The ins and outs of insurance

Practical: Insurance

Chris Ayres explores recent changes to boat insurance and gives some tips on how to obtain value-for-money coverage that will be there when you need it.

There have been some significant changes made to pleasure boat insurance over the past few years. These changes concern not only premiums charged but also introduce new terms and conditions in the policies. It is absolutely essential to read the various documents described as "disclosure statements" or "changes to your policy" each year. If in doubt about anything, contact your insurer for clarification.

Insurance companies are increasingly insisting on a satisfactory survey of vessels over a certain age by qualified marine surveyors. Lady Lonsdale recently had to undergo such an indignity, but I am pleased to say was found to be in excellent health. Quality of construction and standard of maintenance are usually more important criteria of condition than mere age. I grumbled over the cost, but feel it is good to know the vessel you sail is safe in all respects.

These changes are responses to recent insurable events - particularly the increase in both frequency and ferocity of weather conditions. In the past five years, Category 5 cyclones have devastated parts of the Caribbean (Ivan in 2004 which - apart from causing death and destitution in some of the poorest parts of Central America - caused extensive damage to cruising yachts in the "safe" area of Grenada), Asia (Typhoon Pongsana in the Marianas in 2004), the US (Katrina in 2005) and Australia (Cyclones Ingrid in 2005 and Larry in 2006). On top of this, these severe storm and flood conditions have caused terrible loss of life and damage in Europe, the Americas, Africa and Asia.

Only the self-deluded now deny the human impact on our environment. Insurance companies are brutally realistic in recognising climate change and have adjusted their policies accordingly.

Do you need insurance?
Yes. At the very least, every vessel needs third-party insurance coverage. But I do know of boat owners who still "self-insure". The arguments they put are:

1. Insurance is a waste of money.
2. They are highly experienced and never take risks.
3. The cost of premiums is better spent on safety items.

My favourite line is: "I never have accidents"!

Just keep away from me, please. Lawyers refer to such people as "men of straw" - when sued for damages they have little in the way of assets to pay for the compensation, damages and costs needed the day their luck runs out.

Because of such people, marinas, slipways and repair facilities all require the owner of a yacht to be insured before taking up a berth or using repair and slip facilities. Even the innocent voluntary crew may ask the owner if she or he is insured before risking their lives and sailing off into paradise Ð just in case the trip to paradise is one way.

What type of vessel will insurers accept?
Most brokers will insure any seaworthy vessel - but for a price. Remember it is not the yacht but the risk that insurers are covering. However, most underwriters will require the vessel undergo a satisfactory survey. Club Marine requires a survey every five or so years on production fibreglass or aluminium vessels aged 20 years or older, custom-built boats regardless of age or construction, steel construction regardless of age, timber construction regardless of age, secondhand private imported boats or boats constructed of composite materials eg carbonfibre, Kevlar. Trident also requires a survey of older vessels.

The value to be placed on the vessel is usually subject to agreement. Where a value is well in excess of a realistic value, the insurer will pay only up to what the court may determine is a true market value. This is why an insurer will invariably require a survey. Always remember a contract of insurance is a contract of "utmost good faith".

What is covered?
A standard insurance policy will cover hull, rigging, sails, sail covers and awnings, motor, tender and outboard, and "other equipment," which is usually listed separately. This list may include installed items such as electronics radios, radar and so on as well as removable items such as sextant, binoculars, life-saving equipment and "personal effects". "Personal effects" might be a laptop computer used for navigation or a camera. Be careful when listing these - if they are covered in another policy - such as a household effects policy with another firm; the marine insurer might be entitled not to pay for loss or damage. Once again, make mention of these items in writing and clarify the issue with the insurer.

Transit insurance may also need to be clarified. Policies of marine insurance will usually cover a vessel in transit on trailer and by road within Australia, but check whether or not the vessel is covered when being lifted in and out of the water by a crane or by a travel-lift. Another issue worth clarifying is the nature of cover required if you are having a vessel delivered for you from overseas. Usually, the delivery agent will be insured, but under common law, a purchase agreement may provide that the yacht is at the seller's risk until she has arrived at the purchaser's port of delivery. In the old decision of Piper v Royal Exchange Assurance (1932) 44LL 103, the yacht was damaged when she went aground en route. The seller had to reimburse the insurance company for the damage.

What is not covered?
Read this section of the policy very carefully. By far the largest area of argument is over "loss or damage due to fair wear and tear". A canopy may have cost $3k new but if that was more than five years ago, don't expect to get full replacement value. Loss of an outboard when secured to a vessel other than in a manner specified by the manufacturer is another area often disputed. Loss or damage to sails "by the wind or the water" is another curious way an insurer may escape liability if they consider the vessel was carrying too much sail or was being poorly handled.

Unless you are operating as a commercial vessel, you will not be covered for any commercial use. However, cover for such activities may be extended if the facts are given to the insurance company and they agree. This means is you may be able to conduct a sailing class, or take groups of people out for charitable activities. It usually will not allow private charter for gain - besides there are a plethora of government departments who will have something to say about anything vaguely resembling a commercial activity.

