In this article we focus on navigating superyacht insurance claims. No matter how professional and diligent are their captains and crew, many yacht owners and managers will end up having to deal with an insurance claim at some point, whether under the yacht’s hull and machinery (H&M) policy, or through their protection and indemnity (P&I) policy. The purpose of this article is to explain the process and the role of the surveyor and the claims team in that process and to talk through some common misconceptions and points to consider. Our focus in this article is on H&M claims. We’ll cover P&I claims at a later date.
Marine surveyors are appointed by and report to the lead claims underwriter. Bearing in mind that there may be many underwriters taking part of the risk on a large yacht H&M insurance policy, this is usually (but not always) the underwriter taking the largest share of the risk underwritten. The instruction may come direct to us from the underwriter’s claims handler, or else through the yacht’s insurance broker on behalf of underwriters. The superyacht insurance market is very niche, and over time we’ve worked with just about everyone: underwriters and brokers.
Our duty to be objective
The surveyor’s role is to provide underwriters with independent objective technical advice. We are not there to try to assist them in denying a claim or minimising the cost of a claim. To do so would be prejudicial to the interests of all parties. Marine insurance is a numbers game in which losses are part of the equation. Underwriters will have used their experience to price that risk into the premium that they charge. It is not our role as surveyors to try to get involved in that numbers game. Rather, by providing evidence based objective advice and reporting, we participate in assisting underwriters to reach a fair and reasonable settlement of the claim for all parties involved.
Initial inspection
Once instructed on a new H&M claim, we will usually need to make an initial visit to the yacht to inspect the damage. Whilst there will be smaller claims where we can work remotely, there’s no substitute for a physical inspection and an opportunity to discuss the incident with those onboard. It’s important to clarify what we’re looking to achieve whilst we’re onboard. Our role is to be the underwriter’s eyes and ears and to report to them objectively on the nature and extent of the damage sustained and the likely nature and cost of repairs needed. We will also need to ask questions to the crew and to inspect records in order to explain to underwriters how and why the incident occurred. Our role is not in any way to apportion blame; it is to provide underwriters with the information that they need in order to assess the claim. The claims handler will then use our report to decide whether or not the loss is covered and to make a provision for the likely cost of repairs. We will also discuss with them whether or not other surveys may be needed by specialists such as paint consultants, fire investigators and what additional surveys by us as the claim progresses.
Where the incident involved a third party (usually in the event of a collision or allision) it is normal for surveyors for both sides (ie H&M and P&I club) to inspect both yachts. In each instance, the surveys will often be arranged as joint surveys, which means that underwriters for each side will have their appointed surveyors attend at the same time. The end goal is the same as for the H&M survey, but with the added need to confirm that the damage found on each yacht is consistent with the alleged incident. If the two surveyors can jointly agree on the extent of damage (usually fairly easy as it is factual) and the repairs required (sometimes not as easy) then this will assist as the claim progresses in future.
Follow up surveys
For major claims, we may need to return to the yacht, perhaps after being hauled ashore if there has been bottom damage, or to allow close up inspection of damage from a cherry picker or following partial dismantling for inspection in the case of machinery damage. We will also usually attend at the same time as the paint consultants, fire investigators or other specialists if these have been appointed. All of this helps to build the clearest possible picture for underwriters.
Reviewing repair specifications, estimates and quotations
Whether repair specifications, estimates and quotations are sent to the surveyor directly, or via the broker or the underwriter, the surveyor will end up reviewing these on behalf of the underwriter. The purpose of this review is to ensure that the work proposed is related to the repairs required to return the yacht to pre incident condition, to assist underwriters in assessing the completeness of the proposals and to advise them whether or not the proposed repair costs are fair and reasonable. All of this helps to ensure that both owners and underwriters are on the same page as to the expected extent of repairs and that underwriters have the correct amount reserved for the claim.
