Insurance is often considered a necessary evil, an expense paid with little return in fair weather. But can the boat owner afford not to have the appropriate insurance especially in the face of escalating natural disasters. A few mariners in Queensland may be thanking their lucky stars as the state’s largest marine insurer responds quickly by treating all claims as ‘perils of the sea’, avoiding the perils of litigation. Unfortunately, others may not be this lucky as insurers are tempted to limit their losses due to the unprecedented number of natural disasters across Australia in recent times.
The recent La Niña event along the eastern seaboard of Australia has resulted in cyclonic winds, hammering rain, massive storm surges and engorged murky rivers racing to the sea. From metropolitan Brisbane in early January, TV cameras beamed pictures around the world of torpedoing concrete walkways and marina pontoons ripped from their supports caught in the raging torrent. Abandoned boats, hurtling down the angry Brisbane River were crushed as effortlessly as matchsticks against the sides of bridges they would usually pass beneath.
Now, as the floodwaters subside and work begins on the long and costly process of rebuilding, attention falls on the insurance companies and how they are responding to one of Australia’s worst natural disasters. Despite the Prime Minister urging insurers to ‘show compassion and flexibility’, many victims are being told their current policies fail to cover flood damage and there is very little the government can do to force their hands. While some insurance companies continue to bicker over the elusive distinction between flood and storm waters and consumer groups argue for major reform, it is worth considering how the marine insurance industry has responded and how mariners may minimise the likelihood of being denied coverage for future claims.
Four years ago I was living in a renovated boatshed on the western shores of Lake Macquarie south of Newcastle. After 36 hours of torrential rainfall my bedroom was submerged in six feet of water and the lake was in a state of ruin. Looking across the usually peaceful vista, the cyclonic conditions had demolished boatsheds and wharfs and had left dozens of yachts strewn across the shoreline, their rigging resting against the tops of houses. Thankfully, my insurance policy covered the damage to my home and my yacht ‘Dawn’ was tucked safely in a shed, which is more than can be said for the ‘Pascha Bulka’ oil tanker that foundered on Newcastle’s Nobbys Beach. Ultimately, this June long weekend storm claimed ten lives and cost insurers over $1.5 billion.
While the Newcastle storms came without warning, Brisbane was given early notice of the eminent danger. Well before the police were evacuating the inner-city and closing the river, marina operators and a major marine insurer were working closely together to assist in shifting vessels to the relative safety of Morton Bay and Manly Marina. Unlike those vessels stranded high and dry on the shores of Lake Macquarie, in Brisbane vessels were being salvaged regardless of insurer. The show of goodwill continued with a general commitment being made by this particular marine insurer to process its flood-related claims as quickly as possible without the usual scrutiny.
The sceptics amongst us may label such action as a self-serving attempt to either avoid legal costs or bad publicity, indeed there is no denying the powerful impact of the combined pressures of media, government and public opinion on an organisation in times of crisis. Whether the collective vision of ‘helping your fellow seamen without question’ will continue to be replicated in the coming months remains to be seen. Some providers may be tempted to tighten the enforcement of contractual terms in order to limit their liability in the face of escalating claims. Boat owners should therefore not assume their claims will continue to be processed without question, but consider their actual policy in light of the various grounds on which insurers may reject a claim.
The moment you take out marine insurance you are bound to the terms and conditions outlined by the policy. An insurance policy is a legal contract and as such it is essential that you are aware of exactly what you’re signing up for. Too often more time is spent researching the latest boating entertainment system than the vessel’s insurance policy. And despite the industry sales pitch, insurance policies are not simple contracts and should be considered with respect to each particular vessel. Boating is regarded as a high risk activity causing a raft (excuse the pun) of boat-specific exclusions to be built in to standard insurance contracts. Even casual recreational yachtsmen need to be aware of these general terms. When push comes to shove insurers will usually only cover what is directly required by the policy, irrespective of whether the incident occurred in times of national disaster or merely personal misfortune.
Most, if not all boating insurance policies have clauses relating to contributory negligence, which state that the policy holder must at all times take reasonable care to safeguard the insured vessel from theft or damage. Further, if damage does eventuate there is a duty to take all reasonable steps to prevent any further loss or damage. In the context of recent floods questions may arise as to whether owners, who had been provided with ample warnings of approaching flood waters, should be covered if they took no affirmative action to protect their vessel. Of course in reality when homes and even lives are threatened, securing one’s boat is the last on the list of priorities. And it would be highly unlikely for insurers to punish owners in these circumstances unless it is found that the owner damaged their vessel intentionally or through gross negligence.
Another exclusionary clause comes into operation if a boat is deemed to have been in an unsafe or unseaworthy condition before the incident occurred. In making this determination assessors will look at whether the vessel had been correctly maintained, was structurally sound and free from corrosion, rot, rust and other previous unrepaired damage. They may also check to see if any major repairs, alterations or modifications to the vessel had taken place, as unidentified changes made to the manufacturer’s original specifications are usually sufficient grounds to refuse a claim. Indeed there is an ongoing obligation to keep your insurer informed of anything that could affect their assessment of risk including changes to the place the boat is housed or moored, changes to the purpose for which the boat is being used or even the loss of boating licences or criminal convictions. Failure to be honest and upfront in all dealings with insurance companies may be regarded as fraud and result in the immediate cancelation of a policy – just when you need it!
It is also worth noting that most insurance policies will not pay out claims within the first 48 hours of the start of the policy being entered, particularly if damage was from a named cyclone such as the startling ‘Yasi’ system. Finally, while not so relevant to the recent disasters, it is also important to recognise that boating policies come with strict geographic limits extending anywhere up to 250 nautical miles from the Australian coast. Should your vessel be damaged outside these waters you will not be covered and therefore international cover may be required depending on usage.
While these generic clauses are found in all the major boating policies, there can be vast differences between companies and what they are willing to cover. Subsequently, anyone looking to better understand their policy should first and foremost get in contact with their insurer and ask them to explain what’s covered and more importantly what’s not in respect to your particular vessel. You will also be able to find this information in your insurer’s policy product disclosure statement, which outlines the specific terms and must be provided to you before taking out a policy. Finally, should your claim be rejected the Insurance Ombudsmen Service offers a free and independent forum that allows consumers to challenge the decision of an insurance company, and who’s ruling is binding on the insurer.
Overall despite the recent show of generosity by some insurance companies, this position should not be considered the norm and mariners should consider carefully the terms of their insurance policy in view of their particular vessel to ensure proper coverage. For many Australians the start of the New Year has ushered in significant loss both financially and emotionally. The unusually high number of devastating natural disasters across the country that at the time of writing increased to include cyclone ‘Yassi’, highlights the importance of getting your insurance right. It may be the case that on top of a marine survey, specialist legal advice is also required.
The following checklist may assist the mariner further in this process by considering what the policy will and will not cover in respect to the vessels:
- construction material
- design peculiarities
- type and place of mooring
- service history of mooring and vessel
- future use
- alterations to manufacturer’s specification
- general condition
- condition of standing and running rigging