Most companies offer coverage for racing as an extension to the policy. Social racing events usually attract neither extra premium nor much in the way of special conditions. However, racing is generally excluded unless covered as part of a supplementary policy. Such a policy may have certain restrictions applied and either a "racing premium" or a limit to claims imposed. When I hear of skippers ordering the cutting away of a $100k spinnaker just so they can win a bottle of champagne, a plaque or even a silver-plated cup I sympathise with the insurance company. I don't want my premium to subsidise another's megalomania!

As with most general insurance policies you are not covered for breaches of the law and for loss injury or damaged caused when committing an offence. Such unlawful activities may include marine pollution and any incident where the person in command of the vessel was under the influence of alcohol and drugs (this can include prescription medication). Always advise your insurer if you are on a specific medication that may affect your ability to handle the craft. Also avoid alcohol when sailing.

Where do you want to sail?
Cruising is core business for major insurance companies such as Club Marine, NRMA, RACQ, to mention a few. These companies offer competitive insurance rates for trailer-sailers, small craft and usually for larger cruising craft in either enclosed waters or within certain prescribed limits offshore.

Going foreign
It is probably easier now to arrange for insurance cover when going Blue Water Ð that is beyond the usual 200 or 250nm limit than it has ever been. With the growth in competitive marine brokerage firms, cruising yachtspeople are now able to obtain quotations from insurance underwriters who specialise in providing long-distance offshore cover.

"Offshore" is variously defined as being within the limits of Australian Territorial waters or as a specific mileage limit. Trident, for example, offer a 250nm offshore cover and all companies that were contacted offer a safety margin - for example, Club Marine will cover you beyond these limits if:

* As a result of circumstances beyond the reasonable control of the person in charge, or
* To respond to an unforeseen emergency.

Such an emergency might be to ride out a storm. But what if you want to go foreign?

Firstly, check with your insurance company. Companies are increasing able to offer extension of their normal coverage for specified voyages. Coverage is also available for yachts joining Rallies.

Club Marine states that "your policy will automatically be suspended when you boat clears Australian Customs and Immigration for the purpose of leaving Australian waters and recommence when it clears Australian Customs and Immigration on return . . . "

In other words, the moment you clear and leave Australian waters your policy is suspended unless you have specific coverage. However, bluewater cruising cover is available. Chris Grice of Club Marine told me: "We have the capacity to insure boats that are travelling from Australia to New Zealand and the South Pacific Region. This 'Bluewater Cruising' cover is offered subject to the experience of the skipper, a current out-of- water survey or risk evaluation being provided, photos of the vessel, a rig check and a questionnaire being completed."

Grice added that cover is usually available to existing and new policy holders who can satisfy the criteria of seaworthiness of vessel and competence of crew.

Trident Marine insurance brokers are also able to offer bluewater cover. Brooke Wolfe, Development Underwriter of Trident, said that: "We are able to source and arrange specialised bluewater insurance, which provides cover for yachts cruising Australian and international waters being the Pacific, Asia, Europe.

We can also arrange insurance for commercial hull vessels, charter vessels, delivery voyages going to USA/Europe returning to Australia, and vessels permanently based internationally. Any cruising activity will considered."

Once again, it the condition of the vessel and the competence and experience of the crew that matter first.

There are also a large number of overseas brokerage companies that are able to provide full world-wide cruising insurance cover. The German company Pantaenius offers full worldwide coverage.

Political hotspots
What areas might be excluded or might attract special conditions?

Political "hotspots" such as the Red Sea may require vessels travel at daytime, of in convoy and remain a certain distance offshore. This is a toAreas of cyclonic activity also may attract special consideration by underwriters. Pantaenius policies.

AUTHORS BIO.
Chris has been mad about boats since he built his first dinghy as a child. He worked as a TAFE teacher for many years before re-training as a lawyer. He is a now retired and able to cruise the Queensland coast with partner Rhonda in Lady Lonsdale, a 37-year-old Moody Halberdier. They live at Wellington Point in Queensland.

Important terms

A contract of insurance
A contract of insurance is a contract whereby one person, the insurer, promises and undertakes, in exchange for consideration of a set or assessed amount of money (called a "premium"), to make a payment to either the insured or a third-party if a specified event occurs, also known as "occurrences".

Risk
Insurance companies assume the risk of loss and calculate their premiums by the value and the risk based on statistically determined chances. A trucking company assumes the risk of loss while carrying goods.

Underwriter
A company or person which/who underwrites an insurance policy, issue of corporate securities, business or project.

Broker
An agent between contracting parties, paid by commission.

Useful contacts
* clubmarine.com.au
* www.nautilusinsurance.com.au
* www.oceanicinsure.com.au
* www.allboatandcargo.com.au
* www.tridentinsurance.com.au
* www.icfrith.com.au
* www.insuranceaid.com.au
* www.comgen.com.au
* www.pantaenius.com
* www.zurich.com
* www.ghinsurance.com
* www.oceanicinsure.com.au