When to Challenge Your Insurance Company Over ‘Wear and Tear’

We own a large motoryacht and almost lost her last year when the propeller shaft broke in half during a voyage to Mexico. The boat would have sunk like a rock if the rudder had not prevented the broken end of the shaft from falling out of the back of the boat. We were over 150 miles offshore at the time and we feel very lucky to be here today. Unfortunately, our luck ran out when we returned to port and started dealing with our insurance company. The cost for the repair, including the invoice from the tugboat company for the tow into San Diego, will exceed $100,000. My insurance company has taken the position that the shaft failed due to “wear and tear,” and that the claim is therefore not covered by my policy. We want to fight this, since we do not believe that a five inch stainless steel propeller shaft can simply “wear out.” What can we do?

When a marine insurance company is presented with a claim, they have a right to investigate the claim and to hire experts to determine the cause of a loss. In the case described above, the insurance adjuster must have retained a metallurgist or mechanical engineer to inspect the broken shaft, and they relied upon his expert opinion to determine that the shaft had failed due to “wear and tear.” Nothing lasts forever and even a stainless steel propeller shaft can wear out over time, particularly if there is rust or corrosion on the shaft. Nonetheless, there are steps that a boat owner can take to be sure that he or she is treated fairly.

When an expert is hired by an insurance company to investigate a large claim, it is usually advisable for the insured party to contact their own experts to participate in the investigation. For a marine insurance claim this usually means hiring a marine surveyor who is experienced in litigation and insurance investigation. An attorney may not be necessary during the early stages of an investigation, but an experienced maritime attorney will be a good resource for a referral to a qualified surveyor that the attorney is comfortable working with.

Your surveyor will participate actively in the insurance investigation, and in some circumstances he may recommend a referral to a second expert if scientific investigation is involved. For the claim described above by the reader, the surveyor would probably refer the boat owner to a metallurgist or engineer who is qualified to review and comment on the findings of the insurance company’s expert.

The insurance company’s expert will render an opinion as to the cause of the damage, and the insurance adjusters will determine whether those findings fall within the coverage of the insurance policy. In the end, the opinions of the boat owner’s experts may confirm the findings of the insurance company, or they may provide support for possible litigation against the insurance company for a wrongful denial of coverage.  In either case this is money well spent.

It may be possible to recover part of the loss even if the boat owner’s experts agree with the findings of the insurance company’s experts. For example, if the damage was related to a “latent defect,” such as a manufacturing defect in the damaged part, the boat owner may recover for any damage caused by the defective part, even though the damage to the defective part itself is expressly excluded from coverage.

A boat owner may also recover some or all of his costs to return to port or otherwise protect the boat after a casualty, under a principle known as the “sue and labor clause.” This “clause” is not actually spelled out in most insurance policies, but it is nonetheless imposed as a mutual duty upon both the boat owner and the insurance company. In short, it requires the boat owner to take all reasonable steps to protect the boat from further damage after a casualty, and it requires the insurance company to reimburse the boat owner for those actions. In the case described above by the reader, the tugboat fees for towing the boat to San Diego will probably be covered under this provision since the boat needed to return to port to prevent further damage.

Marine insurance is a complicated subject which may consume an entire semester in law school, and an experienced maritime attorney should be contacted in the event of a disputed claim.