When operating a vessel commercially such as carrying passengers for hire, fishing in order to sell the catch, or transporting cargo, you are taking three basic types of risk:

1. Loss of or damage to the hull
2. Personal injury or loss of life of yourself, your crew and/or passengers
3. Damage to property of others such as someone’s valuables aboard, a dock or another boat

In recent times, liability for pollution of waterways has become another significant exposure.

Marine insurance is not required by law (not even pollution for most vessels)…but the first insurance in the history of the world was marine insurance, and for good reason. This means, since you are not required by government to buy it, that the marine insurance marketplace is very competitive.

Marine insurance is largely unregulated. That is, government has no rating or coverage requirements and generally does not oversee the conduct of companies participating in marine insurance.

Marine Insurance is generally written on an annual basis, even if the vessel it is written for operates only part of the year.

Deductibles refer to the initial portions of a damage to the vessel or a claim against you by someone else that you are responsible for by the terms of the agreement.

• They are in the agreement to buffer both parties against unnecessary paperwork, leading to more expensive insurance.

Marine Insurance policies are legal contracts, and as such are not in effect until both sides of the deal agree, as evidenced by documentation which is provided by the risk bearer, and consideration (money) is provided by the insured. (However, sometimes due to time constraints, verbal agreements may be valid- even without consideration- between parties who have a relationship of trust.)

There are typically two sections offered in a contract of insurance for a commercial vessel:

1. Hull – pertains to the value of the vessel itself.

2. Protection & Indemnity (often just called P&I, it is a type of liability insurance). Insurance for liability created by the Jones Act of 1927 is available herein under ‘crew coverage’.

• Sometimes pollution coverage may be included in the P&I section.

To elaborate a bit on the two sections of a typical policy…

Hull Insurance

• If you have a vessel mortgage, your lender will probably require Hull insurance; this is to provide a source of compensation to the lender if the vessel is damaged or destroyed. The lender will ask to be named on your hull policy as a loss payee, meaning they have to sign any check issued to you by the insurance company in payment of a claim.

• Hull insurance is often purchased even if there is no debt associated with the vessel, simply to protect the owner from a catastrophic business loss.

• Hull insurance may be contracted for as a “stand-alone” policy, even if the insured does not purchase P&I insurance.

Protection and Indemnity

• P&I is not generally available as a stand-alone policy in the U.S. This is because the P&I part of the policy is where the greatest amount of claim payments are made in marine insurance. It can be purchased as a stand-alone from foreign companies (i.e., Lloyd’s, et al) but it so expensive and limited that it is more economical to get hull insurance and also P&I from a U.S. company.

• Protection means that if you purchase this policy, the issuing company promises in writing to protect (legally defend) you against claims others may make against yo u for damages they allege you are responsible for.

• Indemnity means the company will repay you for money you have spent to satisfy those claims against you that the company has agreed you are liable for.

• In practice, the company will not actually require you to make those payments first; it will provide the payment to claimants itself instead of you paying first. This was not always the case historically.

• Marine Insurance companies generally do not cover owners under the P&I; they do not wish to pay claims for owner’s personal injuries or enable owners to sue themselves under the policy. There are exceptions to this.

• Under Medical Payments, a subsection of the P&I under which typically a very limited amount of medical bills may be paid to crew and/or passengers with no admission of liability (and no deductible) on the insured’s part, some companies will also include owners.

• Limited lost wages for owners due to an injury, and limited “Maintenance and Cure” coverage, with deductible applied is also available for owners at extra cost.

• This coverage does not enable the owner to sue himself but does extend the medical cost coverage beyond the medical payments limit.

• The Jones Act of 1920 is the seagoing equivalent of the Worker’s Compensation Act ashore. Worker’s Comp. is not required on boats and would not pay claims for injured seamen if it were purchased. At times, overzealous state Worker’s Comp officials get confused and try to force vessel owners to purchase Worker’s Comp. coverage.

• There are significant differences between the Jones Act benefits and state administered Worker’s Comp benefits. Chief among them is that a person determined to be a Jones Act seaman is legally defined as a ‘ward of the court’; that is, entitled to protection from the court itself, as would be the case for an underage orphan.

• The most important coverage a vessel owner who has paid crew aboard is Jones Act crew coverage under the P&I; and American companies will not provide this coverage without detailed knowledge of the vessel and hull coverage concurrent with that.