I am in the middle of a dispute with a boat repair company, my marina, and my insurance company regarding a fire that destroyed my boat and my neighbor’s boat last year. My neighbor’s boat caught fire due to the negligence of the repair company during a welding project. The fire spread to my boat and both boats were destroyed. I am seeking compensation for the full value of my boat from the repair company, and also from my marina since they allowed the project to proceed without notifying the boat owners in the neighboring slips. I submitted a claim to my insurance company and they paid the insured amount, but that amount did not reflect the long list of boatyard projects that I recently completed, and the boat was therefore substantially undervalued on the insurance policy. I believe they should pay the full current value of the boat since the boatyard projects were all completed prior to my latest insurance renewal. Can you help?
This question has a lot of moving parts, each of which will require a separate legal analysis depending on which party he targets with his claim. Let’s start with his insurance company.
Marine insurance policies for recreational vessels in the United States are almost always “agreed value” policies. The insurance company determines a value, either from a marine survey or from a recent purchase, and they “agree” with the boat owner upon this value. The boat owner may negotiate a different value at any time by presenting documentation to support that value. This amount is the insured hull value listed on your marine insurance policy.
The boat’s insured value only comes into play after a catastrophic loss. Insurance adjusters will consult with marine surveyors and shipyards to determine the cost for repairs, and if that cost is close to the boat’s insured value, the insurance company will “total’ the boat and pay that amount to the boat owner.
The insured value may be a problem if a boat owner completes a significant project without notifying his or her insurance company. Repair and modification projects often have no effect on a boat’s market value, but large projects such as a restoration of an older boat may increase the value significantly. Failure to advise the insurance company of these projects may limit the payout for a catastrophic loss to the value of the boat as it was originally determined by the insurance company. It appears that our reader failed to update his insurance company regarding his boat projects, and his insurance claim was limited accordingly.
The insurance company’s payment to our reader of the full insured value of the boat will also complicate his claim against third parties such as the repair company and the marina. Those third parties may claim that he would be “unjustly enriched” if he pursued a claim against them since he has already collected from his insurance company. This argument may or may not succeed, but the boat owner will face a number of other legal obstacles.
First, when an insurance company pays a claim to a boat owner for the full insured value of the boat, a provision of the insurance policy automatically assigns any claim that the boat owner may have against third parties to the insurance company. This “assignment,” also known as insurance “subrogation,” allows the insurance company to pursue third parties to recover the amount that was paid to the insured boat owner. For our reader, this means that a lawsuit against the repair company or the marina may be brought by the insurance company, but his claims will be limited to any damages that he may have suffered that were not covered by the insurance payment. And this brings up another legal obstacle.
When the insurance company paid our reader for the total loss of his yacht, they paid the agreed value for everything that fell under the policy’s definition of the “vessel.” This definition will generally include all equipment, machinery, and fixtures that are reasonably necessary for the intended use of the vessel. This usually includes everything that is permanently attached to the boat, but it may also include sails, furniture, and navigational tools. This definition is important because it means that our reader has been paid by his insurance company, and he has therefore assigned his right to sue a third party, for everything that falls within the definition of “vessel.” His recently completed boat projects will certainly fall within that definition, which may therefore limit his right to pursue third parties for damages relating to those projects.
Boat owners often view their marine insurance policy as a routine part of their boat paperwork that requires little attention beyond the payment of the annual premium invoice. But this is not your car insurance policy. Boat owners must be well versed in the actual terms of their marine insurance policy. As discussed above, this includes a periodic review of the insured value. It also includes the maintenance and upkeep of the boat, but that discussion is for another installment of this column.
David Weil is licensed to practice law in the state of California and as such, some of the information provided in this column may not be applicable in a jurisdiction outside of California. Please note also that no two legal situations are alike, and it is impossible to provide accurate legal advice without knowing all the facts of a particular situation. Therefore, the information provided in this column should not be regarded as individual legal advice, and readers should not act upon this information without seeking the opinion of an attorney in their home state.
David Weil is the managing attorney at Weil & Associates (www.weilmaritime.com) in Seal Beach. He is certified as a Specialist in Admiralty and Maritime Law by the State Bar of California Board of Legal Specialization and a “Proctor in Admiralty” Member of the Maritime Law Association of the United States, an adjunct professor of Admiralty Law, and former legal counsel to the California Yacht Brokers Association. If you have a maritime law question for Weil, he can be contacted at 562-799-5508, through his website at www.weilmaritime.com, or via email at firstname.lastname@example.org.