Finding the Best Value in Houseboat Insurance
Houseboats Are Not Floating Homes, they are Boats. Under the law, watercraft have specific laws that apply to them. Those laws impose strict legal responsibilities on their owners. Your Houseboat insurance needs to cover these specific liabilities. Caution – Some insurance agents will sell you a homeowner’s or dwelling policy. Unless properly endorsed, these policies will not cover sinking, salvage costs, water leakage/seepage, or your liability under federal, state, and local laws. Only a Watercraft or Houseboat policy will. All Policies Are Not Alike – When it comes to some common types of insurance (automobile insurance for example), one policy is usually pretty much the same as another. But, when it comes to Houseboat insurance, this is not true. Insurance carriers providing watercraft/floating home insurance offer a wide range of coverages depending upon the insurance carrier’s knowledge and expertise, their appetite for risk and kind of customer to which they are marketing their product. And many contain exclusions which may end up hurting you at the time of a loss – when you need that coverage the most. Caution – Read your policy!!!! I know. Insurance policies are boring, hard to read and difficult to understand. But, the law in most states makes it the policyholder’s legal responsibility to read their policy. Any misunderstandings can be referred to the insurance company for clarification. It is better to be educated before, rather than after, a loss occurs. Insurance carriers and their agents are not legally responsible to sell you the correct policy or explain coverages to you. In the past, insurance companies attempted to give consumers as much legitimate protection as possible when developing their insurance product. They limited their exposure to loss by intensively examining each potential insured before issuing a policy and then pricing the policy at a level that would mostly likely contemplate a profit for the insurance company without compromising their market position. In today’s market, policyholder protection is much less important a priority than reduced insurance company operating costs, point of sale convenience/efficiency, maximizing profits for stockholders and maintaining market share. To maintain these standards, carriers have resorted to utilizing “pre-emptive policy language” which eliminates specific types of losses that the carrier does not want to cover. Caution – Read your policy!!!! “The large print gives you coverage. The small print takes it away” As such you find many of these pre-emptive exclusions are buried deep within policy language (within the definitions, exclusions or conditions sections of the policy) which makes it difficult, if not impossible, for consumer to find. Insurance carriers justify this behavior through the legal contract principle of “caveat emptor” meaning “let the buyer beware.” This bulletin will attempt to correct this consumer disadvantage by empowering you through education. We will discuss marine coverages, underwriting considerations and risk management techniques associated with Houseboats and Floating Homes. An educated consumer levels the playing field with insurance carriers. So, you can “know” before you “buy.”
Homeowner’s/Dwelling Insurance – These policies are standardized forms specifically designed for and address most risks associated with land based dwellings. They do not contemplate and do not address risks, federal, state and local laws and the legal responsibilities of the Houseboat homeowner permanently moored on the water. Caution – A Houseboat policy is the correct policy to properly cover your liability and the potential loss of your Houseboat. Basic Coverages – The two basic coverages of a typical Houseboat/Floating home insurance policy is Hull (a.k.a. physical damage), and Protection and Indemnity (a.k.a. liability). 1. Hull (a.k.a. physical damage) covers the unexpected, accidental, and direct physical loss or damage to your floating home, including machinery, equipment, and contents. 2. Protection and Indemnity (a.k.a. liability) covers your legal obligations pay for the damage or injury to other people imposed to you by law or because of your negligence. This would include bodily injury, death, or damage to someone’s property. This coverage includes attorney’s fees, court costs and other expenses you might incur in your legal defense as the result of a lawsuit. Hull Coverage: What Losses are Covered? Physical damage coverage is designed to pay for the cost of repairs to your floating home that are necessary as a result of damage from a host of causes minus your deductible (and subject to limitations for some items). Policies that are marketed as “all risk” or “Special Cause of Loss” rather than “specified peril,” or “named peril” are the best.
Caution – Do not fall for these common myths. . . • avoid policies stating that they offer “full coverage.” “Full coverage” policies don’t exist; • “All risk” policies do not cover all causes of loss.
“All risk” coverage means that the insurance company will pay you for losses if the cause of loss is not specifically excluded. So, the next logical question is “What is excluded under an “all risk” policy? The answer is typically three things:
1. Moral Causes of Loss – Losses that are caused by deliberate, intentional, willful, immoral, or illegal actions are excluded under all insurance policies. Such moral causes include, but are not limited to, intentional acts, dishonest acts, criminal acts.
