MARINE INSURANCE – WHAT YOU SHOULD KNOW
By John Siracusa P.A.
Marine insurance is widely considered by many legal scholars as the first type of modern insurance. 17th Century London, England was its birthplace. As London grew as the world’s center for international shipping, ship and cargo owners and private financiers increasingly began demanding some form of insurance to hedge against the risks associated with ocean voyages. Edward Lloyd’s coffee house, which opened in 1688, became recognized as the place to go to insure ships and their cargo. Simply put, wealthy businessmen, Dukes and Lords would agree here to insure ships and/or their cargo against Acts of God and certain other risks of the high seas in exchange for a premium. Today, Lloyd’s is housed in an impressive commercial building, but it is not that much different in concept. It is still a place where insurance agents go to present risks to underwriting syndicates, who are made up of names, each of whom may agree to accept a percentage of the risk presented for a percentage of the premium. The broker will walk the risk around until he has 100% of the policy subscribed.
At first reading, a modern marine insurance policy may seem archaic in its terminology, i.e., barratry, acts of pirates, princes and thieves and vermin are a few terms that come to mind. There is also an interesting concept in marine insurance known as uberrimae fidei requiring the insured’s utmost good faith during the application process, the policy period and after a claim is made. Utmost good faith has been held by courts to require certain disclosures and actions of the insured regardless of whether the policy expressly provides for them. For example, you previously ran your boat aground at the local sand bar, but did not cause any damage. Later that year, you apply for a marine insurance policy with a new carrier, but fail to disclose the sand bar incident. Your failure to voluntarily disclose this information – even though it was never asked of you – may give the carrier grounds to deny a subsequent claim and void your coverage from the beginning of the policy. Marine insurance policy language has been litigated exhaustively during the last few hundred years and by now, the meaning of marine insurance terms have been well defined by judges.
Having said this, when it comes to modern marine insurance policies, the devil is often found in the details. It irritates me when prospective clients come to me with significant claims that could and/or should have been insured against and covered, but are not because of an exclusion or limitation that was buried in the policy. These denials often could have been avoided had the client purchased a rider, a more favorable insurance policy from a different carrier or had an umbrella. In valid denial cases, I have to explain to the client that there is no coverage under their policies, and then look for others if any, who may be held responsible for negligently causing the loss. I had a recent client vessel owner who thought she had a multi million dollar liability policy. She actually did, but coverage for certain occurrences was limited. In her case, one of her deckhands had fallen off the boat while it was underway and was struck by the propellers. The deckhand suffered serous life threatening, debilitating and disfiguring permanent injuries. The emergency medevac by helicopter, multiple surgeries and hospital bills exceeded several hundred thousand dollars. The client’s $2 million liability policy had a crew claim limitation of $300,000. When the policy was purchased, the client did not fully understand her obligations to provide maintenance and cure to her crew members or her potential exposure under the Jones Act. Worse yet, the policy had declining coverage language. So by the time deckhand hired a lawyer and sued for Jones Act negligence, the carrier had taken the position that she had already exhausted her coverage. As a result, that there was no insurance money left to hire lawyers to defend her. The lack of coverage left the client in the untenable position of having to spend her own money to defend herself in an expensive federal action, in which there was no guarantee of winning, or selling her property to raise the money to settle. In this case, there was no one else to blame for the accident except the deckhand for his contributory negligence in falling and possibly the captain for not preventing the accident. This insurance horror story could have been prevented with a little better planning and foresight.
In order to better protect yourself and your property, it’s a good idea to have a discussion with your insurance agent and/or your maritime lawyer about your boat, its intended use and operation, the potential for claims and the marine insurance coverage that may be available to you. If the best marine insurance policy that you can get for yourself is still not sufficient, then you should consider an umbrella policy. I also strongly believe you should discuss the pros and cons of corporate vessel ownership and asset protection with your lawyer so you don’t get caught between the Devil and Deep Blue Sea.
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