It’s summer, do you know where your homeowners insurance customers are? Perhaps they’re out on a lake somewhere, playing on rented jet skis or blowing with a gentle wind in a borrowed sailboat. Do they know what liability coverage they have under their homeowners policies in case something bad happens? Do you?
Losses from accidents on borrowed or rented watercraft obviously do occur and under certain circumstances homeowners policies extend to cover some watercraft, says Mario Morales, director of corporate underwriting for MetLife Auto & Home Insurance. However, because the homeowners policy is designed to cover personal liability related to one’s home or home exposures, there are limitations to the watercraft liability coverage.
“What you normally find is, there are limitations based on horsepower, or length of the vessel,” Morales explained.
While coverage may vary from company to company, whether a boat is owned or rented, under the homeowners policy the maximum horsepower allowed for coverage is usually between 25 to 50 horsepower, Morales said.
With sailboats, the length of the vessel is the determining factor. For sailboats, “the standard length in the industry is 26 feet, but that could vary by company,” he said. “For instance, at Met our cutoff for automatic coverage or liability coverage from the homeowners product is 31 feet as opposed to 26 feet. With respect to the horsepower, our cutoff is 50 horsepower as opposed to 25 horsepower.”
Though every company has its own way of handling such coverage, they do “look for ways to provide some layer of protection, and really, incidental and excess protection above and beyond what would regularly be collectible from the owner — assuming you rented or borrowed the boat — who insures it directly,” Morales said.
Exclusions under the homeowners product for owned watercraft are more restrictive, Morales said, because an owned watercraft is likely to be used more frequently. A separate boat owners policy is recommended for those who own watercraft.
A Huge Exposure
Operating a rented or borrowed boat or jet ski opens up the possibility for a “huge exposure” for those inclined to so, says David Surles, director of the IIAT Insurance Agency for the Independent Insurance Agents of Texas.
And, while some agents may publish newsletters they send to customers in which they yearly bring up the issue, coverage limitations for watercraft rental under the homeowners policy is not typically discussed in agents’ conversations with insureds, he said.
“Obviously if a customer calls and says ‘I’m going to go on vacation next week and I’m going to rent a 30-foot sailboat, am I covered?’ Then [agents] have the opportunity to address it, but it’s not something that just comes up in conversation normally,” Surles said.
Checklists for new customers and at renewal periods for existing clients are a good way for agents to address the issue, with a question such as, “Do you own or do you ever rent watercraft?” Checklists are always recommended from an errors and omissions standpoint, Surles said, and if the insured answers “yes,” then the agent can take it from there.
E&O exposures are always a concern, he said, but as long as an agent does not misrepresent the policy it shouldn’t be a problem. If an agent were to lead an insured to believe there is coverage when there is none, “of course that would truly be an E&O exposure,” Surles said.
But if a customer does not ask about coverage and does not tell the agent they are going to rent or borrow watercraft, exposure for the agent should be nil.
Still, “you know how things go,” Surles said. “It’s easy enough for a customer to say ‘you never told me about that.'” The defense against that, of course, is that the customer obviously didn’t read the policy, he added.
Read the Fine Print
Surles said another gray area in the world of borrowed or rented watercraft is the boat club. These are organizations to which members pay a flat fee for use of club-owned watercraft. He noted that such clubs often advertise that insurance is included with membership, but he asked, “What does that insurance include? Is it liability? Is it damage to the hull?”
He explained that he once examined the membership agreement for a boat club on a lake in the Austin, Texas, area. “While it said they carried full hull insurance on the boats themselves, elsewhere in the membership agreement it said that members would be liable for negligent damage to the boat. … It was like a deep, dark secret.”
Surles and Morales recommended that anyone who rents a watercraft to find out what coverage is provided by the boat rental company, and always to read the fine print.
Recounting his own experience with a boat rental on Lake Tahoe, Surles said, “I checked the agreement. I imagine I’m the exception, but I checked the agreement to make sure before I went out that I wasn’t responsible for damage to the boat and that they provided liability insurance for me.”
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