanical breakdown. Covered? In their case, yes, however with most insurers this is a standard exclusion.
How about the cottage situation? You occasionally rent it out (make sure you advise your insurer). "Can we use your runabout as well" they ask. The pressure is on so you reluctantly OK this because they have experience. A few days later the renters call to ask if the boat is insured because they have smashed it up on a shoal. Good luck with this one and hope you have read your policy or have a huge damage deposit as it's not likely insured.
Speaking of cottages, sure you take care to lock and chain your two PWCs e.g. Seadoos – $40,000 + worth of fun, on their ramp by the dock. When you arrive the following Friday they're both gone! Chains cut and left dangling. You call the policy then your insurer in a panic and are shocked and sickened to find you are without insurance! Another exclusion found in a popular insurance policy states "we do not insure theft unless it occurred following illegal and forcible entry or exit to a fully enclosed locked building…". An expensive lesson!
The list goes on with special phraseology in many areas pertaining to freezing, maintenance, mechanical breakdown, impaired boating, zebra mussels, reasonable care, and so on.
Exclusions exist for several different reasons. Often to help keep premiums down (fewer claims paid=lower premiums), especially for other policyholders who might not have the same risk or concern and don't want to have higher premiums because of it, or because they feel it is against public policy (some insurers cover damage caused by impaired boaters and others don't), or because they feel the risk should be controllable by the policyholder, or because it is generally held to be uninsurable (nuclear risk).
The point of this discussion is not to worry clients or criticize insurers. It is to encourage anyone who invests in a policy to insure a boat (or anything else for that matter), to read, fully understand and be able to interpret these exclusions as to what might actually happen given the use of the vessel.
Be an informed consumer. Read your policy.
Stay tuned for the next article on boat valuations and basis of claim payments
The Insurance Advisors @ Guthrie Insurance Brokers Ltd