2. Morale Causes of Loss – Losses that result from a boat owner’s failure to properly care for or repair or maintain the vessel in a “seaworthy condition” are excluded. Seaworthiness is a legal term which is defined by law and will be dealt with in later in this bulletin. Examples of morale exclusions include, but are not limited to, damage caused by dry rot, vermin, rust, corrosion, galvanic action, electrolysis, and wear & tear.
Take note – The good news about morale exclusions is that generally they apply to the specific damage itself; resultant damage is covered. For example, if you boat sinks because of a rotten spot on the hull that you (or any ordinary person) would not have been be aware, the resultant loss of your vessel sinking would be covered. Only the damaged part of the hull itself caused by the rot would be excluded from an insurance payment. Notice, I said “generally.” Since watercraft policies are drafted by each insurance company and not standardized some boat policies will attempt to exclude the entire loss.
3. Avoiding Duplicate Coverage – Causes of loss that might be covered under another type of insurance are generally excluded. Such causes of loss include, but are not limited to, war, pollution, atomic/nuclear energy, racing or speed contests, livery, commercial use. There are other insurance policies that directly address these causes of loss, so they are excluded under the basic watercraft policy.
4. Pre-emptive Exclusions – I know you think I said there were only three types of things all risk policies exclude but look again. I said, “typically three things.” In the introduction, I said that recently insurance companies are employing the practice of pre-emptive exclusions. Where do these things come from? Well, basically an insurance company or their reinsurer may decide that they are paying too many claims as the result of a specific cause. So, they may decide that from henceforth all claims as the result of this specific cause will no longer be covered. Their legal department then drafts a revised policy exclusion in the form of an endorsement, or they may bury it within a new edition of the policy itself. Almost anything or any cause can be preemptively excluded under a floating home/watercraft policy. So, beware that there is the increasing possibility that every potential cause
of loss that an insurance company just doesn’t want to cover is subject to a pre-emptive exclusions.
Caution – Be aware of Pre-emptive Exclusions . . . • Pre-emptive exclusions will vary from insurance company to insurance company; another reason to read your policy or seek professional help when purchasing floating home insurance.
So, what would be covered under an “all risk” policy? Here are some common examples: wind; rain; hail; lightning; ice; wave action; fire; smoke; theft; burglary; malicious mischief; vandalism; flooding; explosion; extremes in temperature; collision with docks, submerged or floating objects or other boats; grounding and other “perils of the sea.” “Perils of the Sea” means damage to the vessel (and its equipment) occurring because of an accident on the water, or while moored. For example, damage caused by water accidentally entering the vessel at some place in the hull or superstructure where water is not ordinarily expected to enter. This means any unexpected cause including negligence of the owner, guest or tenant is covered.
CAUTION – Land Coverage . . . Some policies cover the vessel only when moored or docked at a specific location. Coverage may be suspended or excluded when: • relocating the vessel to another mooring location without first notifying the insurer; • when removing it from the water for repairs or maintenance; or • when transporting it overland. Make sure your policy continues to cover your boat while it is relocated, “hauled-out” or transported over land by trailer.
Loss Payments – Agreed Value vs. Actual Cash Value – One of the most significant differences that can be found among floating home/watercraft insurance policies is how losses are paid. Most policies will be paid based on either “Agreed Value,” “Actual Cash Value” or “Replacement Cost.” Despite the method of payment, all insurers retain the option to repair, replace or pay for the damages. How they pay for damages varies from policy to policy. In cases of a total loss, almost all policies will pay the amount shown on the policy declarations page for the Hull coverage. This is called an “Agreed Value” policy. When the policy is first written, you and the insurer agree on the value of the floating home. That becomes the amount that will be paid in case of a total loss. This agreed amount may be supported by a marine survey of the Houseboat or floating home itself, the amount you paid for the Houseboat or Floating home or by sales records of other Houseboats similarly equipped. For partial losses, insurers generally will pay for the cost to repair the vessel to its original specifications or replace damaged equipment with new equipment that is similar in “like, kind and quality” as the original damaged piece. We refer to this as “Replacement Cost” (new for old) coverage. On a replacement cost basis, depreciation will not be factored into determining the value of the lost or damaged items. Your policy should cover the hull and contents on a replacement cost basis.
CAUTION – Replacement cost for Houseboat contents is an optional coverage which needs to be selected for which an additional premium will be charged.
