Saturday, March 21, 2015

Boat sunk? Don't let the insurer blame you!

You buy insurance for your boat in case of an accident.  If a casualty sinks your boat at the dock, you expect to get paid, right? Well, not if the insurance company can help it!

The case of Miele v. Certain Underwriters at Lloyd's of London is a good example of the tension between you and your insurance carrier in even the most ordinary of claims. It is not enough that you have made all your premium payments. The insurer will look for the quickest and easiest way to deny your claim. And unfortunately, many boat owners make it easy on the insurer by failing to keep up with basic maintenance.

Mr. Miele's 32' Luhrs sank while docked. Mr. Miele made claim on his policy, which insured the hull up to $92,000. And as is the custom, the insurer had the vessel examined by a marine surveyor. The surveyor's report to the insurance company concluded that water entered the boat through a rotten and degraded air conditioning cable.  Based on his report, the claim was denied because of this very common insurance policy language:

This insurance does not cover losses and or damages arising (whether incurred directly or indirectly) from . . .:
C. The cost of repairs or replacing any part of Your Boat by reason of wear and tear, gradual deterioration, osmosis, wet or dry rot, corrosion, weathering, marring, scratching, denting, vermin, pets or marine life, or electrolytic or galvanic action;

In the eyes of the insurance company, Miele had failed to properly maintain his boat. It concluded the sinking was caused by "reason of wear and tear." Miele was left with no boat, and no money. And so he sued in the federal court, alleging a breach of the insurance contract.

The insurer hired another expert to give additional opinions about why the vessel sank. And his reported opinion is a very good example of how far your insurer will go to deny your claim:
The [insurance company expert's] report contained a section labeled, "Conclusions," which discussed how the air conditioning hose had cracks and a fracture that had developed over a period of time. In that section, Wills wrote that his "inspections and testing . . . revealed a stepped, jagged profile where the fracture surface and the hose exterior intersect" and that "[t]his pattern [was] present as a result of numerous small parallel surface cracks in the hose cover joining together over some period of time to form a lengthy fracture front." Wills noted that he "did not determine the age of the hose," but that "[t]he surface cracks" in the hose "suggest the hose has been in service for a significant time and has reached the end of its service life."
The federal court concluded, without a trial, that the insurer had correctly denied the claim. And so Mr. Miele remained without a boat, and without any money.

It is important to carry insurance, but it is a complete waste of your money if you don't take care of your boat! When insurers are looking for any reason to deny your claim, including examination of "numerous small parallel surface cracks" in a rubber hose, you must head them off and perform regular maintenance.

Our office recently reviewed an insurance claim for rain water intrusion into the engine compartment of a trawler. The basis for the insurer's initial denial of coverage was the surveyor's observation that leaves and dirt appeared to obstruct the rain scuppers around a deck hatch. It did not matter to the insurance adjuster that weather data demonstrated extraordinary and torrential rains as the result of a storm just days before the intrusion.

If you regularly maintain and inspect your boat, you take away the insurer's easy denial. But even then, you may not receive a fair offer that pays all that the policy promises, and you will have to fight.