This article was originally published in the October 2018 issue of Western Mariner. It’s part of a series on commercial vessel insurance. Read about Hull & Machinery Coverage and Terms here and Common Exclusions and Requirements here.
As a commercial vessel operator I’m sure you’ve been asked by some of the harbour authorities and marinas that you frequent for a certificate of liability insurance within the last year. Many harbour authorities are now cracking down on insurance requirements that have been in place (but mostly unenforced) for years. This sudden increase in requests for proof of insurance has raised a lot of questions about why insurance is needed and why marinas are only now requiring it when in the past being uninsured wasn’t an issue.
What is Protection & Indemnity?
First, a quick rundown of terminology is appropriate so that we can clarify what we are talking about. For vessels, liability insurance isn’t called ‘liability insurance’ – it’s called Protection & Indemnity. This is because it protects the vessel, its owner, master & crew from financial loss by indemnifying (paying) for things they become legally liable (responsible) for due to negligence (failure to use reasonable care). A good Protection & Indemnity (P&I) insurance policy will also cover expenses for wreck removal and sudden and accidental pollution.
Protection & Indemnity Protects the Harbour
Harbour authorities have cracked down on P&I insurance requirements for a number of reasons, the biggest of which is their repeatedly being saddled with the financial burden of removing and demolishing vessels that have sunk at dock and cleaning up fuel and oil spills from vessels using their facilities. Wreck removal and pollution cleanup is expensive and if there is no insurance in place, or the owner of the vessel doesn’t have the funds to pay, it’s the harbour that ends up eating the expense and eventually passing the cost down to its users. By requiring P&I insurance for all vessels that use their facilities the harbour protects itself and you from having to pay for the liabilities of other vessel owners.
Protection for your Vessel and You
Even if you’re a good operator and your vessel is in excellent shape you still can benefit from Protection & Indemnity insurance. Incidents happen even to well-maintained vessels and P&I insurance doesn’t just cover sinking at the dock.
I’ve seen a lot great operators tag another vessel. If you’re lucky it’ll be another commercial boat and someone you can deal with reasonably. If you’re unlucky you’ll hit a pleasureboat and the owner will be insistent that the tiny dent you left in his bulwarks means his entire boat needs to be hauled and repainted. Believe me – from my experience you’re better off to have the insurance company deal with these incidents.
P&I insurance also provides protection for the master, crew, and vessel while in the performance of their duties. It will either defend you or pay out the claims – and even if a claim is unreasonable the defense costs alone could be in the tens of thousands of dollars. If you’re in the general area of a loss to a telecommunications cable, a survey buoy, or a navigation aid that’s been heavily damaged you will most likely be named and need to hire a lawyer to defend yourself. Having at least P&I insurance in place means that you don’t have to deal with those costs.
Protection for Wreck Removal and Spill Clean-Up
Wreck removal is another important and valuable aspect of P&I insurance. Unless you are fishing far offshore a lot of the areas you are fishing around are protected. If your vessel sinks or is grounded in or near a protected area, the government will have specific (and expensive) requirements for what can and can’t be done to remove it.
The old days of just pulling a wreck off the beach are gone. Nowadays before attempting even a simple recovery you will probably have to remove the fuel and any contaminants. In especially sensitive areas you might have to build in access by land (and then restore that land to its original condition afterwards) and/or take the boat out in pieces, both of which add hugely to the cost of removal.
Pollution is also becoming a bigger and bigger issue as time goes on. Increased regulations mean increased cost if there is an accidental spill, with booms being deployed for issues that in the past have been dealt with (incorrectly) by using a copious amounts of dish soap to make the problem ‘disappear’. Dish soap has proven to be a very environmentally unsound method and the days are gone when the bottle of Dawn spewed its magic and made the oil disappear. Now you need to deploy booms, skim and recover with absorbent pads and then dispose of all the used product in an environmentally sound way. Also, people are now more aware of the issues surrounding fuel and oil spills and are more likely to report any spill, no matter how small. Reporting of a spill triggers a quick response from regulatory bodies who will deploy their own resources to contain the spill regardless of what you have on hand and then charge you for the cost.
How do I get Protection & Indemnity Insurance?
If you’ve never had insurance in place before there are some things that most insurance companies will require. If your boat is older than ten years they will likely want to see a current Condition & Valuation survey from a marine surveyor. This is required even if you’re only looking to purchase P&I insurance and don’t want any coverage for damage to your boat itself.
This survey requirement is in place because the underwriters that are agreeing to protect you are also on the hook for any wreck removal or pollution incidents that may occur during the policy period. They want to be assured that the vessel is seaworthy and a survey provides an objective third party opinion of this fact. In the event of a loss this avoids any arguments that the vessel wasn’t seaworthy due to there not being a current survey (something we’ve seen happen a few times).
You should also be careful of companies which offer a low cost, no-survey-required Protection & Indemnity policy. These cheap policies may exclude key items such as wreck removal or sudden & accidental pollution coverage – which are the main exposures and the largest reason to get liability insurance. If you are only purchasing P&I insurance (no hull coverage) you should be aware that most policies will include something called a “Running Down Clause” which applies if you hit another vessel. This clause adds a much higher deductible (often $10,000 or more) if you run into another vessel. The minimum limit of liability I would recommend is $2,000,000 but you should examine your vessels and your operations, and speak to your broker to determine the right limit for you.
Do you want a small expense or a big liability?
I am sure many of you who don’t currently carry insurance are irritated, looking at this as another added expense for your business. This is true – insurance is an added expense. But it becomes extremely inexpensive the moment you have an incident that insurance covers. Running a fishing boat or other commercial vessel comes with a lot of costs and a lot of responsibility – to yourself, your crew, and the areas that you operate in. It’s better to be protected so that if something happens you can continue to work without worrying about being driven out of business by an unforeseen event.
I feel a lot of people don’t see the value of insurance because they don’t fully understand the coverage available or what they have in place. If you have any questions you should contact your insurance broker and discuss with them so that you understand exactly what you have for coverage and how it responds. At the end of the conversation you should go away knowing what you have in place, what’s available, and with a clear understanding of your requirements under the policy.
If you don’t have insurance in place it’s better to start the process of getting it now rather than waiting until the last minute. Talk to the broker and go through the options that are available to you – you might find that it’s a better deal to insure the hull together with P&I since you’ve got to get a survey either way. I would recommend allowing two or three weeks to get everything together for most boats. If you’ve got a wooden vessel or an older boat that hasn’t had insurance before the process will take longer and there will be a lot more requirements for you as an owner.
Nobody likes to talk about insurance but it’s a necessity in today’s environment. The insurance requirement protects everyone. It helps marinas to identify vessels which are high risk (boats that can’t get insurance) and start the process of dealing with problem vessels. It protects you and the vessels around you by ensuring that if something happens there is financial backing to deal with the problem. You have a lot invested in your vessel operation. Knowing that your marina has a strong insurance requirement means you can be confident that the money is there to deal with a wreck or sudden & accidental pollution problem that arises and it won’t come out of your pockets due to increased moorage rates.