This article was originally published in the December 2018 issue of Western Mariner and is part of a two-part series on Hull & Machinery Insurance. Read Part Two: Common Exclusions and Requirements here.
Marine Insurance has Two Components
If you carry insurance on your vessel it probably has two major components – Hull & Machinery and Protection & Indemnity. Protection & Indemnity, the third-party liability portion of your policy, I spoke about in a previous blog post. Now we will deal with Hull & Machinery insurance, which is the part of your policy that covers physical damage to your own vessel.
Hull & Machinery insurance ensures that your boat is protected so you don’t have to depend on someone else’s insurance or financial means to fix your boat. There’s lots of cases where people have damaged other people’s property and promised to make good on the damages never to be heard from again. If you do end up in court and get a judgement you still can’t get blood from a stone – if they don’t have money you’re out of pocket to repair your own boat.
Marine Policy Terms You Should Know
When you review your policy there are some terms that are important of which you should know the meaning. These are:
This is normally the first page (or first few pages) of your insurance policy. It contains a summary of your coverage including insurance limits, deductibles, special conditions, and warranties
Warranties, Conditions, and Subject
All of these basically mean a promise that you’ve made to the insurance company that a certain condition does or does not exist. Common warranties are that a requirement than only a specified person or person will be running the vessel or that the vessel will only operate for a certain period of time. Sometimes warranties can be confusing as warranties in consumer goods is a promise that somebody else is making to you. In an insurance policy it is a promise you are making to the insurance company. This is one of the most important parts of your policies. If you see the word warranty on your policy make sure you pay attention and understand and agree with it.
Trading Limit or Trading Warranty
Normally listed on the declarations page, this is the area in which your vessel is allowed to operate in. It is very important you make sure that yours is sufficient, especially if you do multiple fisheries such as tuna which can put you outside of traditional trading limits.
A material fact is something that, if the insurance company had known it before putting insurance in place they either would not have insured the vessel of they would have charged a higher premium. Material facts include things such as a skipper having a bad loss history or a pre-existing problem with the vessel that could result in a loss. It is your responsibility as a vessel owner to make sure that the underwriter understands any material fact that puts your vessel at risk that you know or ought to know about. This includes changes that happen after the policy is in place or after the application has been submitted. Different gear types or operating areas, starting a new fishery, a new skipper, or a longer operating season can all be considered material facts. It is very important to understand that the insurance company does not have to ask about if a material fact exists. It is your responsibility as an owner to let the insurance company know if there is something you feel is different than the application asks or if there is something that is missed.
The wordings are the actual contract of insurance between you as the vessel owner and the insurance company. They outline everything that is and is not covered as well as conditions for claims, payment, and your duties under the contract. Often there are multiple segments to the wording as different insurers add on additional conditions to modify, extend, or limit coverage. The wordings that apply to your policy should be listed on your declarations page and you should ensure that you go through them so that you understand what you’re paying for.
It’s important to know and understand these terms because they change the coverage on your policy. If you have a warranty saying that only Joe Blow runs your boat and there’s an accident while John Smith is skippering there’s probably no coverage.
Breaking Down Common Insurance Policy Wordings
Although what is covered under a policy can be a bit different between companies most insurers in BC use the “Canadian Hulls (Pacific) Clauses 2005” as the base form for their coverage. Each company will make their own changes to this wording to add and subtract coverage from the standard through additional conditions. The coverages I’m discussing are what’s included in the standard base form and might be different from what your particular insurance company offers.
An un-edited “Canadian Hulls (Pacific) Clauses 2005” policy wording will cover your vessel for “loss of or damage to the vessel directly caused by”:
Damage due to accidental fire is covered.
Damage due to accidental impacts are covered, whether they are with a submerged object or another vessel.
"Accidents in loading, discharging, or shifting cargo or fuel"
This is very important on a fishing vessel as you load your vessel at sea and your vessel can be damaged in the loading or unloading process.
"…breakage of shafts, or any latent defect in the machinery or hull”
If your tail shaft snapped the shaft itself would not be covered but the cost to repair the damage that broken shaft caused (to your rudder, prop, transmission, bearings, etc.) would be covered.
“Negligence of Master, Charterers other than an Assured, Officers, Crew or Pilots”
Negligence of Master and Crew is one of the most common claims that happens. Traditionally it is grounding of the vessel or impact of some form.
“Negligence of repairers provided such repairers are not Assured(s)”
This clause provides coverage for damage that results from a repairer improperly installing a part or performing a service (like a valve set). It does not cover the work performed but it does cover the resulting damage. A good example of this is if you direct a repairer to install a new stuffing box and they do it improperly, causing damage to your shaft and transmission. Your shaft and transmission would be covered as resulting damage but the cost to repair or replace the stuffing box would not be. It is important to note that repairs and services you do to your own vessel yourself are not covered.
"Contact with any land conveyance, dock, or harbour equipment or installation”
This is pretty self-explanatory. We’ve all done it – don’t lie to yourself and pretend you haven’t. There’re a lot of mysteriously damaged docks and pilings out there. Usually following a comment of “ah, somebody hit that before me anyway” as you sheepishly depart the dock.
Damage due to heavy weather (including contact with floating ice)
Again fairly self-explanatory. A skim of ice in an inlet can cause a tremendous amount of damage to a wood or aluminum boat very quickly and everyone who has fished has experienced heavy weather at some point.
read your policy
Most likely your policy will have additional wording and conditions added to it that will add or remove coverage from the basic wording. It is important to understand your specific policy so that you know how your insurance will respond if you have an incident.
Fishermen work hard to earn their money. Part of that hard-earned money goes towards your insurance policy. Take the time to sit down and go through your policy terms, conditions, warranties, and wordings so that you understand the policy you have. If you have any questions talk to your broker — that’s what you’re paying them for. You wouldn’t buy a piece of equipment for your vessel without knowing that it will perform — hull & machinery insurance should be no different. Make sure that the product you are receiving has the same standards of quality, dependability, and performance that you demand of your vessel and its equipment.