Thou Shalt Not Steal... Unless It's From An Insurance Company - Then It's Okay, Right?

I’m not sure how it happens but lately it seems more and more of my conversations wind up on the topic of insurance, insurance premiums and the inherent evil nature of the insurance industry.

Recently I was speaking with a friend who was all too happy to explain to me how unfair insurance was because it was so expensive.  Then the topic turned to how the insurance companies dial up their rates and charge more premiums just to line their own pockets while taking advantage of policyholders.  

Then I asked this person a question:  “If you owned a business and each month 10% of your inventory walked out the door without being paid for, how long could you stay in business without raising prices?”

The response was something along the lines of, “What?”

Insurance companies raise and lower rates for any number of reasons but rarely do they raise rates to screw policyholders or engage in profiteering.  More often than not, insurers adjust rates in response to economic or environmental factors that affect their ability to generate money to pay claims.

Some factors are high profile such as storms, fires, floods, etc… And others are not so obvious – such as fraud.

Depending on the statistics one chooses to believe, anywhere from 5% to 10% of claims filed with US insurers are fraudulent – with some insurers reporting fraud rates potentially as high as 20%.  This results in US insurance companies paying out anywhere from $80,000,000,000 to $300,000,000,000 in fraudulent claims across all lines of insurance.  That’s right -$80 Billion to $300 billion annually. 

Lets look at 2017.  As a result of Hurricanes Harvey and Irma, US insurers paid out approximately $650,000,000 in recreational boating claims alone - which means it wouldn’t be a stretch to assume $65,000,000 of recreational boating claims for those two events were based on fraudulent claims submissions.

Lets go further.  Lloyds’ share of Hurricanes Harvey and Irma losses were in the neighborhood of $4,500,000,000 - which could mean that as much as $450,000,000 in claims could have been fraudulent.  That’s nearly half-a-billion dollars for two events.

Switching gears, The Economist has reported in the past that in the United States the level of health insurance and Medicare/Medicaid fraud could be as high as $270,000,000,000 annually.  $270 BILLION. 

So what does this all mean?  

It means insurance companies usually have a good reason to raise rates which results in everyone paying higher premiums – and the general public is usually an active participant in giving them permission to do so.

The Only Thing That Blows Worse Than A Hurricane Is A Bad Hurricane Plan

Here we are once again at the start of another hurricane season and every media outlet under the sun is reminding us to start making plans for an active storm season.  

And while this is good advice, I would warn you that most plans are created with their own inherent vices that can render them totally useless when the time comes for implementation. 

With a few exceptions, most boats I’ve worked on (or written insurance on) have written hurricane plans that are kept with the insurance policy and only pulled out when needed.   Some view them as nothing more than an extra layer of insurance administrivia required by an insurance company or management company.

I would argue that a hurricane plan is one of THE most important parts of a comprehensive ship safety plan and is probably the most overlooked part when it comes to training crew – and it deserves more attention than it gets.

Try this out:  the next time you’re on a boat ask one of the crew what the procedure is for man overboard or a grounding or a fire.  They can probably discuss their duties, direct you to a station bill and a ship safety plan and show you a snapshot of the written procedure.

But ask them what their hurricane plan is and they’ll probably refer you to the captain.  Ask the captain and he’ll/she’ll probably give you an overview of the written plan which usually applies to only one storm scenario; and there are your inherent vices.

What if the plan is to head up a river to a hurricane hole in Florida but the boat is in St Maarten? Or what if the plan is to head to a yard in South Carolina and haul out but the boat is in The Exumas?   What if the yard is full?  What if you have guests onboard?  What if the boat is laid up and has only one person looking after it?

Or – and here is a scenario I have dealt with – what if your vessel’s policy doesn’t cover you for storm damage during hurricane season so the plan is to head north to avoid the storm; but the storm formed quickly and you can’t get out of the hurricane zone in time?