Overseeing repairs
We would usually expect to return onboard at least once whilst the yacht is undergoing repairs, in order to ensure that the agreed repairs are being carried out to a suitable standard and to ensure that work billed and claimed for has been carried out to an acceptable industry standard. Depending on the extent and complexity of the repairs required, it may be necessary for us to return on multiple occasions. Where there has been a major repair, we may also need to return in order to witness acceptance trials.
Accounts review
Whether invoices are sent to the surveyor directly, or via the broker or the underwriter, the surveyor will end up reviewing these on behalf of the underwriter’s claims handler. As with reviewing quotations and invoices, the purpose of the accounts review is to ensure that the work billed is related to the repairs required to return the yacht to pre incident condition, to advise underwriters whether or not the proposed costs are fair and reasonable, to separate out any charges for unrelated works and to suggest to underwriters apportionment of costs where owner’s work and casualty repairs have an element of shared costs. The accounts review usually takes place once repairs are complete. However, if repairs are expected to take a long time to complete, we sometimes receive sent invoices to review on a rolling basis. This may be important if the Owner wishes to apply for a payment on account in order to fund expensive long-term repairs.
When reviewing accounts, we will work on a line-item basis, where necessary requesting further information in order to substantiate costs being claimed. Some shipyards are better than others when it comes to accounting transparency. We encourage Owners and shipyards to assume that we will review accounts in detail and to ensure that costs are clearly explained. Where casualty repairs have been undertaken together with Owner’s works, we will need to see accounts for all works in order to ensure that charges have been fairly allocated. The clearer and more detailed the repair cost invoices are, the simpler and easier for all parties it is to understand and to reach a fair apportionment. Having this clarity right from the start reduces the amount of back and forth relating to each item on the repair invoice.
Settlement
Once we have submitted our accounts review and any remaining questions have been resolved, then it is up to the underwriter’s claims handler and the broker to agree final figures and settlement. Unless any figures are queried or late invoices emerge, this is usually the end of our involvement, except where the damage was caused by a third party, in which case we may continue to be involved in assisting underwriters with their recovery action.
Three key concepts in marine insurance
There are some key points that differentiate marine insurance from other forms of insurance, and which are particularly important in understanding the responsibilities of all parties involved:
The first is that marine insurance is based on a contract of indemnity which offers an indemnity against the fair and reasonable cost of returning a yacht to its pre-incident condition provided that the loss being claimed can be proven by the Owner and that the loss is covered under the terms of the policy.
The second is the concept of “prudent uninsured”. This term has a particular legal meaning which in plain English means that the insured person or entity should in all instances proceed as if there was no insurance in place, from which follows that the scope and cost of repairs for an insurance claim should be no different from that which would have resulted had the owner been paying for the damage repairs themselves. From this concept of “prudent uninsured” it follows that no surveyor should indicate that any particular proposed course of action is approved; the decision must always rest with the Owner.
The third is that everything that everything is “subject to underwriter’s liability”. Nothing that a surveyor says or does can ever bind underwriters, whose decision on coverage and reimbursement are final.
Putting right a few common misconceptions
That insurers will look after everything: owners who aren’t familiar with marine insurance claims sometimes assume that a claim on their yacht will be handled in the same way as a claim on their car or house. This isn’t the case due to the indemnity nature of a marine insurance contract. Owners must undertake repairs and then seek reimbursement of the fair and reasonable cost of repairs.
That the surveyor can approve repairs: this is never the case due to the concept of “prudent uninsured” as explained in point 3 above. Approving a particular repair or shipyard would undermine this crucial concept. However, once we have reported to underwriters, the broker may seek assurance from the underwriter’s claims handler that they would support a particular course of action or choice of shipyard.
That the surveyor can approve a claim: this is never the case as everything is “subject to underwriter’s liability” as explained in point 3 above. Only the underwriter’s claims handler can agree the claim.
That owners can take advantage of the yacht being ashore for repairs to undertake owner’s works without sharing costs: we recognise that yachts have busy schedules and that it may be convenient to schedule other routine and refit works alongside casualty repairs. However, once those other works exceed a threshold for what is termed “incidental advantage” (for example, touching up antifoul whilst ashore for unrelated repairs) then common shipyard costs (haulout, hardstanding utilities charges etc) will need to be apportioned.
