8.7 Watercraft Insurance

Homeowners policies provide only limited coverage for watercraft. Although some coverage may be added or broadened by endorsement, the protection available under a Homeowners policy is often restricted by policy limits, exclusions, and eligibility requirements.

Watercraft owners who need broader protection may purchase a stand-alone Watercraft insurance policy. A separate Watercraft policy can provide more effective coverage for both the physical damage exposure and the liability exposure associated with owning, operating, or using a boat or other eligible watercraft.

This distinction is important because watercraft create risks that may not be adequately addressed by a standard Homeowners policy. A stand-alone policy is often the better option when the insured owns a larger, more valuable, or more frequently used watercraft.

Boatowners Policy (Watercraft Policy)

A Boatowners policy is a package policy that provides both property coverage and liability coverage for eligible watercraft. In this way, it is similar to a Personal Auto Policy, which combines coverage for physical damage to the insured vehicle with liability coverage for injury or damage caused to others.

Boatowners policies are generally used to insure smaller boats that can be transported by trailer. These boats are often no more than 26 feet long and may include fishing boats, small sailboats, or similar recreational watercraft.

The term Your Covered Watercraft generally refers to the watercraft listed in the Declarations. This may include the insured boat, as well as any listed dinghies, tenders, outboard motors, or watercraft trailers.

A watercraft trailer is a trailer designed to be pulled by a private passenger auto, pickup, or van for the purpose of transporting the watercraft on land. Because trailers create both property and liability exposures, they should be properly listed in the Declarations when coverage is needed.

Note

Coverage under a Watercraft policy may apply to accidents arising out of Your Covered Watercraft, whether the accident occurs while the watercraft is in the water or while it is on land.

For example, coverage may apply to a boating accident on a lake, as well as an accident involving the covered watercraft while it is being transported on a trailer, subject to the policy’s terms, conditions, and exclusions.

Coverage for personal recreational watercraft, such as jet skis or similar personal watercraft, may be limited or excluded depending on the policy.

Because watercraft policies vary, it is important to review the policy definitions, exclusions, and Declarations to determine whether personal watercraft are eligible for coverage. If coverage is not automatically included, the insured may need a separate policy or endorsement specifically designed for that type of watercraft.

Coverages

Boatowners policies generally provide several important types of coverage for eligible watercraft exposures. These policies may include liability coverage, medical payments coverage, and physical damage coverage.

Liability coverage applies when the insured is legally responsible for bodily injury or property damage arising out of the ownership, maintenance, or use of the covered watercraft.

Medical payments coverage may help pay medical expenses for injured insureds and passengers, regardless of fault, subject to the policy’s terms and limits.

Physical damage coverage applies to direct loss or damage to the covered watercraft, including covered equipment, motors, or trailers listed in the Declarations.

Together, these coverages help protect the insured from both property losses to the watercraft and liability losses that may result from boating accidents.

Physical damage coverage under a Boatowners policy is often referred to as hull coverage. This coverage generally applies to direct physical loss or damage to the covered watercraft and related property.

Hull coverage is usually written on an open perils basis, meaning the policy covers direct loss unless the cause of loss is specifically excluded. Covered property may include the boat’s hull, motor, trailer, equipment, and accessories designed or manufactured for marine use.

A Boatowners policy may also include additional physical damage-related coverages, such as towing and assistance expenses. Some policies may provide limited coverage for personal effects kept on the boat, such as clothing, coolers, or similar personal items.

Physical damage losses are generally settled on an actual cash value basis. This means the policy pays the value of the damaged property at the time of loss, after deducting depreciation.

It is also important to distinguish Boatowners coverage from other types of liability coverage. Personal injury liability coverage is generally not included in a Boatowners policy. In addition, uninsured boaters coverage may be available, but it is usually optional rather than automatically included.

Exclusions

A Boatowners policy contains several important exclusions that limit coverage when the watercraft is used in certain ways or when the loss results from certain causes. Coverage generally does not apply when the covered watercraft is:

• Rented to others
• Used as a public or livery conveyance
• Hired for charter
• Used in an organized race
• Used in a stunting activity

The policy may also exclude losses caused by wear and tear, lack of maintenance, scratching or denting, freezing or overheating, mechanical or electrical breakdown, latent defect, and ice damage while the watercraft is afloat or laid up.

Additional exclusions commonly include losses caused by war or by confiscation, seizure, or destruction by a governmental authority.

These exclusions are important because a Boatowners policy is primarily intended to cover eligible recreational watercraft exposures. When the watercraft is used for rental, charter, racing, or other excluded activities, the risk may require a different type of marine insurance policy.

