Yachts to be careful: unusual features of yacht insurance policies
As the shipping downturn continues, many marine insurance companies which ordinarily only provide insurance to cargo vessels are attracted to break into a new sector – yacht insurance. This article provides a guide to some of the more unusual clauses found in standard term yacht insurance policies that do not appear in ordinary hull insurance policies (the International Hull Clauses).
When proposing to enter a new market it is important that the insurer understands the vessels it is due to provide insurance for and the insurance terms. Yacht insurance policies contain some unique clauses, rarely found in other policies.
What has happened?
Yachts are becomingly increasingly popular, and are an international status symbol that many aspire to own. Yacht insurance is accordingly a growing market. The Institute Yacht Clauses (IYC) are a widely used set of standard terms for yacht insurance. Yet yachts can vary enormously in shape, size, and use – as a result, the policy wording often depends on detailed refinement by the insurer/broker to match the yacht, and its intended use. Some of the most important clauses to be considered are below.
The key points
Clause 3 – navigating and charter hire warranties
Unlike cargo vessels, which are ordinarily allowed to trade internationally, always within IWL1 unless otherwise agreed, yacht owners are obliged to give warranties as to where the yacht will operate in the policy’s schedule. It is common that navigation is restricted to certain geographical areas, such as the Caribbean or the Mediterranean. It is also common for cover to be time-restricted. For example, yachts allowed to operate in the Caribbean are often not covered for damage occurring due to weather during hurricane season (June 1 to November 30). Also a yacht needs to be covered for any journeys transiting between two separate areas where it is permitted to navigate – coverage for the Caribbean and Mediterranean does not permit the vessel to transit the Atlantic.
Clause 5 – speed warranty/Clause 19 – speedboat clause
For those more used to insuring cargo vessels Clause 5 of the IYC will be a surprise as the assured has to provide a warranty that the yacht is not capable of travelling in excess of 17 knots. If it can, the insurance will not attach. In those circumstances Clause 5 will need to be deleted, and Clause 19 incorporated. This clause provides much more limited cover, reflecting the increased risks faster yachts pose. Some examples of restricted types of claim are those arising due to an accident when the boat was racing; claims for loss or damage to the rudder or propeller due to latent defects, negligence, or heavy weather; and claims for fire or explosion caused by inboard machinery.
Clause 11 – liabilities to third parties
This clause provides the owner of the yacht with the ability to insure both the hull and liability to third parties. Effectively thereby making the insurer not only a Hull insurer but also a P&I insurer. Insurers who normally insure only hull for commercial vessels will therefore have to consider carefully whether they wish to take this step.
As the Insurance market is aware, third party liabilities can be potentially large, and difficult to predict, even in relation to yachts.
The clause also extends P&I cover to situations where someone other than the assured is navigating or in charge of the yacht, as will commonly be the case on larger yachts, as long as the assured writes to the insurer in advance requesting this.
How will this affect me?
There are a number of notable clauses in the IYC, of which a few have been considered here. How risk is allocated under the policy will depend on how those clauses are adapted, if at all by the parties. That negotiation process will be heavily influenced by both the specifications of the yacht, and the assureds intended use of their yacht, and changes to this.
It is likely that for a hull insurer branching out into yacht insurance it will, at least initially, be relatively labour intensive with, for example, potentially notifications being provided each time a yacht changes geographical location.
For any insurer intending to start insuring yachts it is important that all pertinent information is obtained from the owner both of the type of yacht and the geographical location that the vessel is intended to sail.
A decision will also have to be made as to whether to cover P&I risks. Where an insurer is not sure if a policy accurately reflects their intentions, as experienced marine insurance lawyers we can clearly explain the terms of the contract in order to ensure that the insurers obtain the necessary protection.
Senior Associate, Holman Fenwick Willan
With research conducted by Richard Alam, Trainee Solicitor, Holman Fenwick Willan