In the previous article we looked at handling insurance claims covered by your hull & machinery (H&M) insurance policy, which is where a claim is made for loss or damage to your own yacht. This follow up article looks at what happens when there is a third party involved, which is where your yacht’s protection and indemnity (P&I) cover comes into play. This article discusses the difference between H&M and P&I insurance, what to expect from the surveyors involved and how to react in the event of an incident involving a third party.
Understanding different types of insurance
Above a certain size and value of yacht, insurance cover will be separated into two different types, each with a different purpose and usually each from a different insurer. Whereas H&M cover is intended to cover for losses incurred to the insured yacht (see our article here for more on this) protection and indemnity (P&I) cover addresses claims against your yacht by a third party. Examples of instances in which you would look to your P&I cover might include a collision or allision in which you’ve caused damage to another yacht, environmental damage perhaps as a result of a fuel spill or damaging a protected reef when anchoring, or damage to a shoreside facility (for some strange reason, the bridge master’s cabin in Saint Maarten springs to mind!). P&I cover is provided by specialist insurers known as P&I clubs. As the name suggests, the policy offers protection and indemnity against valid third-party claims. The “club” aspect is interesting, in that it indicates that P&I is usually provided on a mutual basis, in which yacht owners are members of a club which exists solely to provide insurance cover in the event of third-party insurance claims against its members.
Responding to incidents involving third party contact
From our experience, the bulk of our work for P&I clubs involves contact in one way or another, so either a collision (where both vessels are underway) or an allision (where vessel that was struck was stationary) and the bulk of our contact claims concern allision, more often than not involving contact during docking. First off, we’ll looking at what happens when you are the striking party. We’ll then look at what happens when you are on the receiving end.
It’s never a great day if you make contact with another yacht, but it happens, so it’s as well to know what to expect. We’ll use an allision during berthing as an example to work through and start from the point at which any immediate danger is over and both yachts are secured at their berths. Inform your insurance broker. In turn, they will place your insurers on notice of a possible insurance claim, notifying both your P&I club for third party damage and your H&M insurers for any damage to your own yacht. Let the owner’s office know. If you have one, let the DPA at your management company know. Make sure that the incident is recorded in the deck log. Make sure that you’ve noted relevant factors such as weather, sea state, berthing arrangements etc. Take photos and secure any CCTV footage if available or witness videos of the incident. Take photos of damage to both yachts. Take screenshots of ECDIS or ECS showing the incident area and track, if relevant. Ask any of the crew who witnessed the incident to write down clearly what happened, just in case. If there were possible witnesses ashore, make a note of who they were, again, just in case. You can more than likely expect a call or a visit from the captain of the other yacht. At this stage be very cool calm and collected, admit no liability and simply exchange insurance and contact details. You can expect to receive a Letter of Protest from the other captain at some point. The letter will usually outline the circumstances of the incident and state that they hold your vessel responsible for the damage sustained to their vessel. They may ask you to acknowledge receipt of the Letter of Protest. Before doing so, we would advise sharing it with your insurance broker for them to review, in order to ensure that you are not being asked to sign anything which might in any way constitute an admission of liability. Do not admit to liability unless you have been instructed to do so.
Responding to other types of third party claims
P&I cover isn’t just there for contact between yachts; we’ve worked on claims involving groundings, fuel spills, anchor dragging and anchoring in environmentally sensitive areas, all of which have resulted in claims against the yacht for environmental damage. There’s no pre-determined way in which these different claims unfold, but if you become involved in one, it is likely that your P&I club will appoint a surveyor to assist them. If you are involved in an incident in which there’s any possibility of a third-party claim, you should inform your insurance broker as soon as possible. In turn, they will place your insurers on notice of a possible insurance claim, notifying both your P&I club for third party damage and your H&M insurers as required. They may also look to activate access to legal advice, if this is provided for under your policy. Let the owner’s office know. If you have one, let the DPA at your management company know. Make sure that the incident is recorded in the deck log. Make sure that you’ve noted relevant factors such as weather, sea state. Take photos. Secure any CCTV footage. Take screenshots of ECDIS or ECS showing the incident area and track, if relevant. Ask any of the crew who witnessed the incident to write down clearly what happened, just in case. Be cautious with what you say to any official or third party, bearing in mind that whatever you say may come back to you in future. Do not admit to liability unless you have been instructed to do so.