Conditions

Watercraft policies usually include a defined policy territory, which describes where the covered watercraft may be used and still be insured. This territory can often be customized based on the insured’s boating needs.

As a basic coverage territory, a Watercraft policy generally applies while the covered watercraft is on land, in inland waters, and within a specified distance from the shoreline. The standard territory commonly includes the United States, its territories and possessions, Puerto Rico, and Canada.

Coverage does not apply when the watercraft is navigated outside the policy’s designated territory. However, the insured may be able to broaden the navigation territory by endorsement.

This is an important underwriting and coverage issue. Producers should ask where the insured plans to operate the boat so the policy territory matches the insured’s actual use of the watercraft.

Some watercraft policies may include a lay-up period. A lay-up period is a specified time when the insured watercraft is expected to be out of use and kept in storage. Because the watercraft is not being operated during this period, the policy may allow a return of premium to reflect the reduced exposure.

If the Declarations state that the watercraft is subject to a lay-up period, coverage generally does not apply if the watercraft is operated during that period. Coverage may also be excluded if the watercraft is stored somewhere other than the designated lay-up location shown in the policy.

An exception may apply when the watercraft is used for emergency purposes. For example, if the insured must move the boat to protect it from an immediate threat, the policy may allow limited coverage, subject to its terms and conditions.

The key point for learners is that a lay-up period can reduce premium, but it also restricts when and where the watercraft may be used or stored.

Yacht Policy

A Yacht policy is designed to insure larger vessels, generally those that are at least 26 feet long. These vessels may have more complex exposures than smaller boats, and some may be operated with crew members.

A Yacht policy typically includes hull insurance, which provides coverage for direct physical loss or damage to the yacht. Hull coverage is generally written on an open perils basis, meaning the policy covers direct physical loss unless the cause of loss is specifically excluded. Unlike many Boatowners policies, hull losses under a Yacht policy may be settled on a replacement cost basis, subject to the policy’s terms and conditions.

Yacht policies also commonly include medical payments coverage and liability coverage. Liability coverage under a Yacht policy is often referred to as Protection and Indemnity, or P&I insurance. P&I coverage helps protect the insured against legal liability for bodily injury or property damage arising out of the ownership, maintenance, or use of the yacht.

Additional coverages may also be available for personal property kept on the yacht, fuel spill liability or cleanup expenses, commercial towing expenses, and dinghies or tenders used with the insured vessel.

The key point for learners is that Yacht policies are designed for larger and more complex watercraft exposures, while Boatowners policies are generally intended for smaller recreational boats.

Each Yacht policy includes a navigation territory, which identifies where the yacht may be operated for coverage to apply. The navigation territory may include areas such as inland lakes, rivers, bays, coastal waters, or other specified waterways.

Coverage generally does not apply if the yacht is navigated outside the territory described in the policy, unless the territory has been broadened by endorsement. For this reason, it is important for the insured to accurately disclose where the yacht will be used.

A lay-up period may also apply to a covered yacht. During a lay-up period, the yacht is expected to be out of operation and stored at the location or within the conditions stated in the policy. If the yacht is used during the lay-up period, coverage may be limited or excluded, unless an exception applies.

The key point for learners is that Yacht policies are closely tied to how, where, and when the vessel is used. Navigation territory and lay-up provisions help the insurer match the coverage and premium to the yacht’s actual exposure.

Watercraft Policy Deductible

Hull coverage under a Boatowners policy or Yacht policy is usually subject to a deductible. The deductible is the amount the insured must pay out of pocket before the insurer pays for a covered physical damage loss.

The deductible may be written in one of two common ways. It may be stated as a percentage of the hull coverage limit, often up to 5%, or it may be written as a flat dollar amount, such as $250 to $1,000.

The deductible applies per occurrence. This means the deductible is applied separately to each covered loss event. For example, if the insured watercraft is damaged in two separate covered accidents, the deductible would apply to each accident.

An Insurance Story

Liam owns a fishing boat that he takes out on the lake during the summer. His Boatowners policy includes hull coverage with a $300 deductible.

Over the course of the summer, several storms damage different parts of the boat and its related property. Liam submits three separate claims:

• A $300 claim for damage to fishing equipment, which is treated as personal effects
• A $600 claim for damage to seat cushions and life preservers
• A $1,000 claim for damage to the motor

Because each storm loss is treated as a separate occurrence, the $300 deductible applies separately to each claim. For the first claim, the loss amount equals the deductible, so Liam is responsible for the entire $300 loss. For the second claim, the insurer pays $300 after subtracting the deductible. For the third claim, the insurer pays $700 after subtracting the deductible.

This example shows that a per-occurrence deductible applies each time a separate covered loss occurs, not just once during the policy period.