My Boat Sank and I Collected Insurance. Can I Still Sue the Boatyard?
As noted by our reader, the first of these provisions is designed to relieve the yard of liability for their own negligence. These provisions are known as ““exculpatory clauses” or “red letter clauses,” and if they are properly worded they will absolve the yard from liability for everything short of a reckless or intentional act. Exculpatory clauses in marine contracts are seen in many transactions, ranging from yacht brokerage agreements to salvage contracts. We discussed these clauses in greater detail a few months ago in a previous installment of this column (see “Ask a Maritime Attorney; What Kind of Liability Release Is Required for a Raft-up?” The Log, March 18, 2010).
The other provision facing our reader is known as a “subrogation waiver.” These clauses are sneaky. They call for the boat owner to agree — on behalf of his or her own insurance company — that the insurance company will not pursue the boatyard for negligence after they pay a claim to the boat owner. The problem with this clause is that, if the boat owner agrees to this provision, he or she may be violating the terms of the insurance policy, which may lead to a denial of the insurance claim.
When an insurance company pays a claim to a boat owner, the company steps into the shoes of the boat owner with regard to any possible legal action against a third party who may have caused the loss. This process is known as “subrogation.” Since the insurer “steps into the shoes” of the owner, the insurer can have no greater rights than the owner, and the insurance company will probably be bound to an owner’s agreement to waive his or her claims against third parties. For this reason, most marine insurance policies include language that prevents the boat owner from waiving or otherwise interfering with the insurer’s subrogation rights.
We should note that our reader’s loss, in this case, was due primarily to the fact that his boat was under-insured. He had originally insured the boat for the purchase price, but he never thought to contact his insurance company after the work was done in the yard, to change the agreed value of the boat on the insurance policy. This may not have covered his entire loss, since his investment in the boat would probably exceed the boat’s actual market value after the job was completed, but it would certainly have covered a larger portion of the loss.
The main lesson to be learned from this case is the importance of keeping your insurance company informed about everything that may affect your boat’s insurance coverage. Here, our reader may have been fortunate to have received an insurance payoff after waiving his rights in a shipyard contract, but it would have been prudent for him to have contacted his insurance company for guidance before commencing the work at the yard. Similarly, he should have contacted his insurance company after the work was completed to update the insured value of the boat. And, as with any legal issue involving a boat, an experienced maritime attorney should be contacted for more specific information.