ISO Watercraft Policy Analysis

ISO WATERCRAFT POLICY ANALYSIS

(January 2020)

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Many persons who need protection for watercraft property and its related liability handle things by modifying their homeowner policy. However, a separate policy is a more comprehensive method. In addition to offering broader coverage, a dedicated policy is necessary because many types of boats do not qualify for coverage under a homeowner form. HO coverage is restricted to boats of modest size, power and value.

This article analyzes some features and issues found in Insurance Services Office’s WT 00 01–Watercraft Policy (01 10 edition).

Agreement

Under the watercraft policy, the carrier obligates itself to provide coverage, according to the stated terms and conditions (including relevant exclusions). This obligation is triggered by the insured paying the applicable premium and doing so on time. Insureds must also comply with other policy provisions.

Example: Terrance and Julia Bowsprit are insured under a policy with an inception date of 4/2/18 to 4/2/19. Their insurer sends a renewal policy with 4/2/19 to 4/2/20 effective dates. On June 9, 2019, the Bowsprits' powerboat collides with a sailboat, demolishing the latter's hull. They turn in a claim, but it's denied as the Bowsprits had failed to pay the renewal premium.

Definitions

This section precedes the policy's coverage parts and consists of the following defined terms (which, in a typical policy, may appear either in boldface or in quotation marks):

A. "You" and "your" are references to the insured who appears in the policy declarations (or schedule) and that person's spouse. However, the spouse must live in the same household as the listed insured.

When a marital relationship ends, the status of the former spouse who leaves the residence remains as an insured temporarily. Such persons stop being an insured when the earliest among the follow takes place:

After 90 days of having left the residence
At the applicable policy term’s expiration date
At the moment the former spouse becomes a named insured under another policy

Example: An insured and her spouse are insured and have a small yacht with a policy term of 5/2/19 to 5/2/20. On 7/5/19, the couple splits up, with the husband leaving (the wife was the named insured). On 10/25/19, the husband brings a girlfriend onto his wife’s boat and the girlfriend is injured while on board and sues. The husband no longer qualifies under the definition of “you” or “your” because he is no longer a member of the named insured's household.

B. "We", "our," and "us" mean the company that issues and maintains the watercraft coverage.

C. The following terms have a meaning while used within the policy:

1. "Bodily injury" refers to sickness, disease, or bodily harm. This definition even includes death if it is a direct result of sickness, disease or bodily harm.

Example: Klarence is insured under a watercraft policy. While cruising, he slams into a rowboat, crushing it and throwing its two occupants into the water. A couple months later, Klarence gets a notice from a lawyer. He represents the family of one of the injured fishermen. The family is suing him for medical treatment and related expenses. Three weeks after the initial notice, he hears from the same lawyer. The family's suit has been amended since the injured fisherman died from related wounds that became infected.

2. "Business" means any trade, profession or occupation. In other words, it is any activity that is intended to generate income.

Example: Lucy loves her trusty outboard and also loves to be helpful. At her favorite lake:

Scenario 1: Lucy gives boat rides to others from one point of the park surrounding the lake, to another for free – losses involving this activity would not be considered commercial activity.

Scenario 2: Lucy provides a ferry service, moving others from one point of the park surrounding the lake, to another for a fee – losses involving this activity would be treated as business related.

3. “Family member”–persons also qualify as insureds under the watercraft policy if such persons are blood relatives, married to a person defined as the named insured, or who is an adoptee, ward or foster child of a named insured. But this expanded insured status only applies when they ALSO live with the named insured.

4. "Newly acquired property” - refers to watercraft, outboard motors or a watercraft trailer. This property qualifies as newly acquired on the date that it becomes a possession of a named insured during the applicable policy period.

Note: This term does not apply to personal watercraft (another defined term).

The watercraft policy provides only temporary protection to such property. If a named insured acquires additional property after the policy period begins, that property is covered for a maximum of 14 days after the date it came into the insured’s possession. It also enjoys the same scope of coverage as the broadest amount that applies to the same type of property appearing on the applicable policy schedule.

Example: Jamie has a watercraft policy effective 4/1/19 – 4/1/20.
Jamie Jamer’s Watercraft Schedule
Equipment	Liability	Physical Damage
2006 Lakelord OB Motorboat	$100,000	$8,900
1985 Slymline OB Motorboat	$100,000	NA
On 6/12 Jamie is on her favorite lake with her newest outboard motorboat—a ’14 model for which she paid $12,000 on May 31. Unfortunately, Jamie is talking excitedly with a friend as she brings it in to dock and she slams the boat against the wharf. Because one of her boats has physical damage coverage and the loss was within 14 days of purchase, the accident is covered.

After having a new item for more than 14 days, that property can gain coverage ONLY by being reported to the insurer and added to the policy.

5. "Non-owned watercraft" is any boat, motor or boat trailer that is in the possession of a named insured, that insured’s spouse or relative; however, it is not owned or is regularly available to any of those parties.

Non-owned watercraft is eligible for coverage due to it representing a very minor exposure under the watercraft policy. That is the reason that merely “not owning” such property is not the only criterion for classifying it. This definition excludes coverage for situations where an insured has constant use of property that belongs to other persons. It is logical to exclude such exposure since protection is the responsibility of property owners.

6. "Occupying" is defined as instances of a watercraft that someone is in, upon, getting in, getting on, getting out or getting off.

Example: Betsy is filing a claim under her watercraft policy. Her friend, Jim, is suing her because, while he was climbing onto her boat, he slipped and fell backwards onto the pier. The loss should qualify for coverage because, at the time of the accident, Jim was occupying the covered property.

