Legal Issues for Charter Yacht Businesses

I own a 50-foot sailing yacht that I believe would be perfect for a small charter business carrying passengers on overnight trips to Catalina. What legal issues should I consider before I get started?

A new charter business involves a lot of issues. City permits, marina restrictions, passenger parking, liquor licenses and a hundred other details must be considered. But the important legal issues can probably be divided into three main categories: the boat, the operator and the insurance.

Your first legal issue concerns the construction of the boat. The United States is one of many nations that protect their domestic transportation industries through ’cabotage’ laws. These laws require the transportation of passengers or cargo between U.S. ports to be performed aboard ’U.S.-flagged’ vessels (vessels registered under the laws of the United States) and U.S.-built vessels.

Most sailing yachts in this country that are the size of your vessel (50 feet) are foreign-built. A foreign-built vessel may not legally carry passengers for hire in this country unless the owner obtains a waiver of the restriction, or the operation is structured in a way that avoids the restriction. Information regarding a waiver of the U.S. construction requirement is available on the website of the United States Maritime Administration, marad.dot.gov/programs/smallvessel/index.html . (Follow the links to the Small Vessel Waiver Program.)

If your boat is U.S.-built or has a waiver and she is less than 100 gross tons, you may carry up to six passengers (a ’six-pack’ charter) without the need for a Coast Guard inspection. A Coast Guard Certificate of Inspection will allow the transportation of more passengers, but compliance with the Coast Guard’s inspection standards is very expensive.

The next issue involves the operator of the vessel. The master of any vessel that carries passengers for hire must be licensed by the Coast Guard as a captain, for the class of service in which the boat is operating. Further, since you are interested in operating overnight charters, the Coast Guard may require an additional licensed crewmember to be aboard if the vessel will be under way for extended periods. Contact the Coast Guard’s local Marine Safety Office for information specific to your proposed operation.

Finally, you must consider the boat’s insurance policy and other possible forms of liability protection. Talk to your marine insurance agent about a charter policy. At a minimum, the policy must include an endorsement for the commercial operation of the vessel (most marine insurance policies exclude that type of coverage), coverage for claims made by passengers and ’Jones Act’ coverage for claims made by members of your crew. You may also want to consider corporate ownership of the boat as an added level of liability protection, though this may give rise to further legal issues.