Christopher Schmaltz, Hagerty Classic Marine Insurance Agency, LLC

Hagerty

Introduction

Start with the Basics

What Losses are Covered?

Settlement

What about Liability?

Contact Hagerty

 

Introduction

Insurance coverage is the same from company to company, right? While that may be true for many kinds of insurance, it isn’t necessarily true for boat and yacht insurance. For instance, automobile and homeowners insurance coverage is very similar -- sometimes identical -- from company to company. On the other hand, specialty marine insurers providing boat and yacht insurance offer a wide range of coverage suited to that company's level of expertise, underwriting appetite, and type of customer they wish to attract. Remember, according to available information, marine insurance is not currently required in any Canadian province or state in the U.S., so there are no mandatory coverages or minimum limits.

Let’s look at the basic coverage available under boat and yacht insurance policies and the items you may want to consider before selecting a policy, as well as the factors that a marine underwriter considers when determining the rate to charge a customer. Hopefully, this will help you to make a more informed decision when purchasing insurance for your classic boat. Only you can decide on the right combination of coverage and price that suits your needs, so be sure to keep in mind that classic and collectible wood vessels have some unique exposures when compared to more modern vessels.

Start with the Basics

Let's start by describing the two basic sections of a typical boat or yacht insurance policy: physical damage and liability. The physical damage section covers accidental loss or damage to the boat and its machinery. This not only covers the hull and the engine(s), but also the sails and other equipment on board that are required to operate the boat. It may also include outboard motors and or trailers.

The watercraft liability section, sometimes referred to as Protection & Indemnity, covers your legal obligations to third parties, including your defence costs. Legal liability can arise from bodily injury or loss of life or from damage to someone else's property or the environment as a result of the ownership or operation of your boat. Liability also typically includes some coverage for expenses triggered by an accidental fuel spill and costs for salvage or recovery after a covered loss. It may cover limited expenses for government action to prevent or mitigate marine environmental damage as well. Check your policy closely to see what coverage and limits apply to these losses, as they can be financially devastating.

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Physical Damage — What Losses are Covered?

Physical damage coverage generally pays for repairs to your boat that are necessary as a result of damage caused by a wide range of perils. The best policies provide "all risk" coverage for accidental damage, which means that if the cause of loss is not specifically excluded, it is covered. Typical causes of loss that are covered include: weather-related perils such as wind, rain, hail, lightning, and wave action; fire; loss or damage caused by theft or vandalism; and collisions with docks, submerged or floating objects or other boats. It is wise to select a policy that continues to cover your boat while it is stored on land or while you transport your boat over land by trailer.

Please note that most marine policies have a required specific lay-up period that suspends all coverage during that period. The policies with the broadest coverage will often allow unlimited inland and coastal navigation, land transportation in the U.S. or Canada, and not include specific lay-up dates, providing coverage all year long. Note: If you plan to take your boat on an excursion outside U.S. or Canadian territorial waters, check your policy’s restrictions. You may need a custom “blue water” yacht insurance policy.

Each boat owner has the responsibility to maintain his or her boat, so normal wear and tear is typically excluded under a boat or yacht policy. The number and type of physical damage exclusions vary from company to company, so take the time to compare to avoid surprises later. This is especially important to wooden boat owners who face many unique hazards versus a vessel of modern construction materials.

Loss Settlement — Agreed Value vs. Actual Cash Value

When comparing physical damage coverage, the most significant difference in boat or yacht insurance policies is whether the coverage is based upon "Agreed Value,” “Stated Value” or "Actual Cash Value" (ACV) loss settlement.

Agreed Value policies normally pay the amount shown on the policy if the boat is considered a covered total loss, without any deductible. Under such a policy, hull damage resulting from a partial loss is generally paid for on a replacement cost (new for old) basis – less your deductible – so physical depreciation will not be factored into determining the value of the lost or damaged items. However, items that are subject to higher levels of wear and tear – such as canvas, sails, trailers and some machinery – may be subject to depreciation in the event of a covered loss. Check your policy to see if the deductible is waived in the event of a total loss. Some policies may offer lower deductibles, but they may still apply in the event of total loss.

Stated Value policies will pay “up to” the value indicated on the declarations page, and you may find the underwriter will only offer to replace your vessel with a “like” vessel of lesser value. Stated Value policies will also consider depreciation in loss settlement.

An Actual Cash Value policy provides less coverage than an agreed value policy, but generally at a lower cost. An ACV policy provides coverage up to the current market value of the vessel in the event of a total loss, taking into account depreciation and the condition of the boat at the time of the loss. Payments made for partial losses are usually reduced based upon physical depreciation of the lost or damaged items, and the policy deductible is also applied. ACV policies may prove to be a nightmare in the event of a total loss on a 50-year-old wooden boat. Many homeowner policies are ACV, and many traditional marine policies may revert to ACV once the boat ages to 10-15 years old.

