ISO Commercial Property Program Archive

OCEAN MARINE ARCHIVE

(January 2020)

 

This document is a repository of articles and analyses that relate to earlier editions of the above captioned program.

Related Article: AAIS Yacht Coverage Form

 

 

Archive Index

Analysis

YT 01 00 AAIS Yacht Coverage Form 09 10 Edition

Analysis

IM 7750- AAIS Yacht Coverage  Form

Comparisons

Reserved for future use

Special Analysis

Reserved for future use

YT 01 00 AAIS Yacht Coverage Form 09 10 Edition

The American Association of Insurance Services (AAIS) Yacht Coverage Form is designed for vessels operated for pleasure use. "Yacht" is a general term that covers a wide variety of vessels, the most common of which are cabin cruisers, open cockpit craft, sailboats and houseboats. These vessels are propelled by a number of power plants, including outboard motors, inboard motors, inboard/outboard motors, sail boats without auxiliary power, sail boats with auxiliary inboard or outboard motors, and water jets. Covered property includes the vessel's hull, motors, sails, spars, fittings, tackle, machinery, tenders, dinghies (and their motors), furniture and all permanently attached equipment used to operate or maintain the yacht. Liability coverage applies to bodily injury and property damages arising from ownership or operation of the covered yacht. Other coverage provided is for Medical Payments, Longshoremen's And Harbor Workers' Compensation Insurance and Uninsured Boaters. Coverage applies while the vessel is afloat, berthed, in storage, or while in transit on land.

The IM 7750–Yacht Coverage Form with edition date 08 99 has been replaced with the YT 0100–Yacht Coverage with edition date 09 10. All forms and endorsements have been updated to the YT prefix. IM prefix forms may not be used with the revised yacht policy.

ELIGIBILITY

Each insurance company determines its yacht eligibility criteria based on its individual underwriting appetite. The yacht's total length, engine horsepower, navigational limits, and the type of master and crew are some of the eligibility issues considered. Some companies write only “brown water” exposures, meaning navigation is limited to inland lakes, rivers and other bodies of water. Others specialize only in “blue water” exposures, meaning navigation is limited to oceans and seas. AAIS requirements are that the vessel be more than 26 feet long, be valued at or above $50,000 and be used for personal pleasure boating. The owners must be individuals although they can be licensed to corporations for tax purposes. The Extension endorsements are available that allow some business use.

Property Coverages

Description of Covered Yacht

This section has spaces to enter the manufacturer's name, year, model, serial number, horsepower, and length, limit and premium for up to two different yachts.

Description of Covered Yacht Trailer

This section has spaces to enter the manufacturer's name, year, model, serial number, length, and limit and premium for up to two different yacht trailers.

Deductibles

This section has spaces to enter the deductibles that apply to five different items:

Property Coverage Extensions

The policy provides a limit of $50,000 unless a different limit is entered in this item.

The policy provides a limit of $500 unless a different limit is entered in this item.

Supplemental Property Coverages

The policy provides a limit of $500 unless a different limit is entered in this item.

The policy provides a limit of $50,000 unless a different limit is entered in this item.

The policy provides a limit of $2,500 unless a different limit is entered in this item.

The policy provides a limit of $1,000 unless a different limit is entered in this item.

Liability Coverages

This section has spaces to enter the following:

Limits

Additional Liability Coverages

The policy provides a limit of 30% of the personal liability limit unless a different limit is entered in this item.

Optional Coverages and Endorsements

Coverage endorsements and forms included at the time of policy issuance are in this section.

FORM ANALYSIS–YT 0100–YACHT COVERAGE FORM

AGREEMENT

This section states that the insurance company provides the coverage described in the coverage form during the policy term. The named insured must pay the premium in order to receive that coverage. The only coverages that apply are those for which a limit is shown in the declarations.

DEFINITIONS

Defined terms are used throughout the policy. Restricting their meaning to the definition in it provides the means for all parties involved with the policy to have a clearer understanding of the coverage intended. Sixteen terms are defined:

1. You and your is the person(s) entered on the declarations as the insured. The insured’s resident spouse is also considered you and your.

Note: The spouse must be resident. This means that a spouse living away from the named insured is not considered you or your.

 

Example: Jerry and Freda are married. It is each one’s second marriage. Jerry’s son Oscar and Freda’s son Phil are both in college and living with Jerry and Freda. When Freda leaves Jerry and moves out of state, Phil remains with Jerry in order to finish college. Freda is no longer you or your under this policy.

 

2. We, us and our refer to the insurance company providing the coverage.

3. Actual cash value is the cost to repair or replace property with similar property and materials minus depreciation.

4. Bodily injury is bodily harm to persons. It includes sickness, disease, or death as well as costs of required services and loss of services. It also includes loss of services the person provides and any care that person receives related to the bodily injury.

Bodily injury does not include any of the above due to mental or emotional injury, suffering or distress unrelated to physical injury.

5. Business is an occupation, trade or a profession. The following are business and are listed because they are pertinent to this policy. However, this listing does not restrict the definition of business to only these:

a. Boat, yacht or watercraft related sales, chartering, rental, repair, service, storage, moorage or anchoring.

b. Yacht club, shipyard and marina operations

6. Covered yacht is the yacht listed on the declarations plus any covered as described in the policy as Newly Acquired Property.

7. Declarations is pages that are called Declarations but also supplemental declarations and any schedules that are related to this coverage form.

8. Insured means:

a. The named insured and the named insured’s resident spouse

b. Relatives of the named insured or resident spouse that are living in the named insured's household

c. Unrelated persons under 21 years of age living in the household who are in the care of either the named insured or a relative who lives in the household.

 

Example: See the previous example. Phil has a problem. As long as Freda was married to and living with Jerry, Phil was an insured under item b. above. However, once Freda left, Phil is an unrelated person living with Jerry. Because Phil is over 21, he is no longer an insured even though he is attending college and totally dependent on Jerry. Phil is also not an insured under any policy Freda purchases because he is not living in her household. 

d. Crew member or the captain but only when paid

e. With respect to Personal Liability and Medical Payments Coverages. This applies in addition to those already described as being insured. It does not limit those persons as insureds.

·         Any person using the insured yacht with the named insured's permission is an insured. The exception is that those persons are using or caring for the yacht as part of a business operation are not insureds.

Example: Phil regularly sails Jerry’s yacht and has done so for years. After Freda moves out, Phil must gain permission from Jerry to sail the yacht in order for coverage to apply. 

·         Any person using a covered yacht without permission of the yacht owner, is not an insured.  

·         Persons or organizations that are legally responsible for the use of a covered yacht by a person who is described in a., b., c., or d., above are insured. The coverage is restricted to only a covered yacht and does not include persons who use or care for the covered yacht in any business.

 

Example: Phil arranges for a volunteer crew to assist on a short cruise he is taking with some friends. If an accident occurs, none of the crew are considered insureds, even if Phil has gained permission to use the yacht because Phil is not a person described in a. b., c., or d.

 

f. With respect to Uninsured Boater Insurance there are three groups of person who are insureds:

·         Any person who is in or on, or getting on or off, the insured yacht or a non-owned yacht

·         Any who is being towed on water skis or similar devices by a covered yacht

·         Any person who has the right to obtain bodily injury coverage under the Uninsured Boaters coverage because of injury to one of above insured persons.

9. Limit is the amount of coverage that applies.

10. Non-owned yacht is a yacht owned by others that an insured is operating with the owner's consent.

The following do not qualify as non-owned yachts:

·         Any that is furnished for an insured’s regular use.

·         Any that is used for other than private pleasure use.

·         Any rented or chartered to an insured

·         Any owned by an insured. The ownership can be full or part.

11. Occurrence is an accident and repeated exposures to similar conditions. Resulting bodily injury or property damage from the occurrence must take place during the policy period.

12. Pollutant is a broad and expansive term. It is solids, liquids, thermal or radioactive contaminants and irritants that include acids, alkalis, chemicals, fumes, smoke, soot, vapor and waste.

The term waste is expanded to be materials intended for recycling, reclamation and reconditioning, as well as for disposal.

Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants.

13. Property damage has two parts. It is the destruction of or physical injury to tangible property. It is also the loss of use of tangible property. The loss of use does not require that the property be physically damaged.

14. Terms are the policy provisions, limitations, exclusions, conditions and definitions that apply to this coverage.

15. Yacht is a watercraft. Any equipment that is a permanent attachment to the yacht and is used for its operations, safety, navigation or operations is also a yacht. Motors of the yacht are considered yachts as are its sails and sailing related gear. Machinery and furniture on the yacht are also yacht. In addition, the yacht’s tenders and dinghies along with their motors are also yacht.

16. Yacht trailer is any trailer designed and used to transport a yacht.

PROPERTY COVERAGE

Principle Property Covered

The yachts and yacht trailers listed and described on the Declarations are covered. The coverage for the listed item is subject to the limit shown for it.

Property Not Covered

This is not a list of property that is not covered. Instead it is a listing of when the covered property is not being covered because of how it is being used:

1. Business

Loss or damage to property that is being used in any of following ways is not covered:

a.     In a business

b.     Hired to others or being used as a charter for others

c.     When a fee is charged in order to carry people or cargo of any type.

Note: It is not what is being carried that is the problem; it is the fee that is being charged. If no fee was charged, coverage would apply.

d.     When it is being rented to others.

2. Contraband

Property that may be legal but that is not legal due to circumstances or that is being transported to be used in an illegal way is not covered.

 

Example: Peter is sailing his yacht from Miami Beach to Havana, Cuba. He has case of AK-47s hidden in the hull to give to his cousins in Cuba. Peter does not have a permit to own these weapons in the United States or in Cuba. Any damage to his yacht because of this activity is not covered.

 

3. Racing and Stunt Activity

A race is considered a competition against either a person or a clock. The race can be for endurance or could be for speed. Races can be organized or they can be spur of the moment events. Regardless of the type of race, there is no coverage under this policy for any loss or damage the results from it. This exclusion applies not only during the race but also during preparation, practicing and qualifying for the race.

There is also no coverage for any type of contests where stunts are involved.

There is a race exception. Loss or damage to property while a yacht is being used in a predicted log event is covered as are any sailboat races no matter how organized.

4. Residential Use

This policy is not a homeowners policy so coverage does not apply when the yacht that is used as a permanent home is not covered.

Property Coverage Extensions

There are three coverage extensions. Any limits shown are sub limits. This means they do not increase the limits available but are paid out of the covered property limit of insurance. The extensions can be entered on the declarations.

1. Equipment on Shore

Equipment is covered when it is removed from the yacht and stored on the shore. This applies to equipment that, when on the yacht, is permanently installed on that yacht. Because this equipment is part of the yacht limit, it does not have a separate limit when ashore.

 

Example: The Reeds decide to remove some of their yacht’s seating in order to increase storage space but also plan to put it back when using the yacht to entertain friends. They unbolt the seating and store it at the marina. A fire at the marina destroys the seating. The loss to the seating is covered because of this coverage extension.

 

2. Non-Owned Yachts

The insurance company pays for loss or damage to a non-owned yacht that the named insured or another insured operates. This coverage extension is subject to the yacht deductible amount on the declarations. The most paid is the non-owned yacht limit of insurance on the schedule of coverages. A $50,000 limit applies if there is no other limit.

Note: Refer to the How Much We Pay Condition that explains that this coverage extension is excess of any amounts due from other insurance that applies to a covered loss, whether it can be collected or not. However, the insurance company never pays more than the limit of insurance that applies.

3. Recharge of Fire Extinguishing Equipment

Automatic or hand-held fire extinguishers that are used to fight a fire must be recharged. This coverage extension pays either $500 or the cost the named insured incurs to recharge them, whichever is less. Coverage applies only if the discharge occurred in fighting a fire or if the discharge resulted from another covered cause of loss. The limit can be changed on the declarations.

 

Example: Lisa was showing Paul how to use a fire extinguisher when her hand slipped and it discharged. The cost to recharge the extinguisher in this situation is not covered.

Supplemental Property Coverages

The policy contains four supplemental coverages. Each has its own limit of insurance. These limits are in addition to and not part of the yacht limit of insurance.

1. Emergency Service

This coverage applies to the necessary and reasonable expenses the named insured incurs for services to the yacht if it becomes disabled. These are:

The actual cost of the fuel, oil, parts, batteries or yacht trailer tire is not a covered part of this supplement.

The maximum payment is $500 but the limit can be increased on the declarations.

2. Newly Acquired Property

This provision extends coverage to additional yachts and yacht trailers the named insured acquires during the policy period. The coverage applies for no more than 30 days. Because this is meant to provide a stop gap between the time the yacht is purchased and it is reported to the insurance company, coverage ends at the time of reporting, even if it is less than 30 days. In addition, if the policy ends before the yacht has been reported and before the 30 days is up, coverage ends with the policy. Once the yacht is reported, premium is owed starting on the date of the acquisition.

Editorial Note: There appears to be an ambiguity in the limit section. The limit is the lesser of two items. The first of those two items has two potential amounts but the policy doesn’t say which of those amounts are to be used. It can be either the invoice value or the actual cost to the named insured of that yacht. Here is the problem:

 

Example: Maxwell is so excited when he is willed his Grandfather’s yacht. He drives to the house and moves the yacht to the marina before he notifies his insurance company. On the way home a wind catches the trailer and causes it to overturn. Maxwell turns in the claim under Newly Acquired Property. The invoice value of this yacht would be $45,000 but Maxwell’s actual cost was $0. Which should be used in settling the claim?

