5 ‘Gotchas’ of Marine Insurance

By Randall Carnahan
Monday, August 20, 2012

“Gotchas” are pitfalls, catches, bait and land mines – a kicker, snare or snag. They are surprises and, in the world of insurance, surprises are rarely a good thing.

 

‘Gotchas’ can be caused by different things. It may be the age of the coverage forms; it may be case law has moved on beyond the policy’s intent. Or, it may be there is a ‘disconnect’ between policy wording and current business practices.


Sometimes, these things occur simply because some insurance contracts are impenetrable.  Insurance policies are a distinctly difficult set of documents to understand. In the world of policy language, I have always found Ocean Marine insurance forms to be more entertaining than the general class. Enlivened by terms like “Assailing Thieves” and “Barratry”, they still have a bit of salt and you can almost imagine Jack Aubrey clomping about the quarterdeck. 
 

Even the Marine forms, however, can make your eyes roll back in your head. Crafted to be precise, they are sometimes so dense they end up in some cases being unreadable. The precision and clarity originally intended by its authors instead results in just the opposite. 
 

And sometimes, it is just the nature of the beast. The freedom we enjoy in Marine insurance to manuscript forms, for each Company to create its own forms – this freedom creates complexity and ‘Gotchas’ can result. 
Whatever the reason, ‘Gotchas,’ large and small, do exist. While Risk Managers, their Brokers and Average Adjustors that live in the Marine insurance world may know about them, it may be that the typical Business owner – or even their Agent if they are not specialists – will be unaware of them.

 

Garden Variety Gotchas
For example, one of my favorite Gotchas is in the A.I. Builders Risk form. A standard activity of Boat Builders, of course, is to sea trial their boats. And, in the course of the trials, they will need to man the vessel. A Boat Builder may be excused if they believe that, having bought the requisite Builders Risk insurance policy, the exposures customary to the trade will have been addressed – including Crew. The Builders Risk coverage forms do cover the sea trials, but liability for injury or death of employees is excluded. The form should be re-titled “Builders Risk Form Without Crew Coverage”. Now, we’re all on the same page.
 

The Brown Water forms have their share of ‘Gotchas,’ as well.  The Institute Tug Form, for example, contains the Watchman Clause, which reads:

 

WATCHMAN
It is agreed that when this Vessel is tied up or moored, it shall be at all times in charge of a watchman in the employ of the Assured, whose duty it shall be to make careful examination of the Vessel throughout at reasonable intervals, including inspection of the bilges.

 

This is a case where the coverage form has been passed by business practice and technology.  Watchmen have been replaced in many cases by inexpensive monitoring devices that have bilge alarms, low battery alerts, GPS tracking and infrared motion detectors - and will send you a text message alert if anyone of them is triggered. Yet, the Watchman Clause is there on lines 141-142 of the Tug form and violation of its terms may void coverage. Now, many Owners may stage their equipment at different facilities such as ABC Shipyard – and they have Watchmen.  However, the clause stipulates a Watchman “in the employ of the Assured.”  If we are paying wharfage to the Yard, are they and their Watchmen in our employ?
 

Another coverage conundrum is presented when trying to marry the standard Towboat Hull forms with the standard Protection & Indemnity (P&I) forms. The Taylor and Institute Tug Form excludes claims for loss of life and personal injury, and the P&I forms – where loss of life coverage is found, exclude “claims arising out of or having relation to the towage of any other vessel or craft.” Knitting these coverages together to properly insure the Tower’s exposures can be a challenge for the uninitiated.
 

A fourth Gotcha resides in the Equipment Floaters carried by Marine Contractors, among others. Floaters are meant to cover our Equipment and Tools that move from site to site and barge to barge as needed and are as close to providing “All Risk” coverage as we are going to get these days. Covered Equipment can range from employee’s hand tools to $800,000 crawler cranes working off a deck barge. So, you can imagine the surprise when the policy contains an exclusion for Waterborne Equipment.
 

Our fifth ‘Gotcha’ relates to fiberglass production boat builders. Builders will buy Property and Business Interruption insurance to protect their assets.  And they may well insure their Boat Molds on the same premise. Indeed it can be argued that the Molds are the more valuable asset in terms of revenue stream. Buildings are relatively easy to replace in the current market.  Molds, though, are crafted to very close tolerances, and for each production line or model there will be multiple molds to be replaced for the hull, deck, hatches and rudders.  It is common to insure the Molds under the Marine policy with its more flexible terms of coverage.  The ‘Gotcha’ is that the Business Interruption coverage on the Property policy will not extend to the Molds insured on the Marine policy.