While an Agreed Value policy typically costs the boat owner more and provides broader coverage, an Actual Cash Value policy may suit the needs of an owner looking for an economical alternative. Your insurance professional can explore these options with you.

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Personal Property and Towing & Assistance

Two extra coverages often found in boat and yacht insurance policies are Personal Property coverage and Towing & Assistance coverage. Personal Property coverage generally includes loss or damage to such items as clothing, personal effects, and sports and fishing equipment belonging to you or your family while those items are being loaded/unloaded and while aboard your boat. Similar to physical damage coverage, the limit of coverage and exclusions vary from company to company, so it pays to compare.

Towing & Assistance coverage typically reimburses you for the costs that you incur when you need emergency assistance for your boat, and you and your boat are not in immediate danger. Some examples of emergency services that you may need which may be covered include: towing to a place where repairs can be made; delivery of fuel, oil or parts; and emergency labour while underway. Check beforehand to determine what limit applies and whether there is a deductible.

Liability — Other Important Coverages

Liability coverage under the broadest policies will extend beyond watercraft liability coverage for accidents causing injury or damage caused by your vessel. Coverage for the removal or disposal of the wreck of your boat is important, especially if the wreck is deemed to be a hazard to navigation. Boat owners may also be responsible for containment and clean-up expenses resulting from oil pollution or contamination caused by their vessel. It's important that your boat or yacht insurance policy covers your liability for these accidents, which could add up to a considerable amount. And, if you ever intend to borrow someone else's boat, confirm that your liability coverage extends to the other boat; this is sometimes called "non-owned" boat liability coverage. Finally, boat owners who employ paid crew members should ensure that their policy covers their liability to the crew under General Maritime Law.

Most boat and yacht policies exclude coverage while your boat is chartered to someone else, or used to carry passengers for a fee. Under the right circumstances, a good marine insurance company may extend your coverage to include those situations. So ask first to ensure that you will be properly protected.

Medical Payments Coverage

Medical Payments coverage will pay for first-aid treatment, ambulance, hospital and other costs that result from someone being injured on your boat, even if you are not legally responsible. If an injured person’s medical expenses are covered quickly and to their liking, they may be less likely to file a liability suit. Check your policy for a limit of coverage for Medical Payments that you are comfortable with. At the same time, you may want to see whether coverage applies while someone is boarding or leaving boat or while being towed behind your boat – i.e. water skiing.

Uninsured Boater’s Liability Coverage

Since boat liability insurance is not mandatory, there are many boaters operating without liability coverage. Uninsured Boater coverage compensates you for injuries received aboard your boat that are caused by an operator/owner of another boat who has no liability insurance. If you are legally entitled to recover damages from the other uninsured boater, or if you are the victim of a hit-and-run boater who cannot be identified, this coverage can help ease the financial impact of those injuries.

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Factors Affecting the Cost of Insurance 

The underwriter must consider many factors when determining the rate (or premium) to charge for a boat policy. The most common determinants are: value, length and age of boat; type of boat (i.e. power, sail); type of engines; mooring location; intended area of navigation; previous boating experience and claim history of the owner; and deductible amount. Sometimes the underwriter will also consider the automobile driving record of the owner/operator(s) and whether they have taken any safe boating courses.

There are several ways you can reduce the cost of your boat insurance. The most common way is to select the highest deductible amount that you are comfortable with. On standard boat policies covering newer boats, physical damage deductibles start at around 1% of the insured value of the boat and can be increased to 3%, 5% or 10%. Flat-dollar deductibles of $250 or $500 are often available for small boats. Policies for classic and collectible boats will often offer higher damage deductibles, but the deductible is typically waived in the event of a covered total loss. Each higher deductible amount reduces your insurance premium.

Lastly, installing certain safety devices on your boat can sometimes reduce the premium that you will pay. Some marine insurers will give credits for such safety items as an automatic fire extinguishing system in the engine compartment, a fume or vapour detector in the bilge, or certain anti-theft alarm or tracking devices.

Seek Out Marine Insurance Experts

Hopefully, you’re in a better position to ask the right questions when buying marine insurance. It is also wise to work with a company that thoroughly understands boat and yacht insurance. This is important, not just at the time that you apply for insurance but also in the unfortunate event that you have a claim.

Hagerty Classic Marine Insurance, LLC

At Hagerty Classic Marine Insurance, we know why you own a classic boat – we love them, too. To learn more about how to protect your valuable classic, call a member of our experienced staff at 800-762-2628 or visit us at www.hagertymarine.ca.

Editor’s Note: Hagerty offers a 10% discount for current ACBS members.