My Boat Sank, but My Insurance Company Won’t Cover the Loss

My boat sank at the dock a few months ago, and my insurance company has refused to pay the claim. Based on their investigation, they have concluded that the loss was caused by a leaky packing gland, which they say is excluded from coverage. I hired my own marine surveyor to inspect the boat, and he found the packing gland to have been properly maintained — and, as such, he ruled it out as a cause of the loss. Unfortunately, he was not able to conclusively track down the real source of the water, but he believes it may have been one of the through-hull fittings. I talked to a lawyer and was advised that the case would probably be thrown out of court before going to trial, since I would have the burden of proof to establish the exact cause of the loss. Was the attorney correct?

Many boat owners are surprised to learn that their marine insurance contract requires a lot more from them than simply the prompt payment of insurance premiums. A boat must be maintained by its owner in a seaworthy condition at all times, and losses that are caused by ordinary wear and tear are expressly excluded from coverage. An insurance company will always deny a claim if they can establish that it was due to a failure to maintain a packing gland, since the normal wear of the flax material will lead to excessive water intrusion. When an unattended boat sinks at the dock, this is often the cause.

Our reader sought the opinion of an independent marine surveyor when he learned of the insurance denial. This was a good idea, but he may have waited too long. The investigation would have been a lot more productive if the two surveyors had inspected the boat at the same time. Evidence of the cause of the loss will deteriorate over time, and a surveyor who is hired by the boat owner weeks after the incident may be unable to reach his own conclusion. This may have been the case for our reader, whose own surveyor had some ideas but in the end he was unable to conclusively establish the cause of the loss.

The burden of proof in any litigation matter will likely be a critical part of the case. Here, our reader was advised that he did not have much of a case against his insurance company since he had the burden of proof to establish the cause of the loss. This advice may have been wrong, but the case against the insurance company will nonetheless be an uphill battle.

Marine insurance policies may be identified as either “named risk” policies or “all risk” policies. Named risk policies are common in commercial maritime operations. As the description would suggest, named risk policies insure only those risks that are expressly named in the insurance policy. Broadly speaking, when an insured party makes a claim under a named risk policy, he or she must prove that the damaged was caused by a named risk. In other words, the burden of proof regarding the cause of the loss is on the policyholder.

Conversely, most recreational vessel insurance policies are all risk policies. This type of insurance covers all damage that may be suffered by the boat, unless the damage is caused by an exclusion that is expressly listed in the policy. The wear and tear exclusion discussed above is an example of this. And, when an insured party makes a claim under an all risk policy, the insurance company has the burden of proving that the loss was caused by one of the expressly listed exclusions.

Under an all risk policy, the policyholder must usually prove only that the policy was in force at the time, and that the loss was “fortuitous.” Courts have set the standard for proving a “fortuitous” loss extremely low in these cases, and that standard may often be met simply by showing that there appeared to be nothing wrong with the boat immediately before the incident. In other words, the burden of proof regarding the cause of the loss is on the insurance company. And, under an all risk policy, if neither side is able to determine the cause of the loss, the claim must usually be paid.

Our reader probably had an all risk policy, and he can therefore get past the fact that he is unable to conclusively establish the cause of the loss. Unfortunately, this is not a case where neither side is able to determine the cause of the loss. The insurance company surveyor will testify in court that the boat sank because of a leaky packing gland. Our reader’s surveyor will disagree, but his credibility will be questioned since he is unable to put forth his own theory of the loss. As noted above, the burden of proof will be on the insurance company to establish that the loss was caused by an excluded risk, but in this case they may in fact be able to meet that burden.

The most important lesson to be drawn from a case like this is that the failure to maintain a boat as required by a marine insurance company may lead to a catastrophic uninsured loss. A boat owner who is faced with a questionable claim should contact a qualified marine surveyor and an experienced maritime attorney as soon as possible after the incident.