Who Needs Marine Insurance
From the Financial Ombudsman Service technical resource
This technical note covers some of the issues that arise in relation to complaints involving marine insurance policies.
We set out some of the complaints we see most regularly – and our general approach when we consider whether the insurer should accept a claim.
Marine insurance policies are designed to cover loss or damage caused to boats and other watercraft. They vary according to the type of vessel being covered. The most common types of vessel involved in the cases we see are:
- small craft
- canoes and dinghies
- personal watercraft – for example, jet skis
- ski boats
- power boats
- yachts and sail boats
- narrow boats
- motor boats
- house boats (including boat conversions).
what types of cover exist?
Cover may be defined by the vessel’s area of operation. If so, the most common areas of operation that are insured are while the vessel is:
- out of water and onshore – for example, in the marina, in a garden or at a boat club. This is called “laid up cover”;
- in rivers, canals and lakes;
- in inland estuaries and coastal waters (usually within a 12-mile limit around the coast);
- being used in other specified areas, such as the Mediterranean;
- in oceans worldwide (but even with the widest cover there may still be restrictions or exclusions relating to certain areas at certain times of the year).
Cover may also be defined by the period in which the vessel is kept in use. For example – most speed boats should be taken home, or at least out of the water, during certain months of the year (the exact dates can usually be selected but are generally November to March). During this time they should be protected from the elements and from the risk of the engine seizing due to lack of use. Other types of vessels, in contrast, will be in commission for 12 months of the year.
what complaints do we see?
Complaints we see most frequently are that the insurer wrongly refused (or restricted) a claim on the basis that:
We also see complaints that the insurer did not adequately put things right to settle the claim.
Most marine insurance policies provide cover for sinking. But the extent of the cover depends on the reason for the sinking. For example:
- Sinking or partial sinking caused by an accident – while underway or moored – which results in a sudden and rapid “incursion of water” will generally mean full cover applies. An example would be where the vessel is hit by another vessel and suffers a serious hole below the waterline.
- Sinking or partial sinking caused by a slow build-up of water in the vessel – while underway or moored – might mean that no cover applies, because the vessel was not seaworthy, or that restricted cover applies (for example – the hull will be covered but the engines and electrical apparatus will not). An example would be where loose engine-mountings allow water into the vessel.
The restrictions in cover if the leak was a slow leak are usually severe, because a slow leak may indicate a lack of maintenance.
In some cases, the exact cause of the leak is obvious – and so there is no dispute as to the cover provided. But in many cases, the cause is not so obvious – for example, where the consumer returns to the mooring after a period of time to find the vessel submerged.
There may be many reasons why the vessel took on water. Without witnesses it is usually not possible to say for sure whether it sank quickly or slowly.
Where there is a dispute as to whether the sinking happened in a way that means restrictions or exclusions of cover should apply, we will look carefully at the evidence provided by both the consumer and the insurer. Conjecture is not enough – we will look for clear evidence. We will also review evidence as to the cause and speed of the “incursion of water”.
Section 39(5) of the Marine Insurance Act 1906 states that:
“in a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness.”
Most marine insurance policies exclude losses caused by “unseaworthiness”.
This means that if a vessel was knowingly unseaworthy when used – and the loss or damage resulted from it being unseaworthy – the claim can be refused. We would not usually decide that an insurer may refuse a claim based solely on the wording of the Marine Insurance Act 1906. We would usually expect to see a similar clause within the policy wording itself.
Under section 39(4) of the Marine Insurance Act 1906 a vessel is deemed to be seaworthy when:
“she is reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured.”
When we consider cases involving claims that have been rejected on the basis that the vessel was not seaworthy, we will usually look for evidence as to whether the vessel was regularly and well maintained by a professional marine engineer – and whether the servicing and maintenance was carried out in line with manufacturer and industry recommendations.
We recognise that marine engineers can make mistakes and overlook things. But provided that we are satisfied that adequate maintenance was carried out, we will usually decide that the vessel was seaworthy.
If the insurer claims that the consumer should have known that the vessel was not seaworthy, we will consider carefully the consumer’s knowledge. We may expect consumers who are qualified and experienced skippers to have some understanding of the technicalities of their vessel – and so of its seaworthiness.
But we do not generally expect consumers to have this level of understanding. And so, provided they had the vessel serviced and maintained as outlined above, we will not usually decide that they should have known that the vessel was not seaworthy.
However, whatever the knowledge of the consumer, there are still some basic checks and precautions that consumers should carry out. If we find they did not do so, we may agree that the insurer was entitled to refuse or reduce the claim, on the grounds that the consumer had not taken reasonable care.