It’s a small claim; why don’t insurers just pay it? Yacht owners pay expensive premiums and there may be times that those owners feel frustrated that underwriters don’t just pay small claims, rather than involving a surveyor. Whilst we can understand their point, insurers are businesses like any other, with shareholders or members to answer to for their performance, and a basic level of due diligence in reviewing and investigating a claim and subsequent repairs is therefore always required.
Common questions
Can we see your report? As we noted above, the surveyor is appointed by and reports to the underwriter. Our reports are therefore addressed to them with the claims broker in copy. For UK based underwriters, our report wouldn’t normally be shared with the Owner or Manager in the first instance. However, a request from the broker to the underwriter to release a copy of our report(s) to the Owner or Manager wouldn’t usually be declined. For overseas underwriters, we would expect our reports to be shared.
Can we take the cash and do our own repairs? As explained in point 1 above, marine insurance policies offer an indemnity against the fair and reasonable cost of returning a yacht to its pre-incident condition. This would normally be supported by repair invoices, against which the owner would seek reimbursement. However, there may be instances where repair quotations have been obtained but where the owner wishes to defer repairs to a future date. Underwriters might prefer to settle the claim there and then as a “settlement for unrepaired damage”, rather than having an unresolved claim hanging around for a long period of time. This is something that can only be negotiated between the broker and the claims handler depending on the particular circumstances of the claim.
Can we get a payment on account to help with the cost of repairs? There may be instances in which repairs are both expensive and likely to take a long time to complete, in which the broker can request a payment on account on behalf of the owner. Underwriters will need to be sure that they don’t end up paying out too much, so the amount of the payment on account being requested should ideally be supported by amounts invoiced to date, or by a repair contract with a stage payment structure with clear milestones. A payment on account is something that can only be negotiated between the broker and the claims handler depending on the particular circumstances of the claim.
Advice in the event of a claim
Report the incident quickly to your insurance broker: insurance policies will have a requirement that a possible claim is notified at the earliest possible opportunity.
Anticipate the need for the surveyor to investigate the loss: prepare detailed incident reports, witness statements and relevant records and drawings ahead of the surveyor’s arrival. The more info provided, the easier and quicker it is for the attending surveyor to get an understanding of the incident.
Anticipate the need to obtain multiple credible repair proposals: underwriters will usually want to see evidence that the Owner’s team have obtained multiple repair proposals from reputable shipyards or repairers, so start work to obtain repair proposals at the earliest reasonable opportunity.
Read the policy small print: not all marine insurance policies are created equal. If your premium was surprisingly cheap, this was probably for a reason. All risks cover is expensive, but anything less than all risks cover may leave you exposed in the event of a claim.
Rely on your broker: a good claims broker will work hard on your behalf. They will understand exactly what protection your policy offers and will act as the intermediary between the owner and the underwriter, representing the Owner’s interests.
Be nice to your surveyor: we’re here to help and assist the insured as well as the underwriter. We deal with complex insurance claims week in week out. There’s not much that we haven’t seen. Be open and honest. We’ll be fair and objective. Our goal is to help the claim run smoothly and to assist all parties in returning the yacht to pre incident condition with the minimum of stress and delay and to assist underwriters to reach a fair and reasonable settlement of the claim.
This is a short review of a very complex subject in which we’ve omitted a lot of detail in order to achieve some clarity. If there are areas that you’d like to understand in greater detail, please do get in touch with us.
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Yacht Survey Partners are global specialist superyacht surveyors. We are currently active in the UK, USA, Netherlands, Germany, Italy, France, Spain, Greece, Turkey, Malta, the Caribbean and further afield, undertaking pre purchase surveys, pre sale surveys, condition surveys, insurance damage surveys and providing advice to buyers, owners, family offices, brokers, managers, insurers, lawyers and shipyards. Our surveyors are located in London, Palma, Barcelona, Antibes, Monaco, Genoa, Fort Lauderdale and Hong Kong.