7. "Outboard motor” refers to motors designed to facilitate the movement of a boat via its being attached to the outside of a craft. The term also includes fuel tanks, pressure-control tanks, starters (electric) and other, motor-related controls.

8. “Personal Watercraft” means any object powered by an inboard motor, propelled by a jet of water, carrying at least one person and used for recreation. Riders may be accommodated in a sitting, standing or kneeling position.

Related Article: Personal Watercraft Coverage

9. "Property damage" means the loss of use of, damage to or destruction of tangible property.

10. "Watercraft trailer" is a trailer with a purpose of transporting watercraft via a non-commercial motorized vehicle (van, car or pick-up truck).

11. "Covered Watercraft" refers to either the watercraft that appears on the declarations or schedule, watercraft an insured secures after the policy period begins (but only up to 14 days of its acquisition date) and any outboard motor that is shown on the declarations. Leased watercraft, motors and trailers, if under a written agreement for a period of at least six months, is treated as owned equipment.

Note: The policy addresses replacement watercraft via its definition of newly acquired watercraft.

PART A – Liability Coverage

A. Insuring Agreement

1. The watercraft policy covers both "bodily injury" and "property damage" for which a covered person is legally obligated to pay because of an accident involving a covered watercraft (craft that is specifically described in the policy or schedule). The agreement also obligates an insurer to defend a claim or lawsuit. However, once the policy's limit of liability has been exhausted, the insurer's obligation to continue paying to legally defend an insured ends.

Example: Bill Badboater is being sued for colliding with another boat. Bill’s insurer defends his suit and dutifully pays lawyer fees and court costs. Bill’s policy has a combined single liability limit of $100,000. The claimant is suing for $300,000 in damages and her claim is bolstered by a very credible group of witnesses. After a careful evaluation of the case, Bill’s insurer determines that it isn’t viable to refute the amount of damages being claimed and that their effort, even if made, couldn’t guarantee a victory. The insurer offers to pay out the full policy limits. The claimant accepts their payment but continues the suit for the additional damages. The cost of continuing any defense is now Bill’s responsibility.

The watercraft policy contains a, potentially, unlimited defense obligation since it has no specific monetary limit on the amount paid to defend a covered person. However, the policy does allow a company to have some control over their financial duty to protect a covered person in a given claim. A company does not have to provide a defense under ALL situations. An insurer doesn’t have to defend any "bodily injury" or "property damage" loss that isn't covered by the policy. The insuring agreement also gives the insurer the right to offer a settlement as it sees fit. If a settlement or judgment completely depletes the applicable policy limit, that also ends the insurer’s obligation to provide a legal defense.

Related Court Case: Defense Still Owed For Deliberate Incident – this illustrates that an insurer’s coverage and defense obligations are distinct

2. Under the liability section, the definition of an insured includes:

a. You (the person or persons appearing on the policy) and relatives (as defined by the policy). Coverage exists only with regard to such persons owning, using or maintaining covered property. Coverage also applies to a loss involving a non-owned watercraft used by an insured.

b. Any person using a watercraft that qualifies as a covered craft.

Example: Fred’s “Horizon Bounder” is insured under a watercraft policy. One day, his neighbor, Jeri, asks to use his boat for a Saturday fishing trip. While returning to shore, Fred’s neighbor fails to see a canoe in time. He smashes into the canoe and injures its owner. The watercraft policy would cover the loss but only up to the policy limit.

c. Other persons or organizations are eligible for coverage against damages which they cause, but for which a named insured, a resident spouse or a "family member" is responsible because of their acts or omissions in providing the watercraft.

d. Other persons or organizations also are covered for their acts or omissions in providing a watercraft to a named insured, a resident spouse or a "family member" who causes damage or injures others with that non-owned craft or its trailer.

B. Supplementary Payments

This section advises the insured of several, additional coverages that are available. The amounts that may be paid under this section have the added benefit of NOT reducing the policy’s other insurance limits.

1. The watercraft policy makes a maximum of 10% of the policy’s Part A insurance limit available to cover expenses the insured is required to incur because of the Maritime Salvage Law when a covered watercraft is wrecked. Funds are available for addressing the costs to raise, move or destroy the craft.

Example: Two months earlier, Wanda’s sailboat was among the many boats at Municipal Pier that were destroyed during a severe storm. She receives a notice from her city’s Recreation and Parks Dept. that she has been charged $2,300 for the cost to have her boat wreckage cleared. Wanda’s policy will respond to this expense.

2. One supplemental coverage will pay for the cost of bail bonds, but this coverage is limited to a total of $250. Also, the bond must be connected with an accident covered by this policy.

3. The policy pays for the costs of premiums on appeal bonds and attachment bonds, but only those involved in a suit that the insurance company is defending.

4. The Watercraft policy also pays for any interest on judgments that have been entered. However, any payment obligation ends if the policy's limit of insurance is reached.

5. The watercraft policy pays for loss of earnings caused by hearings or trial attendance and other reasonable expenses caused by an insurance company's request.

Example: June Unlukki is asked to appear at a preliminary hearing involving her boating accident where she collided with a group of swimmers. June gets permission to take an unpaid day off from work to attend and testify at the trial. The insurer says that they will pay for her loss of a day’s wages.

Concerning loss of pay, the policy pays a maximum of $200 per day because of lost earnings; this supplemental coverage does not include loss of other sources of income.

6. Finally, under Supplementary Payments, the policy will pay any reasonable expenses that are due to activity requested of an insured by the insurer.