Some of the Houseboats equipment and machinery has a limited life and is subject to higher-than-normal wear and tear. Examples are canvas, paint, generators, appliances, heating & air conditioning systems, etc. For these items, the insurance company may pay you based on the item’s “Actual Cash Value.” Actual Cash Value is the cost to replace the damaged item with a new item of like, kind and quality minus depreciation. Depreciation is based on the age and condition of the damaged item. It is not uncommon that even an Agreed Value policy paying replacement cost for partial losses will specify that some items will be subject to loss payments based on Actual Cash Value. The number and types of these items vary greatly among insurers. An Actual Cash Value policy provides less coverage than an Agreed Value policy. It is generally priced much lower than an Agreed Value policy. In the event of a total loss, an Actual Cash Value policy provides payment reflecting the current market value of like vessels with similar equipment and condition. Payments made for partial losses are also paid on a actual cash value basis. Caution – While an Agreed Value policy typically costs more, and provides better coverage, an Actual Cash Value policy may be an economical alternative. An insurance professional should be consulted when considering these options. Personal Property Coverage – Hull coverage includes the equipment permanently attached that is necessary for the safe operation of the floating home. There are other items such as clothing, furniture, entertainment systems, electronic equipment, sports equipment, fishing gear, bedding, kitchen supplies, coolers, food, liquor, foul weather gear, electronics, binoculars, and other personal gear that is either temporarily or permanently kept on board your Houseboat.
Personal Property coverage is a coverage which would cover loss or damage to these items. It is written for a specific blanket limit covering all personal items on board the vessel at the time of loss. It is an optional coverage on some policies and totally excluded from others. Be sure read your policy or seek guidance from an insurance professional. Caution – Depending on the policy type, Contents may be automatically included at no cost or an optional coverage for which a premium will be charged. Salvage Coverage – This coverage is included in most, but not all, Houseboat insurance policies at no additional cost. It covers the removal or disposal of your Houseboat if it sinks and recovery is imposed on the boat owner by maritime law or contractual obligation. Legally speaking, salvage is any voluntary and successful rescue of a watercraft and/or its cargo from a “peril at sea.” It is essential that the Houseboat owner reach an understanding with the marine salvage provider before an salvage action is taken. Under the law, marine salvage providers do not have to inform you of the services they are providing before they render them and they may be entitled to a percentage of the value of the floating home for any services they provide. The best protection against a salvage bill is adequate insurance. Houseboat owners should make sure the policy provides for salvage up to the full value of the floating home, not a percentage of its value or “reasonable costs”, and that no deductible applies. Some floating home policies do not cover salvage costs.
CAUTION – Sinking: Understanding the difference between recovery & salvage and pre-negotiating the cost of the services being provided before assistance begins can save owners money and aggravation. Salvage may not be covered under some insurance policies. Protection & Indemnity (Liability) Coverage – The liability section of a comprehensive boat insurance floating home/Houseboat policy provides coverage for bodily injury, death and property damage of others caused by the negligence of the owner, guest, or resident. Since most Houseboat/floating home accidents can be extremely serious in nature and maritime law imposes legal responsibility on Houseboat owners, this vital coverage should be maintained at a limit high enough to accommodate a major loss. Personal Injury (Liability) Coverage – An inexpensive and very important endorsement which extends the Protection & Indemnity (liability) coverage to include allegations against you for false arrest, false imprisonment, wrongful eviction, wrongful entry, wrongful detention, malicious prosecution, false representation, humiliation, libel, slander, defamation of character, or invasion of privacy. If you plan to rent your floating home, this is a must buy endorsement.
CAUTION – Personal Injury Liability coverage is a “must buy” coverage if you plan to rent your floating home.
Contractual Liability (Storage, Slip and Marina Contracts) – If you moor your Houseboat at a marina, you’ll probably register your vessel with the Dock Master. Part of that registration process will likely include an agreement that you to indemnify and hold the marina harmless in case anybody hurts themselves in or around your Houseboat. If a lawsuit or claim is brought against you and the marina, you have agreed to pay for the marina’s legal fees and any damages imposed on the them. Proper Houseboat policies will cover you for liability you assume under these types of contracts for no charge. Some Houseboat policies excluded this coverage.
CAUTION – Slip, Storage or Marina Contracts should be included at no charge in floating home policies.