Now think about this - Does your crew participate in planned hurricane preparedness training drills?  Have you installed the shudders? Is all securing hardware in tact and properly labeled? Have you checked the storm lines’ integrity, located and checked fenders and weights, etc…?  

Is your spot at that hurricane hole available?  Is the marina that’s supposed to haul you out still able to do so?  Do you have a plan to safely evacuate owners and guests or have you included them in the preparations?

Last year in Florida, hundreds of thousands of people attempted to evacuate Florida by driving north to avoid a hurricane – at least, that was their plan.  What they didn’t plan on was the fact that roads would be clogged, hotels would be full and gas stations would be empty.  Thousands of people made the transition from evacuee to potential victim because they failed to plan PROPERLY.

And what is a “proper” plan in yachting?  It’s a plan that addresses multiple scenarios, multiple variables and multiple outcomes.  As a result, the plan should have multiple contingencies.  They should be proactive and not reactive.  And most important, the crew should be as familiar with hurricane preparedness as they are with other shipboard emergencies. 

In yachting, a written hurricane plan is not effective if it is not comprehensive, not communicated with all crew (and guests) and not included in the safety drills/training rotation; because plans don’t work because they’re written well;  they work because they are implemented well. 

If I Paid You $250,000 Would You Read Your Insurance Policy?

While underway, a client’s vessel suffered a mechanical issue at which point the captain abandoned the original float plan and proceeded to a shipyard in a foreign country.

Once there, the captain and local mechanics determined the damage was the result of shoddy workmanship in a previous shipyard. The captain then authorized the yard to make repairs so the vessel could get back to the United States.  

During the months-long yard period, components of the main engines were removed and kept ashore. Soon after, those parts “went missing” - adding an additional $60,000 to the repair cost.

After months of repairs and more than $250,000 spent, the insured notified the insurer that he’d be filing a claim and expecting reimbursement; needless to say he was shocked when the company refused to pay.   The client is now suing the insurer.  

Who’s right:  the insured or the insurer?  I’m not an attorney but I am a reader and I can tell you that in all likelihood the answer to that question is in black and white and contained in the “General Conditions” section of the vessel insurance policy.  

Here is an excerpt of that wording:

Duties (of the insured) After A Loss

In the event of an occurrence which may give rise to a claim under this policy…you and any insured person MUST:

·      Give prompt notice to us or your agent or broker as soon as reasonably possible of any incident that may result in any kind of claim under this policy. If you think a crime has been committed you must also tell the police and, if appropriate, the coast guard or other maritime authority.

·      Protect the property from further damage or loss…

In this case, the captain proceeded with repairs without authorization from the insurer AND waited several months to report AND - it could be argued - did not take proper steps to prevent further loss.  (It was found out later that the yard was not fenced and did not employ a security guard.)

We’ve had to explain to the owner that based upon the policy terms it’s very likely that neither he nor the captain had contractual authority to determine what was or was not a compensable claim.  It’s also unlikely that either of them had the authority to act in such a way as to preclude an insurance company’s attempt to engage in what I’ve labeled “The Six Rules of Ate” (investigate, mitigate, negotiate, compensate and subrogate before they litigate) in order to settle the claim, which means that the claim more than likely could be denied.  Why?  Because no one informed the insurance company of the loss. 

In my opinion the cause of this failure is simple: It is because the insured and the captain failed to RTP – READ THE POLICY – and abide its terms.  They made an assumption/bad decision and it cost them more than $250,000.  

I cannot stress how important it is to read and understand the terms of an insurance policy.   It is NOT a “fire and forget” product.  It is a dynamic product that obligates two parties to perform in accordance with one set of rules, and gives the party who plays by the rules an “out” should it be determined that the other is not doing the same.

Read policies, ask questions, get determinations and be informed.  Insurance is a simple concept made more difficult by those who fail to understand the terms behind paying someone to have your back in the event of a loss.