Example: Sammi Kollum’s insurer is defending a lawsuit filed against him for an accident that occurred during an out-of-state boating trip. Sammi’s insurer has arranged for him to travel to a lawyer’s office in that state so that he can participate in a deposition. The insurance company assures Sammi that they will pay for all expenses including travel, meals, hotels, etc.

C. Exclusions

1. The following situations do not qualify for protection under this section of the policy:

a. The Watercraft Policy doesn't provide liability protection to insureds who intentionally injure other persons or damage another party’s property. Because this point sometimes causes confusion, it's important to examine what is meant by intent.

Example: Jimmy is on his way home from a really horrible day of fishing. Jet skiers have discovered his favorite fishing spot, ruining his day. As he nears the dock, he sees a couple of jet skiers who, at the rate Jimmy was originally traveling, should have passed safely in front of him. Jimmy floors his throttle and races forward. Both skiers are shocked and then collide with each other as they try to avoid Jimmy’s boat. Unfortunately, Jimmy ends up striking both skiers too. In this case, the intent lies with Jimmy's frame of mind. Yes, he intentionally sped up toward the jet skiers, but what he meant to do was to harass them, not cause the injury and property damage that resulted. Certainly, one could argue that what happened was foreseeable, but in Jimmy's mind, it was still an accident.

b. BI to either a named insured or a relative is ineligible for coverage.

Example: John’s PondPounder Inboard/Outdrive boat is insured under a Watercraft policy. While using the boat, it suddenly loses power and Kevin, John’s son, is pitched onto the deck. He is treated for a broken leg. The medical expense is not eligible for reimbursement.

This particular exclusion also denies coverage to the named insured and the named insured’s household when a third-party attempts to file a claim or lawsuit for damages or costs that third party owes for injury to the named insured or the named insured’s family member.

c. The policy won’t respond to loss of or damage to property that is rented to, cared for or used by anyone in the insured household. In other words, the Watercraft policy can’t be used directly or indirectly to pay for first party injuries or property claims.

d. No coverage is provided to a person who suffers bodily injury if that person’s loss should be handled by other sources as specified under Workers’ Compensation, the Jones Act or other disability/disease (both occupational and non-occupation) laws.

e. Coverage is not permitted for an insured’s watercraft or its trailer while it is rented to others.

Example: Jeff rents George’s 17 ft. outboard boat and pays an agreed rental fee before getting the boat. Jeff then goes out to connect the boat trailer to his SUV. While checking the trailer, he trips and slams his face against the hull. The related medical expense does not qualify for coverage under George’s policy because the injury was connected to the rental.

The exclusion applies to ALL incidences related to the rental. It also applies to using covered property to transport persons or cargo as well as to chartering the property.

f. Unless the person doing maintenance to the named insured’s watercraft is the named insured, an insured relative or an agent/employee of the named insured or relative, no coverage applies for injury or damage involving a person in the watercraft business (sales, service, repairs, deliveries, storing, mooring, etc.)

Example: Aaron and Patty decide to eat out at the “Floating Asia Dinery” and, as required, they were helping a “Dinery” employee aboard so he could moor their boat to the restaurant’s dock. The employee slips while boarding, breaking an arm. His injury would not be eligible for coverage under Aaron’s policy.

g. Unless the activity involves the exception appearing in exclusion 1.f., no BI or PD protection applies to losses that involve business use of a watercraft, even when the activity consists merely of maintaining a watercraft that is used in business. However, if the watercraft is used for non-compensated business entertainment there is coverage

Example: Clyde Speartide reports a loss under his watercraft policy. He and another boat collided, due to Clyde attempting to pass it on his way to a lake’s far shore.

Scenario 1: While investigating the loss, Clyde’s insurer discovers that Clyde was operating an informal water taxi. The claim was denied.

Scenario 2: While investigating the loss, Clyde’s insurer discovers that Clyde was entertaining a business client. The claim is covered.

h. No protection is available to any loss that is connected to watercraft that is operated without the express permission of an insured party. The exclusion doesn’t apply to situations where permission is implied, such as use by an insured’s family member.

i. Either BI or PD related to an insured person who also qualifies for coverage under nuclear activity policy is not eligible for duplicate coverage under the watercraft policy. The exclusion applies even if the source of nuclear activity protection no longer has available limits (due to exhaustion by payment/settlement).

2. The following situations don’t qualify for liability protection related to watercraft use, maintenance or ownership:

a. No protection applies to loss involving property that is defined as personal watercraft, such as ski-doos, that are owned by insured or family members.

b. The Watercraft policy is intended to protect boats (and trailers) that are specifically listed and rated. Therefore, coverage does not apply to watercraft that an insured owns but has not added to the policy.

c. No coverage exists for watercraft that is regularly available for the named insured’s use or that is owned by a named insured’s family member. However, an exception exists for a loss involving such property that is merely related to it being maintained or occupied by an insured.

The exception makes sense. It permits the watercraft policy to provide protection to instances that DO NOT involve significant, unrated exposures.

d. Except for sailboats, any boating loss (injury or damage) related to using a covered watercraft for any racing or similar activity does not qualify for coverage. The exclusion even extends to preparations or practices for such activities. In other words, the only activity that MAY be covered might be an impromptu (unplanned, spur-of-the-moment) event.

Examples:

Scenario 1: James and his friend happen to spot each other on the lake. They are both on their way back from fishing. Suddenly, James’ friend revs his outboard and takes off with James doing the same. About a minute later, James catches up and then collides with his friend’s boat. The loss and injury would be eligible for coverage.

Scenario 2: James and his friend meet each other on the lake. Both recently bought new boats and boasted about them. A day earlier, the two agreed to a race. Both boaters rev up their outboards and take off. James’ friend takes the lead and, about a minute after starting the race, James catches up and then collides with his friend’s boat. The loss and injury would NOT be eligible for coverage.

