Basic Principles of Insurance

WHAT IS INSURABLE INTEREST?

For a valid contract to exist, it is necessary for the insured to have an insurable interest; in other words he should either be the owner, charterer, mortgagee of the boat or have some other beneficial interest.

The Marine Insurance Act 1906 defines an insurable interest as follows:

Every person has an insurable interest who is interested in a marine adventure.

A person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk. In consequence of which, he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss or damage, or may incur liability.

Section 7 of the Act provides that a contingent interest may be insurable. For example a purchase agreement may provide that the boat is at the seller’s risk until she has arrived at a port nominated by the buyer. In these circumstances the buyer will have no insurable interest in the boat during the voyage but does have an insurable contingent interest in the arrival.

WHAT IS INSURED VALUE?

The contract of insurance demands total disclosure by the insured of the relevant facts (and that may well extend to facts that may not appear to the insured to be obviously relevant). This applies as much to the value of the boat as to the other factors affecting the premium.

The insured should be careful neither to under-insure nor over insure the boat. Over-insurance (i.e. a proposed valuation over market value) will not invalidate the policy unless the underwriter can show that the valuation was so far in excess of the market value as to amount to a material representation.

When assessing the required value of personal effects to be carried abroad, it should be made clear to the insurers that the total payout in the event of the boat becoming a total loss, should include the full value of personal effects. Unless this is stipulated clearly at the time of the contract, the insurers will only pay up to the full value of the hull and gear as insured, and the owner may be compensated for only a small part of the personal effects he has lost.

THE PROPOSAL FORM:

When completing the proposal form, the owner must remember that any misrepresentation, or inadequate or false information, may entitle the insurers to deny all liability under the policy.

It is therefore vital to make a full declaration and to consider all aspects when completing the proposal form. Since the proposal form does not constitute a contractual offer, the proposer is in no way bound by completing a form.

A new owner would be wise to shop around the insurance market looking for the best quotation and policy terms. You should remember however, that you get what you pay for. While one broker or company may seem to be able to offer very much more attractive terms than another, it pays to examine the actual scope of the cover very carefully. This may vary considerably between companies.

It is worthwhile looking into:

• the company’s track record when it comes to prompt and full payment of claims;
• whether the underwriter is in the Financial Ombudsman Scheme;
• whether the underwriter comes within the jurisdiction of the British Courts.

Completion of the form will involve full particulars of the boat, her engines, designed speed, cruising waters to be covered, when and where she will be laid up and how.

The underwriters will also require particulars of the fire extinguishers provided, the value of the tender and liferaft, and of any other special equipment covered.

A cautious underwriter will also ask for particulars of the owner and his experience and qualifications, whether he will permit others to use the boat, and his previous insurance history.

PERIOD OF VALIDITY:

In the past, boats were generally kept in commission for between five and eight months in each year. The modern practice is to extend this period. Many of the headings in an insurance policy, do cover the whole twelve month period, but you should stipulate the period in commission and the period laid up.

You should immediately inform your brokers if there should be any change to these periods.

THIRD PARTY ONLY INSURANCE:

It is now compulsory to have third party insurance for boats on waters under British Waterways control, including the Rivers Severn and Trent and most of the country’s canals, under the authority of the British Waterways Act 1995.

In addition a number of private boatyards and moorings providers impose a third party insurance requirement.

BASIC PRINCIPLES OF MARINE INSURANCE:

Fortuity

For a claim to be paid, the insured must be able to point to an external accidental cause resulting in damage, be it a freak wave, an unusually and unexpectedly strong squall, flotsam in the water, or some breakage on the boat causing subsequent further damage.

If all the insured can do is to show a sunken hull or a lost rig with no evidence that it was the result of fortuity, then the underwriter will normally not be obliged to pay.

