The combination of exposures to loss connected with ownership of a pleasure boat is not dissimilar to that experienced by automobile owners. In response to these coverage needs, several companies have developed package policies for boat owners that, like automobile package policies, include physical damage, liability, and medical payments insurance. Unlike automobile insurance, however, each boat owners package policy is a particular creation of the insurer that offers it. Most such policies contain similar provisions and conditions, but differences among them need to be considered in light of the individual boat owner's insurance needs. This discussion is based on an analysis of several boat owners package policies that are representative of this type of coverage. And, this discussion is followed by a survey of various insurers' boat owners package policies.

A certain amount of physical damage, liability, and medical payments coverage is afforded insureds by their homeowners policies. However, the physical damage coverage in standard homeowners forms is limited to $1500 on watercraft, including their trailers, furnishings, equipment, and outboard engines or motors. And, the homeowners policy does not cover loss of watercraft or the furnishings and equipment caused by theft that occurs off the residence premises.

For bodily injury and property damage liability and medical payments to others, coverage provided by the homeowners is limited. Under HO 00 03 10 00, there is no coverage for inboard-outdrive powered boats owned by the insured; however, liability coverage does exist for inboard-outdrives of less than fifty horsepower rented to an insured. Additionally, the following types of watercraft are covered under Section II of the homeowners policy: owned sailboats less than twenty-six feet in length; non-owned sailboats; boats with outboard motors of twenty-five horsepower or less; and, newly acquired watercraft with outboard motors of more than twenty-five horsepower.

Some independently filed homeowners policies provide an increased amount of coverage for watercraft. However, even increased limits may not be sufficient for an insured with a sophisticated recreational boating outfit. Boat owners for whom this limited coverage under HO 00 03 is not adequate may wish to turn to one of the independent, specialty policies for boat owners. The rest of this article describes in general terms the coverages that can be found in these specialty policies. As such, the article may serve as a guide in the examination of any insurer's boat owners policy.

Under the physical damage provisions of a boat owners package policy, open perils coverage is provided on the boat described in the policy, its motors if any, the trailer used to transport it, and equipment and accessories involved in the use and maintenance of the boat. Most policies contain such customary open perils exclusions as wear and tear, latent defect, mechanical or electrical breakdown, and war and nuclear hazards. Other usual exclusions apply to damage that results from repair or servicing (with the exceptions in some policies of ensuing explosion damage, fire damage, or both); freezing or ice; and infidelity of persons to whom the insured property is entrusted. The latter is coupled with the exception in most policies of carriers for hire and, in some, of marina operators.

Boat owners policies customarily exclude coverage for any loss arising out of the use of the boat for commercial purposes, and some designate such use as grounds for voiding the policy. Many policies exclude or restrict coverage on the use of the boat in any race or speed test (sailboats exempted in some policies). Some policies also exclude damage done to the boat while it is being transported overland. However, that limitation usually applies only to boats thirty feet and longer.

Equipment that is permanently attached to the boat is usually insured as part of the boat. There is, however, some difference among boat owners policies in the extent of and the amount of coverage provided for unattached equipment and accessories. The wording of the policy in this regard should be read with particular care.

All of the policies examined provide coverage on detached or detachable equipment necessary for the operation of the boat. Some policies include a list of such equipment—tools, furniture, life preservers, extra fuel tanks, protective coverings, etc. Others merely categorize the insured equipment—for example, “any equipment necessary for the operation and maintenance of insured property (designated boat, motors, trailer);” “equipment . . . used in connection with the operation of the described boat” and “portable items manufactured for marine use.”

Excluded from this area of coverage are cameras, portable radios, fuel, and, in most cases, all sporting equipment. However, one insurer's policy contains the usual exclusion of most sporting equipment—scuba gear, fishing tackle, etc.—but specifically includes coverage on water skis and similar devices.

There is often a stated limit of liability on losses of equipment and accessories, either a dollar amount or a percentage of the value of the boat. These limits can usually be raised, subject to payment of additional premium. Special deductibles sometimes apply to unattached equipment (or to trailers) also. A few policies have a blanket physical damage limit that includes the values of boat, motor(s), and boat equipment.

Policies also differ as to how losses will be settled. Some offer replacement cost coverage, some actual cash value, and still others “agreed value.” Often the settlement provision depends on the type of boat. Yachts are often subject to agreed value settlement in case of a total loss. Other policies pay replacement cost on partial losses, or reserve the right to repair the boat in “accordance with customary repair practices.”

Loss settlement provisions also vary according to what type of property is damaged. Some policies offer replacement cost with no deduction for depreciation, except for sails, protective covers, and batteries. For these items, the policies contain specific depreciation schedules, which state that a certain percentage will be deducted for each year of age of the items—regardless of their condition.

Coverage also varies somewhat on newly acquired property. Like the HO policy, all of the policies examined provide for some form of coverage on boats acquired during the policy period. Some policies provide coverage on replacement property; others insure boats acquired as replacements or as additional property. (A few of the policies reviewed insure additional boats only when they also insure all similar property owned by the policyholder at the time of the acquisition.) The limit of liability on newly acquired property in most policies is the purchase cost of the property up to a stated maximum. Acquisition must be reported to the company within a specified number of days, which ranges from 15 to 60, and the insured may be required to pay an increased premium.

Several policies contain special provisions of coverage for certain emergency services. These cover the cost of towing and labor (up to a specified amount) arising out of the disablement of the boat. Labor costs covered are those incurred when the labor is performed at the place of disablement. Generally, these “emergency services” include labor, towing, and delivery of gasoline, oil, or a loaned battery, but not the actual cost of these items.