D. Limit of Liability

1. This provision explains that the monetary limit that appears on the policy declarations page is the maximum amount of coverage that applies to the damages from any single loss. This maximum is not affected by the number of watercraft, insureds, or claims involved. This arrangement is true of both bodily injury and property damage claims. The particulars of a given loss may well affect how payments may be distributed, but the maximum remains the maximum.

2. The Watercraft policy’s Limit of Liability section explains that, regardless of whether coverage exists under more than one coverage part, no duplicate payments will be made. This limitation means that, even if portions of a single claim qualify for coverage under the policy’s liability as well as Medical Payments and/or Uninsured Watercraft coverage, an insured will not be paid more than once for any portion of his loss. This clarifies the purpose of the Watercraft Policy to indemnify rather than enrich a claimant for their accidental loss.

E. Other Insurance

In the event that other sources of liability insurance exist, the liability portion of the watercraft policy will pay on a basis that equals its share of the total amount of insurance available to cover an eligible loss involving an owned watercraft. If the loss involves a non-owned craft, the Watercraft Policy responds on an excess basis, paying only after the primary policy has paid its limit. This policy will also respond on an excess basis to any other source of coverage for ANY watercraft while it is being transported by a land motor vehicle.

Example: Let us examine a boat loss that totals $10,000 in damages. The loss is covered by a watercraft policy and some other source of coverage and both sources have coverage limits greater than the loss amount.

Scenario 1: The loss involves a boat owned by the insured and the watercraft policy and the other coverage source offer the same coverage limits. In this case, payment would be:

Watercraft policy Payment:

$5,000

Other Source Payment:

$5,000

Scenario 2: The loss involves a boat owned by the insured and the watercraft policy and the other coverage source offer different coverage limits. Let us assume that the Watercraft’s limit represents 40% of the available coverage. In this case, payment would be:

Watercraft policy Payment:

$4,000

Other Source Payment:

$6,000

Scenario 3: The loss involves a boat that is NOT owned by the named insured and the watercraft policy and the other coverage source offer the same coverage limits. In this case, payment would be:

Watercraft policy Payment:

Other Source Payment:

$10,000

Note: If a nonowned boat is involved, it would not matter if the watercraft policy and the other source had different limits. The other source would have to pay out its complete limit before the Watercraft Policy would contribute any payment.

PART B – Medical Payments Coverage

A. Insuring Agreement

1. The watercraft policy covers medical payments up to the amount shown in the policy (declarations page or elsewhere). The payments are for medical expenses connected to injury suffered by a person who qualifies under this section as a covered person. Any paid expenses must not be extraordinary costs and they have to have been incurred no later than three years from the date of a covered accident. Eligible expenses include funeral costs as long as the injury or death is related to use or ownership of a watercraft (including craft maintenance).

2. The following qualify as insureds under the medical payments section:

You (the person or persons appearing on the policy) and any person who is a family member (as defined by the policy) of the named insured, but only while occupying or being towed by a watercraft or while in the water and being struck by a watercraft.
Any person (except insureds and their household relatives) while occupying, being towed by, or when in the water and struck by a craft that qualifies as a covered watercraft.

Example: Bill’s cabin cruiser is insured by a watercraft policy, which includes Medical Payments Coverage. Laura, Bill’s daughter, is at a beach party. She is injured during horseplay that occurs on the party host’s boat. Laura would be eligible for medical payments coverage.

Example: Bill is enjoying a swim near his cruiser. As he heads back to his boat, a teen operating a jet ski sideswipes him, breaking a leg. Bill’s medical payments coverage would be available to handle treatment costs.

B. Exclusions

Under this section, there are a variety of situations that do not qualify for coverage:

1. No coverage applies to losses involving a personal watercraft that is owned either by the named insured or a named insured’s household relative.

2. No protection applies to losses that involve business use of a watercraft. Business use includes an insured that rents out his property, transports persons or property for a fee, or chartering the property.

Example: Jeff rents George’s sailboat and, while attempting to adjust the boom, he trips and breaks his ankle. Jeff‘s injury is not covered under the medical payment portion of George’s watercraft policy.

3. No coverage applies to losses involving watercraft that is acting as a residence or a premises.

4. No coverage is provided to a person if that person’s loss should be handled by other sources as specified under Workers Compensation, the Jones Act or other disability/disease (both occupational and non-occupation) laws.

5. The Watercraft Policy is intended to provide coverage involving boats that are specifically listed and rated. Therefore, coverage does not apply to injuries suffered on watercraft that the named insured owns but has not added to the policy. It also would not apply to a craft that is regularly available for the named insured and family members to use.

6. Similar to item 5., coverage does not apply to injuries suffered while either occupying or being struck by watercraft that is owned by a family member or which is regularly available to a family member. Both of these are situations where coverage is denied because another party should be providing separate insurance, particularly the actual owners of such watercraft.

7. Medical payments coverage does not apply to persons who are injured while operating a covered watercraft without the insured’s permission. However, this exclusion is void for family members using an insured-owned, listed watercraft.

Example: Brenda and Paula, as a prank, decide to move a friend’s boat from his slip to an empty one on the other side of the dock. While entering the boat, Paula stumbles and breaks her wrist. The injury’s treatment is not eligible for coverage.

8. No coverage exists in instances where a watercraft is occupied while being used for commercial/business activity involving an insured. An exception exists for business-related entertainment. However, the exception only applies to such instances that do NOT involve direct compensation.