Basic checks and precautions that we believe it is generally reasonable to expect a consumer to carry out include the following:
- checking the bilges (inside the bottom of the vessel), to ensure that there is no water in them – as this may be evidence of a leak;
- inserting bungs into the drain holes at the back of the vessel, if it is being launched from a trailer;
- closing all sea cocks, to prevent water getting back into the vessel; and
checking all safety equipment.
lack of reasonable care
Section 78(4) of the Marine Insurance Act 1906 states that:
“it is the duty of the assured and his agents, in all cases, to take such measures as may be reasonable for the purpose of averting or minimising a loss.”
We see cases where claims were rejected by the insurer because:
- the consumer cast off without taking appropriate precautions;
- the consumer ignored weather warnings; and
- the consumer ignored warnings about the condition of the vessel.
If an insurer wants to reject a claim on the basis that the consumer did not use reasonable care, we will look carefully at the evidence involved.
If we are satisfied that the consumer was reckless – as they were aware of the risk but chose to carry on without taking precautions to avert it – we may decide that the insurer was entitled to reject the claim.
But if we decide that the consumer was unaware of the risk, we may decide that the claim should be paid.
We generally take the same approach to complaints involving “non-disclosure” in relation to marine insurance as we do to complaints about “non-disclosure” in relation other types of insurance.
Many of the disputes we deal with involving “non-disclosure” in marine insurance policies arise because of the subjective nature of the answers to some of the questions on the proposal form.
For example – in answer to a question about how many years experience they have, a consumer who has hired a speed boat for one day every year for twenty years might answer “twenty years”.
Unless a consumer has had insurance before, or has other supporting documentation, it is often difficult to establish how much experience they have. This is particularly the case for many smaller boats where insurance may not be required – so an experienced consumer may not necessarily have had insurance previously.
Many boats in the UK are used for pleasure only, and are owned by people who use them rarely – for example, when there is a weekend of good weather in the summer. In addition, there is no law requiring a valid skipper’s licence or similar, to take a boat out (although certain waters do require a day certificate or, in the case of personal watercraft, a PWC Boat Handling certificate which requires completion of a one-day training course).
So we recognise that many consumers are not experienced or qualified in boat handling.
The engines, mechanics and electrical equipment are the most expensive parts of a vessel. This means that it may not be economically viable to replace an engine on an old vessel. As it is relatively easy to sink a vessel or destroy it by fire, we sometimes see cases where insurers suspect that the loss of the vessel was motivated by a desire to obtain insurance money.
Legally, the essential elements of fraud are:
- dishonest deceit; and
- the intention to obtain a benefit, or some other advantage, to which the person is not entitled.
We have to be satisfied that both these elements are present, before we decide that an insurer is entitled to reject a claim for this reason.
Many smaller boats and personal watercraft are easily stolen. This is why policies often include additional security requirements for these types of vessels – for example, requirements that they should be anchored to an immovable object and fitted with a hitch-lock.
We see complaints where an insurer has rejected a claim because it says the security requirements were not met by the consumer. When we decide whether or not this is the case, we also look carefully at whether the security requirements were brought to the consumer’s attention.
If we decide that the security requirements were brought to the consumer’s attention – and were then breached by the consumer – we will take into account whether the requirement that was not met would have made a difference if it hadbeen complied with.
deciding the value of the vessel
Where a vessel sinks, is stolen or is “written off”, we see complaints where the consumer does not agree with the cash settlement offered by the insurer.
This is a very difficult area, as seemingly identical vessels can vary considerably in price. In these cases, we have to look not only at the value of the shell of the vessel, but also the value of its engine, mechanics and electrical equipment.
There is a trade guide for boats – but this is of limited use, because of the variety of makes and models, the differences in maintenance/servicing history, the quality of fittings, the amount of accessories and condition.
In deciding a complaint, we rely on both sides to provide evidence to back up their views on the fair market value of the vessel. We are likely to give weight to any valuation made by an independent qualified marine surveyor or a local yacht/boat brokerage.
“Writing off” a boat following damage is not necessarily the same as with motor insurance. In marine insurance underwriters can be liable up to the total sums insured – and they do not have to declare the vessel a “total loss”. This means that if a vessel is insured for £20,000, it can still have £20,000 of repairs carried out to it without it being declared uneconomic to repair.
The consumer can, however, choose to abandon the vessel by giving notice of abandonment to the insurer which would then pay the sum insured (although it may be able to recoup some salvage costs).