Monday, June 4, 2018

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.


No comments:

Post a Comment