9. Except for sailboats, any boating loss (injury or damage) related to using a covered watercraft for any racing or similar activity does not qualify for coverage. The exclusion even extends to preparations or practices for such activities. In other words, the only activity that MAY be covered might be an impromptu (unplanned, spur-of-the-moment) event.

Note: The policy has a specific exception for sailboats or to predicted log cruises. Why this exception? Because these activities do not significantly increase the chance for loss that an insurance company assumes when it decides to provide watercraft coverage.

10. No coverage exists for loss involving ANY instance of nuclear discharge or any sort of war/military activity.

11. No coverage exists for any loss related to any instance of nuclear activity, such as nuclear reactions, radiation or radioactive contamination.

C. Limit of Liability

The monetary limit that appears on the policy declarations page is the maximum amount of coverage that is possibly available to a single injured person related to a single, eligible incident. This maximum is not affected by the number of crafts, insureds, or claims involved, nor the number of crafts or premiums appearing on the declarations page. The particulars of a given loss may well affect how payments may be distributed, but the maximum remains the maximum. Therefore, even if there are losses that might qualify for coverage under another section of the policy, duplicate payments will NOT be made.

D. Other Insurance

In the event that other sources of medical payments insurance exist, the Medical Payments section of the Watercraft Policy will pay on a basis that equals its share of the total amount of insurance that is available to cover an eligible loss involving an owned watercraft.

Example: Jason is eligible for medical payments coverage and two other sources of recovery. Source 1 has limits of $3,500; source 2 (the limits under his Watercraft medical payments section), $5,000; and source 3, $6,500. The total amount available is not $15,000 (the sum of the three sources). The medical payments portion of the policy will pay only on a basis that equals its share of the total amount of available protection. In this case, the policy would pay approximately 33% of the loss (limit of $5,000 divided by total amount available of $15,000).

If the loss involves a non-owned craft, the watercraft policy responds on an excess basis, paying only after the other available coverage has paid its limit.

PART C

In the actual policy, this portion of the policy is not used, but is designated for use in the future.

PART D – Coverage for Damage to Your Watercraft

A. Insuring Agreement

1. Typically, a watercraft policy’s physical damage section will provide protection against a wide variety of loss sources that may damage or destroy covered property. Under this policy, protection against tangible, accidental loss is provided for any property that meets its definitions of:

· “your covered watercraft”

· “boating equipment”

However, coverage is subject to the policy’s applicable deductible. That deductible only applies once per a given loss. In other words, if an insured suffers a loss to her boat and then, on another date, to her boating equipment, the deductible would apply to each loss. If she experienced a loss to her boat AND equipment in a single loss, then the deductible would only be applied once.

2. The Watercraft policy defines what it means by boating equipment, but only with regard to the coverage offered under this section. The policy does not consider outboard motors to be boating equipment. However, it does classify property that is owned by the insured and which is related to the covered watercraft due to being a part of its normal operation or maintenance as boating equipment. This status is conferred whether such equipment is used within or outside of the applicable, covered watercraft.

The policy offers the following items to illustrate what is considered to be boating equipment:

Anchors	Electronic navigation equipment	Life preservers	Pumps
Batteries	Fire extinguishers	Lines	Sails
Covers	Flares	Oars	Seat cushions
Dinghies	Horns	Oar locks	Tenders

Items similar to the above would also qualify as boating equipment.

B. Additional Coverages

1. Salvage Expense Coverage

Should circumstances dictate, this policy will provide a maximum of one-quarter of the liability limits that apply to this section. The amount is to handle the expense related to salvage law. More specifically, it handles salvage liability that is imposed by maritime law, such as a responsibility to recover items that have gone overboard.

2. Towing and Assistance Expense Coverage

This coverage responds to a number of expenses that may be caused when a loss disables covered watercraft. It pays for transporting the craft to where repairs may be made; delivering fuel, oil or repair parts; the cost of labor to make repairs at the location where the covered craft is disabled; and roadside repairs for any watercraft trailer that is listed under covered property.

Note: Only a modest amount of $500 is available for all expenses related to a single event. Further, only $1,000 is available during a single policy period. However, no deductible is applied to this protection and it doesn’t affect the policy’s limit of liability.

3. Personal Effects Coverage

Like towing and assistance coverage, a total of $500 is available for covering loss to personal effects; no deductible applies and it has no affect on the policy’s other insurance limits. Unlike it, there’s no $1,000 policy period aggregate limit. It protects against loss or destruction of an insured’s personal effects. It can pay for property belonging to an insured as well as to third parties (when the named insured requests). The protection applies to property such as the following while located on, in or during the time it is loaded or unloaded from a covered watercraft.

Items that qualify as personal effects:

Cameras	Cell phones	Fishing equipment	Water skiing equipment
Clothing	Coolers	Portable radios	Sporting equipment

Items that do NOT qualify as personal effects:

· Animals

· Boating equipment

· Fuel

· Jewelry

· Money

· Watches

· Permanently attached equipment

C. Exclusions

There are a variety of instances when physical damage protection is denied, specifically the following:

1. Loss involving business activity which includes insureds who rent their craft to others, who receive income from transporting property (cargo) or persons or who make their craft available for charter trips.

Example: Linzie’s sailboat is damaged when the pilot smashes into a steel dock. Linzie’s insurer turns down her claim when they find out that the boat was being returned by a group who frequently rent the boat.