 

Once a decision is made as to whether invoice or actual cost is used it is compared to either $50,000 or the limit entered on the Declarations for this coverage. The lower of the two limits is used.

3. Personal Property and Equipment

Three types of personal property and equipment are covered while they are on the yacht. They are also covered when being loaded or unloaded or when in a locked dockside storage area. The three types are:

·         Equipment used to operate, maintain or navigate the yacht or assist in its safety. The items must be portable and not attached to the yacht.

·         Electronics are covered. This includes electronics that are for safety, signaling or navigational purposes but are not only that type of electronics. The only requirement is that the electronics cannot be permanently attached. Could this mean that computers, game systems and other items could be included? The policy does not say no, so that would lead to a yes.

·         Water sports equipment such as skis, wake boards and other equipment that is intended to be towed.

The coverage limit is $2,500 unless another limit is entered on the declarations.

Note: This supplemental coverage does not include property permanently attached to the yacht because its value is or should be included in the hull value.

 

Example: Harold and Maude owned two yachts. Because only one could be used at a time, they transferred safety equipment and portable generators to the one being used. This arrangement also saved them the expense of two sets of identical equipment. They knew the total value of the equipment was $15,000 and this was the limit entered on the declarations.

 

4. Storm Protection

Coverage is provided for the reasonable expenses the named insured incurs to either remove a covered yacht from the water or to hire an individual with appropriate qualifications to take the yacht to safe harbor.

The coverage includes the cost to return the yacht back to where it started after the threat of storm has passed.

This coverage applies only if the National Oceanic and Atmospheric Administration (NOAA) issues a severe weather or a hurricane watch or warning.

No deductible applies but coverage is limited to $1,000 per watch or warning. The limit can be increased on the declarations.

 

Example: Priscilla’s Pride is at Galveston harbor when a hurricane warning is issued. Her owner, Priscilla, reviews her options and quickly decides that having the yacht moved on the water is the best option. She contacts Jessica, a qualified person who quickly moves the yacht to safe harbor in Florida. The hurricane turned toward Mexico so Priscilla had the yacht returned to her in Galveston. Jessica’s fee is paid under this coverage but only up to the limit of insurance and only if it is considered reasonable.

PERILS COVERED

Coverage applies only for direct physical loss or damage to property that is covered under this policy. However, refer to the Perils Excluded for the direct physical loss or damage that is excluded or limited.

PERILS EXCLUDED

Loss or damage by each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or resulting from any of these events.

1. Animals and Marine Life

Animal damage is not covered. Examples of animals are birds, vermin, rodents or insects but the term is not limited to those. They are excluded even if they are owned or kept by an insured. Damage by marine life is also excluded but this does not have the same statement of coverage denial if owned or kept by the insured.

2. Civil Authority

There is no coverage for loss that is either caused by or is the result of a civil or governmental authority order. Examples of such excluded actions are seizure, confiscation, destruction, contraband risk or quarantine of property. The only exception is when such actions are taken to prevent the spread of fire.

3. Contamination or Deterioration

Loss or damage caused by contamination or deterioration is excluded. Examples of such damage is corrosion, rust, decay, fungi, mildew, mold, rot or weathering.

Note: Many of these represent qualities, faults or weaknesses in covered property that causes it to damage or destroy itself.

4. Criminal, Fraudulent, Dishonest or Illegal Acts

Coverage does not apply to loss caused by or resulting from criminal, fraudulent, dishonest or illegal acts, committed alone or in collusion with another, by any of the following:

·         The named insured

·         Others with an interest in the property

·         Others to whom the property has been entrusted by the named insured

Note: If the yacht or yacht trailer is in the custody of carriers for hire, this exclusion does not apply.

·         The named insured's partners, officers, directors, trustees or joint adventurers

·         Employees or agents of any if these groups. Employees are excluded even if the act occurs when they are not working.

5. Ice, or Freezing, Thawing, or Sudden Changes in Temperature

The insurance company does not pay for loss or damage that result from or is caused by any of the featured items. There is no exception but coverage is available under YT 2700–Ice Damage or Freezing Coverage endorsement that can be purchased.

 

Example: The Tried And True was laid up afloat in a sheltered cove off a bay that never froze. However, an extended cold snap of record proportions settled in, and both the bay and the cove were frozen solid. The pressure from the ice build-up snapped two of Tried And True's cross-support beams, causing her to take on water and capsize. Because of this exclusion, the damage was not covered.

 

6. Intentional Act

There is no coverage for loss resulting from an action an insured commits. There is no coverage if the insured acted alone, acted in collusion or if the insured directed the action to be taken. This applies only if the insured intended that the action would cause a loss. Furthermore, if one insured commits the excluded intentional act, all coverage is denied, even that which would benefit an innocent insured who was not involved in the intentional act.

 

Example: Jerry decided to ruin a luncheon his wife held on their yacht. He placed the smoke bomb in the galley and set it off, remotely. The heat from the smoke bomb also caused grease in a pan to smoke. The greasy smoke coated the entire galley interior and panicked guests, fleeing the smoking yacht, damaged a substantial amount of equipment and property. Neither the smoke damage nor the equipment loss is covered.

 

7. Latent Defect

There is no coverage for loss to property caused by any quality of the property that causes it to damage itself or to any latent defect within the property.

Note: Latent defect is a fault in the property that could not have been discovered by a reasonably thorough inspection. Inspections alone may not be sufficient to detect certain deficiencies without the process itself being destructive. For example, wood beams in a vessel cannot be fully assessed without actually destroying them.

8. Loss of Use

There is no coverage for loss caused by or resulting from delay, loss of use or loss of market.

Note: These are consequential or indirect losses and this policy covers only direct loss.

9. Maintenance or Repair

Loss that occurs to the yacht or yacht trailer because of a process used in the repairing, maintaining, adjustment or servicing of the yacht or trailer is not covered. There is an exception. If a fire or explosion occurs during the repair or maintenance, the resulting damage from such a fire or explosion is covered.

 

Example: The Fair Thee Well is being stripped and repainted at Treva Lee’s Yacht Garage.

Scenario 1: The solvent used on the Fair Thee causes a blistering of the wood that must then be replaced. This loss is not covered.

Scenario 2: A spark occurs during the painting that ignites the paint fumes. The fire damage to the Fair Thee Well is covered.

 

10. Marring, Denting, or Scratching

Because loss or damage by any of these can be expected, they are not covered. However, there is coverage if such damage is sudden and accidental.

11. Mechanical Breakdown

Loss or damage due to a mechanical or electrical breakdown, property failing for any reason, or any type of overheating is excluded. There is an exception. If the overheating or the mechanical breakdown causes a loss that would be covered under this policy except for this exclusion, there is coverage for that resulting loss.

12 Missing Property

When personal property is missing and there is no explanation as to how it disappeared, there is no coverage. There is also no coverage if there is no physical evidence to show what happened to it. However, this exclusion does not apply to personal property when it is in the custody of carriers for hire; is located in a locked compartment and is stolen; or that is on board a covered yacht that itself is stolen.

13. Nuclear Hazard

The insurance company does not insure against loss or damage caused by or resulting from any nuclear reaction or radiation, or radioactive contamination. The exclusion applies however the nuclear incident occurred. There is no coverage for any consequence of a nuclear incident. If a loss is caused by the nuclear hazard it cannot be considered a loss caused by fire, explosion or smoke.

14. Osmosis, Blistering or Electrolysis

Coverage does not apply to loss or damage that is caused by osmosis, blistering or electrolysis.

Note: Osmosis is diffusion of water through a semi-permeable membrane. An example of blistering involves paint where small to medium size bubbles develop under the paint film. Electrolysis is chemical decomposition produced in an electrolyte by an electric current.

15. Voluntary Parting

When a fraudulent scheme, trick or false pretense causes property or title to be voluntary surrendered, there is no coverage for any resulting loss or damage.

16. War

Coverage does not apply to loss or damage caused by any act of war. This includes undeclared and civil war, insurrection, rebellion, revolution or warlike action by a military force or by military personnel. It also includes property destroyed, seized or used for military purposes and both intentional and accidental discharge of nuclear weapons. If a fire results from a nuclear hazard there is coverage for that fire damage.

If there is a conflict between the Nuclear Hazard exclusion and this exclusion, this exclusion supersedes the Nuclear Hazard exclusion.

17. Wear And Tear

Loss or damage caused by or resulting from wear and tear is excluded.

Note: Wear and tear is damage, diminishment in value or erosion due to long or hard use or exposure. It includes breakdown over time so that it eventually becomes unusable because of previous use. The tendency of property to pull apart or break down into pieces because of forces applied to it is also wear and tear.

LIABILITY COVERAGES

Principal Liability Coverages

1. Personal Liability Coverage

The insurance company pays only when an insured is legally obligated to pay for bodily injury or property. The bodily injury or property damage must be caused by a covered occurrence. The occurrence must arise from owning, maintaining or using of a covered yacht, a covered yacht trailer or a non-owned yacht. The insurance company is responsible for settling or defending such claims or suits but only those for damages described above. All defense costs are paid by the insurance company, at its expense. The insurance company gets to choose the counsel.

The decision to investigate and settle claims belongs solely to the insurance company. It is very important to note that once the insurance company has paid in settlements or judgments an amount equal to the limit of insurance, all defense obligations end.

 

Example: John invites his new neighbors, Pearl, George and Vince for a ride on his yacht. All is well until John makes a sudden turn and his guests are thrown from the boat. Each sues John for their serious injuries. All suits are covered as a single occurrence and John’s insurance company decides to settle rather than face a court battle. George and Vince accept the offered settlement but Pearl continues to pursue her action. The amount paid to George and Vince exhausted John’s limit so his carrier declines to continue paying for John’s defense and John is left with both the expense costs and the cost of Pearl’s claim.

 

2. Medical Payments Coverage

Medical expenses that are necessary because of bodily injury resulting from an occurrence are paid by the insurance company. The occurrence must be a result of and arise out of owning, maintaining or using a covered yacht, covered yacht trailer or a non-owned yacht. There is a time limit on coverage. It applies only to such necessary medical expenses that are either incurred or are determined to be necessary within three years following the occurrence. There is no requirement that an insured be negligent.

Reasonable charges for the following items are considered medical expenses:

 

Example: Marlene is a guest on Paul’s boat. She has a little too much to drink, loses her balance and falls. Marlene strikes her mouth against the deck, knocking out a couple teeth. Paul immediately docks and calls 911. The cost of the ambulance, and the dental work required is covered as medical payments even though Paul had no negligence in the occurrence.

ADDITIONAL LIABILITY COVERAGES

Costs that are part of the following coverages are in addition to the limit of liability for Personal Liability Coverage. The coverages themselves are subject to all terms of the Personal Liability and the Medical Payments Coverages.

1. Additional Defense Expenses

If the insurance company decides to defend a suit or claim, it pays the following expenses but only those that are connected with that that claim and /or suit and its defense:

2. Removal of Wreck

The costs incurred by the named insured to raise, remove or destroy the wreck of a covered owned or non-owned yacht are covered if both of the following conditions apply:

Coverage applies to both successful and unsuccessful attempts.

The most paid is 30% of the Personal Liability Coverage limit of insurance. This limit can be increased on the on the Declarations.

 

Example: The Weeping Widow sank upon entering Cadaver Cay. The area was so shallow the government required that the Widow be removed in order to prevent damage to other vessels. The most paid is $300,000 because the Personal Liability Limit is $1,000,000 and there is no separate limit for removal of wreck.

Exclusions That Apply To Personal Liability Coverage and Medical Payments Coverage

1. Abuse

Bodily Injury or property damages arising from abuse is excluded from coverage. Abuse is any and all of the following but is not limited to any of these:

Note: There is no mention in the exclusion as to who does this abusing. This means then that abuse by the named insured, an insured or by anyone else is excluded. This is an extremely broad exclusion because both property damage and bodily injury are excluded.

2. Business Pursuits

Bodily injury or property damage that occurs when a covered yacht, covered yacht trailer or non-owned yacht is used in any of the following is not covered:

3. Communicable Diseases

When an insured transmits a communicable disease there is no coverage for any bodily injury or property damage that results.

4. Controlled Substances

There is no coverage when bodily injury or property arises from controlled substances. There is no coverage regardless of the insured’s relationship or involvement. If substances are used, sold, manufactures, delivered, transferred or possessed, there is no coverage. There is no coverage regardless of who is involved with these substances.

The term “controlled substances” as used within this exclusion is defined within the Federal Food and Drug Law at 21 U.S.C. Sections 811 and 812. It includes all of its amendments which means that this exclusion does not need to be updated every time a new drug is added to the list. Cocaine, LSD and marijuana are the only drugs specifically named but they are used as only examples.

Prescription drugs that are being used by a person under a licensed physician’s orders are not considered controlled substances provided they are being used in a legitimate manner.

 

Example: Phil and Jeremy had a discussion on Phil’s yacht regarding Jeremy’s medical concern. Phil was convinced that the prescription he was taking would help Jeremy and shared a few pills with him. Jeremy had an immediate, violent reaction that required him to be hospitalized. There is no coverage when Jeremy sues Phil because Jeremy’s use of Phil’s prescription was not a legitimate use of the prescription.

 

5. Criminal Acts

When an insured commits an illegal or criminal act, there is no coverage for any bodily injury or property damage that arises out of that act.

