Ask A Maritime Attorney: Do I need a bareboat policy for when I do bareboat rentals?

Question:

            I have a boat that I would like to rent out for bareboat charters and also for six pack charters. I have my captains license and I already have a six pack charter insurance policy on the boat. Is it necessary that I get a bareboat policy as well for when I do bareboat rentals? All of my renters will be signing a bareboat agreement naming them responsible for safe operation and liable for any injuries on the vessel for the duration of the rental. If somebody gets hurt can I be sued even though they are named as the liable operator of the vessel? Also would I have any problems with the Coast Guard during a bareboat charter if the renter tipped a crew member to come along with them that was not a licensed captain?

 

Answer

 

We often receive inquiries addressed to this column about the legal requirements of a charter boat operation.  Here, our reader has opened a wide range of issues that may be of interest to other charter operations, so let’s look at his concerns.

 

Before addressing our reader’s specific questions, let’s review some of the Coast Guard regulations that will be of concern to a charter boat operator.  Vessels which operate in U.S. waters and that carry at least one passenger for hire must comply with a long list of strict Coast Guard regulations, starting with regulations for the boat that will be used, and for the number of paying passengers that will be aboard.  If the boat is under 100 gross tons, it may carry up to six paying passengers (a “six-pack” charter) without the need for a Coast Guard “inspection.”

 

A Coast Guard inspection relating to the carriage of passengers for hire should not be confused with the courtesy inspections conducted by the Coast Guard Auxiliary.  A Coast Guard inspection for a boat in passenger service is much more rigorous and much more expensive, and it will require a shipyard visit.  The inspector will examine the structural design and construction of the vessel and all of the vessel’s systems, and initial inspections are conducted while the boat is out of the water.  Our reader indicated that he will be using the boat in a six-pack charter, so he has already decided that the boat will not be inspected.

 

Our reader noted that he will also be offering the boat for “bareboat charters.”  A bareboat charter is a lease arrangement where the charterer (the  customer) takes on all of the rights and obligations of ownership without actually transferring title, and the actual owner may be protected from liability against third parties for inuries and other mishaps aboard the boat.  But it is not free from regulation.

 

Regardless of the technicalities, the Coast Guard is mostly concerned with the selection of the captain and crew.  If the person chartering the boat is subject to requirements or influence from the owner over their selection of captain or crew, the arrangement is not a bareboat charter and the operation will be subject to all of the passenger-for-hire regulations discussed above.

 

Assuming the arrangement does qualify as a bareboat charter, it will be free from many of the regulations that would otherwise control the operation.  The vessel may carry up to 13 people (the charterer and up to 12 of the charter’s guests), regardless of the size of the vessel.  And, unlike a six-pack or larger charter, the vessel need not be constructed in the United States, and a licensed captain is not required.

 

Most importantly, no Coast Guard inspection is required for a bareboat charter vessel, which relieves the owner from the complicated construction and equipment guidelines enforced by the Coast Guard for inspected vessels.  The boat must nonetheless comply with all of the regulations that would govern the operation of a recreational vessel, including requirements for flotation devices and other safety and navigational equipment.

 

Let’s look now at our reader’s questions, starting with insurance.  While this is not technically a legal question, insurance is an important issue for any small business, and obtaining the right coverage for a fair price can be a headache.  Our reader is confident that he has the proper insurance for his six-pack charters.  At a minimum, this insurance must include an endorsement for the commercial operation of the vessel (most marine insurance policies exclude coverage for these operations), coverage for claims made by passengers, and “Jones Act” coverage for claims made by paid members of the crew.

 

Our reader asks also if he should get coverage for his bareboat charters, but I think (or hope) he knows that answer to that question already.  The most important requirement of any marine insurance policy is the complete and honest communication by the boat owner to the insurance company, concerning all aspects of the expected use of the boat.  This includes the use of the vessel in a bareboat charter operation.  This is a discussion that the owner must have with his or her insurance broker.  The broker may address any “grey areas” with the underwriters before the policy is issued.

 

Our reader asks a few other interesting questions.  Can he be sued even though his customers have signed an agreement naming them as the boat operator?  Yes he can.  Any lawyer will tell you that anybody can sue anybody for anything.  Whether the suit is ultimately successful, after spending thousands of dollars to defend the suit, is another question.

 

And finally, our reader asks whether the Coast Guard would have a problem if the charterer tips a crewmember after a charter, and the crewmember is not a licensed captain.  This is kind of a loaded question.  No, the Coast Guard won’t have a problem with this, assuming that the charterer was free to select the captain and crew without influence from the owner.  As noted above, a bareboat charter does not legally require a licensed captain to be aboard the boat.  But – – – This question should instead be directed to the insurance company.  Depending on the type and size of the boat, the insurance company may require a licensed captain even if this is not a legal requirement under Coast Guard regulations.  At a minimum they will require a review of the captain’s qualifications.  As for the tip paid to the crewmember, a paid captain or crew will trigger the need for Jones Act coverage in the insurance policy, even on a bareboat charter.

 

The legal and practical issues that must be considered when starting a charter business are lengthy and complex, and we have only scratched the surface in this discussion. The first step in the charter operator’s business plan should be to contact a maritime attorney.

 

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 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 dweil@weilmaritime.com.