2. Losses that solely involve the following are disqualified from coverage:

a. Any source of loss that can be attributed to regular wear and tear, aging, property defects and/or due to breakdown are excluded

b. Loss that is attributable to the insured’s failure to properly maintain covered craft

c. Damage from scratching, marring, denting and chipping

d. Damage caused by either extreme heat or freezing

e. Loss due to temperature extremes including improper winterizing. However, an exception exists for damage occurring to winterized craft IF the process was performed by a competent source.

f. Damage caused by icing to a covered craft either while afloat or while moored

g. Loss that is indirect, due to loss of use or similar incidents

h. Loss caused by the physical nature and defects of the covered property (inherent vice/latent defects)

i. Breakdowns, both electrical and mechanical

3. There is no coverage for loss related to using or preparing watercraft for racing; however, there is an exception for sailboats. It is likely that the exception is due to the fact that, even in racing, the handling of a sailboat is not likely to significantly increase the exposure to loss; also, sailboat operators tend to have much more experience in boating than their motorized peers.

4. Loss due to any type of war, military activity, nuclear or radioactive activity or event is ineligible for coverage, including a loss that is covered by any special nuclear energy policy

5. Loss or damage (including confiscation) of property by any government agent due to an insured’s illegal activity.

Note: This exclusion does not affect payments to which loss payees may be entitled. However, such payments would likely result in subrogation activity by the insurer against the insured.

6. Diminished value is not covered

Example: Lindsay’s boat, a 2012 Puddlepup, was just repaired by her insurer. A week after she gets it back, she decides to sell it and she goes to a nearby dealer for help on establishing a sales price. The dealer says that, since it had been damaged and repaired, she should list it for at least $2,500 less than a comparable boat that had never been in an accident. This loss in her boat’s market value is not eligible for coverage.

D. Liability Limits

The maximum watercraft policy limits that can possibly apply to a given loss are the lowest among the options of the actual dollar amount appearing on the declarations, the stolen or damaged property’s actual cash value or the amount needed to properly repair or replace the property.

The policy makes specific mention of the following:

Any loss that is considered ‘total’ will take into consideration the property’s physical condition just prior to the time, including depreciation when determining that property’s actual cash value.
Should a replacement result in the use of property that has a greater value than the property that was lost or destroyed, the insured will be responsible for that difference in value

Note: Replacement assumes that the property used is of similar type and quality of the damages or lost property.

E. Payment of Loss

This provision discusses a company’s options in settling a loss. The insurer may handle a loss by a cash payment or it may repair or replace the property. If the loss is due to the theft of a covered craft and it is recovered, the insurer must pay the expense of returning it to either the named insured or to the latest address shown on the declarations page. Also, the insurer must repair any damages caused by the theft. Further, should the company exercise the right to keep the property, it must be at a price that’s acceptable to both parties. Cash payments made by the insurer will also include any applicable taxes.

F. No Benefit to Bailee

The watercraft policy’s intent is to perform its contractual obligations to the named insured and other parties defined in the definitions, insuring agreements and other policy provisions. To do otherwise would be to open the policy up to parties who haven’t been rated or underwritten for coverage and for more exposures than contemplated. Other parties may benefit unintentionally from the policy without this provision. Such persons or organizations can’t piggyback their obligations to the watercraft policy.

G. Other Sources of Recovery

This provision is to make sure that any payment under the Physical Damage coverage takes other sources of loss payment into account. If other insurance policies, provisions or sources of recovery apply to a physical damage loss, the policy will only pay its proportion of the total available coverage. But the proportional payment is only for owned crafts. If other sources of payment exist for a loss involving a non-owned craft, this policy responds on an excess basis. It is excess over every other available source of payment, including the policy of the owner of the craft.

Note: The provision to pay its proportionate share on owned-craft losses effectively assures that the policy won’t pay more than the limits of liability listed on the declarations page. Of course, it has no other way to control the amount paid by other sources.

H. Appraisal

1. This system works quite similarly to an arbitration clause, except that the only point of dispute is the amount of payment, rather than whether any payment is due. This provision may be invoked when the company and the insured don’t agree on the amount of the loss. Each party must select its own qualified appraiser. The two appraisers then select an umpire. The appraisers submit their opinion of the actual cash value and the amount of the loss. If they don’t reach an agreement, they submit this information to the umpire. An agreement by any two persons establishes the amount for the insurer and the insured.

The company and the insured have to pay for the expenses of their own appraiser, as well as equally share the expenses of the umpire. No other insurer rights are affected by their agreeing to an appraisal. For instance, if another party has some responsibility for the loss, the insurer, after paying the appraised amount of loss, may still subrogate the claim.

2. It is becoming more common for such clauses to state that participation in the process does not harm any other rights belonging to either party.

Example: Henrietta and Concrete Bay Insurance disagree on the amount of damage suffered by her boat. The two parties submit to an appraisal and the appraisers agree that the loss amount should be $21,700. However, Concrete Bay continues to investigate the loss and, later, decides to deny the claim because the appraisal process did not affect its on-going right to dispense with the claim as it saw fit.

PART E – Duties after Accident or Loss

This section explains what an insured must do in order to fulfill his obligations once a loss occurs. It is important that these conditions be met, since failing to comply may relieve an insurer from having to pay for a loss.

IMPORTANT - The insured risks endangering his or her coverage by failing to comply with any post-loss duties.

1. Notification. The insurer must be provided the accident details as soon as possible. The notification may be to an agent, and, ideally, should include the identity and addresses of any people hurt in the accident, as well as accident witnesses.

Item 1 is critical, because it initiates the entire claims process, and it gives the insurer its first and best opportunity to control the expense of the claim.

