Cover Up

WORDS: CLAIRE GRIFFITHSWhether it’s yard rest or heading west, Owners and Captains are wise to watch over their superyacht insurance cover and professional indemnity insurance to spot any hidden holes that could wind up costing a whole lot of horribleness. To spot the holes, as usual we turn to the experts to help. But before we delve any deeper, we’ve asked Robert Hodge, professional indemnity expert and Senior Account Executive at International Transport Intermediaries Management Co Ltd (ITIC), to remind us of the difference between professional indemnity insurance and good insurance cover:

Professional Indemnity insurance gives cover for claims brought against you for losses suffered by your customers due to your negligence or error and omission. These claims can extend to subcontracted services for which you were the agent, representative or lead contractor. “Good insurance, on the other hand,” explains Robert, “means having an insurer you can trust when you have a claim. You should only take out insurance with insurers who have a long history and proven track record of insuring companies in your sector.”

Robert gives examples of superyacht sector professionals who have had claims brought against them, and been ‘seen off’ or reduced by ITIC: A yacht broker incorrectly marketed a yacht as having zero speed stabilisers, which it in fact did not have. The Owners of the yacht brought a claim against the broker alleging that this mis-description in the run up to the summer season had cost them lost chartering income of €500,000.

ITIC analysed the claim from the Owners and discovered that only one single week’s lost charter had resulted from this error. The yacht broker had been able to find charters that season regardless of the mis-description. Furthermore, the Owners had not complied with the broker’s request to keep the yacht fully available for charter, instead putting it into the yard for repair work during this period. Faced with these arguments, the yacht Owner reduced his claim to €30,000. ITIC continued to assist the yacht broker in defending the claim from the yacht Owner, until the yacht Owner decided to withdraw his claim.

Other examples include a naval architect who had to do additional work to a mast that resulted in him receiving an invoice for €200,000 from his clients that ITIC arranged settlement at 125,000 and a yacht manager, faced with a liability payment of VAT of 150,000 for a helicopter in storage, who was reimbursed in full by ITIC. Clearly you need to have professional indemnity insurance and insurance, but the best case scenario is never having to use them.

For P&I, where we are covering the liabilities of an Owner to third parties, there is a real difference in exposure between a yacht sailing all year in the Mediterranean or the United States

Refit and maintenance at the yard means checking the superyacht insurance for tweaks that may need to be made during the yard period. Largely it depends on the extent of work to. be covered. Explains Paul Miller, Director of Underwriting at Hiscox MGA; “If you have a yacht worth £3million going into yard for a light touch-up costing £0.5 million, then the normal navigating policy is probably fine. But if you have £20million boat and are doing a £10 mill refit we would recommend that the navigation policy is cancelled and replaced with a builder’s policy, which is better suited and more specific to that level of work on the basis of it also being a substantial period of time in the yard. Buy a policy based on the completed value, in this case, the going-in value and the refit value will mean it is worth £30million.”

The obligation is on the Owner to decide, there is a danger to the Owner of an exposure of the value of the boat. Thomas de Campou, Sales Manager at ANP agrees; in order to cover your Owner’s needs exactly, he recommends a Builders Risk Insurance policy and it’s not just the type of works, the refit duration or the type of yacht, but also the background and the security of the yard that need to be considered.

As Michelle Van der Merwe at Pantaenius says, contractors not employed by the shipyard, but directly by the yacht also need to be insured: Says Paul, “As soon as a contractor walks through the gate, they are 100% the yacht’s responsibility: For example, if a van reverses into the scaffolding of the next door yacht, that’s the yacht’s problem. Whereas if you order the work through the shipyard, the yard is responsible for their own insurance.” Richard Power, Managing Director at Fastnet Marine Insurance Services International says, “The most frequently overlooked element by managers, Captains and Owners is omitting to inform insurers in advance.”

Don’t forget, that in circumstances where an Owner is building a yacht and has not yet taken delivery from the yard, he will have to seek specific cover from a P&I underwriter for insurance in respect of any pre-delivery crew he may have at the yard

So, it’s when a yard contract contains terms which either deny the Owner the opportunity to seek recourse against the yard, or even make an Owner liable for the consequences of the yard’s own negligence that the problems begin.“Owners and Captains should look to negotiate the liability terms in their contracts with the yard as best they can,” advises Hugo Jacquot, Yacht Team Leader at Steamship Insurance Management Services ltd, “If Owners want help, then they should send the intended terms to their insurer for their thoughts and advice. In circumstances where the terms cannot be improved, insurers, like Steamship Mutual, can and do provide contractual liability extensions to standard P&I cover for just these types of situation.”

It is important to remember that the yards want an Owner’s business and so generally there is room to negotiate terms with them, especially if the Owner is simply looking to make the contract more evenly balanced. For instance, ‘fire’ is very often considered as ‘Force Majeure’ by yards and they look to decline all liabilities resulting from such events, even where the fire arises from their negligence. Our view is that such ‘fire’ events should not be considered as Force Majeure and Owners should be allowed under the contract to pursue legal remedies against the yard in the usual way’. “Don’t forget,” adds Harris, “that in circumstances where an Owner is building a yacht and has not yet taken delivery from the yard, he will have to seek specific cover from a P&I underwriter for insurance in respect of any pre-delivery crew he may have at the yard.”

Harris at Steamship warns that where a yacht sails can have a significant impact on the exposure faced by an insurer, because liability regimes or expected levels of damages vary from jurisdiction to jurisdiction: “For P&I, where we are covering the liabilities of an Owner to third parties, there is a real difference in exposure between a yacht sailing all year in the Mediterranean or the United States. What is important from an Owner’s point of view, is that they always keep their insurers advised of where they intend to sail. If, when placing his insurance, an Owner has told an insurer he will be sailing only in the Mediterranean, but he then sails to the Caribbean, he is likely to be in breach of his insurance and have no cover for any incidents which then occur. The Owner should advise the insurer beforehand and ensure his policy is updated to take into account the new sailing pattern. This gives
the insurer the opportunity to decide if the new sailing pattern is a material change in risk and justifies a change in terms or premium.” If you’re chartering, watch out for the watersports liability for the charterers because it’s an option warns de Campou at ANP and is often overlooked.

Other things to look out for suggests Van der Merwe include: Make sure US cover is included on your policy, especially for crew, just in case a crew member has to be airlifted to US territory or the mainland in a medical emergency. Check for any restrictions on employing US crew and dayworkers. And finally make sure the Hull policy includes the Caribbean trip and transatlantic crossing if the yacht is cruising under its own keel, or if it is going via yacht transport, make sure there is sufficient cargo insurance in place.

Once you’ve patched up any holes in your cover, it doesn’t matter if it’s a season in St Maarten or maintenance at Marseille, Owners, captains, managers can sit back and shoot the breeze in peace as we pivot past Christmas and into another year.