YACHT INSURANCE UNDER ENGLISH LAW

• Yachting

Yacht insurance is a practical necessity in the life of every yachtsman. The yacht owners’ desire to protect such expensive property from various risks seems quite natural. After all, no matter how carefully a yacht trip was planned and prepared, the sea can always make its own adjustments. Insurance is one of the ways aimed to reduce significantly or to eliminate completely losses associated with maritime risks. What should you pay attention to? Let us discuss this and many other issues in detail, based on Interlegal experience and practice.

There are two main types of insurance:

Hull & Machinery (H&M) – hull and equipment/machinery insurance including engine, yacht tender but excluding money, jewelry and art. H&M insurance has the following varieties:

• total loss and damage insurance;
• damage insurance only;
• total loss insurance only.

Third Party Liability (TPL) – insurance of shipowner’s civil liability to third parties. It includes shipowner’s liability insurance for damage caused to third parties and/or their property, the environment, as well as human life or health. For the call at almost any European port, TPL insurance is required, otherwise the yacht call may be denied.

In practice, we faced situations where clients executed both types of insurance in one place and received a common policy, as well as the case of issuing H&M insurance from one insurer and TPL insurance from another. It happens in cases when the insurance company does not have representatives in ports of a certain region where the yacht operation is planned.

Documents for insurance

Insurance policy (or insurance contract) usually includes a set of general insurance conditions. Scope of the provided coverage and terms & conditions of the insurance contract depend on information provided to the insurer by the policyholder.

In order to obtain agreement, it is enough to provide a copy of the yacht registration document (e.g. patent or registration certificate), and if such a document is absent now, a copy of the sale & purchase agreement should be provided. Copies of the skipper’s qualification documents and information about the yacht owner are also required (if the yacht owner is a legal entity, the insurance company will also request for share certificate and its founder’s passport). As we can see, there is a minimum set of documents, which simplifies the process of issuing a policy 

In the insurance contract, one should pay attention to the following aspects:

• Description and equipment – it is desirable to include into the yacht description the entire list of equipment on board, any tenders and other ancillary equipment.
• Insured cost of the yacht – it is important that the yacht cost declared to the insurer should correspond to the market value and could be documented.
• Deductible – loss incurred by the insurant in the amount of deductible shall not be covered by insurance
• Navigation area – in case of damage to the yacht’s hull outside that area, the insurer is entitled to reject recognition of the insured event and insurance payment.
• Surveyor’s report – the insurer should provide surveyor’s inspection of the yacht within the period indicated in the policy. Otherwise, the insurer has the right not to pay insurance indemnity in case when the following insured event occurs.

The insurance policies should describe in detail all the important aspects, such as who manages the yacht and where she will be based.

Insurers make special warranties (i.e. warranty clauses), the violation whereof by the shipowner may result in non-payment of insurance indemnity in case when the following insured event occurs:

• Professional skipper/crew warranty – the shipowner’s warranty that the yacht is always steered by a person entitled to do so, i.e. by professional skipper.
• Fire fighting and safety equipment warranty – the shipowner’s warranty that the yacht will always be properly equipped with the necessary fire fighting and other safety equipment aimed to secure the yacht safety.
• Warranty regarding use of the subject-matter insured – the shipowner’s warranty that the yacht is operated for personal purposes only.
• Licenses, permits and compliance with laws warranty – the shipowner’s warranty that the yacht has all the documents required by the flag state and international regulations for the yacht during operation.
• Change of flag warranty – the shipowner’s warranty that he will inform the insurer of the flag change immediately.
• Laid-up warranty - the shipowner’s warranty that the yacht is based in a safe and secured place.

European insurers are often guided by the English rules of insurance, namely: Institute Yacht Clauses Cl. 328 (1.11.85). What is it and how is it insured?

Institute yacht clauses Cl. 328 (1.11.85) shall mean clauses of the London Institute of Insurers, based on English law. They protect the yacht both on the water and on land. Under what circumstances:

1. When the yacht is underway: both in the high seas and inland waters; in the port, dock, berthing, mooring; on pontoons; when the yacht is berthed on solid or liquid ground; at the storage place ashore, including lifting and launching.
2. When the yacht is laid up: in the process of lifting or transporting (towing) and launching; when moving at the shipyard or at the berth; in the process of dismantling, installation of equipment, scheduled or major repairs; during survey inspection (including docking and de-docking, periods when the yacht is laid-up or is afloat or in the process of towage to another place, but within the boundaries of the port or the vessel mooring place).

How should the insurance cost be calculated?

Offer upon insurance coverage is based on several factors, the principal ones are the following:

1. Age of the yacht. In particular, for yachts over 10 years old, insurance companies may request for a survey report based on inspection of her technical condition.
2. Insurance history. It means statistics of insured events with the yacht and payments under the insurance coverage for the previous insurance periods. An insurance company may become concerned of a frequency of certain insured events, such as collisions, which may show unreliability or carelessness of the shipowner.
3. Type of operation (pleasure or commercial yacht). While considering an application for commercial yacht insurance, the insurance company may request for template of the charter-party whereunder the yacht is chartered, crew employment contracts, the exact area of ??operation, the number of planned passengers.
4. Participation or non-participation in races. Insurance companies usually request for a clear list of planned regattas, to be recorded either in the policy itself or in its supplement thereto.

Separately, it should be noted that making insurance payment under a specific insurance policy should be taken into account by the insurer when calculating insurance premium for the next year upwards.

When obtaining insurance coverage for yachts, Interlegal cooperates with the European group of companies Marine Services Group having long-term experience in marine insurance.

Interlegal yachting practice team is ready to advise you upon all the issues, so that use of the yacht could become a joy.