Boat owners policies may also provide coverage for the cost involved in recovering insured property in case of sinking or stranding when the loss results from a covered peril, although not as an additional amount of insurance.

The boat owners package policies provide liability coverages similar to those found in automobile liability agreements. The insurer typically agrees to pay costs incurred by the insured because of legal liability for bodily injury or property damage arising out of ownership or use of the insured boat. Included in property damage is coverage for the insured's liability to someone else for loss of use of the other party's property. Most companies limit this coverage to loss of use of tangible property that has been damaged. However, one policy omits the word tangible, thus broadening the policy and opening a whole new area for possible claims payment. Boat owners liability coverage includes the cost of defending suits against the insured for such injury or damage and expenses that the insured incurs at the insurer's request.

Coverage extends to the use of the boat by others as long as such use is with the permission of the named insured. (Some policies exclude as insureds under this extension of coverage any paid captain or crew member and any employee of a marina or service facility.) Most of the policies examined also cover the insured's legal liability arising out of the use of a nonowned boat with the owner's permission, although most exclude coverage for damage to the nonowned boat itself. However, some policies limit this coverage to “rented” watercraft. One policy offers no nonownership liability; in its insuring agreement, that policy states that it will pay for damages caused by an accident arising out of “the ownership, maintenance, or use of property insured [for physical damage].”

Removal of a wrecked or sunken vessel is often compulsory by law, and coverage for this particular form of liability is specifically provided in all of the policies under review. For example, a typical wreck removal coverage agreement applies to the reasonable cost incurred for the attempt or actual raising, removal, or destruction of the wreck. Generally, loss must be caused by an insured peril and the removal or destruction must be by law or governmental authority. In some cases the limit for this coverage is 5 percent of coverage A limits, and is an additional amount of insurance. One policy provides coverage for the cost of removal of a sunken or stranded boat, regardless of legal liability, when the loss is caused by a covered peril.

Another expense for which a boat owner may become legally liable is life salvage—compensation paid to others who act to save human life in the event of an accident on water. A few policies contain a specific provision for coverage of this exposure, with one insurer offering coverage for first aid expenses only.

Exclusions common among the liability agreements of boat owners package policies include: contractual liability; losses on which coverage is available through state or federal compensation programs or under a nuclear energy liability policy; liability arising out of the use of the insured boat for commercial purposes, or in a race or speed test (sailboats sometimes excepted); intentional acts of the insured; and injury to an employee of the insured if the employee's work is connected with the maintenance or operation of a boat.

Some policies exclude liability coverage while the insured boat is being transported. Additionally, one policy contains in its liability agreement an exclusion of liability for environmental pollution or contamination unless the discharge of pollutants is “sudden and accidental.”

Another exclusion in some forms is the intra-family exclusion in the liability section of coverage for bodily injury to the named insured or any relative if a resident of the same household.

Some policies offer coverage for injury to the insured's employees while working on the boat. The insured's liability may arise out of either the Jones Act or the Federal Longshore and Harbor Workers Compensation Act. If such a provision is included, the policy agrees to pay for injuries to workers, according to the schedules in the two laws.

Medical payments provisions of the boat owners package policy are similar to those found in automobile policies. The agreement is customarily to pay the “reasonable and necessary” medical expenses of any person who suffers injury because of an accident while in, on, boarding, or leaving the insured boat. Many of the policies examined impose a limit of one year on the period of time within which the medical expense must be incurred; others impose a limit of three years. Some of the policies specifically include waterskiers as eligible for medical payments coverage, either in the language of the policy itself or by endorsement. Another provides medical payments coverage for any person whose accidental injury arises out of “ownership, maintenance or use” of the insured boat, language that seems broad enough to include waterskiers. Still another provides medical payments for “any person while aboard, boarding, or leaving insured watercraft,” thus leaving open for interpretation the question of coverage for waterskiers.

Some boat owners policies exclude the named insured from eligibility for medical payments; however, this coverage may be added by endorsement. Special care must be taken with boat owners coverage that is endorsed to homeowners policies. These policies do not provide medical payments coverage to the insureds nor regular residents in the insured's household. Consequently, boat owners coverage endorsed to the policy would lack medical payments insurance for injury to the boat owner and regular members of his or her household, absent special wording to the contrary in the endorsement.

Commonly excluded from medical payments coverage in boat owners policies are persons eligible for benefits under state or federal compensation laws and employees of the insured injured in the course of their employment. Other exclusions already discussed in connection with liability coverage also apply to medical payments—use of the insured boat for commercial purposes or in a race, or responsibility for payment assumed under contract.

One additional coverage continues the parallel with automobile coverage by providing “uninsured boaters” insurance, which pays an insured damages for accidental bodily injury that the insured is entitled to recover from an uninsured boater.

As with automobile uninsured motorists coverage, the uninsured boaters coverage is not intended to pay if the named insured is occupying a boat he or she owns, but does not insure. However, some of the forms simply say that uninsured boaters coverage does not apply to anyone while occupying a boat owned by the named insured. The insured should be clear on this point before purchasing the coverage.

Another provision that should be closely examined is the limit of liability offered for uninsured boaters coverage. Whereas most automobile policies offer uninsured motorists coverage at limits equal to the bodily injury limits, the boat owners policies usually offer only a limited amount of uninsured boaters coverage. The typical limit is $5,000, with one company offering the opportunity to purchase up to $10,000.

One insurer offers boat owner insureds the option of eliminating part of the business use exclusions applicable to physical damage and liability coverages under its policy. The optional provision excepts from the exclusions (and therefore covers) occasional use of the boat to entertain the insured's business clients. Also available as an option is coverage—subject to a number of limitations and exclusions—of personal property “owned or used by an insured which is used with” the insured boat.