2. The following are also critical responsibilities owed by any person seeking coverage under the policy.

a. Assist the insurer in the claim’s investigation and settlement, as well as help with defending against any claim or suit.

b. Immediately send the company copies of ANY material received that’s related to the accident.

c. Agree to attend as many:

(1) Physical exams, involving doctors selected by the insurer and/or

(2) Interviews under oath

as are reasonably requested by the insurer. These requirements are at the insurer’s expense.

d. Permit the insurer complete access to medical and other records that relate to the accident.

e. Give the insurer any requested proof of loss.

3. If the loss involves physical damage to a covered boat, the insured is further obligated to:

a. Protect their property from further loss. The company is obligated to reimburse the insured if any additional expense is involved.

b. Quickly notify the authorities (police or coastguard) if the covered craft or other property vehicle is stolen.

c. Allow the company to inspect and evaluate the damaged property BEFORE it is repaired or removed.

d. Provide the insurance company with an inventory of damaged personal effects IF a request is made to do so.

Preserving the damaged property after a loss is extremely important.

Example: Tina returns to the dock in the late morning and strikes a piling. The damage appears minor, but it does include a gash near the bow. Since she's in a hurry to get some family errands done, she loosely ties off her boat and decides to check it again the next morning. That evening, the area experiences high winds and, the next day, Tina is surprised to find that the boat has a larger hole and is two-thirds submerged. When she reports the loss, including the details of her post loss action, she is warned that she may have to handle the aggravated cost of the damage repairs.

Note: Having any damage repaired or getting rid of damaged property before allowing the insured to look over the property is an extremely serious breach of contract. It could easily result in an insurer’s refusal to make payment. If the insured craft is repaired or disposed of, the insurer has no chance to evaluate whether coverage was due, nor determine how much was due.

PART F – GENERAL PROVISIONS

A. Abandonment

This provision merely states that the insurer has no obligation to accept covered property that has been abandoned by an insured.

B. Bankruptcy

This provision states that an insured’s bankruptcy or insolvency doesn’t release the company from any obligations under this policy. This fact appears clear enough but a situation could easily end up having to be resolved in the courtroom.

Example: An insured’s watercraft policy is cancelled for nonpayment and, a day later, the insured suffers a boat loss. The insured has documents proving that his bankruptcy prevented payment of the policy premium in time. The insured files suit, alleging that this provision can be interpreted as still obligating the insurance company to adjust the loss and offer a settlement.

C. Changes

1. This states that the policy is a complete agreement that can’t be changed, except by the company issuing an endorsement.

This is important. If the insured were allowed to change the policy, the most common changes would involve waiver of premiums for life, guaranteed renewals and unlimited liability limits. Note that, from a consumer’s point of view, these would be good policy features; it’s just that the provisions would make it a little tough to earn a profit. Fortunately, insurers are eager to help their customers make valid changes to their policy to fit their current circumstances.

2. This provision also explains that the policy premium was based on a certain set of facts. If any of this information changes, it could affect the rating of the policy, and the insured’s premium may be changed. Items that could cause the policy’s cost to change include the acquisition of additional watercraft, changes in household residents (craft operators) and any address change. Other items that may affect policy premium are changes in the type of watercraft, change of rating territory, and changes in deductibles or limits.

This provision makes a reference that falls outside of the policy. It states that if a rating change is necessary, the change will be performed in compliance with the applicable company’s filed rating plan and rules.

3. Changes in coverage are typically introduced by an insurer via adopting a new edition of a program and policy forms or by using an amendatory endorsements. In case a change occurs that broadens coverage for policies in the insured’s state, but is NOT accompanied by a premium adjustment, the change will automatically apply to all policies as of the effective date of the change.

D. Financial Responsibility

In instances where the watercraft policy is used as a certified source of financial responsibility in a given state, this provision acts to make this policy’s provisions comply with state requirements. However, such compliance is only with regard to meeting financial responsibility demands.

E. Fraud

This provision explains that, if an insured speaks or acts with the intent to mislead others regarding any loss or claim, the insurer can deny coverage. Of course, this part of the insurance contract is implied throughout the policy.

F. Lay-Up Period

Under this provision, the named insured is informed that no coverage exists if the applicable watercraft is operated during the term of any lay-up period that appears in the policy. This provision is also considered breached if the covered craft is not stored at the location indicated in the declarations.

Coverage for operation during the lay-up period may apply in two instances. One, when the insurer consents to its use in writing. Two, if the craft is operated due to an emergency; but only if the insurance company is notified within 10-days of the emergency use.

G. Legal Action Against Us

This provision of the Watercraft Policy stands as a tool to make a lawsuit the last recourse to resolving a dispute between the 1st and 2nd parties to the contract.

1. The provision forces the parties to use all of the tools within the policy before a suit is attempted. In other words, an insured, disputing the existence of liability or the amount that should be paid, cannot skip arbitration or appraisal or cooperation with the company or providing proof of loss, etc., and go straight to filing a suit. Further, even after compliance with all of the policy provisions has occurred, no action can be filed unless there’s been a written agreement that the “insured” is responsible for a loss payment OR the amount of the payment has been settled via judicial proceedings.

2. This provision denies any person or organization’s right to bring action against the insurer to determine if the “insured” is liable for an accident. This part is needed to limit the persons who may rightfully expect performance under the boat contract. Without this clause, the policy would be forced to provide protection to parties who, rightfully, should secure their own coverage.

H. Loss Payable Clause

When another party has a separate financial interest in the covered craft (typically due to its holding a loan with regard to the property), it has separate policy rights. This provision advises that, should any payment be made, it will be distributed in accordance to the extent of that party’s financial interest.

The loss payee may have its own coverage continued even if the insured is involved in concealing information or committing fraud. However, this exception does not apply if the act involves conversion, embezzlement or secretion of applicable property.

