Marine Insurance Germane to Multiple Industries
'The original insurance'
Parker, Smith & Feek
Lynne J. Seville
Marine insurance is a broad term with meaning and coverage areas that have significantly evolved over the years, according to Lynne Seville, CSP, principal and account executive with Parker, Smith & Feek Inc. Headquartered in the Pacific Northwest, Parker, Smith & Feek is one of the largest insurance brokerage firms in the country.
“Marine insurance is kind of the original insurance,” says Seville, who is based in Anchorage. “It is one of the oldest types of insurance, established when almost all important things were shipped in boats. It was really about protecting cargo in the beginning, and then it morphed from there.”
Today, the “marine” insurance category encompasses many different types of insurance. “It includes everything from maritime insurance for vessels and cargo to builder’s risk to inland marine coverage, which is basically insurance for property that moves around, such as mobile equipment,” Seville says.
Almost every kind of business can utilize some kind of marine insurance—from building contractors to manufacturers and social services agencies. “It’s really one of those coverages that almost every business needs in one shape or form,” she says.
Common Coverage Types
What people think of as traditional marine insurance is a type of coverage that primarily pertains to vessels and cargo over the ocean. Commercial marine businesses typically purchase coverage for the hull (the body of the boat), the crew, and marine liability. Liability insurance provides coverage for damaging others if the owner or operator is at fault for an accident on the water. It can pay to repair or replace the property as well as any medical care, lost wages, and other cost resulting from the accident.
Commercial vessels often also have cargo insurance to offer protection against the destruction of the property carried on board. Cargo coverage represents approximately half of the “true” marine insurance market, Seville says. Parker, Smith & Feek places a significant amount of ocean cargo coverage for businesses, ranging from shippers to contractors who ship materials. For example, a contractor who has a critical component for a project that needs to be shipped over ocean would place marine cargo coverage to protect against its loss. Seville explains: “You can also cover loss of business if you lose cargo. We also have ‘delay in start-up coverage’, which covers the impact to the contractor’s business if a project is delayed due to something happening to the cargo.”
Another essential type of insurance that is designed for boat owners is pollution liability. This insurance, which is required, provides coverage from spills or threats of spills involving entities such as shipyards, yacht dealers, fishing vessels, and marinas. Coverage includes clean-up, third-party property damage, subsistence, assessment of and damage to natural resources, loss of revenues and profits by third parties, civil penalties, and criminal fines and defense.
There are also a number of coverages that people typically do not associate with marine insurance. A prime example is builder’s risk insurance, which falls under the inland marine category. Builder’s risk covers property owned by a contractor, developer, or other business owner as it moves from place to place. It covers equipment and tools that are stolen, damaged, or lost as well, as protects against unforeseen events such as vandalism, fire, and tornadoes.
So what kind of insurance coverage is available to protect people engaged in marine activities? There are several federal regulations that cover workers and others injured in maritime-related situations. These laws include the Jones Act—also known as the Merchant Marine Act—and the US Longshore and Harbor Workers’ Compensation Act. The Jones Act allows crew members who are injured due to negligence to recover for damages caused by injury while working on a vessel. The US Longshore and Harbor Workers’ Compensation Act covers similar provisions for non-crew members.
Most boat insurance policies routinely provide coverage for the US Longshore and Harbor Workers' Compensation Act, but that’s not the case with the Jones Act. So commercial boat owners should ensure they have the proper protection and indemnity coverage against possible liabilities from crew members and/or passengers.
Meeting Specialized Needs
Obviously, marine insurance is highly technical and specialized in nature. That’s why Parker, Smith & Feek maintains a knowledgeable staff to help clients determine the best coverages for their specific situation, Seville says. “The cargo insurance, delay-in-startup, and builder’s risk insurance have many nuances that can have a severe outcome on the claims experience,” she says. “We have specialty departments for builder’s risk and marine insurance.”
Marine insurance also has unique aspects that necessitate more expertise and customization. For instance, with ocean marine insurance, there are very specialized forms involved. And the insurance contract is often manuscripted, meaning it’s specially written for the client’s situation and needs. Seville says, “The reason marine insurance contracts are customized is because you often have different interests; you often have several underwriters coming together to layer coverage.”
Anchor Marine Underwriters assists private individuals and businesses with their marine insurance needs. The company—with about thirty years in the business and several locations nationwide—provides marine insurance for everything from small boats and private yachts to charter boats and other commercial vessels. It covers boat builders, marine artisans, marina owners, dealers or brokers, and yacht club or ocean cargo carriers that handle the shipping of yachts.
Anchor Marine Underwriters
In Alaska, Anchor Marine Underwriters primarily serves fishing charter operators. It also assists other commercial clients and private boat owners throughout the state. The company’s Anchorage-based agent, Greg Mercer, happens to operate a charter boat business, Wild Salmon Sportfishing, out of Seward. This experience, along with his marine insurance expertise, enables him to better serve his customers, he says. “I have been a fishing guide for almost thirty years, which helps me understand the wants and needs of a charter vessel owner,” he says.
One of the most common types of marine insurance Mercer sells is for fishing guides. It’s basically a passenger policy for a vessel hauling passengers for hire. He typically provides protection and indemnity insurance, which is required by the state. The state mandates a minimum of $100,000 per incident and $300,000 collectively for fishing guides, most of whom elect to carry higher coverage. “With that policy, you will have whole coverage for an agreed value [not a cash value], medical payments to cover the customers, crew coverage for deck hands, and pollution coverage,” he says.