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How Much Does Eight Inches Of Snow Cost? Book A Charter Without Trip Insurance And Your Client Will Tell You.

Over the past several months thousands of flights in the northeast United States have been delayed or cancelled due to weather events, which means very bad news for thousands of travelers trying to escape the lingering winter weather by heading to The Caribbean or other warmer destinations.

Normally, flight delays due to inclement weather are nothing more than an annoyance - a frustration at worst.  But in the world of luxury charters there is a price tag on those annoyances, and they are exponentially higher for charterers than for regular travelers.

Imagine if your charterer paid $250,000 (or more) to charter a yacht for a week and an airline tells them the flight to get them to the yacht is cancelled and the airline will TRY to get them re-booked and on their way tomorrow.  On a one week charter the delay has just cost your charterer a minimum of $35,000 along with one full day of their trip. 

Along with the initial expense and frustration, your charterer and all of the guests have to pack up and head home or fight for a hotel for the evening with hundreds of other stranded passengers; which means now they are reaching into their pockets to pay for unplanned expenses while their yacht sits at the dock - fully fueled, provisioned and paid for - awaiting their arrival. 

To make matters worse, airlines aren't responsible for compensating passengers for hotels, meals, taxis, etc... due to weather delays.  All they have to do is re-book the passengers on the next available flight.  Here are few facts about weather delays and airlines' responsibilities:

- Airlines, generally, do not have to compensate travelers for weather delays.  They simply must rebook at no cost to the passenger;

- Airlines are not obligated to pay for hotels or meals for passengers on flights delayed by weather;
- Airlines have their own delay/cancellation policies and can deal with them on a case- by-case basis and passenger-by-passenger basis; and
- It is the passenger’s responsibility to cover non-flight-related costs due to delays/cancellations.  These costs can include hotels, transportation, transfers and any and all pre-booked/pre-paid expenses at their destination.  

Regarding yacht charters...

- Charters do not automatically extend to make up for missed time due to charterers being delayed by weather in their departure city; and
- Charters do not automatically issue pro-rata refunds for missed time due to weather delays causing late arrival to the boat.

But don't worry. Trip insurance can provide travelers some solace in knowing that missed time on charter due to flight delays may be compensated; and when you're talking about a $250,000 charter you can see where trip insurance gets its value.

Trip insurance can cover expenses associated with delays/cancellations such as meals, transfers and hotels.  And trip insurance can compensate your charterers for the impact travel delays have on their charter, whether it's  receiving benefits for lost days of charter or benefits for re-booking the charter or re-booking or rescheduling flights and hotels on the back end of an extended charter.

Your charter clients should discuss this with a travel insurance professional (like myself) because if your charterers are delayed by one or two days they don't automatically get to extend their charter… and that costs them money; money they could get back. 

I've been writing trip insurance for ten years and have written policies for trips valued from $6,000 to nearly $800,000, so insuring luxury yacht charters is not only possible - it's advised. 

And after having dealt with a number of claims, I can tell you that trip insurance works.

Force Majeuer or Capitaine Paresseux Majeuer - Trip Insurance And Professionalism Save The Day

The following is a based upon a client's true story.

A lucky man's amazing wife booked a weekend charter as part of a European birthday. The charter was scheduled to begin in Italy and make a quick passage to France, but when the clients arrived at the yacht they were told by the captain that the seas were too high to depart.

The charterer was upset at the prospect of their $15,000 trip being cancelled, but wisely they had purchased trip cancellation/interruption insurance so they were confident that everything was going to be okay.  As this was their first experience with chartering in Italy they soon realized that all the confidence in the world won't supplant the reality of the dark side of the Italian chartering experience.