If coverage is terminated, the insurer has the obligation to provide separate advance notice to the loss payee and it will be in the same manner that is provided to the insured.

If the insurance company pays a loss to the loss payee under an instance where coverage has been terminated or voided for the insured, the insurer is entitled to pursue recovery of that amount by using the loss payee’s separate subrogation rights.

I. Our Right to Recover Payment

1. This provision of the policy typically states that, while an insurer will fulfill any valid obligation to make payment under the policy, when payment is made, it acquires the insured’s right to recover payment from another responsible party. Just as important as acquiring this right is the duty it imposes on the insured. The insured must cooperate fully with the insurer to pursue recovery AND must be certain that he or she does nothing to undermine this right. However, this provision doesn’t apply under the physical damage coverage part when the responsible party is a person who operates the covered watercraft with an insured’s permission.

There is one exception. The right to recovery still exists against a permissive user who is in the watercraft business, such as having possession of the craft related to sales, lease, maintenance, repairs, mooring, etc.

2. Another part of this provision explains that if the company compensates the insured for a loss and then collects payment from the responsible party for the same damages, the insured HAS to hold onto the money on behalf of the insurance company and then reimburse the company up to the amount of the settlement.

J. Out of State Coverage

In case of a loss occurring in a state or province that is different than the one where the policy was issued, the policy is treated in accordance to that state or province (with regard to handling the loss).

1a. If that location has a financial responsibility or similar law, the contract will be handled as if its limits were at the amount necessary to comply with the law (if the written policy limits are LOWER than what is required).

1b. If that location has a compulsory insurance or similar law, the contract will be handled as if its coverage provisions were the type necessary to comply with the applicable law’s minimal requirements (if the written policy’s coverage scope is less than what is required).

2. No duplicate payments for the same elements of loss will be permitted.

K. Policy Period

This policy’s coverage only applies to accidental loss that takes place in the time period specified in its declarations.

L. Policy Territory

Coverage is granted only to loss that occurs within either of the following:

The territory shown in the declarations
When no territory is specified, coverage applies to loss if covered when it occurs on land, inland waters, or coastal waters within 12 miles of the shore or, in the Great Lakes BUT ONLY when within the U.S., its territories or possessions, Puerto Rico or Canada.

M. Termination

The watercraft policy addresses both cancellation and non-renewal of coverage. However, a detailed discussion of this topic is fairly academic, since it may be the most frequently amended or replaced policy provision. This provision is necessary due to various state requirements, as well as individual company preferences. It is critical to keep in mind that state and company rules are what must be followed when terminating a customer’s coverage.

1. Cancellation

a. The insured has it simple. All she or he has to do is either return the policy to the company or send prior written notice of the date the policy is to be canceled. The insured can request cancellation at any time during the policy period.

b. It’s a little more complicated for the insurer to cancel coverage. The company has to mail written notice to the named insured at the address shown on the policy declarations page. The insurer must give 20 days advance notice of cancellation. However, if it is within the first 60 days that the policy has taken effect (and it is NOT either a renewal or continued policy) or it is for not paying the premium, the insurer may give 10 days advance notice.

2. Non-renewal

This option to end coverage is just a company privilege. However, if an insured sent in advance a written notice not to renew coverage at the policy’s expiration date, it technically would be an insured’s request to non-renew.

In any case, if a company doesn’t want to continue coverage, it has to give an insured at least 20 days advance notice of non-renewal.

Note: It is critical that you understand the rules of your company and state provisions, since the differences center around the amount of notice and the specific reasons for non-renewing.

3. Automatic Termination

This section of the termination provision allows for coverage to end without any written request or notice being required. If a company sends a renewal policy, and if the insured or insured’s representative doesn’t accept it, coverage ends at the latest expiration date. Nonpayment of the renewal premium is considered non-acceptance. If an insured obtains another insurance policy, coverage automatically terminates at the effective date of the replacing coverage. Automatic termination also occurs should a third party become owner of the covered watercraft or when this coverage is replaced by another policy. Another reason for automatic termination is when a covered craft suffers a total (including constructive total) loss.

4. Other Termination Provisions

a. This provision informs the insured that a cancellation notice may be delivered or mailed and that proof of mailing acts as sufficient proof of notice. IMPORTANT: Many states mandate how the notice has to be delivered (for instance, registered or certified mail), so you need to be aware of state law and any form that amends or replaces this provision.

b. The insured is also told that the company may be refunding the premium if a policy is canceled, but that the refund transaction has no effect on the cancellation. In other words, an insured may not claim that, after receiving legal notice as well as any other notification requirements, the cancellation is voided because of a delay in returning the premium.

c. This is a technicality but, in the event that a policy is cancelled, the cancel effective date that appears in any notice becomes the official end of the applicable policy period.

N. Transfer of Your Interest in This Policy

1. A policyholder can assign his or her rights and duties under the watercraft policy to another person, BUT ONLY with the written permission of the insurer.

There is one exception to the rule of having to get the insurer’s permission to assign a policy: if the policyholder dies. In this event, this policy provision automatically transfers coverage either to a surviving spouse (if he or she lives at the same address) or the deceased’s legal representative. Either party achieves the status of named insured. However, the legal representative is protected only to the extent of his or her duties to maintain or operate the covered watercraft.

2. The insurer will only recognize such a transfer until the policy’s expiration date. The working assumption is that appropriate coverage reflecting the change in circumstances will be obtained or that coverage will either be terminated or allowed to expire.

O. Two or More Watercraft Policies

In the case that the same insurer provides more than one policy that applies to a watercraft loss, the insurer is only obligated to provide, at most, the maximum amount of coverage that would be provided by the policy with the highest applicable limit.