Mercer points out that guides who drop customers off on the shore should add some type of shoreside coverage. If they don’t, it could be detrimental to their business. “If the guide just assumes that the insurance company adds that in there, there might be a rude awakening when someone slips and falls on the rocks and is injured and there is no coverage,” he says.
Steve Zernia, owner of ProFish-n-Sea Charters, is adamant about ensuring he has adequate insurance for his business. The Seward-based company—which offers salmon, halibut, and lingcod charters—operates four vessels. Zernia carries hull insurance to protect the boats, along with liability insurance to cover the crew and passengers.
Marine insurance, Zernia says, is indispensable to ProFish-n-Sea Charters: “It’s absolutely required [legally]. And, obviously, from a business standpoint, we want to make sure our assets, customers, and crew are covered as well.”
Vessels carrying passengers for hire may also have insurance coverage requirements related to where and how they operate. For instance, the Arctic National Wildlife Refuge and Kenai National Wildlife Refuge require certain entities that access their area to carry insurance. Some landowners will require themselves to be listed as an “additional insured” on the insurance policy. In addition, guides who use different booking agencies must list these agencies as an additional insured on their policy.
As Seville indicated, marine insurance for commercial businesses involves different intricacies than auto or homeowners insurance. Crew exposure, for example, is a distinct area that charter outfits must properly cover. “The owner will have to have the crew appropriately insured because there is so much exposure there and the owner is liable,” Mercer says.
Guides and charter companies need to be aware of the insured value of their vessel. Normally, such businesses will have an “agreed value” policy, which means that if their vessel is a total loss, they’ll receive the value it’s insured for—minus their deductible. With Anchorage Marine Underwriters’ charter boat policies, a marine survey is conducted on the vessel to determine its replacement value. This is the dollar value the owner will receive if a loss occurs.
Generally, insurance on most private watercraft are cash value policies. However, many private boat owners are not aware that they have an actual cash value on their boat, Mercer says. But if a boat sinks or is stolen—and it’s insured for the cash value—the owner will receive the market value for the vessel. This amount may be significantly lower than what they originally paid for it and may not actually be enough to replace their boat. “If the boat is very expensive, it could be a terrible surprise to the owner,” he explains.
Private boat owners also need a greater awareness of the navigation warranty of their insurance policy. The warranty stipulates the latitude and longitude where they can operate, and some boat operators unwittingly travel outside this area. “The owner isn’t allowed to operate outside their navigation warranty; otherwise, they will not have coverage,” Mercer says.
As a trend, Mercer has noticed that the marine insurance industry has started to harden somewhat lately. This could be due to a higher number of claims, he says, pointing out the damage caused by Hurricanes Irma and Harvey last fall. Whether insurance rates will increase remains to be seen. But personally speaking, Mercer says he anticipates paying more to insure his own charter boat. “I expect my premium to ratchet up a little bit.”
As more of a general observation, Mercer says people tend to be underinsured. They “think with their pocketbooks for the here and now,” instead of thinking about what could happen in the future. But they should carefully consider all of the assets they have to protect and make sure they are properly insured. Mercer says, “If they have a few homes, automobiles, savings, and retirement, they may want to up their liability a little bit to protect themselves.”
Seville has noticed that clients are becoming more aware of the coverage they need. And the agency is selling more of this specialized type of insurance. “I think business people are starting to truly understand their exposures,” she says. “I think the global community is changing how they look at the kind of insurance they need.”
Although clients are becoming more cognizant of their marine insurance options, Seville encourages them to further enhance their knowledge. One area every client should pay more attention to is the insurance coverage related to shipping. For instance, clients who are shipping materials and goods for business should be aware that when they opt for the shipper’s coverage, it will pay much less than the full value of their goods. “They haven’t read the fine print of the shipper’s tariff. When they lose their cargo, the amount of the claim can be highly limited,” she says.
Parker, Smith & Feek spends a significant amount of time educating clients about different insurance options, Seville says. As part of these efforts, the agency offers marine cargo classes to help clients understand their exposure or risk of possible loss.
Seville encourages clients to maintain open communication about their business activities with their insurance broker. This way, their broker has a better understanding of the client’s potential exposure and the ability to offer advice tailored to each situation. She says: “We want to review the contracts you’re signing. We want to talk about new jobs you’re doing. When you’re bidding work, we want to look at it [the bid] so that we can help you understand what may change with your insurance. It needs to be an ongoing communication.”
Essential Types of Marine Insurance
There is a wide array of insurance available to protect maritime workers and property involved with marine-related commercial operations.
- Maritime employer’s liability: Provides protection for employers’ potential liability for injury to captains and crew under applicable local laws that allow employees to bring negligence actions against employers.
- Marine general liability: Combines comprehensive general liability, including products and completed operations insurance, with miscellaneous liability coverages, such as stevedore’s or marine terminal operator’s liability.
- Terminal operator’s liability: Provides marine terminal operators with liability insurance for damage to cargo and the property of others while at their facilities; rigors liability for people who move equipment with cranes.
- Charterer’s liability: Designed for companies that charter or rent space on a vessel. This coverage protects the charterer against liabilities assumed under a charter party.
- Wharfinger’s liability: Protects commercial wharf, dock, or pier owners against liability for damage to vessels (including cargo and other interests on board) while at their facilities.
- Ship repairer’s liability: Insures vessel repairers and contractors who work on vessels and related components against liability for damage to vessels (including equipment on board) undergoing, awaiting, or proceeding to docks for repair.
Tracy Barbour has been an Alaska Business contributor since 1999. As a former Alaskan, she is uniquely positioned to offer in-depth insight and enjoys writing about a variety of topics.