One particular area of difficulty is where a boat has sunk because a hose has perished, or a skin fitting has been left open and unconnected after the boat has been re-launched. Here again the underwriter will normally reject a claim on the grounds that the incident was not brought about by an external accident cause.

In such circumstances the broker will usually support the underwriter that the policy is not a “maintenance contract”, and that the loss is the direct result of the owner failing to renew fittings or rigging on his boat as it deteriorates with age.

THE TERMS OF THE POLICY:

The Unfair Terms in Consumer Contract Regulations 1999, requires all standard form consumer contracts (including insurance policies) to be written in a language comprehensible to the average person. As a result of this insurance companies have taken the opportunity to redraft their policies in more simple terms.

EXTENT OF COVER:

When comparing the numerous policies on the market, a diligent boat owner should satisfy himself that he is buying the cover he really requires.

Negligence of skipper and crew
Under the Marine Insurance Act 1906 an insurance claim must be paid, even if the incident was initially caused by the negligence of the skipper or crew unless the policy provides otherwise.

A number of new policies now specifically require the insured to act with diligence, or take care of the property, at all times. It is possible that the courts will uphold an underwriter’s rejection of a claim on the basis of the neglect to take care.

Since many claims are the result of carelessness or inattention by the owner skipper or crew, an underwriter will be entitled to reject such claims, if he is using a policy wording designed to give him that right.

Wear and Tear

The 1906 Act provides that the underwriter is not liable to pay for ordinary wear and tear. Furthermore, a number of new policies now contain provisions excluding claims resulting from “wear and tear” or words to that effect. Again it is now likely that the courts will uphold an underwriter’s rejection of a claim on that basis.

Most policies contain four main sections, all of which presuppose the boat is being used for private pleasure purposes only. The cover usually includes:

• Loss of, or damage by marine perils to, the craft insured, up to the value insured. The cover includes, amongst other things, sinking, stranding, fire, collision, theft of the boat, forcible entry, theft of the normal “boat” contents and fittings. Personal effects are not usually included unless specifically agreed. These may be covered by the owner’s Household Insurance
• Collision with other craft resulting in damage for which the insured owner may be legally liable. This includes damage to piers, wharves and jetties, etc. Removal of wreck also comes within this section.
• Any legal liability for injury or loss sustained by “guests” and “persons” abroad, excluding paid crew and any other person employed on the boat who should be insured separately under an Employers’ Liability Policy.
• The owner of the boat should make it clear to members of his crew that the boat’s policy will not cover their personal gear, and their household policy will not cover them for accidental loss or damage, unless this has been specifically insured by them.
• Salvage charges claimed by Salvors. Reasonable charges preventing losses are likely to be paid under most policies although this is not always the case.

Speedboats

It is usual for boats having a designed speed of 17 knots or more to be subject to higher premiums and special conditions.

Some companies impose particularly stringent conditions of use, mooring and storage on small fast boats, and the terms offered by different companies should be carefully compared.

TERRITORIAL LIMITS OF INSURANCE:

There are three main ranges or areas which, in descending order of cost to the owner, are as follows:

1. Full coastal and seagoing cruising within the home trade limits which cover all United Kingdom waters and Continental coast from Brest to Elbe. Some policies may include Continental inland waters as far south as Paris.

2. Coastal Cruising within ten miles of home port or permanent moorings.

3. Non-tidal waters of the United Kingdom.

Single voyages and special cruises are rated separately. The insurance policy should cover the boat whilst it is stored on land within the United Kingdom.
It goes without saying that any unusual risks which you are intending to incur should be properly insured and declared to the insurers.

You should also note that cruising through the inland waterways of Europe is not automatically covered in most policies, and therefore needs special mention on your proposal form or before you undertake such a cruise.

EXCESS:

As with any insurance, if the owner is prepared to bear a percentage of the loss of eg the first £250, his premium may be materially reduced.

VALUE INSURED:

It is important from year to year to settle the exact value of what you own and to agree a realistic value with the insurance company.

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