6. Intentional Acts

There is no coverage when an insured commits an intentional act from which bodily injury or property damage results.

a.     Bodily injury or property damage resulting from any of the following is not covered but these are examples and not limiting:

·         The bodily injury or property damage is intended, directed or expected from the standpoint of an insured

·         The bodily injury or property damage might not be intended but the insured’s action that caused it was both willful and malicious. The action can be committed by an insured or be directed by an insured.

 

Example: Peter was just having fun when he steered his yacht right at Melissa’s sailboat. His plan was to cut away just before he struck her. She panicked, jumped off her boat and almost drowned because she didn’t have on her life preserver. She sued Peter and his carrier denied coverage because her injuries were a result of Peter’s willful and malicious act.

 

b.     Because things don’t always turn out as expected, this exclusion applies even if the bodily injury or property wasn’t what was intended. It also continues to apply if persons or property are injured that were not the targets of the actions.

 

Example: Continuing with the above example, Peter had only planned on scaring Melissa. What he didn’t realize was that his actions would injure Melissa’s passenger, Joshua, who dove in to save Melissa. Even though Peter hadn’t planned any of these injuries, they are all excluded because all resulted from his willful action.

 

c.     Bodily injury or property damage that results from an insured using reasonable force to protect people or property is an exception to this exclusion.

 

Example: Jill heard footsteps on the boat dock late one evening.  The marina had alerted members that a thief had been getting into boats and advised them to lock up their valuable. Jill decided to catch the thief and threw out a life preserver to trip him with the plan to call 911 for his arrest. He did trip and broke his leg and she did call 911 but the person was not the thief. He was another yacht owner heading to his boat home after a night of partying. Jill used reasonable force and thought she was providing protection so coverage would apply.

7. Land Transportation

There is no coverage for bodily injury or property damage that occurs when a land vehicle or trailer is transporting or towing a covered yacht, covered yacht trailer or non-owned yacht.

 

Example: The Vantage Point was being hauled on a trailer from Miami to Duluth. The chains holding it down snapped under the unusual strain caused by a curve the trailer took too fast and the yacht slid off and came to rest on the highway, causing a five-car pileup and delaying traffic for three hours. Separate lawsuits were filed against the transport company and the yacht's owner. Coverage under the owner's yacht policy was denied because of this exclusion.

 

8. Nuclear Energy

Coverage does not apply to bodily injury or property damage resulting from an occurrence in cases where the insured under this policy is also an insured under a nuclear energy liability policy or would be except that the limit on the nuclear energy liability policy is exhausted. The American Nuclear Insurers, Mutual Atomic Energy Liability Underwriters, Nuclear Insurance Association of Canada, and their successors issue such policies.

9. Parasailing or Kite Skiing

When a covered yacht or non-owned yacht is being used to tow any device that is designed for flight, there is no coverage for any resulting bodily injury or property damage. Examples of such devices are parasails, kites and hang gliders.

10. Pollution Damage

There is no coverage for bodily injury or property damage resulting from any type of release of pollutants into or on land, water or air.

There is an exception. If a pollution discharge, dispersal, emission, leaching, seepage, migration, release, spillage or escape is sudden or accidental, there is coverage.

 

Example: Kellen is navigating his yacht, My Passion, and is pulled aside by the Coast Guard because of an oil slick coming from his boat.

Scenario 1: The slick is being produced because My Passion had struck some flotsam that had pierced its bottom causing the oil to run out. This could be a covered loss.

Scenario 2: The slick is being produced because of a broken seal in My Passion’s engine. This is not a covered loss.

 

11. Racing and Stunt Activity

A race is considered a competition against either a person or a clock. The race can be for endurance or could be for speed. Races can be organized or they can be spur of the moment events. Regardless of the type of race, there is no coverage under this policy for any bodily injury or property damage that result from a covered yacht or non-owned yacht being involved with racing. This exclusion applies during the race but also during preparation, practicing and qualifying for the race.

There is also no coverage for any type of contests involving stunts without exception.

There is a race exception. This exclusion does not apply when a yacht is being used in a predicted log event or when the yacht is a sailboat.

 

Example: Lizzie and Pam decided to race their yachts from the dock to a buoy. When an accident occurs because of this impromptu event, there is no coverage under Lizzie’s yacht policy when Pam sues her for damages.

 

12. War or Military Action

Coverage does not apply to bodily injury or property damage that result from any act of war, directly or indirectly. This includes undeclared and civil war, insurrection, rebellion, revolution or warlike action by a military force or by military personnel. Any discharge of a nuclear weapon is excluded even if the discharge is not intentional.

Additional Exclusions That Apply Only To Personal Liability Coverage

1. Contractual Liability-

There is no coverage for bodily injury and property damage from liability that has been assumed in a contract or agreement. There is an exception. This exclusion does not apply to written contracts involving dock rental or indemnity agreements related to vessel storage.

Note: This exclusion applies to any liability assumed by any insured except for the specific exception described above.

2. Compensation and Benefit Acts

Coverage does not apply to bodily injury to a person who is entitled to benefits that an insured provides, or should provide, under the United States Longshore and Harbor Workers' Compensation Act, workers compensation, non-occupational disability, or occupational disease law.

Note: YT 4001–Crew Coverage extends Personal Liability Coverage to the captain and crew as required under the Jones Act or general maritime law because of ownership or operation of the covered yacht.

3. Employees

An insured’s liability for bodily injury to an employee while that employee is on the job is excluded. Coverage for consequential injuries to the spouse, child, parent, brother, or sister of that employee is also excluded.  This exclusion applies if the insured is the employer or is liable for any other reason or if the insured is required to reimburse a third part for injuries to the insured’s employee.

Note: IM 7763–Crew Coverage may apply to such employees.

Related Article: 280.6-10 The Merchant Marine Act Of 1920 (The Jones Act)

4. Insureds

There is no coverage for bodily injury to the named insured or relatives living in the named insured's household. The is also no coverage for bodily injury to unrelated persons who are under 21 years of age who live in the named insured's household and are either in the named insured’s care or are in the care of a relative of the named insured who also lives in the household.

 

Example: Becky invites her friend Jennifer to join her family for an outing on their yacht. They are both injured when they lose their footing and fall into the water. Because Becky is a member of the yacht owner’s household, her injuries are not covered. However, Jennifer's injuries are covered because she does not live in the household.

 

5. Nonpermissive Users

There is no coverage for bodily injury or property damage to the person who is using the covered yacht or a non-owned yacht without an insured’s permission.

6. Property Owned, Occupied, Used, or Rented

The insurance company does not pay for property damage to property any insured owns or that it uses, rents or has in his or her care. However, coverage does apply to property damage to a launching ramp, dock, or vessel storage facility when it is rented exclusively to an insured.

 

Examples:

Scenario 1: Steve is the only occupant of a storage building he rents to store his yacht. Coverage applies when his truck suddenly shifts into gear and destroys the building's garage door.

Scenario 2: Steve also rents space in a larger storage building where he stores another yacht. Six different owners store their 12 vessels in it. This time, coverage does not apply when Steve’s truck suddenly shifts into gear and damages a common wall because he is not the only person renting the building.

Additional Exclusions That Apply Only to Medical Payments Coverage

1. Compensation and Benefit Acts

Coverage does not apply to bodily injury to a person who is entitled to benefits that are either provided, or that should be provided, under the United States Longshore and Harbor Workers' Compensation Act, workers compensation, non-occupational disability, or occupational disease law.

2. Trespassers

Medical expenses to persons who trespass on board the named insured's covered yacht without his or her permission are not covered.

 

Example: Kirby Kieffner owned the Pretty Girl and insured it under a yacht policy. Karly, his teenage daughter, and some of her friends took the yacht out on the lake. Several young men in another boat came along side and attempted to board the Pretty Girl, despite Karly's protests. One was injured when he fell during the attempt. His medical expenses were not paid because he attempted to board the yacht without permission.

UNINSURED BOATER COVERAGE

Coverage

There are uninsured boats just like there are uninsured motor vehicles and this coverage recognizes the fact. The insurance company pays all compensatory damages an insured is legally entitled to recover from an uninsured boat’s owner or operator because of bodily injury to that insured. This applies only when that injury arises from ownership, maintenance or use of an uninsured boat.

This coverage does not apply for any judgment the insured reaches with the uninsured boater unless this insurance company provided written consent to settle.

An uninsured boat is one that causes bodily injury to an insured and at least one of the following conditions apply:

Note: Exhaustion of limits does not come into play. This coverage does not apply to underinsured boaters and there is no underinsured boater coverage available.

 

Examples:

Scenario 1: The Happy Warrior sideswipes Sally’s Way, injuring three persons on board. All three sue the Happy Warrior's owner but discover that there is no coverage. The Sally’s Way owner turns to his insurance company for coverage.

Scenario 2: The Happy Warrior collides with Sally’s Way, New Day and Horizon, causing serious injuries to persons on all three vessels. The injured persons contact their attorneys and file suits. The final settlements exceed $2,500,000 but Happy Warrior's Personal Liability limit is only $1,000,000. Even though all three vessels have Uninsured Boater Coverage, none of them can recover anything from their uninsured motorist coverage because the Happy Warrior had insurance coverage…just not enough.

 

The following are not considered Uninsured Boats:

 

Example: The Village of Red Oak owns a vessel it uses on the lake for official governmental activities. It collides with the Red Dawn and injures three persons on board. The boat is not insured and the village claims sovereign immunity. The Red Dawn policy does not provide coverage because of this exclusion.

 

Exclusions That Apply To Uninsured Boater Coverage

1. Business Pursuits

Bodily injury that occurs when an insured is occupying a yacht while it is being used in any of the following:

2. Criminal Acts

Injuries to a person who is committing an illegal or criminal act are not covered.

3. Owned or Rented Property

Injuries to a  person who is  occupying or  struck by a boat that is not covered under the Personal Liability Coverage section of this policy are not covered when that boat is available for the regular use of any of the following or is owned or rented to any of the following:

 

Example: The Jerald family loves water activities. They own a yacht named Jellyfish. They bought a small fishing boat for their sons to use but because it was used only around the shore, chose to not purchase coverage for it. One day the sons were playing a daring game of boat tag and inadvertently ran their boat into Jellyfish. Four persons on Jellyfish were injured but there is no coverage for them because the fishing boat had no insurance. There is also no coverage for them under Jellyfish’s uninsured boater coverage because the fishing boat was owned by the Jerald family.

 

4. Parasailing or Kite Skiing

When the injury occurs while the insured is using any device that is designed for flight, there is no coverage. Examples of such devices are parasails, kites and hang gliders.

5. Racing and Stunt Activity

A race is considered a competition against either a person or a clock. The race can be for endurance or could be for speed. Races can be organized or they can be spur of the moment events. Regardless of the type of race, there is no coverage under this policy for any bodily injury to a person while being involved with racing. This exclusion applies during the race but also during preparation, practicing and qualifying for the race.

There is also no coverage for any type of contests involving stunts without exception.

There is a race exception. This exclusion does not apply when a yacht is being used in a predicted log event or when the yacht is a sailboat.

6. Settled Claims

The insurance company does not pay for bodily injury when a settlement is reached by any party without the insurance company providing its consent.

Note: The insurance company insists on being involved in settling a claim before it pays for it.

7. Trespasser

Bodily injury to persons who trespass on board the yacht is excluded.

 

Example: Bill’s vessel left the bay and was struck by a hit and run boat. Bill was surprised when he heard screams from the hold that turned out to be from an uninvited passenger who sustained a broken arm and internal injuries as a result of the collision. Coverage did not apply to the injured person because he was a trespasser.

Arbitration – Uninsured Boater Coverage

1. If the insurance company and an insured do not agree regarding the amount of damages or whether the insured is entitled, legally, for a damages claim, either has the right to make a written request for arbitration. Such arbitration will then take place only if the named insured and the insurance company agree to arbitrate.

Note: Any insured can request arbitration but the named insured must agree along with the insurance company in order for arbitration to move forward. If the insured doesn’t want arbitration, the arbitration can still move forward, as long as the named insured agrees.

2. The clock starts once an arbitration request is submitted. Each party has 20 days in which to notify the other of its selected arbitrator. The two arbitrators then have 30 days in which to pick a third arbitrator. If after 30 days they can’t agree, either party can request that the third arbitrator be selected by a judge of a court that would have jurisdiction over the case.

3. The arbitration must take place in the county where the insured lives. However, if the insured would like it elsewhere and the insurance company agrees, they can select another location.

4. The arbitrators are really making suggestions because nothing they do is binding. One important restriction is that they cannot agree to limits in excess of the limits on the policy.

5. Each party bears the expense of its own arbitrator and share all other expenses related to the arbitration.

WHAT MUST BE DONE IN CASE OF LOSS

The duties described in this section are required to be carried out by the named insured, a representative of the named insured, an insured who is requesting coverage or a representative of that insured. It is very important to note that if these duties are not carried out, the insurance company is not obligated to provide the requested coverage.

Duties – All Coverages

a. Notice

The insured must give prompt notice of a loss to the insurance company or its agent. The insurance company may also require that the notice be in writing. In addition, the insured  must notify the U. S. Coast Guard or an appropriate law enforcement agency if the loss involves a person disappearing from a yacht, life has been lost or there is some sort of criminal activity.

The notice to the insurance company must include the insured's name and the policy number, time, place, and details of the loss as well as the names and addresses of all potential claimants and witnesses if they are known.

b. Cooperation

Insureds and their representatives must cooperate with the insurance company on matters that are relevant to a lawsuit or claim.

c. Volunteer Payments

Insureds are not permitted to make payments, pay or offer rewards, or assume any obligations or costs without the insurance company's consent. However, if it does so, it must expect to bear these costs without any assistance from the insurance company.