 

Gotcha Fix
Each of these ‘Gotchas’ have policy solutions. Endorsements added, clauses deleted, a word or two crossed out; all of which unfortunately increases the policy’s complexity. But the larger solution may just be one of education and information. By shining a light on these aspects of Marine insurance, they move from “Gotcha” status to the known, and then can be dealt with. Rely on experienced Marine insurance brokers: a Marine specialist will identify the Gotchas in the standard coverage forms and discuss with you how they will be addressed. They will then work with underwriters to craft a policy that roots out the ‘Gotchas’ and provide coverage that fits your business needs.


In the meantime, are there other ‘Gotchas’ out there? You bet. These five examples are by no means the only ‘Gotchas’ lurking out there. Perhaps you have been bitten by one or know someone that was. If you would like to share your experience please let me know. We can start cataloguing them, make them available and shine a light on them. 
 

+ (Published in the August 2012 edition of MarineNews - www.marinelink.com) +

 

Randy Carnahan is Gencorp’s Marine Director and specializes in placement of Vessel, Shiprepair and Marine Contracting risks. He began his career as a Claims Adjuster which taught him the value of a well-crafted policy. Reach him at: rcarnahan@gencorp-ins.com

 

Maritime Reporter March 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

Contracts

Navios Time Charters Two Product Tankers

Navios Maritime Acquisition Corporation, an owner and operator of tanker vessels, has announced  that the Nave Equinox and the Nave Pulsar have been chartered out

Azeri Shipyard, BP Sign Vessel Construction Contract

Azeri state energy company SOCAR's shipyard and British oil major BP have signed a $378 million deal to design and build a subsea construction vessel for the Shah Deniz II gas project,

UK Subsidises 8 Renewable Energy Contracts

The British government on Wednesday awarded investment contracts under a new subsidy regime to eight renewable energy projects, including five offshore wind farms and three biomass plants.

Shipbuilding

Azeri Shipyard, BP Sign Vessel Construction Contract

Azeri state energy company SOCAR's shipyard and British oil major BP have signed a $378 million deal to design and build a subsea construction vessel for the Shah Deniz II gas project,

Fishing Vessels Fit with Wärtsilä’s NOx Reducer

Wärtsilä said its new NOx Reducer will be fitted to two new fishing vessels under construction at the Celiktrans yard in Turkey. The ships are owned by HB Grandi,

CMM Takes Delivery of Damen PSV for Brazil

New supplier CMM Gravity to start on long-term contract with Petrobras. CMM has taken delivery of a Damen Platform Supply Vessel 3300. The 80-meter, 3,300t deadweight

Ship Repair & Conversion

Two Navy Contracts for GD Bath Iron Works

Included in the latest listing of contracts awarded by the US Department of Defense, Navy, are two contracts with General Dynamics Bath Iron Works, Bath, Maine.

Fred. Olsen Rig Upgrade Delayed; Costs Eyed

Rig to cost $195 mln to upgrade vs earlier $125 mln; upgrade to be completed in June vs earlier view April. Firm's down 5.6 percent. Norwegian rig firm Fred.

Grounded Navy Ship Repaired, Returns to Fleet

The Oliver Hazard Perry-class frigate USS Taylor (FFG 50), homeported in Mayport, Fla., successfully completed post-repair sea trials, April 21, the U.S. Navy reported.

Casualties

Heroic Titanic Engineer’s Memorial Restored

Joseph Bell, the Chief Engineer aboard RMS Titanic, is considered national hero for his actions in the ship’s engine room as she met her fate on April 15, 1912.

Korean Prosecutors Raid Home of Ferry's Owner

Prosecutors investigating the fatal sinking of a South Korean ferry have raided the home of Yoo Byung-un, the head of a family that owns the Chonghaejin Marine Co.

Ship as Lifeboat Concept Disputed by ICV

A recent meeting at the National Transportation Safety Board in Washington, D.C. (attended by International Cruise Victims (ICV) Board representatives) discussed

P&I Clubs

Pirates Raid Tanker off Malaysia, 3 Mariners Taken

Armed pirates raided an oil tanker off the coast of Malaysia and took three crew members with them, Malaysian maritime officials said on Wednesday, underscoring

China's Japanese Ship Seizure has pre-WWII Roots

It all began with a pre-World War Two contract between China's then "ship king" and a Japanese company to lease two Chinese freighters. When the one-year lease was up in 1937,

BP Spill Compensation Battles Rage On

BP pays billions in compensation but some claims still unpaid; Oil still appearing on beaches in Gulf of Mexico. Company says claims process is flawed, not all oil from spill.

 
 
Maritime Contracts Maritime Security Maritime Standards Naval Architecture Navigation Salvage Ship Electronics Ship Repair Ship Simulators Shipbuilding / Vessel Construction
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.2600 sec (4 req/sec)