People who like the water like boats. This might be a gross misuse and the mariners among us might get offended by it, but I’m going to use the term boat to refer to any kind of watercraft that an individual might own, except for personal watercraft. I’ll call personal watercraft, personal watercraft, so we can be clear and use the same language today.
I’ve been told that the best day in a boat owner’s life is the day you buy the boat, and the second-best day is the day you sell the boat. I take that to mean that boat ownership has its issues. Of course it does. As insurance and risk people, we understand that everything has its issues. We look at the risks involved with everything we do before we do it. We understand that everything has its own risks and troubles.
Yes, boats and personal watercraft are fun and useful. People use boats for fishing. People use boats for waterskiing. There are people who take their boats out on lakes, rivers and oceans. Some boats are simple to pilot and navigate because of the size of the boat and the waterway being navigated. Some boats are more complicated because of the size of the boat and the waterway being navigated.
People use personal watercraft to ride around on the water, like riding a motorcycle, except you get water rash rather than road rash if you have an incident.
Since it’s spring and the weather is getting warmer, now is a good time to talk about boats, their risks, their risk management, and their potential insurance implications. Hopefully, you read this before you end up at that party your friend is throwing on his new boat.
Risks of Boats
It occurred to me to start with insurance, even though I didn’t plan to write about the insurance piece of this until later. Reading different boat insurance policies reminded me of reading auto policies. That made perfect sense as I was thinking about it because a boat is a vehicle and vehicles have certain risks that come along with them. So, what are the risks related to boats?
There is the risk of damage to the boat. Whether a person is operating the boat, it’s sitting on a trailer, or it’s on a trailer behind a vehicle headed down the road, something may happen to the boat to damage it. It might collide with another boat, a dock, or run aground, which as we all know means that it hit the ground under the water and got stuck and potentially damaged in the process.
Of course, there is a difference between damage to the boat while it’s on the water and damage to the boat while it’s behind the truck, headed down the road, but we aren’t looking at the insurance policies right now. We’re dealing with risks.
Someone could get hurt by the boat. Whether they are operating the boat, a passenger on the boat, or a bystander (or by-swimmer), they can get hurt.
Operating a boat can be a lot of fun for someone who loves boats but because it’s a vehicle, people can get hurt while operating it. Boats also have the additional risk that a person can get hurt while waterskiing, tubing, or some other way that they are towed behind the boat. That’s a risk that you don’t normally see with land vehicles (unless you live in Florida, but that’s another matter).
Whenever there is a risk of bodily injury, there’s also the risk of property damage. The pilot could get distracted, be inexperienced, or otherwise unable to control the boat. This could cause the boat to collide with another boat or personal watercraft. Lakes and rivers also have docks that extend out into the water. Some extend quite a way out into the water.
Some waterways have some very expensive docks and boats out there that if they are collided with, the damage could be extensive and expensive.
There are probably more things that we haven’t addressed directly, but this will do for now.
Risk Management for Boats
So how do you manage the risks associated with boats? That’s a worthy question to ask and answer because once we identify the risks associated with something, we have to work on ways to mitigate those risks. Of course, the simplest way to manage and mitigate the risks of boats is not to have boats in your life in the first place, but if the risk does not overwhelm the benefit you receive from the boats, you will have to deal with the risk.
One way to manage the risks of boats is education. The new boat owner should learn about their new passion before setting out on the open seas, lakes, or down the river. I’ve mostly hinted that I’ve been dealing with boats that operate by some kind of motor, but there are several different ways that boats can be operated and each of them take a certain amount of education, practice and skill.
Operating a small sailboat is different than operating a competition sailboat. Operating a canoe is different than operating a kayak. A small jon boat is very different than a 25-foot fishing boat, which is really different than operating a yacht that’s bigger than Delaware. Some boats really need a licensed captain, while others don’t, but even without a license, there’s much to learn.
Another avenue of education to manage the risks of a boat is learning how to respond in the event of an emergency. That might mean learning how to swim or stay afloat until help comes. It also might mean learning rescue breathing in the event that someone ends up in the water too long or can’t swim.
There’s clearly more to be considered but let that be enough for now. Let’s explore what owning or operating a boat might mean for clients’ insurance policies.
The short version of this conversation is that a client that has a homeowners (any of the homeowners series of policies) policy and an auto policy is going to find that they need to pay attention to how they read them regarding boats because here’s the spoiler. Maybe there’s some coverage, but don’t bet the farm on it being the right coverage, or enough coverage.
Let’s look at the most likely edition of the ISO Homeowners 3 – Special Form, the HO 00 03 05 11. We aren’t looking at the 2022 edition because it’s not available right now and it will be a year before a larger number of clients actually have this form, if their carrier is using it. This is meant as an example anyway, so read the whole policy before making any recommendations to anyone at any time.
It starts with a definition that we need to be aware of. Watercraft means a craft principally designed to be propelled on or in water by wind, engine power or electric motor.
So, we start by broadly defining what a watercraft is. This is so that we can either create a broad exclusion and then put exceptions in to create some coverage or so that we can create broad coverage and whittle it down with exceptions that create exclusions. In this case, it’s the former. There is a broad exclusion with some exceptions. Rather than focus on the exclusion, let’s look at the exception and see what coverage might exist for the boat owner or user.
The first thing we note is that there is a little bit of coverage for damage to the watercraft itself. Under the Special Limits of Liability, we find this.
The special limit of liability for each category shown below is the total limit for each loss for all property in that category. These special limits of liability do not increase the Coverage C limit of liability.
c. $1,500 on watercraft of all types, including their trailers, furnishings, equipment and outboard engines of all types.
A quick online search showed that a trailer that could be used to haul a small boat can cost over $1,500 and that’s not including the boat itself. A small fishing boat that can carry two people (with an outboard engine and trawling motor) runs over $20,000. You might ask about something “simple” like a kayak. That’s a good question. On the same website, they run from $600 to “call for pricing.”
It’s time to look at that liability exclusion and find out what it tells us.
Coverages E and F do not apply to any “watercraft liability” if, at the time of an “occurrence,” the involved watercraft is being:
a. Operated in, or practicing for, any prearranged or organized race, speed contest or other competition. This exclusion does not apply to a sailing vessel or a predicted log cruise;
b.Rented to others;
c.Used to carry persons or cargo for a charge; or
d.Used for any “business” purpose.
That’s an interesting place to start the exclusion. So, we have certain activities that we don’t want to insure, which makes sense. A homeowners policy doesn’t anticipate these activities and would certainly exclude certain business uses. So far this makes sense. This is as easy as it gets though.
If Exclusion B.1. does not apply, there is still no coverage for “watercraft liability” unless, at the time of the “occurrence”, the watercraft is … We aren’t going to dive into the complexities of the rest of the exception to the exclusion. It details exactly what kind of watercraft are excluded and what aren’t. It’s complicated in this edition of the homeowners forms and honestly, it isn’t much better in the latest update. It’s a little better, but only a little.
Let’s just say that the liability coverage is intentionally limited to a very specific set of watercraft. Take that in connection with the very limited coverage for damage to the watercraft and associated property, we can say that many owners won’t have the proper coverage without considering a policy specific to the type of boats that they intend to purchase.
When you have clients that have an interest in sailing the high seas or trolling a river looking for the mythical fish everyone tells stories about, make sure that you have a conversation about their risks and how they plan to deal with them.