Does your insurance coverage fit your operation?
No business likes to hear the word “denied” from their insurance company. But when a business purchases an insurance policy, it enters into a contract that carefully outlines what insurance protection is being offered to the business, and what is not. To avoid being caught off guard, it is especially necessary for marine businesses, and those that provide service to them, to make sure their insurance coverage fits their operations, and the scope of work they are providing.
Consider the hustle and bustle of a shipyard operation. It is a facility on or around a waterway, and filled with people coming and going. Some of those people are shipyard employees, others can be the crew of vessels being repaired, and many of the others are the numerous subcontractors performing various operations such as cutting or welding, engine installation and testing, electronics installation, or ship joinery.
To minimize their liability, most shipyards require each subcontractor to maintain liability coverage, and provide a certificate of insurance to assure that those companies or individual contractors working on their premises have the required insurance coverage. Because of the diversity of work being performed on site, how does a business assure that the insurance coverage that they require is the coverage that is really what is need? There are definitely exceptional insurance challenges when working on, or around waterfront – for any type business.
Complex Operations Demand Tailored Risk Assessments
In fact; the uniqueness and complexity of marine operations have prompted very industry-specific tailored insurance coverage(s) to address maritime risks. Contractors providing services to various industries might not be aware of the nuances involved in covering marine risks or might not even consider the work they are doing to be marine-specific. They may also assume that their standard general liability or workers comp policies will respond just fine. These assumptions, however, could prove costly in the event of a claim.
So when is a ship not a ship? Here’s an example: A diesel engine manufacturer put engines in a ship being newly built. When the engines are test fired, a cylinder head blows through the engine case and the ensuing fire destroys the ship. The engine manufacturer presents the claim to their Ship Repairers Legal Liability insurer. Ship Repairers Legal Liability coverage provides protection against property damage to vessels in their care, custody and control for the purpose of being repaired. The claim, however, is rightfully declined. Why? According to maritime law, a ship is not a ship until it has launched and put to its intended use (which usually means it has been delivered to the owner). In this instance, this ship was being built and had yet to be delivered, or put to its intended use. Therefore, it was not covered by the Ship Repairers Legal Liability policy. So you need to ask yourself, do you work on new ships being built? Or maybe you work on the occasional diesel truck or crane. Does your Ship Repairers Legal Liability policy have an “Other Work” endorsement, which provides coverage for similar types of work on other than ships? Perhaps you work at other people’s repair facilities? Does your Ship Repairers Legal Liability policy have a schedule of premises that coverage is subject to? Does your policy have a “Travelling Workman’s” endorsement, which provided coverage for your work at other than scheduled premises?
Defining the Law – and the Risks
Work performed on or around the water often falls into a whole other jurisdiction than many businesses are used to – maritime law. Even though they might not consider themselves marine businesses, if they are working on a ship or near navigable waters, they may very well be considered a marine operation that requires particular marine insurance protection, not offered by standard policies.
Workers compensation coverage offers a prime example. If employees are performing an operation around navigable waters, state-mandated workers compensation would not apply but rather Longshore and Harbor Workers’ compensation would. The Longshore and Harbor Workers’ Compensation Act (LHWCA), enacted in 1927 provides employment-injury and occupational-disease protection to approximately 500,000 workers who may suffer bodily injury on the navigable waters of the United States, or in adjoining areas. It provides compensation to an employee if an injury or death occurs upon navigable waters of the US - including any adjoining pier, wharf, dry dock, terminal, building-way, marine railway or other adjoining area customarily used by an employer in loading, unloading, repairing, dismantling or building a vessel.
While originally enacted to protect workers engaged in stevedoring and ship building operations, the act has been expanded to encompass nearly any employee or company whose work takes them on “navigable waters.” That can include marine contractors, diving contractors, service companies supplying equipment “on the water” and ship repair operations. And, it works entirely different than standard workers compensation coverage. While workers compensation is state regulated, longshore claims fall under the jurisdiction of the US Department of Labor and more severe penalties and legal ramifications can be imposed for noncompliance.
When working on a vessel, individuals are typically covered with the Merchant Marine Act of 1920, more commonly known as the Jones Act. The Jones Act is a federal act, which provides benefits – similar to Workers’ Compensation – to employees who are working on a US-flagged vessel, which can be defined as anything from a small watercraft to a larger tanker.
Marine insurers have developed marine general liability coverage for a variety of business risks that are either excluded or under-insured in GL policies. Marine general liability policies provide general liability coverage, and additionally property damage coverage for property in your care, custody and control. The c,c,c coverage sections of the policy can be titled Marina Operators, Wharfinger Legal, Stevedores Legal, Terminal Operators Legal, among others. Again, the right questions must be asked in order to define the proper policies. Is coverage limited to ships, or private pleasure-type watercraft, or marine cargoes? Is coverage marine operations specific? Is coverage location specific?
Quite simply, there is no blanket insurance coverage that protects everything equally. And that is not a bad thing. No business wants to pay for insurance coverage they do not need. Instead, their real aim is to buy insurance coverage that fits their individual needs.
For marine businesses, navigating the various insurance policies can be like moving through murky water. It can be especially challenging for businesses unfamiliar with maritime law that still significantly guides marine operations. With the experience they bring from servicing various marine operations and keeping a close eye on case law and legal precedent in marine coverage litigation, specialized marine insurance brokers and insurance carriers can provide some valuable guidance to assure insurance coverage fits the operation and or work at hand.
Because there are times that a ship may not be a ship, every business wants to be sure its insurance coverage is insurance coverage that is right, reliable, and appropriate to the expected risks.
(As published in the 4Q 2013 edition of Maritime Professional - www.maritimeprofessional.com)