This provision does not apply to costs allowed elsewhere in the policy.

Other Duties – Property Coverages

a. Proof of Loss

The insured must provide a signed and sworn poof of loss to the insurance company within 60 days of its requesting it. The insurance company is not required to request this but if it does the following must be provided:

b. Repairs

The insured is responsible to protect property during and following a loss in order to prevent further loss. The insurance company will pay documented, reasonable costs the insured incurs to take emergency steps in protecting covered property if the loss is a covered loss. Nothing in this provision increases the limit of insurance.

c. Examination under Oath

When the insurance company requests him or her to do so, insureds must submit to examination under oath in matters that relate to the loss. These statements must be signed. The insurance company has the right to examine each individual separately from any others.

d. Show Damaged Property

The damaged property must be made available for the insurance company to see. It must be allowed it to take samples as often as necessary as part of inspecting, testing or analysis.

e. Record and Documents

When requested by the insurance company, documents and records must be provided to assist in the adjustment and settling of the loss. Examples of such documents are tax returns, bank microfilm, and cancelled checks. The insurance company has the right to make copies and review documents and records as often as necessary and reasonable.

f. Assistance with Enforcing Right of Recovery

The insured is required to assist the insurance company in any subrogation or recovery actions against parties that caused the loss. This condition applies only if the insured is requested to do so.

Other Duties–Personal Liability Coverage and Uninsured Boater Coverage

a. Notices, Demands and Legal Papers

If an occurrence that might result in a claim takes place, insureds have certain responsibilities. They must promptly give copies of notices, demands and legal papers that relate to the occurrence or claim to the insurance company.

b. Assistance with Claims and Suits

When the insurance company requests, insureds must also help it do any or all of the following:

Other Duties–Medical Payments

If a covered loss occurs, the injured person or someone acting on his or her behalf must give the insurance company written proof of claim as soon as practical and authorize it to obtain copies of medical records. The injured person must submit to medical examinations by doctors the insurance company selects as often as required. However, the number and type of examinations must be reasonable.

The insurance company has the right to require the written proof of claim be given under oath.

HOW MUCH WE PAY

Property Coverages

a. Deductible

The deductible shown on the declarations applies to all property coverages. The insurance company pays only the part of a loss that exceeds the deductible.

Because the deductible applies per occurrence, only a single deductible applies to a loss involving multiple property items subject to different deductibles. If more than one deductible applies, only the highest one is used.

However, if two yachts are covered under this policy, a separate deductible applies to each yacht.

 

Example: Mark’s Dream is covered under a yacht policy with a $1,000 property deductible. It strikes a dock, the hull is damaged, water seeps in, and Mark's personal property and personal effects are also damaged. Rather than having to pay three separate deductibles – one for the hull, one for personal property and one for personal effects - Mark is responsible for only a single $1,000 property deductible.

 

The only exceptions are Recharge of Fire-extinguishing Equipment Property Coverage Extension and the Emergency Service and Storm Protection Supplemental Property Coverages which are not subject to any deductible.

b. Loss to a Pair or Set

If an item that is part of a pair or a set sustains loss or is lost, the insurance company pays either the amount to replace or repair the item, or the difference in the actual cash value of the pair or set before and after the loss.

c. Loss to Parts

If part of an item consisting of several parts when complete sustains loss or is stolen, the insurance company pays only the value of the damaged or lost part or the cost to repair or replace it.

d. Insurable Interest

Any payment for damaged or lost property is limited to only the named insured’s insurable interest in the property. 

Note: It is very important when multiple entities own a yacht that all be named on the Declarations as insureds in order for their interests in the yacht to be protected.

Editorial Note: Personal Property and Equipment Supplemental Property Coverage provides coverage for insureds’ property. However, that coverage would seem to be void because of this condition because payment is limited to only the named insured’s interest in such property.

e. Loss Settlement Terms – Yachts Described on the Declarations

The following are all subject to paragraphs a., b., c., and d. above.

·         Total Loss

If a covered yacht sustains either a constructive total loss or an actual total loss, the insurance company pays the limit of insurance on the declarations. The only adjustment that is made to the amount paid is the value of the salvage if the named insurance decided to retain it rather than giving it to the insurance company.

·         Partial Loss That You Repair or Replace

When a loss is not considered a total loss, the insurance company pays the costs to repair or replace the yacht. There is no deduction for depreciation. The amount it pays is the least of the following:

o    The limit on the declaration for the damaged yacht

o    The actual amount it will cost to replace the part of the yacht that is damaged or has been lost.

o    The actual amount that is spent in the repair or replacement of the part of the yacht that is damaged or has been lost. The material used in the repair or replacement must be in accordance with manufacturer’s specification or approved repair practices.

These terms do not apply to rigging, upholstery, carpet, mechanical or electrical parts or sails. This means that the terms of All Other Losses apply to these items.

·         All Other Losses

When a loss that is not a total loss occurs to a yacht shown on the Declarations, the terms of this items apply if either of the following applies:

o    The named insured decides not to repair or replace the damaged or lost items

o    The loss is to rigging, upholstery, carpet, mechanical or electrical parts or sails

The amount the insurance company pays is the least of the following:

o    The limit on the declaration for the damaged yacht

o    The actual cash value of the item that it is damaged or has been lost. The value is established as of the time of the loss, not at the time of the settlement.

o    The actual amount that is spent in the repair or replacement of the part of the yacht that is damaged or has been lost. The material used in the repair or replacement must be in accordance with manufacturer’s specification or approved repair practices.

f. Loss Settlement Terms – Other Than Yachts Described on the Declarations

The following are all subject to paragraphs a., b., c., and d. above.

The amount the insurance company pays for losses to property other than the yacht(s) listed and described on the Declarations is the least of the following:

o    The limit that is available to pay for the particular property

o    The actual cash value of the item that it is damaged or has been lost. The value is established as of the time of the loss; not at the time of the settlement.

o    The actual amount that is spent in the repair or replacement of the item that is damaged or has been lost. The material used in the repair or replacement must be in accordance with manufacturers specification or approved repair practices.

Liability Coverages

a. Personal Liability Coverage

The most the insurance company pays for each occurrence is the Personal Liability limit of insurance on the declarations. This limit is the cap regardless of how many persons are insured; parties sustain injury or damage; claims are made or suits are brought;  yachts, yacht trailers or premium are listed on the declarations; yachts or yacht trailers are involved in an accident; or the number of policy periods.

The total of all bodily injury and property damages that are part of the same accident or exposures to the same or similar conditions are considered to be a single occurrence.  

b. Medical Payments Coverage

The most the insurance company pays for all medical expenses for bodily injury to one person resulting from a single occurrence is the Medical Payments limit of insurance on the declarations. Any payments made under this coverage are reduced by payments made for the same expenses under Personal Liability Coverage or the Uninsured Boat Coverage.

This coverage is no-fault coverage so any payment under is not an admission of guilt.  

Uninsured Boater Coverage

The most the insurance company pays for each occurrence is the Uninsured Boater Coverage on the limit of insurance declarations. This limit is the cap regardless of how many persons are insured; parties sustain injury or damage; claims are made or suits are brought;  yachts, yacht trailers or premium are listed on the declarations; yachts or yacht trailers are involved in an accident; or the number of policy periods.

Damage payments are reduced by all of the following:

·         Any amount that has already been paid for the bodily injury. The payment may have been made by the actual responsible party or may have been made by someone else on their behalf. Such payment may have been made under this policy’s Personal Liability Coverage.

·         Any amounts that have already been paid for the bodily injury because of the following laws and regulations:

o    United States Longshore And Harbor Workers Compensation Act

o    Workers compensation

o    Non-occupational disability

o    Occupational disease law

Amounts that are required to be paid under this coverage reduce the amounts a person will be allowed to recover for the same damages under Personal Liability and Medical Payments Coverages.

Insurance under More Than One Coverage

The insurance company does not pay more than the actual loss, even if two or more coverages in the policy apply to that loss.

Note: This is consistent with the Principle of Indemnity that makes the named insured whole, not in a better position than before the loss occurred.

Insurance under More Than One Policy

a. When two or more policies or forms are issued to this named insured by this insurance company and a loss occurs that is covered by both, the most the insurance company will pay is the highest limit that is available for that loss. This means that stacking of limits is not permitted.

The only exception is when one of the policies issued was specifically provided as excess. In that case, this policy will pay its full limits first.

b. If insurance that has not been issued by this insurance company to this named insured applies to a loss, this insurance company pays as follows:

A proportional share of the loss is paid. The proportion is based on the proportion that this policy’s limit of insurance bears to the total amount of insurance that is available to pay the loss.

This insurance is excess unless that other insurance is specifically purchased excess coverage. In that case, this policy’s limits pay first.

This insurance is excess unless that other insurance is specifically purchased excess coverage. In that case, this policy’s limits pay first.

When the other coverage was specifically purchased to provide coverage for the nonowned yacht, this policy is excess over that. If that other insurance cannot be collected, this insurance is excess over the amount that should be have been available. Regardless, coverage is limited to the limit of insurance available under this policy for non-owned yachts.

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PAYMENT OF LOSS OR CLAIM

Your Property

The insurance company adjusts each loss with the named insured and pays a covered loss within 60 days after receiving an acceptable proof of loss. However, the clock does not start until there is a written agreement as to the amount of loss. When there is no written agreement, the clock starts only after an appraisal award has been filed with the insurance company.

The insurance company has 30 days after it receives the proof of loss to tell the named insured how it intends to settle the loss. The insurance company has two options. The first and probably most common option is to pay for the loss in money. The second option is to actually replace, repair or rebuild the property.

The insurance company can take any or all of property that has been lost or recovered based on its agreed upon or appraised value. Any property for which the insurance company has paid becomes the property of the insurance company.

The insurance company pays the named insured except when a loss payee is named or, if not named, is discovered to be entitled to receive the payment.

Property of Others

The insurance company has the option to adjust and pay losses to the named insured on the owner's behalf or to work directly with the owner.

If the company pays the owner, it does not have to pay an insured.

Editorial Note: This paragraph explains how to settle with owners of property that are not named insureds. However, the insurable interest condition would seem to not permit payment to anyone other the named insured. It states that the maximum amount paid for any loss of property is the named insured’s insurable interest in that property.

Personal Liability Coverage

A claimant can recover under the policy only for the amount of coverage that is available under the policy and only if one of the following applies:

Medical Payments Coverage

Medical payments can be made to the injured parties but they can also be made to their representative or directly to the provider of their medical services.

ADDITIONAL EXCLUSIONS AND LIMITATIONS

Fines, Penalties, or Tax Liens

Coverage is not provided to pay for any violation of the law or for a government assessment which result in fines, penalties or tax liens.

Seaworthiness Warranty

The named insured is required to warrant that any covered yacht will only be on the water and operated if it is safe and is in a condition to be navigated. The insurance company will not pay for any loss or damage that occurs because the named insured did not do as required in the first sentence. It is the named insured’s responsibility to keep the yacht in a seaworthy condition.

OTHER POLICY CONDITIONS

Conditions That Apply to All Coverages

1. Assignment

Coverage is underwritten for the insured who is named on the policy. The insurance company will not permit the named insured to assign the policy to another insured until it has been notified and agreed, in writing, to cover the new named insured.

2. Change, Modification, or Waiver of Policy Terms

The policy terms remain as is unless the insurance company issues a change in writing. When the insurance company requests an examination or appraisal it is not considered a change in terms.

3. Conformity with Statute

Any coverage condition that conflicts with the provisions of a law is amended to conform to that law.

Note: Any time this policy varies from a state statute, the state statute applies.

4. Coverage Territory

In order for bodily injury or property damage to be covered under this policy, it must occur within the following coverage territory:

Waters that are part of another country’s territory or territorial waters are not within this policy’s coverage territory.

5. Death

If the named insured dies, the person having custody of his or her property is an insured until a legal representative is qualified and appointed. If the named insured dies and has assigned a legal representative, that legal representative is an insured.

Such person or organization described above is a covered person only with respect to the property insured under this policy and for liability arising out of it.

This coverage does not extend past the policy expiration date.

6. Liberalization

Any policy revision that applies to this edition of the coverage form, applies to this policy as of the date the state in which this policy is issued approves that policy revision. This applies only if the revision broadens the coverage without charging additional premium.

If a new edition of this form is approved, the revisions in that new edition will not apply to this policy.

7. Misrepresentation, Concealment or Fraud

This coverage is void if the named insured or any other insured willfully conceals or misrepresents facts or circumstances that relate to this insurance or their interests in it. It is also void if they engage in fraud or false swearing with respect to anything that relates to this insurance or the subject of the coverage provided.

This conduct voids coverage to all insureds, not merely the one(s) who committed the actions.

8. Recoveries

This condition applies if the insurance company pays a loss and the lost or damaged property is subsequently recovered or the parties responsible for the loss pay for it. Either the insured or the insurance company must let the other know if it recovers property or receives payment. Any costs either party incurs in doing so are paid first. If the insured decides to keep the property, he or she must return the amount the insurance company paid to it, unless the insurance company agrees to a lower amount. If the amount the insurance company paid was less than the agreed value due to application of a deductible or some other limitation, the recovery is prorated between the two parties based on their respective interests in the loss.

9. Subrogation

The insurance company can require that the insured assign it the rights of recovery from third parties for any paid loss. The right to recovery cannot exceed the amount the insurance company paid. The insured must assist the insurance company in securing those rights. The company is not required to pay a loss if the insured hinders those rights. However, the insured can waive rights of recovery against third parties in writing before a loss occurs without affecting coverage.

The insured must cooperate with the insurance company and sign and provide documents that are related to the assigned recovery rights.   

If the company pays a loss to an insured and that insured subsequently recovers all or part of the loss amount from another party, it must pay the insurance company as required under the Recoveries condition.

This condition does not apply to Medical Payments.

Conditions That Apply Only to Property Coverages

1. Abandonment of Property

The insurance company will not accept any property until it chooses to accept it. The insured has no rights as to when and if an insurance company will take charge of any property.

2. Appraisal

The insurance company and the named insured may not always agree on the value of a covered claim. This condition provides one method to solve disputed claims.

Either party can request an appraisal to determine the value of a disputed claim. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and identify the appraiser to the other party. The two appraisers then select an umpire. If they cannot agree on one within 15 days, they may ask a judge in the court of record in the state where the appraisal is pending to select one. A written agreement between any two of these three is binding and sets the value of the property items and amount of the loss. Each party pays its own appraiser's expenses. Both parties share the cost of the umpire and other expenses.

3. Inspections

The insurance company is permitted to inspect the covered yacht but is not required to do so. Any inspection is for the benefit of only the insurance company. There is no obligation or responsibility for the insurance company to share the information with the named insured. An inspection is not a warranty regarding any aspect of the covered property.

4. No Benefit to Bailee

This insurance is not for the direct or indirect benefit of any party that is paid or is in any way compensated to take custody of the covered property.

5. Suit Against Us

No one may sue the insurance company until and unless all Property Coverage terms have been met. If a suit is brought, it must be brought within two years of the date of loss unless state law requires a longer term under which to bring suit.

Conditions That Apply Only to Liability Coverages

1. Bankruptcy

Bankruptcy or insolvency of an insured does not relieve the insurance company of its obligations under this policy.

2. Suit Against Us

No one may sue the insurance company until and unless all policy terms have been met and the liability of the insured has been established. That liability can be established through either a final trial judgment of written agreement of the parties to the suit.

The insurance company cannot be joined into any action whereby the liability of the insured is being determined.

AAIS YACHT COVERAGE FORM

INTRODUCTION

The American Association of Insurance Services (AAIS) Yacht Coverage Form is designed for vessels operated for pleasure use. "Yacht" is a general term that covers a wide variety of vessels, the most common of which are cabin cruisers, open cockpit craft, sailboats and houseboats. These vessels are propelled by a number of power plants, including outboard motors, inboard motors, inboard/outboard motors, sail boats without auxiliary power, sail boats with auxiliary inboard or outboard motors, and water jets. Covered property includes the vessel's hull, motors, sails, spars, fittings, tackle, machinery, tenders, dinghies (and their motors), furniture and all permanently attached equipment used to operate or maintain the yacht. Liability coverage applies to bodily injury and property damages arising from ownership or operation of the covered yacht. Other coverage provided is for Medical Payments, Longshoremen’s And Harbor Workers Compensation Insurance and Uninsured Boaters. Coverage applies while the vessel is afloat, berthed, in storage, or while in transit on land.

ELIGIBILITY

Each insurance company determines its yacht eligibility criteria based on its individual underwriting appetite. The yacht's total length, engine horsepower, navigational limits, and the type of master and crew are some of the eligibility issues considered. Some companies write only “brown water” exposures, meaning navigation is limited to inland lakes, rivers and other bodies of water. Others specialize only in “blue water” exposures, meaning navigation is limited to oceans and seas. AAIS requirements are that the vessel be more than 26 feet long, be valued at or above $50,000 and be used for personal pleasure boating. Extension endorsements are available that allow some business use.

POLICY CONSTRUCTION

The AAIS Yacht Policy requires at least these four forms:

IM 7756–YACHT DECLARATIONS

This declarations contains the following information:

Note: Coverage takes effect at 12:01 a.m. Standard Time at the named insured's mailing address.

IM 7755–SCHEDULE OF COVERAGES–YACHT COVERAGE

This Schedule Of Coverages contains the following information:

Description Of Covered Yacht

This section has spaces to enter the manufacturer's name, year, model, length, and yacht name for up to two different yachts.

Hull Coverages

This section has spaces to enter limits of insurance for the following:

Note: There is no coverage if there is no trailer description.

Note: There is no coverage if there is no limit.

Note: There is no coverage if there is no limit.

Note: This property is automatically covered for the yacht limit. A separate limit is not entered.

Note: This property is automatically covered for the yacht limit. A separate limit is not entered.

Note: This property is automatically covered for the yacht limit. A separate limit is not entered.

Liability Coverage

This section has spaces to enter limits of insurance for the following:

Note: Separate limits apply per person and per accident.

Note: These expenses are automatically covered. A separate limit is not entered.

Note: This property is automatically covered. A separate limit is not entered.

Note: This property is automatically covered. A separate limit is not entered.

Note: These expenses are automatically covered. A separate limit is not entered.

Note: This property is automatically covered. A separate limit is not entered.

Note: An entry of covered or not covered must be in the spaces provided.

Navigational Territory

The insured yacht's navigational territory and any other operational limitations must be indicated in the space provided.

Lay-Up Period

Any inclusive dates during which the insured yacht is laid up, out-of-commission, and not operating must be in the spaces provided.

Note: This is an enforceable warranty. Coverage is void if the yacht operates during dates within the lay-up period.

Optional Coverages And Endorsements

Coverage endorsements and forms included at the time of policy issuance are in this section.

FORM ANALYSIS–IM 7750–YACHT COVERAGE FORM

AGREEMENT

This section states that the insurance company provides the coverage described in the coverage form and in the schedule of coverages in return for the insured's premium payment, subject to all the coverage form's terms, conditions, endorsements and definitions.

DEFINITIONS

Defined terms are used throughout the policy. Restricting their meaning to the definition in it provides the means for all parties involved with the policy to have a clearer understanding of the coverage intended. Sixteen terms are defined:

1. You and your are the persons or parties on the declarations as the insured.

2. We, us and our refer to the insurance company providing the coverage.

3. Actual cash value is the cost to repair or replace property with similar property and materials minus depreciation.

4. Bodily injury is bodily harm to persons. It includes sickness, disease, or death as well as costs of required services and loss of services. It also includes loss of services the person provides and any care that person receives related to the bodily injury.

Note: Bodily injury does not include any of the above due to communicable diseases, sexual molestation of a person (actual, threatened or alleged), mental or emotional injury, suffering or distress unrelated to physical injury, physical abuse, or corporal punishment. Bodily injury also does not include any aspect of certain controlled substances identified under specific federal laws but it does include use of prescription drugs but only if done so legitimately and while following the orders of a licensed medical practitioner.

 

Example: Kari is a guest on Marty’s yacht. While on the boat, she becomes seasick and Marty recommends that she try medication he has on board that was prescribed to a previous passenger. Kari uses the drug, has an allergic reaction, and must be airlifted to the hospital. Marty's policy does not cover any of the expenses related to Kari’s injury because the injury was due to a drug not being used under a doctor’s orders.

 

5. Covered person means:

a. The named insured, relatives living in the named insured's household, unrelated persons under 21 years of age living in the named insured's household and in the named insured's care (or in the care of resident relatives), and the named insured's legal representative if he or she dies.

Note: Legal representatives are covered persons only for liability arising out of the insured yacht.

b. With respect to Watercraft Liability and Medical Payments Coverages, a covered person is any person using the insured yacht with the named insured's permission to the extent that coverage applies. However, this does not include persons who use or care for the insured yacht in any business related to boating, such as sales, service, yacht club operations or marina operations without the owner’s consent.

It also includes persons or organizations legally responsible for use of the insured yacht by covered persons indicated in a. above only with respect to that property. However, this does not include persons who use or care for the insured yacht in any business, such as sales, service, yacht club operations, or marina operations.

c. With respect to Uninsured Boater Insurance, a covered person is any person in or on, or getting on or off, the insured yacht or a non-owned yacht, including persons towed on water skis or similar devices. It is also any person for damages he or she is entitled to because of the bodily injury coverage provided under Uninsured Boater Insurance to such persons.

Note: While this definition includes a number of covered persons, each is a separate covered person. However, this does not increase the limit of insurance.

6. Covered yacht is the vessel on the schedule of coverages while operating within the navigational territory at times other than the designated lay-up period.

7. Latent defect is a hidden defect or design flaw in the insured yacht's hull or machinery. It must take place at the time it was manufactured and not be detectable by normal inspection techniques.

8. Limit is the amount of coverage that applies.

9. Navigational territory is the insured yacht's geographical operating limits on the schedule of coverages. It includes the primary types or bodies of water the yacht normally navigates in.

10. Non-owned yacht is a yacht owned by others that a covered person operates with the owner's consent. They are not ordinarily furnished for a covered person's regular use. It cannot be used for other than pleasure purposes and is not rented or chartered by the covered person. The owner(s) cannot be another covered person on the policy.

11. Occurrence is an accident that takes place during the policy period that results in bodily injury or property damage. It includes repeated exposures to similar conditions.

12. Pollutant is a broad and expansive term. It includes solids, liquids, thermal or radioactive contaminants and irritants including, but not limited to, acids, alkalis, chemicals, fumes, smoke, soot, vapor and waste. Waste also includes materials intended for recycling, reclamation and reconditioning, as well as for disposal. Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants.

13. Property damage is destruction of or physical injury to tangible property, including its loss of use even when not physically damaged.

14. Schedule of coverages is any page labeled as such or that contains information that pertains to coverage, including declarations or supplemental declarations.

15. Terms are all policy provisions, limitations, exclusions, conditions and definitions that apply to this coverage.

16. Yacht trailer is any trailer designed and used to transport a yacht.

HULL COVERAGES

COVERED PROPERTY

Two specific types of property are covered:

1. Yacht

Coverage applies to direct physical loss or damage to a covered yacht caused by or resulting from a covered peril to the covered yacht on the schedule of coverages. Yacht includes motors, sails, spars, fittings, tackle, machinery, tenders and dinghies (and their motors), furniture, and any equipment permanently attached and used to operate or maintain the insured yacht.

2. Trailer

The coverage that applies to yachts also applies to any trailer on the schedule of coverages.

PROPERTY NOT COVERED

Two specific types of property are not covered:

1. Contraband

These are goods prohibited by law or treaty from being imported or exported. It also includes legal property in the course of illegal transportation or trade.

 

Example: Peter is sailing his yacht from Galveston, Texas to Tampico, Mexico. Coverage does not apply to the boxes of AK-47s hidden in the hull because Peter does not have a permit to sell weapons in Mexico or the United States.

 

2. Money And Securities

This means a number of different types of property. It includes accounts, bills, currency, food stamps, evidence of debt and lottery tickets not held for sale, in addition to money, notes or securities.

Note: These types property are more correctly insured under commercial crime coverage forms.

HULL COVERAGE EXTENSIONS

There are six coverage extensions. Each has its own limit of insurance. If higher limits are needed, the higher limit must be in the appropriate space on the schedule of coverages.

1. Equipment On Shore

This extension covers equipment ordinarily permanently attached to the yacht that is removed and temporarily stored on shore. Since this equipment is part of the yacht limit, it does not have a separate limit when ashore.

Note: The yacht limit is reduced by the value of equipment temporarily stored on shore.

 

Example: The Reeds decide to remove some of their yacht’s seating in order to increase storage space but also plan to put it back when using the yacht to entertain friends. They store the seating at the marina. A fire at the marina destroys the seating. The loss to the seating is covered because of this coverage extension.

 

2. Land Transportation

This extension covers loss or damage to the insured yacht while it is in due course of land transportation to ports and locations within the United States of America and Canada.

Note: The limit of insurance is the yacht's insured value.

3. Newly Acquired Yacht

This provision extends coverage to additional yachts the named insured purchases during the policy period. The most paid in any one loss is the yacht's invoice value, the amount actually paid, or the limit for newly acquired yachts under Hull Coverages on the schedule of coverages. A $50,000 limit applies if there is no other limit. This coverage extension ends when the policy expires, 30 days after the purchase date, or when reported to the insurance company, whichever occurs first. Additional premium is due from the date the yacht was purchased.

4. Non-Owned Yachts

The insurance company pays for loss or damage to a non-owned yacht that the named insured or another covered person operates. This coverage extension is subject to the Hull Coverage deductible amount under Hull Coverages on the schedule of coverages. The most paid is the non-owned yacht limit of insurance on the schedule of coverages. A $50,000 limit applies if there is no other limit.

Note: This coverage extension is excess of any amounts due from other insurance that applies to a covered loss, whether it can be collected or not. However, the insurance company never pays more that the limit of insurance that applies.

5. Replacement Yacht

This coverage extension applies to loss or damage to a yacht that temporarily replaces a covered yacht that was lost or destroyed, that is being serviced, repaired, or that is undergoing periodic maintenance. Coverage ends when the policy expires, 30 days after the acquisition date, or when reported to the insurance company to be insured, whichever occurs first. Additional premium is due from the yacht's purchase date. The most paid in any one loss is the yacht's invoice value, the amount actually paid, or the limit for the yacht being replaced.