Let’s set up our real-life scenario:

1)The charter client arrives for the charter. All furniture is covered up, the interior has not been readied, the hot tub is empty, the boat is not provisioned correctly and two crew members are unaccounted for;

2)The captain refuses to leave the dock saying the seas are too high, forcing the guests to spend their entire weekend at the dock (in spite of the fact that weather reports, sea state reports and photos of boats departing and arriving in the marina revealed no such adverse weather) or abandon their charter altogether with no refund and no offer of re-booking;

3)The charterer, wanting to file a trip interruption claim, requests from the captain confirmation in writing that the boat would not be departing due to inclement weather;

4)The captain refuses the request while continuing to prep the boat for its next charter and while boats of all types and sizes arrive and depart to and from the marina - in spite of his claims of inclement weather and all the while serving the guests with leftover provisions... and no hot tub;

5) The charterers - forced to make changes to prepaid hotels and helicopter/auto transfers at their expense - now seem to have no way to recoup the expenses incurred as a result of an unresponsive, unprofessional and unaccommodating captain;

6) The captain charged the guests €1,100 for arranging (not paying for) transport to France and withheld another €1,000 from the balance of the APA as a gratuity.  When the guests complained the captain threatened them with police action.

Happy birthday.

When the charterers got me involved, along with their US-based charter broker, I explained to them how to file the claim and what the insurance company would need to process the claim.   The charterer's broker went above and beyond her call of duty and - as a team - we were able to make headway in resolving this issue in spite of the unprofessional and unaccommodating yacht captain and his owner's representative.

Fortunately, the claim was eventually settled by the travel insurance company - but not before unnecessarily running the charterers/victims around in circles and, more than likely, souring them on ever chartering again.

There are three types of people in this industry:  problem creators, problem solvers and those unfortunate few who can't make up their minds which one they are.  All stakeholders in this industry need to remember that we are in business not simply to drive boats, sell insurance, sell yachts or sell charters; we’re in this industry to build relationships - and people pay us a lot of money to do so.

"It's a standard yard contract - nothing in it that I'm worried about."

That was a quote from a captain during a recent conversation about a client's upcoming yard period.

It amazes me how diligent captains can be regarding safety training, project management, situational awareness and passage planning - but they'll slap their names on any old contract without reading it; not knowing that their signature could be just as financially ruinous as running hard aground or sinking the vessel.  And it doesn't matter who signs the contract because it's the owner's assets that are on the line - so people signing yard contracts need to be sure what they're doing is correctly.

I'll use a hypothetical scenario to show you just how simple it is to let an insurance company off the hook.

Captain Einstein hauls out at XYZ Yard and prior to hauling he/she signs a standard yard contract containing a provision stating the yacht owner releases the yard from liability and assumes the yard’s liability and also says (for all intents and purposes) the yard won't be sued by the insurance company or the owner - even if the yard is negligent!  Put into layman terms, the yard is saying, "Even if we screw up - we're not responsible and we're not paying."  Why would anyone sign this without an insurance company giving them the okay?

During the yard period the captain uses a piece of yard equipment which malfunctions, strikes a transformer starting an electrical fire that quickly spreads and ultimately ignites and destroys several boats, injures a number of people and does significant damage to the yard.  The root cause of the accident was determined to be that the piece of equipment had not been properly maintained by the yard - not user error.  The yacht insurance company investigates, finds the yard contract, goes right to the section with the hold harmless/indemnification/release of liability, checks for a signature and:

1. Reduces the claim 
2. Denies the claim or 
3. Voids the yacht’s policy 

The insurer has these options at their disposal based upon the fact that the captain did not have the authority to assume the yard’s liability (or act on behalf of the insurer) and the captain did not have the authority to release the yard from liability or waive the insurer’s rights of recovery - without written permission from the insurer. 

"But Gary, it was the yard's negligence in maintaining the equipment that caused the loss."  You are correct; BUT - when the captain signed that yard contract it may be argued that the captain assumed the yard's liability which means the captain assumed the yard's negligence thinking that his yacht policy would cover him automatically; and the captain does not have the authority to do this - and the insurer does not have the obligation to perform based upon the captain's actions.

