A Legal Perspective - Insurance Policies Can Leave Little to Chance
As we find ourselves in the middle of winter, the closest that many readers may come to being around boats could be at boat shows. After all, a winterized boat just isn’t a particularly inviting place this time of year. A boat’s interior could seem like a cryogenic chamber where one’s breath hangs heavy in the air, and even the simplest repairs can become knuckle bruisers. The upside is that the days are already starting to get longer, and it’ll soon be time to make checklists of things to inspect when the shrink wrap comes off. Exactly when this takes place is still a decision we entrust to a nice groundhog from Pennsylvania. But regardless of when people start inspecting and fixing things in preparation for splashing in the spring, the benefit of being diligent in this vein is obvious. Greater mechanical and electrical reliability means more enjoyment underway and less time collecting marine growth at the mooring due to equipment problems. Being diligent here also yields dividends from an insurance standpoint. One might wonder what the connection between such surveyor-like vigilance and marine insurance could be. After all, the very reason one purchases insurance is for peace of mind if something goes wrong. A boat could break loose from its mooring, collide with another boat underway, or sink for some unexplained reason. Therefore, if people pay their premiums, and something bad did happen, the insurance carrier should step in and write them a check. Isn’t that the basic reason for having insurance? Well, it isn’t quite that clear-cut when it comes to certain types of losses, particularly those that involve equipment failures. If a boat sinks, or takes on sufficient water to cause serious damage, the costs are going to run high. Whether the vessel is written off as a loss or repaired, the owner will anxiously want to know when that check is going to arrive in the mail box. But when the insurance carrier conducts its own investigation, it could arrive at conclusions that dash the hope of ever receiving such a check. The reason for this lies in an industry philosophy that shifts blame to the boat owner if a loss is due to some sort of equipment failure the owner could have prevented. We see this in insurance policies that exclude losses tied to something known as “wear and tear.” It could be difficult to grasp the full ramifications of these wear and tear provisions. But the bottom line is often that a carrier basically says that this isn’t a maintenance insurance policy. The term “fortuitous event” may be used to describe something which is accidental in this context. The term could be defined as “an event which so far as the parties to the contract are aware, is dependent on chance. It may be beyond the power of any human being to bring the event to pass; it may be within the control of third persons; it may even be a past event, such as the loss of a vessel, provided that the fact is unknown to the parties.” (The Restatement of Contracts, Section 291). Conflicts can arise when it comes to agreeing upon the meanings of accidental, fortuitous, unforeseeable, or other similar terms. A policy could follow a philosophy that absent storms or collisions, equipment-related sinkings are hardly ever accidental. There is always some component or system over which an owner had control, such as a through-hull fitting, valve, hose, hose clamp, water pump, or sea water strainer. The downside for vessel owners is that if an insurance surveyor determines the cause of sinking was such a component, it presents serious hurdles for the boat owner in court. Not surprisingly, if push comes to shove when the vessels involved are large and their power plants cost more than a small home, experts will be thrown into the fray. And they will often go to great lengths to argue about whether a sinking was an accident, pure and simple just as the word suggests, or the sinking was something that could have been prevented with more diligence on the part of the owner. One might ask why such bitter court battles are fought over such seemingly ordinary and simple terms like “accidental.” The reason is that when a half million-dollar boat sinks, the stakes can run high as to how the incident is defined under the terms of an insurance policy.