A few days ago we started seriously searching for a new insurance policy because our old underwriters have quit the business. We are shopping with nine different insurance companies and been learning a lot. Reading through policy language is tedious, but important. Here are similar clauses from two insurance policies that we have been quoted:
We will not cover loss or damage due to: Wear and tear, gradual deterioration, inherent vice, corrosion, damage due to changes in humidity or temperature or mechanical or electrical failure.Policy Number One
This insurance does not cover: any cost of repair or replacement of a part which fails directly or indirectly, in whole or in part, as a result of a latent defect in manufacture or construction; however, we will cover consequential property damage that results from such failure if not otherwise excluded;Policy Number Two
Some complicated and legal language here. I am not a lawyer, and nothing here is to be taken as legal advice, but there are some very important things here you need to understand if you are shopping for policies.
The terms “inherent vice” and “latent defect” are very similar. Basically they describe a flaw in the design and/or construction of the vessel or its equipment that is not immediately apparent to a knowledgable person using normal tools.
Let’s imagine a scenario: There is an underwater fitting on your boat that has a casting flaw. It is not visible to the naked eye, or to any simple test method that might normally be employed. On a dark night, while tied to the dock, the fitting cracks, and the boat floods and sinks. When the boat is salvaged, and inspected the cause of the sinking is now easy to see. The fitting had an “inherent vice” or a “latent defect.”
The company that wrote Policy Number One says: “So Sorry. Not Covered.” Your boat just sank–though no fault of yours–and you get nothing, zip, zero, bupkis. The entire loss due to an “inherent vice” is not covered, period, full stop.
Think about this for a moment. This is exactly the kind of event that you THINK you are buying insurance for, and it is fully excluded from any payment by language that is unintelligible to the average boat owner. (You just read this, you aren’t average any more!) What makes this really important, is that it is a really common exclusion to coverages in marine policies.
Policy Number Two says: We will not pay to replace the broken fitting because it had an inherent defect, but we WILL cover the damages that are a CONSEQUENCE of the failure, i.e., the sinking and it’s associated costs. The is the kind of thing we are actually looking for.
Both policies are honest about what they cover, but only a VERY educated consumer or lawyer might understand the difference. Which one would you rather have?
Oh, and Policy Number One is MORE expensive than Number Two. Go figure.
Here is another tricky one to watch for. Almost all marinas and boatyards require you to sign a contract that waives their responsibility for your boat. If you want to have your boat hauled you typically have little choice but to sign or walk.
Unfortunately many policies expressly forbid you from signing such a contract. Policy Number One has the following clause:
Ensure the yard and/or other contractors impose no contractual exclusion(s) or limitation(s) of liability, nor any waiver or other limitation(s) of our subrogated rights of recovery.Policy Number One
Imagine you sign such a contract, your boat is being hauled, and the boatyard drops it. They refuse to accept responsibility for it, and send YOU the bill for removing the resulting wreck. The insurance company that wrote Policy Number One would then REFUSE your claim because you waived their right of recovery. Surprise! You have no boat, AND a huge bill to pay with a lawsuit against the boatyard as your only recourse. Ouch!
In case you haven’t guessed by now, Policy Number One is off our list for consideration. That leaves eight!