UNINSURED/UNDERINSURED WATERCRAFT CONSIDERATIONS

(July 2018)

This article is adapted from “Uninsured Watercraft: Navigating Choppy Waters,” an article by Donald Malecki which originally appeared in Rough Notes Magazine. It discusses several aspects of uninsured boaters coverage, which is not standardized. While it is quite like uninsured motorists, there are significant differences that must be addressed when recommending and/or using this protection.

Watercraft coverage needs

Personal watercraft insurance is not limited to coverage for loss or damage to the hull and to liability protection. Many of the same coverages written for personal autos also are available for personal watercraft.

It is, of course, advantageous when insurers offer a package policy for personal watercraft because the coverages in the package can serve as a checklist.

Not all insurers offer boatowners package policies, however, and when it is necessary to sell coverages piecemeal, it is important for producers to understand all the available coverages and to discuss them with the client.

Although some states have regulations with respect to the purchase of personal watercraft insurance, many boaters unfortunately still go without insurance. Even when boatowners are amenable to purchasing hull and liability insurance, some fail to realize that they themselves could be seriously injured at the hands of irresponsible or careless boaters.

Boatowners who are receptive to purchasing uninsured watercraft coverage still need to be educated on why, as with personal auto insurance, the UM/UIM limits should be at least equal to their liability limit. It is difficult to comprehend why motorists purchase high liability limits to pay for injuries to others and low limits to protect themselves. This points up the need for agents to communicate with and educate their clients about all the exposures associated with owning and operating personal watercraft.

Uninsured coverage varies

When an uninsured boater causes an accident, the other party's uninsured watercraft insurance should pay for the injuries and medical expenses incurred, up to the specified limits.

The fact that a boatowner purchases uninsured watercraft coverage, however, does not mean that the insurer becomes legally obligated to pay every time a boating accident involves an injury. As with personal auto insurance, a boating accident must involve an uninsured watercraft and must adversely affect the insured. This means that the provisions of uninsured watercraft coverage must be considered carefully, just as with autos.

In fact, some of the disputes involving uninsured watercraft are like those with uninsured autos. A case in point is Progressive Specialty Insurance Company v. Alys Mass, et al., (No. 04-4016 U.S. Dist. Ct. Dist. MN 2005), which involved injuries sustained by a boatowner's friend while water skiing.

As the skier was completing a turn behind the boat that was towing him, he encountered waves created by the wakes of both the boat towing him and another boat (whose operator was never identified), causing him to fall and injure his leg. When presented with a claim under the uninsured watercraft coverage held by the owner of the towing boat, the insurer brought an action denying coverage.

The insurer asserted that it was entitled to deny coverage because the unidentified boat was not an "uninsured watercraft" and the skier (claimant) was not an "insured person."

The term "uninsured watercraft" in the boatowner's policy was defined to mean a "hit-and-run watercraft whose operator or owner cannot be identified and which strikes…a covered watercraft." In the context of motor vehicles, the term "hit-and-run" is synonymous with a vehicle involved in an accident causing damages where the driver flees from the scene, regardless of whether physical contact between that vehicle and the insured's auto occurs.

The insurer asserted that the unidentified boat was not an "uninsured watercraft" because it struck neither the named insured's boat nor the claimant himself. The claimant countered with the argument that the policy's definition of "uninsured watercraft" did not contain a physical contact requirement and that the unidentified boat struck him with its wake.

The court did not agree with this thinking and stated that if the policy's definition of "uninsured watercraft" were limited to unidentified "hit-and-run" watercraft, the claimant's assertion that an uninsured watercraft need not make physical contact with a covered watercraft might have prevailed. The court added that to be considered an "uninsured watercraft," however, a hit-and-run watercraft must also "strike" a covered watercraft.

The sole case the claimant cited in support of his argument dealt with a hit-and-run situation involving an automobile. The problem is that, although there are similarities with the uninsured motorists coverage for autos and watercraft, the two kinds of vehicles are not treated the same.

Uninsured motorists coverage for autos is mandated by law whereas coverage for watercraft is not. As a result, uninsured motorists coverage for autos does not necessarily apply in similar situations involving uninsured watercraft.

Insured status

Another case where a serious injury was sustained by a guest (claimant) on a pleasure craft and where coverage was successfully denied because the claimant was held not to be an insured is Mize v. Travelers Casualty Company of Connecticut (4:09-cv-0076-TLW-TER (U.S. Dist. Ct. Dist. S.C. 2011).

Immediately before the accident, the claimant was standing in the stern of the boat looking at the scenery. At that time, an uninsured boat struck the rear of the insured's boat, injuring the claimant and two other passengers. The claimant was immediately taken to the hospital and was diagnosed with and treated for quadriplegia.

The insured's watercraft policy at issue contained an endorsement titled "uninsured boat coverage" that stated: "We will pay damage which you or any insured are legally entitled to recover from the owner or operator of an uninsured boat because of bodily injury caused by a collision with the uninsured boat. The owner's or operator's liability for these damages must arise out of the ownership, maintenance or use of the uninsured boat. “Collision” means the striking of a fixed object such as a dock, pier, buoy or a vessel at anchor by a moving vessel."

The named insured's policy also defined "insured" as meaning "(1) you; (2) your spouse and/or relatives who reside in your household (resident relatives); and (3) any person or legal entity while operating your boat with an insured's permission and without a charge or fee."

The insurer maintained that the guest/passenger/claimant did not qualify as an insured because she was a passenger and not the operator.

Even though the term "operator" was not defined by the policy, the court held that the term was not ambiguous and did not include the claimant. To be considered an insured, the court explained, a person would have to perform a function to exert power or influence over the boat, and the claimant's position at the time of the accident, of standing in the stern looking for navigational obstructions, was not sufficient to meet that criterion.

Summing up

Whenever the owner of a pleasure craft wants to purchase insurance, the agent or broker should always recommend buying uninsured watercraft insurance because some people who own or operate watercraft go without insurance for essentially the same reasons as when they operate automobiles.

Uninsured watercraft insurance can be expensive, so clients often decline it. Unlike uninsured motorists coverage, watercraft coverage can be written without a written rejection of uninsured watercraft. It is not until an accident happens that boatowners learn for the first time what uninsured watercraft insurance might have done for them.

Also unlike uninsured motorists insurance, uninsured watercraft insurance is not required by law, and courts therefore do not use the same interpretations of coverage that are commonly used in cases involving auto accidents.

Another problem with uninsured watercraft insurance, as seen in the Mize case, is that coverage does not always apply to persons other than owners and their resident relatives. Whether coverage applies to guests will depend on the endorsement.

Even though the exclusions in uninsured watercraft policies track closely with those in uninsured motorists coverage, uninsured watercraft coverage is much less standardized. This means that agents, brokers, and their clients must understand and carefully consider the provisions of uninsured watercraft insurance.

Because personal watercraft are used for pleasure, the occupants may not only be family members but also friends and invitees of friends who are not even acquaintances of the boatowner. Since watercraft policies are not standardized, they need to be reviewed to properly determine the possible beneficiaries of insurance in the event of an accident.

Despite the problems with uninsured watercraft coverage, agents and brokers should still recommend it. If a client or prospect refuses coverage, get it in writing to protect yourself against potential errors and omissions claims in the event of an accident involving your client and an uninsured watercraft.