6. Recharge Of Fire Extinguishing Equipment

Automatic or hand-held fire extinguishers used to fight a fire must be recharged. This coverage extension pays either $500 or the cost the named insured incurs to recharge them, whichever is less, but only if the discharge occurred in fighting a fire or resulted from another covered cause of loss.

 

Example: Lisa was showing Paul how to use a fire extinguisher when her hand slipped and it discharged. The cost to recharge the extinguisher in this situation is not covered.

SUPPLEMENTAL HULL COVERAGES

There are three supplemental coverages. Each has its own limit of insurance. These limits are in addition to and not part of the yacht limit of insurance.

1. Emergency Service

This coverage applies to the necessary reasonable expenses the named insured incurs for services to the yacht if it is disabled. This includes:

Note: This does not include the cost of these items.

The most paid for all expenses in any one loss is the limit of insurance on the schedule of coverages. A $500 limit applies if there is no other limit.

Note: This supplemental coverage is not subject to a deductible.

2. Personal Effects

The insurance company pays for loss to personal effects that belong to the named insured, family members, guests and unpaid crew members while such property is on board the covered yacht, being loaded on it, or being unloaded from it.

The most paid is the limit of insurance for this supplemental hull coverage indicated on the schedule of coverages.

Note: This coverage does not apply if a limit of insurance for it is not on the schedule of coverages. If there is no limit or the words NOT INCLUDED, there could be ambiguity as to the limit actually provided. Coverage may be denied but ambiguity could be to the named insured's benefit.

 

Example: The Adams family took enough clothing and other personal items to last for the three-week vacation they planned aboard their yacht. The total value of this property amounted to $5,000. Unfortunately, the Adamses neglected to request a limit of insurance for this property when the policy was issued and coverage did not apply to it when the vessel capsized. They are considering challenging the denial.

 

3. Personal Property And Equipment

This supplemental coverage applies to personal property and equipment used to operate or maintain the yacht while on board the yacht and while being loaded on it or unloaded from it. It includes items such as electronics, safety, signaling and navigation equipment, and other ship equipment and furnishings.

Note: This supplemental coverage does not include property permanently attached to the yacht because its value is or should be included in the hull value.

Note: This coverage does not apply if a limit of insurance for it is not indicated on the schedule of coverages.

 

Example: Harold and Maude owned two yachts. Since only one could be used at a time, they transferred safety equipment and portable generators to the one being used. This arrangement also saved them the expense of two sets of identical equipment. They knew the total value of the equipment was $15,000 and this was the limit indicated on the schedule of coverages.

PERILS COVERED

Coverage applies to risks of direct physical loss or damage unless the loss is limited or caused by an excluded peril.

PERILS EXCLUDED

1. The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or resulting from any of these events.

a. Civil Authority

There is no coverage for loss caused by or resulting from the order of any civil or governmental authority, including seizure, confiscation, destruction or quarantine of property. Coverage does apply for loss or damage resulting from such acts when done to prevent the spread of fire, as long as the fire resulted from a covered peril.

b. Nuclear Hazard

The insurance company does not insure against loss or damage caused by or resulting from any nuclear reaction or radiation, or radioactive contamination, whether the nuclear incident was controlled or not or otherwise caused. Any loss caused by the nuclear hazard is not treated as a loss caused by fire, explosion or smoke. However, coverage applies to direct loss or damage caused by fire resulting from the nuclear hazard.

c. War

Coverage does not apply to loss or damage caused by any act of war. This includes undeclared and civil war, insurrection, rebellion, revolution or warlike action by a military force or by military personnel. It also includes property destroyed, seized or used for military purposes and both intentional and accidental discharge of nuclear weapons.

2. The second group of exclusions applies to loss or damage caused by or resulting from any of the following loss events. Some have exceptions, conditions or limitations that should be noted and reviewed carefully.

a. Contamination Or Deterioration

Loss or damage caused by contamination or deterioration is excluded. This includes corrosion, decay, fungus, marine life, mildew, mold, rot or rust.

Note: Many of these represent qualities, faults or weaknesses in covered property that causes it to damage or destroy itself.

b. Criminal, Fraudulent, Dishonest Or Illegal Acts

Coverage does not apply to loss caused by or resulting from criminal, fraudulent, dishonest or illegal acts, committed alone or in collusion with another, by any of the following:

·         The named insured

·         Others with an interest in the property

·         Others to whom the property has been entrusted

Note: If the covered property is in the custody of carriers for hire, this exclusion does not apply.

·         The named insured's partners, officers, directors, trustees or joint adventurers as applicable based on the named insured’s type of business organization

·         Employees or agents of any if these groups. Employees are excluded even if the act occurs when they are not working.

Note: This exclusion does not apply to acts of destruction by the named insured's paid captain or crew members. However, coverage does not apply to theft by them.

c. Ice Or Freezing

The insurance company does not pay for loss or damage caused by or resulting from ice or freezing to the insured yacht while it is laid up afloat.

Note: IM 7768–Ice Damage Or Freezing Coverage can be used to provide this coverage, subject to certain conditions and requirements.

 

Example: The Tried And True was laid up afloat in a sheltered cove off a bay that never froze. However, Mother Nature defied Global Warming and an extended cold snap of record proportions settled in, and both the bay and the cove were frozen solid. The pressure from the ice build-up snapped two of Tried And True's cross-support beams, causing her to take on water and capsize. Because of this exclusion, the damage was not covered.

 

d. Intentional Act

There is no coverage for loss that a covered person expects, directs or intends to take place or that results from an intentional malicious act by the covered person or at his or her direction.

Note: Insurance is meant to cover only fortuitous losses.

 

Example: Jerry decided to ruin a luncheon his wife held on their yacht. He arranged to have a package containing a smoke bomb delivered to the yacht that was timed to go off when party activities were at their peak. However, an unsuspecting member of the crew inadvertently placed the package near curtains in the dining area. When the smoke bomb went off, it set the curtains on fire. There is no coverage for the fire or for the resulting smoke damage.

 

e. Loss Of Use

There is no coverage for loss caused by or resulting from delay, loss of use or loss of market.

Note: These losses are inevitable and should be expected.

f. Marring, Denting, Or Scratching

Since loss or damage by any of these can be expected, they are not covered.

g. Missing Personal Property

Unexplained or mysterious disappearance of covered personal property is excluded if the only proof of loss is the property's mysterious or unexplained disappearance, without any physical evidence to indicate what happened to it. However, this exclusion does not apply to such property in the custody of carriers for hire or on board a covered yacht in the water that itself was stolen.

h. Voluntary Parting

Loss or damage caused by or resulting from any voluntary parting with either title to or possession of any covered property because of a fraudulent scheme, trick or false pretense is excluded.

3. Loss or damage caused by or resulting from any of the following is excluded. However, if a covered loss results, coverage applies to the resulting loss.

a. Latent Defect

There is no coverage for loss to property caused by a latent defect within it.

Note: Latent defect is a fault in the property that could not have been discovered by a reasonably thorough inspection. Inspections alone may not be sufficient to detect certain deficiencies without themselves being destructive. For example, wood beams in a vessel cannot be fully assessed without actually destroying them.

b. Mechanical Breakdown

Loss or damage due to mechanical or electrical breakdown or property failing is excluded. This includes rupture or bursting due to centrifugal force.

c. Osmosis, Blistering Or Electrolysis

The insurance company does not pay for loss or damage to the hull caused by any of these perils.

Note: Osmosis is diffusion of water through a semi-permeable membrane. An example of blistering involves paint where small to medium size bubbles develop under the paint film. Electrolysis is chemical decomposition produced in an electrolyte by an electric current.

d. Wear And Tear

Loss or damage caused by or resulting from wear and tear is excluded.

Note: Wear and tear is damage, diminishment in value or erosion due to long or hard use or exposure, including breakdown over time and eventually becoming unusable because of previous use. This includes the tendency of property to pull apart or break down into pieces because of forces applied to it.

LIABILITY COVERAGES

LIABILITY COVERAGE

1. Watercraft Liability

The insurance company pays all amounts a covered person becomes legally obligated to pay due to bodily injury or property damage caused by or resulting from a covered occurrence due to ownership or operation of the named insured's covered yacht. The most paid is the limit of insurance on the schedule of coverages for this coverage.

The insurance company also defends claims or suits asking for such damages that arise from covered bodily injury or property damage events. It may investigate or settle claims or suits but its obligation to defend ends when it has paid an amount equal to the limit of insurance in judgments or written settlements.

2. Medical Payments

The insurance company pays necessary medical expenses for persons sustaining bodily injury caused by an occurrence when they are on board the named insured's covered yacht. Necessary medical expenses must be medically determined or incurred within one year from the date of the occurrence.

The only medical expenses paid are the reasonable charges for medical, surgical, X-ray, dental, ambulance, hospital, professional nursing, funeral services, prosthetic devices, hearing aids, prescription drugs and eyeglasses, including contact lenses, and first aid rendered at the time of the occurrence.

LIABILITY COVERAGE EXTENSIONS

These coverage extensions are part of the limit of insurance and not in addition to them, unless indicated otherwise.

1. Additional Defense Expenses

The insurance company pays certain additional expenses in conjunction with suits it defends. They are:

Note: This does not include actually furnishing the bonds.

Note: This does not include actually applying for or furnishing the bonds.

Note: The insurance company does not pay any prejudgment interest after the time that it offers to pay the limit of insurance.

2. Newly Acquired Yacht

The insurance company pays all amounts that the named insured or a covered person becomes legally obligated to pay due to bodily injury or property damage caused by or resulting from a covered occurrence arising out of operation of an additional yacht acquired during the policy period. The most paid is the watercraft liability limit.

This coverage extension ends when the policy expires, 30 days after the purchase date, or when reported to the insurance company, whichever occurs first. Additional premium is due from the yacht's purchase date.

3. Non-Owned Yachts

The insurance company pays all amounts that a covered person becomes legally obligated to pay due to bodily injury or property damage caused by or resulting from an occurrence that takes place arising out of operating a non-owned yacht. The most paid is the watercraft liability limit.

Note: This coverage extension is excess of any amounts due from other insurance that applies to a covered loss, whether collectible or not. However, the insurance company never pays more that the limit of insurance that applies.

4. Removal Of Wreck

The costs incurred to raise, remove or destroy the wreck of the named insured's yacht are covered but only if required by law or as ordered by a governmental authority. This also includes unsuccessful attempts to do so. The most paid is the limit of insurance for this coverage extension on the schedule of coverages or 30% of the watercraft liability limit of insurance if there is not a separate limit.

 

Example: The Weeping Widow sank upon entering Cadaver Cay. The area was so shallow the government required removing the Widow in order to prevent damage to other vessels. The most paid was $300,000 because the watercraft liability limit is $1,000,000 and there is no separate limit for removal of wreck.

 

5. Replacement Yacht

The insurance company pays all amounts that the named insured or a covered person becomes legally obligated to pay due to bodily injury or property damage caused by or resulting from a covered occurrence arising out of operation of a temporary replacement for the covered yacht that was lost or destroyed, or that is being serviced, repaired or that is undergoing periodic maintenance. The most paid is the watercraft liability limit.

This coverage extension ends when the policy expires, 30 days after the date the replacement is acquired, or when reported to the insurance company, whichever occurs first.

EXCLUSIONS THAT APPLY TO LIABILITY COVERAGES

The insurance company does not pay for a loss if one or more of the excluded events listed below apply to it. This is regardless of other causes or events that contribute to or aggravate the loss, whether such causes or events act to produce the loss before, at the same time as or after the excluded event.

1. Exclusions that Apply To Watercraft Liability And Medical Payments

a. Business

Coverage does not apply to bodily injury or property damage resulting from any covered person's business activities.

Note: This exclusion is not limited to only the named insured's businesses.

b. Intentional And Criminal Acts

The insurance company does not pay for bodily injury or property damage expected, directed or intended by any covered person that results from a criminal act of any covered person, or that results from any covered person's intentional and malicious acts or such acts others commit at that person's direction.

c. Land Transport

There is no coverage for the named insured's liability for bodily injury or property damage while a land vehicle or trailer transports the covered yacht.

Note: This exclusion does not apply to a covered yacht being hauled out of the water or launched.

 

Example: The Vantage Point was being hauled on a trailer from Miami to Duluth. The chains holding it down snapped under the unusual strain caused by a curve the trailer took too fast and the yacht slid off and came to rest on the highway, causing a five-car pileup and delaying traffic for three hours. Separate lawsuits were filed against the transport company and the yacht's owner. Coverage under the owner's yacht policy was denied because of this exclusion.

 

d. Nuclear

Coverage does not apply to bodily injury or property damage resulting from an occurrence in cases where the covered person is also an insured under a nuclear energy liability policy or would be except that its limits were exhausted. The American Nuclear Insurers, Mutual Atomic Energy Liability Underwriters, Nuclear Insurance Association of Canada, and their successors issue such policies.

e. Pollutants

There is no coverage for bodily injury, property damage, or cleanup costs resulting from any release of pollutants into or on land, water or air.

f. Professional Service

The insurance company does not pay for bodily injury or property damage resulting from rendering or failing to render a professional service.

g. Racing

Bodily injury or property damage sustained while the named insured's covered yacht practicing or preparing for, or participating in, an official race or speed contest is excluded.

Note: This exclusion does not apply to sailboats.

h. Transportation For A Fee Or Illegal Transportation

Coverage does not apply to bodily injury or property damage caused by or resulting from transporting people or property for a monetary charge or illegal transportation or trade.

i. War

There is no coverage for loss or damage caused by any act of war. This includes undeclared and civil war, insurrection, rebellion, revolution or warlike action by a military force or by military personnel. It also includes property destroyed, seized or used for military purposes and both intentional and accidental discharge of nuclear weapons.

