Insurance is where superyachting bows its head to commercial shipping
The size of today’s superyachts mean they are often more akin to commercial vessels than pleasure superyachts and the insurance cover needs to reflect this, while also taking into account the individual requirements of each owner.
There is no one standard form of superyacht cover and superyachts may be insured on standard policy wording used for commercial superyachts or on wordings developed specifically for superyachts, in each case amended as appropriate. Many insurers now also offer cover on their own bespoke wordings.
Any superyacht is exposed to the risk of accidents resulting in physical damage to itself and its equipment, but also to potential liabilities towards crew members, guests and third parties. The superyacht, the owners, managers and operators must be adequately insured for these risks, not only whilst cruising but also during construction and periods of repair or refit.
What are the possible risks?
The range of potential incidents that may give rise to questions of insurance coverage, is endless, but may include:
Damage to and possible total loss of the superyacht.
Injury or death to the crew and/or passengers.
Grounding resulting in salvage liabilities and/or possible wreck removal.
Possible collision with other super yachts and liabilities towards the other superyacht, its crew/passengers and possibly cargo.
Contact damage to a jetty and any consequential damages.
Each superyacht and the requirements of its owner are different and there is no one size fits all insurance solution. The extent of cover needed will depend on the size of the superyacht, where in the world it will be cruising, whether it will be used in racing, the number and nationality of its crew. As a general guide consideration should be had to the following types of cover:
The construction of a superyacht is a complex and costly project and care needs to be taken to ensure that the superyacht is adequately covered by insurance and the owner’s investment protected.
• Builder’s risk insurance: Generally taken out by the shipyard (with the owners interest noted) and provides cover for loss of or damage to the superyacht during construction and until its final delivery to the owner.
• Owner’s interest insurance: This cover, which is not standard, is designed to pay out in circumstances where the shipyard’s policy does not. This could be for example, where the builders’ risk insurers covering the yard refuse to settle a claim for loss of or damage to the superyacht, due to some fault of the yard.
Whilst in service
Once the superyacht has been delivered by the shipyard the risk in it passes to the owner. The onus is then on the owners and/or managers to ensure that their interests are adequately protected in the event of an accident.
• Hull and Machinery (H&M) insurance: Covers the owner for physical loss of or damage to the superyacht and its machinery. It also generally covers any tenders and chase boats.
• Protection&Indemnity (P&I) insurance: Provides cover for legal liabilities including damage to other superyachts, damage to dock or harbour installations, wreck removal expenses, death or personal injuries, if relevant, and may also cover the use of helicopters on board the superyacht.
• Crew medical and accident cover insurance: Provides cover for medical and repatriation expenses. The type of cover varies and what is required may depend on the superyacht’s flag and nationality of the crew.
• Increased value insurance: provides additional H&M cover for a lower premium where the superyacht is totally lost or damaged beyond economical repair.
• War risk insurance: can be obtained in respect of physical damage to the superyacht and third party liabilities and provides cover for losses caused by acts of war, terrorism, capture, seizure and arrest that are otherwise excluded under standard H&M and P&I covers.
During repairs and refits
Superyachts will invariably have to go into shipyards for servicing, repairs and refit works. Care must be taken to ascertain what policy will be triggered and in the event of loss or damage whilst the superyacht is in the yard.
Do not simply assume that the owner’s H&M policy will respond (sometimes it will remain in force albeit subject to special conditions, occasionally, but very rarely it will be suspended during the period that the superyacht is out of water), or conversely that the yard’s superyacht repairer’s liability policy will payout.
– Superyacht Repairer’s Liability (SRL) insurance: Covers the shipyard in respect of legal liabilities incurred in respect of loss of or damage to superyachts in its custody, care and control, and in respect of death and personal injury to third parties.
– Waivers of subrogation: It is now common practice for builders undertaking warranty work at their facilities to seek to protect itself by asking the owners and its insurers for a “waiver of subrogation”. This is a clause which prevents the owner and its insurers from pursuing the yard in the event of a loss. Clauses like this remove the owner’s insurers right of recourse against the yard (should the owner’s policy pay out), such waivers must never be signed without insurers’ prior approval.
In addition to being aware of any exclusions in the insurance cover offered, careful attention needs to be paid to any terms in the policy described as ‘warranties’ or ‘conditions precedent’.
Are there any insurance clauses that I need to pay particular attention to?
Recent UK legislation has sought to address the previously draconian remedies available to insurers in respect of breaches of such conditions; however, a breach can still have serious consequences.
A warranty is a promise that certain facts are true and/or will continue to be true, or that the insured will do or not do certain things. Examples include warranties as to the use and cruising limits of the superyacht and the presence of a permanent and competent skipper. An insurer used to be automatically discharged from liability in the event of a breach. That is no longer the case. The policy is now merely ‘suspended’ whilst the breach is in play. For example, an insurer is not liable for losses that occur whilst the superyacht is outside its stated cruising limits, but will be liable for losses that occur once the superyacht has returned within the stated limits.
Conditions precedents are clauses that impose conditions on the insured that must be fulfilled either before the policy incepts, or before a claim can be made. A breach of a condition precedent may prevent an insured from claiming for a particular loss or may suspend the policy until the term is complied with. For example, if there is a requirement that a survey of the superyacht be carried before the insurance policy incepts and is not carried out, insurers might not be liable for any subsequent loss. This is unless the insured can show that compliance could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred.