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E&O Communique - A publication of the Utica National Insurance Group Keeping Afloat

by Curtis M. Pearsall, Vice President, Agents' Errors and Omissions Department

With warm weather approaching, there is no doubt that many of your clients will be buying boats for their recreational pleasure. Obviously, they will turn to you to arrange the necessary coverage. While these transactions are often handled without a flaw, there have been a number of situations where the necessary coverage was not secured, and an E&O claim was made against the agency.

 

Here are a number of areas to understand when writing this class of business:

  • You may need to access a variety of markets to find coverage for the type and length of vessel you are being asked to insure and the type of coverage you are being asked to provide. Boats older than 10 years or high powered boats are often much more difficult to place. You may need to access the surplus lines market to place this coverage. If you do, be sure to give the information about both the carrier and the surplus lines market to the policyholder.

  • Know the limitations of your binding authority. If the company must underwrite and approve the risk before it is bound, be sure that your client knows this. Follow up the conversation by putting this in writing. Many clients buy the boat and put it in the water before they question the impact on their insurance coverage. Use a newsletter or other media to advise clients to contact you as soon as they buy a boat.

  • Know your product. Boat policies differ from other kinds of coverages and many even differ among themselves. If full coverage is being requested, the issue of valuation is extremely important. Ask the company what they need to establish the proper and agreed value.
  • Most policies covering boats and yachts have very specific lay-up and territorial provisions. Make sure that you review this with the policyholder. Poor handling of this has resulted in more than one E&O claim. If the client wants broader coverage than the policy provides, check with the company on their position, don't assume that there will not be a problem. If they advise you verbally of their approval, follow-up with a fax confirming this.
  • Since liability losses of boats can be severe in nature, it would be wise to recommend, in writing, an umbrella policy.

If you need to place the coverage in the surplus lines marketplace, one additional area to be tuned in to: Know your wholesaler. As you will note by the following claim, this agent did not take that advice.

  • What happened?  The agency client sought coverage for a 48' houseboat, but was unable to find a domestic carrier. He then contacted a surplus lines broker and a policy was issued with an offshore carrier. Later, a hurricane struck the area where the boat was moored and the boat sank. A claim was then presented, but when the carrier didn't respond, the agent was told by the state insurance department that neither the broker nor the carrier were viable nor licensed to conduct business. The client then looked to the agency to pay his claim.

  • Lesson - The agent dealt with an unfamiliar broker and an unfamiliar carrier in the surplus lines market. An inquiry to the insurance department before closing the deal would have disclosed that neither was licensed and there were other complaints against the brokerage and carrier.

Communique is published for our agent customers for informational purposes only and is not intended to be, nor should it be relied upon as legal advice. Legal questions should be directed to your legal advisor.

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