2. Exclusions That Apply Only To Watercraft Liability

a. Assumed Under Contract

The insurance company does not pay for the named insured's liability for bodily injury or property damage that it assumes under a contract or agreement.

Note: This exclusion does not apply to written contracts involving dock rental or indemnity agreements related to vessel storage.

b. Bodily Injury To You

There is no coverage for bodily injury to the named insured, relatives living in the named insured's household, and unrelated persons under 21 years of age living in the named insured's household and in the named insured’s care (or in the care of resident relatives).

 

Example: Becky invites her friend Jennifer to join her family for an outing on their yacht. They are both injured when they lose their footing and fall into the water. Since Becky is 17 and lives with her stepmother’s family, her injuries are not covered because she is under the care of the named insured. However, Jennifer's injuries are covered because she does not live in the household.

 

c. Compensation And Benefit Acts

Coverage does not apply to bodily injury to a person entitled to benefits that a covered person provides, or should provide, under the United States Longshoremen's and Harbor Workers Compensation Act, workers compensation, non-occupational disability, or occupational disease law.

Note: This exclusion does not apply to benefits available under the United States Longshoremen's And Harbor Workers Compensation Act when such required insurance coverage is on the schedule of coverages.

Note: IM 7763–Crew Coverage extends Watercraft Liability and Medical Payments coverage to the captain and crew as required under the Jones Act or general maritime law because of ownership or operation of the covered yacht.

d. Employees

The named insured's liability for bodily injury to his or her employee hired to operate or maintain the covered yacht is excluded.

Note: IM 7763–Crew Coverage may apply to such employees.

e. Fines

Fines or penalties any governmental agency assesses against the named insured or any covered person are not covered.

f. Owned Or Rented Property

The insurance company does not pay for property damage to property any covered person owns or that it uses rents or has in his or her care. However, coverage does apply to property damage to a launching ramp, dock, or vessel storage facility rented exclusively to a covered person.

 

Examples:

Steve is the only occupant of a storage building he rents to store his yacht. Coverage applies when his truck suddenly shifts into gear and destroys the building's garage door.

Steve also rents space in a larger storage building where he stores another yacht. Six different owners store their 12 vessels in it. This time, coverage does not apply when Steve’s truck suddenly shifts into gear and damages a common wall because he is not the only person renting the building.

 

3. Exclusions That Apply Only To Medical Payments

a. Compensation And Benefit Acts

Coverage does not apply to medical expense to persons covered by workers compensation, the United States Longshoremen's And Harbor Workers' Compensation Act, or any other federal or state compensation program that applies.

Note: IM 7763–Crew Coverage may apply to such employees.

b. Trespassers

Medical expenses to persons who trespass on board the named insured's covered yacht without his or her permission are not covered.

 

Example: Kirby Kieffner owned the Pretty Girl and insured it under a yacht policy. Karly, his teenage daughter, and some of her friends took the yacht out on the lake. Several young men in another boat came along side and attempted to board the Pretty Girl, despite Karly's protests. One was injured when he fell during the attempt. His medical expenses were not paid since he attempted to board the yacht without permission.

UNINSURED BOATER COVERAGE

Coverage

There are uninsured vessels just like there are uninsured motor vehicles and this coverage recognizes the fact. The insurance company pays all compensatory damages a covered person is legally entitled to recover from an uninsured vessel's owner or operator because of bodily injury a person on the named insured's covered yacht sustains due to an accident with an uninsured vessel. However, any judgment for damages arising out of a suit brought without the insurance company's consent does not impose any binding obligation on the company.

An uninsured vessel is one that causes bodily injury to a covered person on board the named insured's covered yacht and is at least one of the following:

Note: Exhaustion of limits does not come into play. This coverage does not apply to underinsured boaters.

 

Examples:

The Happy Warrior sideswipes Sally’s Way, injuring three persons on board. They sue the Happy Warrior's owner but discover that there is no coverage. The Sally’s Way owner turns to his insurance company for coverage.

The Happy Warrior collides with Sally’s Way, New Day and Horizon, causing serious injuries to persons on all three vessels. The injured persons contact their attorneys and file suits. The final settlements exceed $2,500,000 but Happy Warrior's Watercraft Liability limit is only $1,000,000. Even though all three vessels have Uninsured Boater Coverage, none of them can recover anything from it because the Happy Warrior had insurance coverage…just not enough.

 

Exclusions That Apply To Uninsured Boater Coverage

1. Claim Settlement

The insurance company does not pay for bodily injury if the injured person or his or her personal representative settles the claim without its consent.

Note: The insurance company insists on being involved in settling a claim before it pays for it.

2. Governmental Agency

Coverage does not apply to bodily injury an uninsured governmental unit or agency-owned vessel causes.

 

Example: The Village of Red Oak owns a vessel it uses on the lake for official governmental activities. It collides with the Red Dawn and injures three persons on board. The boat is not insured and the village claims sovereign immunity. The Red Dawn policy does not provide coverage because of this exclusion.

 

3. Racing

Bodily injury sustained while the named insured's covered yacht is practicing or preparing for, or participating in, an official race or speed contest is excluded.

Note: This exclusion does not apply to sailboats.

4. Transportation For A Fee Or Illegal Transportation

Coverage does not apply to bodily injury to a person involved in transporting people or property for a monetary charge or illegal transportation or trade.

5. Trespasser

Bodily injury to persons who trespass on board the named insured's covered yacht is excluded.

 

Example: Bill’s vessel left the bay and was struck by a hit and run vessel. Bill was surprised when he heard screams from the hold that turned out to be from an uninvited passenger who sustained a broken arm and internal injuries as a result of the collision. Coverage did not apply to the injured person because he was a trespasser.

 

6. Yacht Liability

There is no coverage under Uninsured Boater Coverage unless the covered yacht is also insured under Liability Coverages.

LONGSHOREMEN'S AND HARBOR WORKERS’ COMPENSATION INSURANCE

The insurance company pays the named insured's liability arising out of the United States Longshoremen’s And Harbor Workers Act (including any and all amendments) up to the Watercraft Liability limit of insurance. It also carries out the applicable provisions of Section 935 of the Act. It is not relieved of its requirement to pay compensation and other benefits lawfully due under the Act by the employer's bankruptcy or insolvency.

However, it only covers the named insured's liability under the Act when Watercraft Liability Coverage applies to its covered yacht. In addition, it does not cover the named insured's liability under the Act unless the schedule of coverages indicates that this coverage applies.

Note: This coverage is part of the limit of insurance for Watercraft Liability Coverage, not in addition to it, and does not increase the Watercraft Liability limit.

WHAT MUST BE DONE IN CASE OF LOSS

1. Notice

The covered person must give prompt notice of a loss to the insurance company or its agent. In addition, the covered person must notify the appropriate law enforcement agency if the event causing the loss is a crime. The insurance company may also require that the notice be in writing.

The notice must include the covered person's name and the policy number, time, place, and details of the loss as well as the names and addresses of all known potential claimants and witnesses.

2. Cooperation

Covered persons must cooperate with the insurance company in settling the claim, including performing all required acts.

3. Volunteer Payments

Covered persons are not permitted to make payments, pay or offer rewards, or assume any obligations or costs without the insurance company's consent. Doing so is at the person's own cost.

Note: This provision does not apply to costs allowed elsewhere in the policy.

4. Repairs

The named insured and covered persons have certain responsibilities. The insurance company pays reasonable costs the named insured incurs to make repairs and take emergency steps to protect a covered yacht from additional damage by an insured peril but only if a covered peril caused the damage to be repaired. Covered persons must take reasonable steps to protect a covered yacht at the time of loss and afterwards to avoid any further loss or damage and keep accurate records of such costs expended to do so. However, the insurance company does not pay anything unless the loss or damage was caused by a covered peril. Nothing in this provision increases the limit of insurance.

5. Other Duties–Hull Coverages

Covered persons must do the following, if the insurance company requests:

6. Other Duties–Watercraft Liability Coverage

If an occurrence that might result in a claim takes place, covered persons have certain responsibilities. They must promptly give copies of notices, demands and legal papers that relate to the occurrence or claim to the insurance company. In addition, and when the insurance company requests, covered persons must also help it:

7. Other Duties–Medical Payments

If a covered loss occurs, the injured person or someone acting on his or her behalf must give the insurance company written proof of claim as soon as practical and authorize it to obtain copies of medical records. The injured person must submit to medical examinations by doctors the insurance companies selects as often as reasonably required.

Note: The insurance company may require that the written proof of claim be given under oath.

HOW MUCH WE PAY

1. Hull Coverages

a. Our Limit

The most paid is the limit of insurance that applies, the named insured's interest in the property, or the amount determined under the Loss Settlement Term that applies, whichever is less.

Note: The amount paid is subject to the deductible or any other limitation that applies.

b. Deductible

This provision applies to Hull Coverages, Hull Coverage Extensions, and Supplemental Hull Coverages. It does not apply to Emergency Service. The insurance company pays only the part of a loss that exceeds the deductible.

Note: Since the deductible applies per occurrence, only the highest deductible applies to a loss involving property subject to different deductibles.

 

Example: Mark’s Dream is covered under a yacht policy with a $1,000 hull deductible. It strikes a dock, the hull is damaged, water seeps in, and Mark's personal property and personal effects are damaged. Rather than three separate deductibles on hull, personal property and effects being applied, Mark is responsible for only the $1,000 hull deductible because it is the highest.

 

c. Loss To A Pair Or Set

If an item that is part of a pair or set sustains loss or is damaged, the insurance company pays either only the amount to replace or repair it or the difference in the actual cash value of the pair or set before and after the loss.

d. Loss To Parts

If an item consisting of several parts when it is complete sustains loss or is damaged, the insurance company pays only its value or the cost to repair or replace it.

e. Loss Settlement Terms

·         Yacht, Total Loss

If a covered yacht sustains a constructive total loss or an actual total loss, the most the insurance company pays is the limit of insurance indicated on the schedule of coverages, even if the cost to recover, repair, replace or rebuild it is more than the limit.

A total loss to a covered yacht is not paid unless it is completely loss or destroyed or the cost to recover and repair it is more than the limit of insurance for it.

The amount the insurance company pays is reduced by the amount it paid to repair previous damage that was not completed caused by a covered loss.

 

Example: The My Cheri was damaged when it struck a dock. The insurance company paid the $10,000 loss but the owner decided to wait until after the boating season to make the repairs. Later in the same season, a sudden storm swamped the yacht and it sank in deep water. Fortunately, the owner and passengers were rescued. The insurance company decided that the yacht was a total loss because the recovery costs would be more than the vessel was worth and paid the limit, reduced by the $10,000 it paid earlier.

 

·         Yacht, Damage That You Repair Or Replace

The insurance company pays the costs to repair or replace the yacht, without a deduction for depreciation. The amount it pays is either the yacht limit for the covered yacht on the schedule of coverages or the amount actually spent to repair or replace it with similar materials according to generally accepted repair practices or the manufacturer's specifications.

·         Personal Property

If Personal Property And Equipment or Personal Effects sustain loss or are damaged, the insurance company pays the cost to repair or replace, the actual cash value, or the limit of insurance that applies, whichever is less.

·         Yacht Trailer

If a covered trailer sustains loss or is damaged, the insurance company pays the cost to repair or replace it, its actual cash value, or the limit of insurance indicated on the schedule of coverages that applies, whichever is less.

2. Liability Coverages

a. Watercraft Liability

The most the insurance company pays for each occurrence is the Watercraft Liability limit of insurance on the schedule of coverages, regardless of the number of persons insured, parties sustaining injury or damage, claims made or suits brought, number of covered yachts, or vessels involved in an accident.

b. Medical Payments

The most the insurance company pays for all medical expenses for bodily injury to one person resulting from one accident is the Medical Payments limit of insurance per person on the schedule of coverages. If there is a limit for Medical Payments per accident, it is the most paid for any one accident.

Note: Paying such claims is not an admission by the insurance company that it is liable under Watercraft Liability.

3. Uninsured Boater Coverage

a. The Most We Pay

The most the insurance company pays for Uninsured Boater Coverage is the limit of insurance on the schedule of coverages, regardless of the number of persons insured, parties sustaining injury or damage, claims made or suits brought, number of covered yachts, or vessels involved in an accident. However, the amounts otherwise payable for damages under this coverage are reduced by:

·         Amounts paid because of bodily injury by persons who may be legally responsible or on their behalf, including amounts paid under Watercraft Liability

·         Amounts paid or that become payable under any United States Longshoremen's And Harbor Worker's Compensation Act, workers compensation, occupational disability or occupational disease law

Note: Amounts paid under this coverage reduce the amounts a person is entitled to recover for the same damages under Watercraft Liability and Medical Payments.

b. Arbitration

If the insurance company and a covered person disagree about whether that person is legally entitled to recover damages or the amount of damages under this coverage, either may demand arbitration in writing. In that case, each party selects an arbitrator and identifies the arbitrator to the other party within 20 days of receiving the written demand. The two arbitrators then select a third one within 30 days or have a judge of a court having jurisdiction appoint one if they cannot agree on one. Arbitration proceedings take place in the covered person's county of residence unless both parties agree to a change in venue. Local rules of law concerning evidence and procedures apply to arbitration proceedings.