Federal Pollution Control Act Coverage – Floating home owners are responsible for the containment and clean-up expenses resulting from the sudden or gradual release of pollutants such as petroleum products, soaps, fecal matter and other contaminates (as defined in the Act) onto the waters of the USA. Failure to comply with law imposes: 1. Civil Clean-up Expenses (a minimum of $930,800 per incident); 2. Civil Penalties. CAUTION – A proper Houseboat policy will provide some sort of pollution coverage, but none of them provide complete coverage under the act. Such common “gaps” in coverage include: • no gradual pollution coverage (only sudden release is covered); • no intentional release covered (not insurable – see moral exclusions above); • coverage limited to petroleum pollutants only; • no civil penalty coverage (coverage available separately at moderate cost).
State/Federal Longshore & Harbor Workers’ Compensation Act (USL&H) – If you ever allow a repairman, technician, rigger, marina employee or other worker to make repairs or modifications to your vessel, assist you with docking, mooring or repositioning, help with loading guests or supplies, you, as the Houseboat owner, will be held responsible for their injuries under this federal law. Enacted in 1927, this law covers certain maritime workers, including most dock workers, maritime workers, and temporary shore-based workers. This coverage should be included, at no charge, in a proper Houseboat insurance policy.
CAUTION – All Boat insurance policies should include Longshore & Harbor Worker’s Compensation Act coverage at no charge.
Medical Payments Coverage – This coverage pays for medical costs including first aid treatment, ambulance, physician, and hospital costs that result from anyone injured in your boat, even if you are not at fault. Make sure coverage extends to guests while boarding or embarking or otherwise injured while on or in your floating home. Check to make sure that injuries to you and your family are also included in this coverage. Coverage should be provided on a “per person” not “per accident” basis. Uninsured Boater Coverage – Many boaters operate their vessels without liability insurance coverage. If one of these uninsured boaters collides with your floating home, Uninsured Boater coverage will pay for the medical expenses, loss wages, rehabilitation cost, etc. of those persons on board your Houseboat who are injured as the result of that boater who doesn’t have insurance. If you are legally entitled to recover damages from the other uninsured boater, this coverage will pay for or minimize financial costs of those injuries. Underinsured Boater Coverage – This coverage expands Uninsured Boater coverage to pay the difference between what the other boater’s policy will pay for injuries to your Uninsured/Underinsured Boaters coverage limits. This coverage is normally included at no cost as part of the Uninsured Motorist coverage offered by comprehensive watercraft insurance policies.
CAUTION – Underinsured Boater Coverage should be included as part of Uninsured Boaters Coverage.
Factors Affecting the Cost of Insurance – What you pay for insurance is largely determined by several factors: Houseboat Value – For the consumer purchasing an Agreed Value policy, this is an important factor. Insurance should reimburse you for the amount it would cost to replace your Houseboat with another similarly equipped floating home of like, kind, and quality. But consumers know that the higher the home’s value, the more you will pay for insurance. Do not be penny-wise and pound foolish when selecting the proper limit for your floating home. Deductible Amount – Deductibles are either a flat amount, percentage of the vessel’s value or a combination of both. Generally, the higher the deductible, the lower the cost. However, there are diminishing returns, the higher the deductible. Price various deductible amounts to find the best price point for the deductible amount vs premium; Type of Vessel – The length, construction, configuration of the Houseboat; Age/Condition – Older Houseboats may require a recent marine survey before an insurer will quote or insure it. The better the condition, the greater the likelihood of its being approved for insurance and the more competitive the price. Updates and repair of critical systems prior to the floating home being inspected often improves insurability and cost; Power Supply – Examples include propane, alcohol, wood or electricity for powering stoves, fireplaces, BBQ grills, appliances, etc.; Location – coastal, inland, state and county where the Houseboat is moored; Prior Claims – 3-5 Year loss experience; Safety Devices – Credit may be granted for: automatic fire extinguishing systems; a fume/vapor detectors; CO detector in galley and berths; Anti-theft alarm; GPS tracking devices; gated marinas; watch services; caretakers; Seek Out Marine Insurance Experts – Houseboat insurance can be complicated. It is always wise to work with agents and carriers that specialize in marine insurance. This is particularly important in the unfortunate event that you have a claim. Use our Houseboat Insurance Policy Checklist to make sure you are properly covered and getting the best value for your insurance dollar.
This information has been provided by our preferred insurance provider
National Risk Management & Associates
2170 West State Road 434, Suite 116 Longwood, Florida 32779
www.nrmafla.com 407-767-2950