I was horrified to learn last month that my boat had sunk while it was tied up in its slip. Now I am having a dispute with my insurance company because they are refusing to pay the claim. Apparently the boat sank after a thru-hull valve failed. They hired a surveyor to investigate the incident, and he believes that the failure was caused by corrosion in the valve assembly , which developed because it was constructed of inferior metals and it was not properly connected to the boat’s corrosion bonding system. However, the boat is relatively new and both the valve and the corrosion bonding system were installed by the builder. To complicate matters further, I had the boat surveyed last year at the insurance company’s request and with a surveyor approved by them. They accepted the surveyor’s report and took my insurance premium without saying anything about a possible problem. I am not an expert when it comes to corrosion aboard a boat, so how can I be expected to identify or repair a problem that their approved surveyor did not identify? Now they are accepting the report of a different surveyor as the basis for denying my claim. In light of the fact that they agreed to insure the boat after reviewing a report prepared by the first surveyor it seems that they should be required to pay the claim. What am I missing here?
A: Our reader is “missing” the fact that the first surveyor worked for him and the second surveyor worked for the insurance company.
Unfortunately the fact that his insurance company accepted the marine survey from the first surveyor has no bearing on their obligation to pay the claim. That surveyor is deemed to be the boat owner’s agent, not an agent or representative of the insurance company. He is selected and paid by the boat owner, even if he is on the insurance company’s “approved” list. As such, when an insurance company requires a survey to start or renew insurance on a boat, the report from the surveyor is deemed to come from the boat owner rather than from someone who is representing the insurance company.
Conversely, the marine surveyor assigned to investigate the claim is a representative of the insurance company. He is selected and paid by the insurance company and he reports directly to the claims adjuster. To avoid a conflict of interest, the insurance company will never assign a surveyor who performed a prior survey of the boat on behalf of the owner. His report may ultimately be shared with the boat owner, but the report was commissioned by the insurance company and they have no legal obligation to share it unless and until litigation is initiated.
If a pre-insurance survey fails to identify a problem that ultimately leads to an uninsured claim, the surveyor, as the agent of the boat owner, may have been negligent. That may give rise to a claim against the surveyor, but it will not affect the coverage decision.
Unfortunately the owner of a boat is, in fact, responsible for inspection and repair of everything on the boat. And failure by the owner to meet this responsibility is not excused by his or her lack of knowledge or expertise in maintenance issues. Recreational vessels are insured under “all risk” insurance policies, which generally cover everything that is not expressly excluded. Unfortunately failure to maintain the boat in a seaworthy condition is expressly excluded from coverage in these policies, as is loss caused by corrosion. The fact that both of these may have been brought about by the owner’s negligence does not change the analysis when there is a specific exclusion. The exclusion always trumps any stray circumstances that may have contributed to the loss. Otherwise every express policy exclusion would be meaningless.
All claims for damage or injury ultimately come down to a decision of who must bear the loss. The insurance company is not in a position to know more about the boat than a boat owner or the owner’s hired agents or experts. They rely on representations made by the owner and his or her representatives in making their underwriting decision. If a surveyor misses something there is no way for the insurance company to know about it. The “moral” to this story is to search out and retain highly qualified experts when inspecting, maintaining, or repairing a boat.
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 (weilmaritime.com) in Long Beach. He is an adjunct professor of Admiralty Law at Loyola University Law School, is a member of the Maritime Law Association of the United States and is former legal counsel to the California Yacht Brokers Association. He is also one of a small group of attorneys to be certified as an Admiralty and Maritime Law Specialist by the State Bar of California. If you have a maritime law question for Weil, he can be contacted at (562) 438-8149 or at firstname.lastname@example.org.