Written agreements by any two arbitrators are binding with respect to whether the covered person is legally entitled to recover damages and the amount. Each party pays its own expenses but shares the third arbitrator's expenses equally.

Note: Uninsured Boaters Coverage poses unusual problems between the named insured and the insurance company. The named insured sues the liable third party and the insurance company represents that third party even though the named insured is the injured party. This can create a problematic, adversarial relationship. This is the reason that arbitration is such an important provision.

4. Insurance Under More Than One Coverage

The insurance company does not pay more than the actual loss, even if two or more coverages in the policy apply to that loss.

Note: This is consistent with the Principle of Indemnity that makes the named insured whole, not in a better position than before the loss occurred.

5. Insurance Under More Than One Policy

This insurance is excess over any other valid and collectible insurance that applies to the loss or claim. This provision does not apply to excess insurance over and above the Watercraft Liability limits of insurance. However, if the other insurance is also excess, the insurance company pays only its proportionate share of the loss, based on its limit's proportion of all limits that apply to the loss.

6. Restoration Of Limits

Losses paid do not reduce the limit of insurance that applies unless a covered item on the schedule of coverages sustains a total loss. If that occurs, the insurance company returns any unearned premium for that property.

LOSS PAYMENT

1. Your Property

The insurance company adjusts each loss with the named insured and pays a covered loss within 30 days after receiving an acceptable proof of loss and the amount of loss is agreed to in writing. If the parties do not agree, the insurance company pays within 30 days after an appraisal award is filed with it. It pays the named insured unless a loss payee is named.

2. Property Of Others

The insurance company has the option to adjust and pay losses to the named insured on the owner's behalf or directly to the owner.

Note: If the company pays the owner, it does not have to pay a covered person.

3. Our Options

The insurance company has the option to either pay for the loss in money or arrange to have the property rebuilt, repaired or replaced. It must tell the named insured of its choice within 30 days after it receives an acceptable proof of loss. Any property the insurance company pays for or replaces becomes its property.

4. Liability Coverages

If a person secured a judgment against a covered person for an insured loss, or if liability is established in a written agreement between the claimants, a covered person and the insurance company, that person is entitled to recovery to the extent of the coverage this policy provides.

OTHER CONDITIONS

1. Bankruptcy

Bankruptcy or insolvency of a covered person does not relieve the insurance company of its obligations under this policy.

2. Conformity With Statute

Any coverage condition that conflicts with the provisions of a law is amended to conform to that law.

Note: Any time this policy varies from a state statute, the state statute applies.

3. Misrepresentation, Concealment Or Fraud

This coverage is void if the named insured or any other covered person willfully conceals or misrepresents facts or circumstances that relate to this insurance or their interests in it, or if they engage in fraud or false swearing with respect to anything that relates to this insurance or the subject of the coverage provided.

4. Policy Period And Navigation To Port

The insurance company pays only covered bodily injury and property damage losses that take place during the policy period. However, covered yachts in the course of navigation when this policy expires are covered until they arrive at the next port and are safely moored for 24 hours.

Note: The named insured must inform the insurance company of such an event before the policy expires and pay any additional premium required. Otherwise, coverage ends on the expiration date.

 

Example: The Flying Fish goes out to sea for a three-week vacation cruise. However, its insurance policy expires halfway through the voyage. Its owner suddenly remembers this on his way out and calls his agent. The agent, in turn, notifies the insurance company and it extends the policy until the Flying Fish returns from the trip.

 

5. Recoveries

This condition applies if the insurance company pays a loss and the lost or damaged property is subsequently recovered or the parties responsible for the loss pay for it. Either the named insured or the insurance company must let the other know if it recovers property or receives payment. Any costs either party incurs in doing so are paid first. If the named insured decides to keep the property, he or she must return the amount the insurance company paid to it, unless it agrees to a lower amount. If the amount the insurance company paid was less than the agreed value due to application of a deductible or some other limitation, the recovery is prorated between the two parties based on their respective interests in the loss.

6. Subrogation

The insurance company acquires the named insured’s rights of recovery from third parties after it pays a loss. The named insured must assist the insurance company in securing those rights. The company does not have to pay a loss if the named insured hinders those rights but the named insured can waive rights of recovery against third parties in writing before a loss occurs without affecting coverage. If the company pays a loss to or for the named insured and the named insured subsequently recovers all or part of the loss amount from another party, it must pay the insurance company as required under the Recoveries condition.

Note: This condition does not apply to Medical Payments.

7. Suits Against Us

Nobody may sue the insurance company until and unless all policy terms have been met.

a. Hull Coverages

Suit must be brought within one year after the date of loss. If a law in the state where the covered yacht is located has a different time period, this condition conforms to that time period.

b. Watercraft Coverages

The amount of the covered person's liability must be fixed by a final judgment as a result of a trial or by a written agreement between the claimant, the covered person, and the insurance company.

Note: Under this policy, nobody has the right to join or name the insurance company in an action brought to determine the liability of a covered person.

8. Appraisal

The insurance company and the named insured may not always agree on the value of a covered claim. This condition provides one method to solve disputed claims.

Either party can request an appraisal to determine the value of a disputed claim. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and identify the appraiser to the other party. The two appraisers then select an umpire. If they cannot agree on one, they must ask a judge in the court of record in the state where the appraisal is pending to select one. A written agreement between any two of these three is binding and sets the amount of loss. Each party pays its own appraiser's expenses. Both parties share the cost of the umpire and other expenses.

9. Death

If the named insured dies, the person having custody of his or her property is a covered person until a legal representative is qualified and appointed. If the named insured dies and has assigned a legal representative, that legal representative is a covered person. Such person or organization is a covered person only with respect to the property insured under this policy and for liability arising out of it.

Note: This coverage does not extend past the expiration date.

10. No Benefit To Bailee

This insurance is not for the direct or indirect benefit of any party paid to take custody of the covered property.

11. Liberalization

Any policy revision put into effect during the policy term or within six months before its inception date that broadens coverage without an additional premium charge applies to this policy.

12. Business Use

Coverage does not apply while the named insured's covered yacht or a non-owned yacht is rented to others, hired out or chartered to others for their use, or used by the named insured or another covered person for business purposes unless the insurance company agrees in writing.

Note: IM 7761–Business Meeting And Entertainment Coverage and IM 7762–Chartering Coverage is used to satisfy the insurance company's requirement for written authorization.

13. Lay-Up Conditions

Certain conditions apply during the lay-up period on the schedule of coverages. During the period, covered yachts are not to be navigated and must be safely stored in berths either afloat or ashore. Coverage is void if these conditions are not met. However, coverage applies if a covered yacht is moved from one storage location to another during the lay-up period. In addition, the named insured or another covered person may use the covered yacht for an additional 15 days at the beginning and at the end of the lay-up period but doing so does not extend the policy period.

ENDORSEMENTS

AAIS developed the following endorsements to use with the Yacht Coverage Form.

IM 7761–Business Meeting And Entertainment Coverage

This endorsement extends the coverages provided while the named insured uses the covered yacht for business meetings or entertainment. Other business use exclusions are unaffected and remain in force.

IM 7762–Chartering Coverage

This endorsement extends the coverages provided while the covered yacht is chartered or hired out to other parties for their use. It requires that a paid captain must be in control of the covered yacht at all times during the hire out or charter period.

IM 7763–Crew Coverage

This endorsement extends Watercraft Liability and Medical Payments coverage to the covered yacht's captain and crew. However, coverage does not apply to the named insured's employees performing work on the yacht while it is docked.

Note: This coverage is included in the limit of insurance. If this coverage is attached, consider increasing the Watercraft Liability limit because of the added exposure.

IM 7764–Electronic Equipment–Lightning Deductible

The named insured uses this endorsement to select a different deductible to apply to loss or damage caused by lightning to the yacht's electronic equipment.

Note: The deductible selected is usually lower.

IM 7765–Restricted Water-Skiing Coverage

This endorsement provides a separate limit under Watercraft Liability Coverage that is the most paid for each occurrence due to bodily injury to a person water skiing while being towed by a covered yacht. This limit is part of and not in addition to the Watercraft Liability Limit Of Insurance.

Note: There is no restriction on water skiing if this endorsement is not attached.

IM 7766–Water-Skiing Exclusion

This endorsement excludes bodily injury that results from a person water skiing while being towed by a covered yacht.

IM 7767–Actual Cash Value–Hull Coverage

This restrictive endorsement deletes the Yacht, Total Loss and Yacht Damage That You Repair Or Replace provisions and adds the Yacht provision in their place. It states that the insurance company pays the least of the actual cash value, the cost to replace with like kind and quality, or the limit of insurance.

It adds a further restriction by introducing a coinsurance clause. A percentage must be on the schedule of coverages a penalty is applied to the loss amount if that percentage multiplied by the value of the covered yacht is less than the limit of insurance for it. The insurance company determines penalty by dividing the limit of insurance by the limit that should have been carried and multiplying the result by the amount of loss.

IM 7768–Ice Damage Or Freezing Coverage

This endorsement provides additional Hull Coverage. It pays for loss or damage caused by or resulting from ice or freezing while the covered yacht is laid up afloat for winter storage. However, it excludes such coverage unless the covered yacht is winterized and properly protected by a bubbler system.

Note: Bubbler (or Air Diffusion) Systems use characteristics of nature to melt ice in marinas or facilities that provide storage afloat. They form bubbles that lower the density of the heavier and warmer water on the bottom and cause it to rise to the surface. The colder, heavier surface water then rolls to the bottom, where it absorbs the heat from the earth and is returned to the surface to continue the melting process.

UNDERWRITING CONSIDERATIONS

Yacht underwriting involves analyzing a wide range of property that can be covered, such as the yacht itself (commonly referred to as the hull), motors, sails, machinery, equipment, boat trailers, and personal effects. In addition to Bodily Injury and Property Damage liability coverage, Liability insurance also includes coverage for Medical Payments, Longshore And Harbor Workers Compensation, and Uninsured Boaters coverages. This includes analyzing the vessel and its equipment's age and physical condition, experience and qualifications of its skipper (or a paid captain and crew), and other operational factors.

The year built, manufacturer, and model of the vessel and its motor or motors must be considered. The vessel's length, weight, style, hull material, value and limit of insurance must be examined, as must the type of motor (inboard, inboard/outboard, or outboard), horsepower, maximum speed, and type of fuel. Older vessels must be underwritten more carefully. The limit of insurance should reflect the vessel's approximate value and providing adequate limits is important, keeping in mind that even a partial loss to an older vessel written for its depreciated value may exhaust the limit of insurance. A licensed marine surveyor should inspect the vessel periodically to determine that its condition is sound, that it is seaworthy, and does not have any operating limitations or qualifications. In all cases, the vessel should be operated for the purpose it was manufactured for and it should not be used for any activity that exceeds its capabilities.

Along the same line, the motor's maximum horsepower should not exceed the manufacturer's maximum operating horsepower. Speed is a relative issue, based on the vessel's primary use, and is more important for vessels that tow skiers than for those engaged in pleasure cruising or fishing. A very important thing to keep in mind is that faster vessels are more likely to be stolen. Diesel fuel is less volatile than gasoline and diesel-powered vessels are usually slower than gasoline-powered vessels, which are also subject to more frequent and severe fires.

Equipment should be suitable to the type of vessel involved and how it is used. A small sailboat that operates on large inland lakes or bodies of water does not need much of the equipment found on power craft that operate on the ocean well away from shore. The type of navigation equipment must be examined. This includes Global Positioning Satellite (GPS) systems, plotters, depth finders, radar and other navigation equipment. Fire extinguishers, automatic fire extinguishing systems, fume detectors, and carbon monoxide detectors are more important on power craft. All navigation equipment and protective devices should be inspected and tested periodically.

Operator experience is extremely important. Since many of the characteristics of operating a motor vehicle also apply to vessel operators, a Motor Vehicle Report (MVR) is a good first step to gain insight into an operator's skill and experience. The same line of thinking applies to youthful operators. Taking "power squadron" or other recognized instructional operating courses is suggested and advanced courses are recommended for most operators. All operators should obtain the latest weather report before taking a vessel out of its slip or moorage. Paid captains and crews are favored over individual operators in almost all cases.

At least five years previous loss experience in operating the vessel or similar vessels is preferred and should be obtained. However, previous loss experience may or may not predict future loss activity.

Navigation area is a significant consideration. While conventional wisdom suggests that vessels on inland waters are more desirable, keep in mind that they may be exposed to barge traffic, congestion and underwater trees and stumps on man-made lakes and reservoirs in addition to ordinary navigational issues. Regardless of the body of water, smaller vessels should operate relatively close to shore and only larger vessels with experienced operators, captains or crews and extensive navigational and protective equipment should ever get more than 15 miles from shore.

The lay-up period and storage facilities must be examined carefully. Some vessels in certain areas can operate year-round. Others, such as those that operate in northern waters, are laid up and not operated for at least part of the year, primarily during the winter months. The lay-up period should be commensurate with climatic and water conditions. Lay-up can be on shore or in the water, with on shore storage preferred. Lay-up in the water usually requires a bubbler system or other means to keep the water from freezing and damaging the hull. In any case, some degree of winterizing the vessel may be required. A qualified professional should always do this and do so at a marina or similar facility.

Land transit is a consideration, especially for smaller vessels. In many cases, the named insured does it using his or her owned trailer. In others, carriers for hire are used. Factors such as the physical ability of the trailer to accommodate the vessel, the driver's experience and ability, distance, terrain, and trip frequency must be evaluated.