Do All Yacht Insurance Policies Have a Manufacturer's Defect Exclusion?

[GUYBURGER]

If you insure your yacht and the policy contains an exclusion that does not cover “manufacturer’s defects” and something on the boat fails and you lose the vessel will your manufacturer stand behind their product and replace the boat or give you back your money? I did a quick scan on Yacht World of catamarans (35-60 foot, $200K-$600K, 1990-2012, located in the US) and it looks to me that about half of the yachts are manufactured by companies that have gone out of business or are small foreign-based companies with no obvious US-based assets. As far as the large foreign-based companies do you believe they will pay to repair or refund your money if you are the second or third owner of an older boat? Do you think the previous owner (particularly a foreign owner with no US assets) will be willing to refund your money? Based on our experience the answer is no.

My question is based on what happened to my wife and me in 2008. As unbelievable as it may seem we still intend to someday buy a boat and spend our twilight years cruising so I am interested in understanding what those who own boats today do to protect themselves against catastrophic loss. In our case, the new 50' catamaran we bought sank four days after we purchased it and we ended up suing both the boat manufacturer who refused to return our purchase cost and the insurance company who denied coverage citing their “manufacturer’s defect” exclusion. The Federal District Court awarded us a large sum in our claim against the small foreign manufacturer but we have been unable to collect anything. The court also supported the insurance company’s position that the “manufacturer’s defect” exclusion relieved them of any responsibility.

It appears to me that an insurance policy that has a manufacturer’s defect exclusion is a questionable investment unless you are buying a new boat from a US-based company with obvious assets that you can seize or a large foreign-based company which may feel the need to protect their brand name. It’s also interesting to note that the finance company that now expects us to pay off the boat loan insisted we have insurance on the boat to protect their investment.

Do all yacht insurance policies have a manufacturer's defect exclusion?

[goboatingnow]

While your case is truly unfortunate, it is is also extremely rare. Insurance is aimed at the generality of users and their experience.

Dave

[Johnny Cruiser]

Originally Posted by GUYBURGER

If you insure your yacht and the policy contains an exclusion that does not cover “manufacturer’s defects” and something on the boat fails and you lose the vessel will your manufacturer stand behind their product and replace the boat or give you back your money? I did a quick scan on Yacht World of catamarans (35-60 foot, $200K-$600K, 1990-2012, located in the US) and it looks to me that about half of the yachts are manufactured by companies that have gone out of business or are small foreign-based companies with no obvious US-based assets. As far as the large foreign-based companies do you believe they will pay to repair or refund your money if you are the second or third owner of an older boat? Do you think the previous owner (particularly a foreign owner with no US assets) will be willing to refund your money? Based on our experience the answer is no.

My question is based on what happened to my wife and me in 2008. As unbelievable as it may seem we still intend to someday buy a boat and spend our twilight years cruising so I am interested in understanding what those who own boats today do to protect themselves against catastrophic loss. In our case, the new 50' catamaran we bought sank four days after we purchased it and we ended up suing both the boat manufacturer who refused to return our purchase cost and the insurance company who denied coverage citing their “manufacturer’s defect” exclusion. The Federal District Court awarded us a large sum in our claim against the small foreign manufacturer but we have been unable to collect anything. The court also supported the insurance company’s position that the “manufacturer’s defect” exclusion relieved them of any responsibility.

It appears to me that an insurance policy that has a manufacturer’s defect exclusion is a questionable investment unless you are buying a new boat from a US-based company with obvious assets that you can seize or a large foreign-based company which may feel the need to protect their brand name. It’s also interesting to note that the finance company that now expects us to pay off the boat loan insisted we have insurance on the boat to protect their investment.

Do all yacht insurance policies have a manufacturer's defect exclusion?

Who was the manufacturer?
Realize they are out of biz but their boats are still probaly around

Johnny

[GUYBURGER]

Thanks for the thoughts on our situation but I am still interested in finding out if all yacht insurance policies have a manufacturer's defect exclusion written into them which to my way of thinking puts all yacht owners at incredible risk given the state of yacht manufacturers I asserted in my original posting. Does any one have a yacht insurance policy that insures the value of their boat that does not have a manufacturer's defect exclusion. If so I would like to know the name of the insurer so I can look into a policy with them in the future.