Joint surveys
Your P&I club will appoint a surveyor to investigate the claim on their behalf. The third party’s H&M insurers will also appoint a surveyor. It would be normal for the surveyors to arrange a joint survey of the yacht that was struck in order to understand the circumstances of the incident, to agree the extent of damage and, if they can, to agree the means of repair. The surveyors may also make a joint survey of the striking yacht, in order to confirm that the damage seen on the two yachts is consistent with the nature of the alleged incident. This is particularly helpful where there is any uncertainty or inconsistency in the claims made by the two parties, or where there was pre-existing damage as well as casualty related damage located in the same area as the incident damage is located. During these joint surveys, the opposing surveyor may reasonably request certain information which might include the certificate of registry and the certificate of Class, captain’s qualifications. We would agree to these being provided, but for any other requests (eg incident reports, deck log extracts, previous paint survey reports etc.) we would suggest withholding at this stage, until discussed and agreed with the P&I club.
Following the joint survey, each surveyor will report to their respective clients and at this stage we will provide the P&I club with our initial report. This will include a description of the incident and the circumstances leading up to it, a detailed description of the damage sustained by the third-party yacht, an outline of the repairs needed and an initial estimate of repair costs for the third-party yacht, pending receipt of repair quotations. Once they’ve digested our report, it is likely that the claims handler at your P&I club will discuss the claim with your insurance broker in order to discuss coverage. If confirmed, they will then likely make contact with the claims handler at the other yacht’s H&M insurers in order to agree with them how to progress the claim.
Follow up and specialist surveys
At this stage we will advise the P&I club whether or not we think that further surveys will be needed (for instance, once the yacht has been hauled ashore and more detailed inspection is possible) and whether any specialists such as paint consultants will need to be appointed. Where there’s paint damage, we will often recommend the involvement of a specialist paint consultant, especially where the paint is not polishable, or where the paint finish is metallic or a custom colour, or where there are no reasonably viable cutlines, any or all of which could result in the need for significant and costly refinishing. Given the sums potentially involved, advice from a paint specialist is valuable.
Reviewing repair proposals
The surveyors on both sides will remain in contact, arranging any additional inspections as needed and in order to share and review repair quotations, once these are available. As with H&M claims, the P&I club will want to see a few quotes from different repairers in order to ensure that quotes are competitive. Your surveyor will review the quotes provided ensuring that the amounts quoted are fair and reasonable and that the scope of work covered by the quotations is strictly limited to casualty repairs. We’ll report our findings and comments to the P&I club.
Reviewing repair accounts
Once repairs are complete, we will be sent repair accounts to review. As with H&M claims, this is to ensure that the amounts being claimed are fair and reasonable and that the costs claimed are solely related to the agreed scope of repairs. Once they’ve digested our report and accounts review, it is likely that the claims handler at your P&I club will have a further discussion with the claims handler at the other yacht’s H&M insurers in order to settle the claim.
Settlement of P&I claims
In some instances, the P&I club may agree to pay the third-party yacht’s repair costs directly. However, it is also common that the third-party yacht will claim against their own H&M insurance policy and that the H&M insurer will recover their loss from the P&I club in due course.
Advice in the event of a claim
Stay calm. It’s never nice being involved in an incident, and things can get heated when a third party is involved. Do your best to stay cool, calm and professional.
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. 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 your P&I club, representing the Owner’s interests.
Be nice to your surveyor: we’re here to help and assist the insured as well as the P&I club. 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 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.