"What happens when I sign a water toy indemnification form?"

“What’s the big deal about signing water toy indemnification forms? All I’m doing is releasing another party from liability.” This was just one of the questions I received over the past week and it’s an oldie but a goodie.

Again: Blindly signing a water toy indemnification form is NOT a harmless act; nor is it – in my opinion – advisable. It is potentially financially ruinous for the charterer.

If a charterer signs a water toy indemnification form the charterer is doing three things: 1) releasing everyone from all liability surrounding the operation of water toy; 2) assuming 100% of the financial responsibility in the event he causes damage and; 3) limiting or voiding any liability protection that could have answered a claim had he NOT signed the form.

So why does signing an indemnification/release form void charterer liability (CL) coverage? Simple – because the CL policy is NOT designed to pay for someone else’s negligence. What do I mean?

What if your charterer causes damage whilst on a waverunner but he isn’t responsible? “How?” Well perhaps the yacht owner’s negligence in maintaining the water toy lead to the accident – but since the charterer released the owner from responsibility then he has assumed the yacht owner’s negligence, possibly thinking that he has CL cover so he’s covered. This is NOT the case.

CL Insurance policies are very clear in that they will NOT automatically take on any additional liability assumed under contract. And by signing a water toy indemnification form or hold harmless agreement the insured is – basically – acting outside his authority based upon the terms of his liability policy.

Any resulting claims are likely to be denied because the CL policy is not designed to assume liability for a third party; and the presence of a signed water toy indemnification form effectively voids coverage under the CL policy leaving your charterer on the hook for any and all expenses from all parties.

Charterers AND OWNERS need to understand the contracts to which they are a party. And if you don’t understand it – don’t sign it!