Thanks

Guyburger

[GUYBURGER]

Originally Posted by Johnny Cruiser

Who was the manufacturer?
Realize they are out of biz but their boats are still probaly around

Johnny

In our case the boat manufacturer is not out business but is refusing to honor the warranty they gave us when we purchased the boat.

The court's findings are a matter of public record and can be seen online at http://law.justia.com/cases/federal/district-courts/georgia/gasdce/2:2008cv00068/44039/69. The moderators will not allow me to mention the name of companies or individuals in a posting.

Guyburger

[Pete7]

Guy, just to clarify there is no problem naming the make of boat or the manufacturer. You are even at liberty to state what happened. However, it must not turn into a dispute with a vendor.

Pete

[GUYBURGER]

Originally Posted by Pete7

Guy, just to clarify there is no problem naming the make of boat or the manufacturer. You are even at liberty to state what happened. However, it must not turn into a dispute with a vendor.

Pete

Thanks Pete,

In our case the model was an Aventure Catamaran Bahamas 50. Aventure catamaran remains in business and their URL is http://www.aventure-powercatamaran.com/index.html

As far as what happened:

On May 16, 2008, after months of looking at boats my wife and I purchased a beautiful 50’ Aventure Bahama powercat. The boat was the first step in realizing our dream of spending our retirement years cruising. We planned to keep the boat in the Chesapeake Bay area near our current home, and prepare it and ourselves for the transition from landlubbers to full-time cruisers over the next three to four years.

We bought a new boat that had been used by the manufacturer as a “demo” vessel at boat shows from 2006 to 2008. It had 130 hours on its two 315 hp Yanmar engines. The surveyor wrote in his survey report: “In general, the vessel was found to be structurally sound and in nearly new condition. Sold as a demonstrator and originally built for a US client who could not accept delivery, this vessel represents an extremely attractive value in this market.”

At 6 am on the morning of May 20, 2010, my wife and I left the Golden Isle Marina in Brunswick Georgia to continue our delivery voyage, moving the boat from the Fort Lauderdale area to our planned mooring place in the Chesapeake Bay. An hour and a half later as we headed towards Charleston, South Carolina, in 3 foot seas, the bow of the boat suddenly, with no warning, went down into a wave and did not recover. I knew instantly that we were in serious trouble and so I immediately called for help on the VHF. A Good Samaritan, on a parallel course about a mile and a half away responded as did the U.S. Coast Guard.

It took about 50 minutes for the Coast Guard and a SEATOW boat to arrive on the scene and they immediately drug my wife and I off of the boat and onto the Coast Guard vessel. The SEATOW vessel brought a pump onto our boat and began trying to de-water the interior but at that point it was too late. About 55 minutes after the bow had originally fallen down into the water our boat and our dream rolled onto its port side. This allowed the water to flow from the bow to the stern along the port bow of the multihull. The water with the weight of the two diesel engines caused the boat to go down by the stern until only the two forward hulls of the boat were visible. At that point SEATOW took the nearly submerged vessel under tow and began the task of trying to salvage her. (position 31-14.643N 081-10.879W according to the USCG report).

At 2 am on May 21, 2010, 18 hours after the boat had sunk, we were called by SEATOW who informed us that they had the boat inside the Sound and were dragging it into shallow water so they could try and de-water it and get it floating again. It was at this point that we were told that the boat sank because one of the two emergency escape hatches on bottom of the boat had come open and allowed a massive amount of water to enter the hull. We later found out that the hole left by the open emergency hatch measured over 19 inches in diameter. These escape hatches were located in the port and starboard staterooms at the most forward internal point of each hull. The hatches were covered by a wooden frame and a mattress which obscured our ability to see where the water was entering the boat during the sinking.

The damage was appalling and we immediately instructed the boatyard to use their best efforts to preserve as much of the boat and its equipment as they could. Both engines were found to be “seized” and while they were filled with diesel they could not be turned over to circulate the lubricants and properly “pickle” them. The generator engine was “pickled” and eventually started the next day. All of the cushions, curtains, mattresses and other textile products were removed and eventually discarded. The entire boat was washed down both inside and out with fresh water in an attempt to limit the damage done by the salt water.

About 45 minutes after the insurance surveyor arrived on the scene he was on the phone with the insurance representative reporting his findings. The insurance representative then called me and informed me that they were denying coverage for the boat. After spending the next eight months trying to negotiate with the insurance company we were forced to file a lawsuit against them trying to force them to honor the insurance policy.

