Monday, May 19, 2014

A Captain's Guide To Voiding Insurance Coverage In One Easy Step

I seem to cover this topic quite a bit but it is very important so I'll keep covering it until we all have a firm grasp on it.

Recently I was having an online exchange with a captain about insurance coverage being voided due to acts of yacht crew and the captain commented that, “…if they (crew) can void your coverage, your coverage is garbage.” While I can understand the emotion I think it’s important to discuss the reality of just how easy it is to void insurance coverage, but first lets start with some basics. 

If you READ YOUR POLICY it will tell you in no uncertain terms who the policy covers, what the policy covers, where the policy provides coverage, when the policy provides coverage, how the policy provides coverage and - most importantly - situations why a policy won't provide coverage.  The 5 Ws and H of insurance.  The terms of coverage, duties of the insurance company and the duties of the insured are spelled out in plain and relatively easy-to-read English;  but still, captains and crew manage to find ways to reduce or void coverage.  Today we'll look at one way to void insurance coverage and how to avoid it. 

A very common way (and probably the most popular and easiest way) to void your cover is to sign any contract that assumes liability, releases another party from liability or in any way attempts to modify terms of coverage or assign the policy without the insurer's written approval.  And you can do ALL of these things by simply signing a yard contract - something I've seen not just captains do but mates, engineers and yacht managers do as well.  Shockingly, as a bosun on a 43m even I was asked to sign one (and the answer is "no, I didn't sign it").

Lets take a look at some wording from a standard yacht policy.  This wording comes from a single policy and is only a small portion of wording contained in the policy terms that deals with explaining how actions of the insured can lead to coverage being terminated:

  • Failure to comply with any warranty will, in normal circumstances, void this insurance from the time of the breach.”  
  • If the insured gives up rights to recover damages from anyone who may be liable so as to deny Us the benefit of such recovery had We made payment of a claim, We may consider this policy null & void.”  
  • "This insurance shall inure to Your benefit only and shall be void in case this policy or the interest insured thereby shall be assigned, transferred or pledged without Our previous consent in writing…"
  • "You must assume no obligation, admit no liability…without Our written permission…"
  • We do not provide liability coverage for:  liability assumed by You under any contract or agreement unless specifically endorsed hereon…"

Now lets look at wording from a local yard contract and compare what it requires to what the insurance policy forbids:

"...YACHT OWNER agrees to release YARD...from any liability to YACHT OWNER for, and YACHT OWNER will defend, indemnify and hold YARD, its co-ventures, partners, customers, contractors, officers, shareholders, members, directors, employees, agents, invitees, vessels, masters, and crews, and the representatives of any of them (collectively called "YARD GROUP") harmless from and against all suits, actions, claims, and damages based upon personal injury, death, property damage, or loss, whenever occurring, suffered or incurred by YACHT OWNER, its own contractors and sub-contractors, or its invitees, or the officers, employees, agents, invitees, or representatives of any of them (collectively called "YACHT OWNER GROUP"), arising out of or in any way directly or indirectly connected with access to (including without limitation ingress and egress) and/or use by any member of YACHT OWNER GROUP of any vessel or property owned and/or operated by YARD GROUP... whether or not caused or contributed to by the sole or partial negligence, strict liability, or fault of YARD GROUP, or the un-seaworthiness of any vessel or appurtenance owned or operated by YARD." 

Did you catch all of that?  If you - or any crew member - sign a yard contract with this wording you are telling the yard that the owner’s insurance policy will cover ALL liability and ALL negligence of the yard; effectively you are agreeing that the yacht’s insurance policy will become the yard’s insurance policy – and you do NOT have the authority to make that call without the insurance company giving you prior written approval to do so.  

I cannot stress this enough.  You – as a captain – do NOT have the authority to negotiate terms of cover for or on behalf of the owner/vessel without the prior written consent of the insurance company.  You do NOT have the authority to assume liability and you do NOT have the authority to assign the policy.  Doing so can - and probably will - void cover.  This is not "garbage" - this is basic insurance procedure.

Regarding yard contracts, a maritime attorney friend of mine said, “Most captains are signing these things without understanding what they’re signing until there is a problem and at that point it’s too late.”  The executive vice president of an insurance company and head of yacht underwriting told me, “What we find is the captains don’t understand what they’re signing and the yards don’t understand what they’re asking people to sign – but they’re still signing.”

A lack of understanding seems to be a common theme so lets lay down some ground rules with regards to third party contracts and how to deal with them.

First, send the contract to the vessel’s owner and insurance agent before signing and do NOT sign the contract until you get written approval to do so. I suggest having captains/crew avoid signing them all together. Next, make sure the yacht owner's representative reads the contract and then get written confirmation from the insurance company that the yard's contract is acceptable before signing.  Some insurers require vessels to submit a list of work to be done for underwriting approval prior to the work being started and they also require a copy of the yard’s liability cover.
Most importantly, do not take advice on signing yard contracts from anyone not authorized to exercise authority over the yacht's insurance policy.  And here’s the kicker:  as a captain you do NOT have this authority. Neither do owners.  Neither do yard owners, yacht managers, brokers, etc…  The only party who can make that call is the insurance company.

If you sign a hold harmless and if you assume the yard's liability without an insurer's permission or assign the terms of your yacht policy to another risk you can count on your coverage being voided and there's no excuse for this happening - ever.  And this is just one of many ways captains and crew can easily void a yacht's insurance cover, regardless of that policy being "garbage" or not.  

My point is this:  Ask questions, engage the insurance agent/company, call an expert.  As one charged with the huge responsibility of taking care of the owner's asset you owe the owner at least that much; and it doesn't cost you anything.  

You see, when you purchase an insurance policy you purchase all of the insurance expertise and advice that goes along with it.  Use the agent, the broker, the underwriter, the insurer’s legal department, etc… and avoid making the mistakes that could lead to the policy being voided because if the policy is voided due to the actions of captain or crew it's not the policy that's "garbage," but rather the actions of the offending crew member - which could lead to his career being trashed.

Next week we'll discuss what could happen if you, as captain, void an owner's insurance cover.