The Ugly Truth About Yacht Insurance

Mr. Soledano (not his real name), the owner of a Hatteras cabin cruiser in Miami, stared at me in horror. “What?” he demanded. “It’s going to cost $75,000 to fix my engines, and you’re going to pay me $10,000? Why the hell is that?”

I chose my words carefully. We were at a boatyard on the Miami River, and he was a big, dark man with a three o’clock shadow and a gold anchor-chain around his neck. He looked like a Colombian drug dealer, and the Miami River is a place where an insurance adjuster can end up in little pieces if he doesn’t watch out.

“I’m very sorry, sir,” I said, “but I have to go by your policy. You did read your policy, didn’t you?”

This was my standard ploy, and, as usual, it worked. He may have sent scores of co-conspirators to sleep with the fishes, but now his heavy face sagged in dismay. “No,” he muttered, “I’ve never seen it. The broker. . .”

Of course the broker hadn’t showed him the policy. Of the hundreds of assureds whose hearts I’ve broken, not a single one had ever read his policy.

“Your engines are fully depreciated,” I told him sadly. “We only have to pay 20% of the cost of repair.”

If Mr. Soledano had been a really smart crook, he would’ve forsaken the drug trade and gone into yacht insurance. That way, he could’ve collect money as regularly as a Brooklyn hood taking vig from a candy store, and used the terms of the policies to pay pennies on claims. And since we’re free in this country to make any kind of bad bargain we want, there’s nothing illegal about it.

All yacht policies contain depreciation clauses. Most provide for a minimum depreciation of 10% per year up to 80% of the total claim, and for some items, such as engines, deck hardware and rigging, the depreciation is 20% per year. And it doesn’t matter if you bought the boat last year. . .the depreciation runs from the date of manufacture or the date of the item’s last replacement. The actual condition of the item doesn’t matter, even if it’s like brand new.

Another thing that works in the insurer’s favor is the requirement that the assured prove that the item has been replaced or rebuilt if he claims a lower depreciation. Most sellers of used boats don’t provide documentation on replaced or repaired items, and without that, the insurance company will depreciate the item from the boat’s original manufacture.

Let’s say our disappointed drug dealer bought the 1987 Hatteras three years ago—with excellent engines reportedly rebuilt a year earlier—for $120,000. He paid three years’ worth of premia on time before the boat ran aground and sucked sand into the intakes. The engines overheated off Government Cut and the boat ran up on Fisher Island, damaging both propellers and shafts. The total repair will come to $75,000.

However, since the seller never provided the Colombian with paperwork on the rebuilds, the engines will be depreciated from new, along with the shaft and props, so the insurer pays 20% of the cost. Even at that, the Colombian is lucky: if it’d happened during a hurricane—a  “named windstorm” in insurancespeak—the deductible would’ve been doubled, another detail brokers forget to mention while selling policies. The Colombian’s recovery would’ve been $5000 instead of $10,000.

So how can a prudent owner protect himself from this kind of chicanery? The first answer is to read the policy. Although you can’t negotiate with an insurance company, you can at least make a reasoned decision about whether to insure the boat at all. If you keep your boat in a marina, you only have to buy liability insurance, which can be very reasonable. For example, an online liability-only boat policy from Progressive Insurance (plug notice!) can cost as little as $80 per year.

Of course, if you finance the boat, the financer will require hull insurance, but if you avoid using the boat as collateral, you can self-insure it, perhaps putting a sum aside each month equal to what you would have paid in premia. After all, five years of premia can equal the cost of the boat.

Mr. Soledana finally turned toward his Mercedes with tears in his eyes. He was a sensitive man for a drug dealer, and he knew he’d been taken.

 About the Author

Max Hardberger has been a ship captain, a maritime lawyer, a high school English teacher, a writer, and a ship repossession specialist. His 1998 novel,Freighter Captain, was drawn from a series of voyages he made as a freighter captain in the Caribbean in the late 1980’s. His 2010 memoir, Seized: A Sea Captain’s Adventures, covers some of the ship extractions he’s made in his 20-year career as a ship-recovery specialist.

His adventures have been featured by NPR, The Learning Channel, the Los Angeles Times, gCaptain and numerous other publications. When not on the high seas, he lives in Louisiana. His website can be found at MaxHardberger.com