On June 4th, a couple of weeks after the sinking, the builder did show up at the boatyard in Georgia. During this inspection the builder was informed by our on-site surveyor representative that we did not want the “repaired” boat but did want our money back. His response was to tell our surveyor representative that the boat sinking was our fault (my wife’s and mine). Our response was to serve him with a lawsuit on June 6th, 2008.

Thus began our journey through the Federal Court system in lieu of our planned cruising journey. On September 22, 2010 we prevailed in our lawsuit against the builder and his company when our “Motion for Findings of Contempt and Default” was granted against “Defendants Tim Jordaan and Aventure Catamarans” by the United States District Court for the Southern District of Georgia. See http://law.justia.com/cases/federal/district-courts/georgia/gasdce/2:2008cv00068/44039/69

The boat remained “on the hard” at the same boatyard in Georgia. We continued to pay both the monthly mortgage and the storage fees on the boat in the hopes that the lawsuits would eventually result in our recovering enough money to repair the boat or sell the hull and buy another boat. In February 2011 after we lost the initial case against the insurance company we sold the boat "as is" for 15% of the original purchase value.

As far as the suit against our insurance company the courts upheld their claim of “manufacturer’s defect” in our appeal in February 2012.

Guyburger

[Pete7]

Guy, thank you for the factual report. A horrendous saga for you and the Missus. I was really mad when someone did $10k worth of damage to a previous boat, but to loose a brang new one with no recourse, ouch. Therefore I could understand it if you never wanted to set foot on a boat again. Hopefully you move on.

Pete

[Hud3]

Some earlier discussions on the topic, here: http://www.cruisersforum.com/forums/...lse-53183.html

[Efraim]

Originally Posted by GUYBURGER

Do all yacht insurance policies have a manufacturer's defect exclusion?

I think all the off the shelf run-of-the-mill policies that I have seen have that clause. However insurance companies will insure anything, for the right price. You may want to talk the insurance company itself, or get a very knowledgeable sales person to have specific clauses on the policy modified - any changes of course will increase your cost.

[AirmanSailor]

Dear Guyburger,
I have just come across this entry to the Forum and since I believe I am having trouble with the same catamaran builder as you did I would much appreciate it if we could get in touch with one another as soon as possible. I am in the UK and today is December 21st. I look forward to hearing from you.
AirmanSailor.

[GordMay]

Greetings and welcome aboard the CF, AirmanSailor.

[valhalla360]

Definetly an unfortunate situation but...

Insurance is generally intended to cover accidents. A manufacturers defect is generally not considered and accident...and in theory, the manufacturer is responsible for defects (of course as you found out the theory doesn't always work out so well).

If you spell it out, you could probably get an insurance company to cover it but they may wonder what is wrong with the boat if you push too hard on the issue. That could result in a high cost for the insurance or a lot of hoops to jump thru before they will issue the policy.

Unfortunately there is no good answer.

[Moody46CC]

As I said in an earlier post on this subject, one can get coverage for "consequential damages." By the way, most policies will cover the cost of repairing a latent defect (if that can be proven) but not the consequential damages. In the case that started this thread, that would mean the manufacturer would cover the cost of the escape hatch (the latent defect) but not the conseqnstial damage--the loss of the boat. But things are worse--most polices will not cover loss resulting from wear and tear and corrosion.

One reader said the purpose of insurance is to cover losses from accidents. Agreed, but in addition, in my mind the purpose is to cover catastrophic loss, and a boat sinking from a ruptured hose or an escape hatch that failed is catastrophic.

Let's avoid the maintenance lectures here--most of us service our boats conscientiously and take loving care of them. I do mine and pay for the things I cannot do. But the greatest fear I have is a hose rupturing or coming lose or the like and the boat sinking at the dock.

Now, there are companies that do cover consequential damages. BoatUS is one--but the premiums are pretty steep; three times what I am paying for an otherwise good policy. But it does not cover consequential damages, and I'm interested in knowing the names and perhaps prices of companies that do.

The variables in policies are many (deductible, area of navigation, agreed value, lay out time, etc.), so it will be hard to make comparisons, but getting the names and of companies that do offer consequential damage might be helpful. And the experience in payouts of anyone has had bad luck.

[GordMay]

Latent Defects v. Manufacturer’s Defects in Marine Insurance
➥ Latent Defects v. Manufacturer's Defects in Marine Insurance

French Cuff v. Markel
➥ http://media.ca11.uscourts.gov/opini.../200813798.pdf