Insurance policies are very clear as to what they will and will not cover and what they will and will not do or allow.  Here are examples taken straight from the exclusions section of a company's yacht policy regarding assuming liability without prior written consent:

• (The policy excludes) Any liability assumed by an insured person under any contract or agreement without our prior permission.
• No assignment of or change of interest in this policy or in any amount payable under it will be binding on or recognised by us without our prior written consent.
• No one covered under this policy or acting on their behalf shall waive, limit or impair our right to recover and/or the amount to recover against a third party before or after a loss.

If a yard contract is signed without insurance company consent the yacht owner could be held personally financially liable for the damage to his yacht, other yachts, the facility, employees, crew, subcontractors, damage to the environment, civil/criminal penalties, etc... and the owner may not have an insurance company to defend him - even though the damage was the result of the yard's negligence.  

This is a very rough and basic example but it illustrates just how serious this situation can be - and it is entirely avoidable.  

This is why I strongly offer this little bit of advice: Defer signing third party contracts until you receive written consent. Send the contract to the owner/manager/attorney and let them confirm the terms with the insurer before signing.

And captains, remember:  get it in writing FIRST.  Because the ass(ets) you cover just might be your own(ers)!

Kickbacks Or Commissions: Who Gets Them - Legally?

I was asked recently, “If I send you a client for insurance – how much of a finder's fee do I get?” My answer was simple: “If you have an insurance license specific to the product, we'll talk.  If not, you get nothing.”

I'm not sure how it works for yacht brokers and I do not know if any federal or state statutes govern the procedures brokers must follow in order to compensate unlicensed persons/third parties following the sale/charter of a vessel. Furthermore, I do not know if IYBA, MYBA, CPYB or brokerages have any professional standards or guidelines regarding the practice of providing financial incentives for referring business or compensation after a yacht or charter sells.  I know it happens.  I've seen it happen.  Whether or not it is effectively regulated is a big unknown.

Regardless, the insurance industry has federal and state statutes that dictate to whom compensation may be paid following the sale of an insurance contract.  With specific regards to insurance there is very little grey area and it is regulated. Simply put,  along with kicking back a percentage of commission to a person who purchases a policy, offering unlicensed people cash incentives to purchase insurance policies or paying a referral fee is illegal in the State of Florida, according to the Deceptive Trade Practices Act and Florida statute.

Florida Statue section 626.9541 titled “Unfair methods of competition and unfair or deceptive acts or practices defined” defines rebating as: "knowingly… (b) Paying, allowing, or giving, or offering to pay, allow, or give, directly or indirectly, as inducement to such insurance contract, any unlawful rebate of premiums payable on the contract, any special favor or advantage in the dividends or other benefits thereon, or any valuable consideration or inducement whatever not specified in the contract;…"

The statute also deals with compensating anyone - licensed or unlicensed -  following the sale of an insurance policy. The following is from the Florida Statutes 626.112:

(8) No insurance agent, insurance agency, or other person licensed under the Insurance Code may pay any fee or other consideration to an unlicensed person other than an insurance agency for the referral of prospective purchasers to an insurance agent which is in any way dependent upon whether the referral results in the purchase of an insurance product.
(9) Any person who knowingly transacts insurance or otherwise engages in insurance activities in this state without a license in violation of this section commits a felony of the third degree, punishable as provided in s. 775.082, s. 775.083, or s. 775.084.

Again, I don’t sell yachts or charters so I can't make a determination of whether or not yachting industry brokers offering or giving portions of commissions to third parties is right or wrong; I'll let the yacht brokers and the principals of the yacht brokerages make that determination.

Regarding compensating unlicensed insurers for referring business I'll simply say this - I know others do it but I don't.  I sell insurance and I am happy to do what I do to help you and your clients have a great experience on the water; but I cannot risk my license to do it – and I would never expect anyone to risk theirs for me.