A Guide to Business Insurance for UK Marine Trades
Introduction
Insurance solutions for businesses operating in the Marine Leisure Sector have been slow to evolve compared to other sectors. Until relatively recently, a boatyard owner could find him/herself having to source a suite of insurance products to cover buildings, contents, financial risks, vessels, pontoons and indemnity against a range of legal liabilities. Whilst the first Marine Traders "Combined" policy that provided cover for all these risks appeared in the late 1990s, the market did not rush to embrace the new paradigm. Some significant providers of insurance in this Sector did not release a "Combined" solution until as late as 2007 and others still only offer stand-alone covers.
Advantages of Combined Insurance Policies
There are numerous advantages to business owners of having a single insurance policy that combines cover in respect of the majority of their needs. First and foremost it streamlines administrative processes by reducing documentation considerably, thus saving business owners time and money. It also ensures the owner has a single renewal date to deal with. Probably the main benefit to businesses is the potential premium savings that can be made through this type of system: the more cover that can be placed on a single policy gives the provider more scope to reduce the overall insurance premium.
Marine Trades Insurance Providers
Combined Insurance policies for marine-related businesses are now available from a number of specialist providers. Whilst the majority of these providers will deal directly with the public, some will deal only through insurance brokers. An insurance provider that sells directly to the public will only offer their own product. Dealing directly with insurers not only restricts you in terms of available insurance options, but it also means you have to invest valuable time in shopping around providers for competitive quotations. An independent specialist Marine Trades Insurance broker can potentially save you and your business time and money by conducting a full broking exercise across the market on your behalf.
Specialist brokers can also assist in arranging bespoke cover as opposed to a standard "off-the-peg" solution. This can give your business vital benefits where standard policy exclusions are amended or removed, widening the overall scope of protection. You may also benefit in the event of a claim:
Where a business buys directly from an insurer, in the event of a claim the owner is left to negotiate a settlement from the insurer. This can put the business at a disadvantage where there is a dispute over liability or settlement. Using an independent specialist broker to arrange cover provides the business owner with an experienced advocate in the event of suffering a claim. The broker is bound to act in the best interests of the client at all times and a specialist broker can often assist in instances where claims have initially been repudiated.
Structure of Marine Combined Insurance Policies
Before outlining the structure of a policy it is necessary to stress the importance of ensuring that the correct limits of indemnity form the basis of your insurance coverage. It is tempting for businesses seeking to reduce their costs to deliberately underinsure their businesses. This can potentially prove catastrophic in the event of a loss, as an insurer will almost certainly invoke the principle of "Average" when underinsurance is discovered.
The Principle of Average: In the event of underinsurance any claim settlement will be based on the ratio of the sum insured to actual value. For example, where a business has insured stock worth £100,000 for only £50,000, the business has underinsured by 50%. In the event of a loss of £25,000, the insurer will apply average and only pay a settlement of £12,500.
The example above underlines the importance for businesses to establish the correct basis of cover with their provider and then negotiate a competitive premium. An independent specialist broker with access to a number of alternative markets will help you obtain the right solution at the best available premium.
Marine Trades Combined Insurance policies generally follow the same model, with the odd exception as to where a particular item may appear. For example, some policies will include pontoons in the Material Damage Section whilst others may bracket them in the Marine Section. Outlined below is a typical policy structure:
Material Damage: This Section will cover all property other than vessels at your business premises. It is split into various sub-sections that vary from provider to provider, but the splitting of property into these sub-sections enables you to benefit from lower premium rates on the lower risk items to be covered. Typically, a Material Damage Section will be divided as follows:
Buildings (with or without subsidence cover)
Marine Installations (pontoons, slipways, wet/dry docks etc)
Computers and Associated Equipment (at the business' premises)
Machinery and Equipment (at the business' premises)
General Stock (at the business' premises)
Valuable Attractive Stock (at the business' premises)
All Other Contents (at the business' premises)
Glass: Some insurers will include Glass within the cover for Buildings. However, most Marine Trade insurers will not cover Glass unless specifically requested and will also levy an additional premium. The cover will be provided for external and internal glass with additional extensions available for items such as glass signage and sanitary ware.
All Risks Cover: Must be obtained for businesses wishing to ensure items they remove from the business' premises such as:
- Tools Machinery
- Laptop Computers, Mobile 'Phones etc
- Trailers (these can also be covered under the Marine Section)
Frozen Food: Covers loss or damage to fuel resulting from a change in temperature in fridges or freezers resulting from breakdown or interruption to power supply.
Goods in Transit: Protects against loss of goods whilst in transit or whilst temporarily stored in the course of transit. Business owners need to beware of the variation in the scope of cover from policy to policy and of the plethora of exclusions that each insurer applies to cover.
The premium for Goods in Transit insurance is based on a combination of the total sum insured per vehicle, the number of vehicles used and the estimated total annual carryings of the business.
This Section can also be extended to ensure postal sendings and carriage by third parties.
Goods in Transit cover for vessels are excluded on many policies unless specifically mentioned. However, it is possible to include insurance for vessels whilst in transit by endorsing the Marine Section of the policy. Organizing a policy in this way can save a business money if vessels are the only items to be insured whilst in transit.
Exhibitions: Covers exhibits, stands and other materials at exhibitions.
Whilst insurers include this Section within their policies, a business could reduce costs by having the Marine Section of their policy endorsed to cover vessels at exhibitions rather than pay their insurers an additional premium for the same benefit.
Business Interruption: Covers the loss of Gross Profit and/or the Additional Cost of Working in the event of the trading activities of a business being interrupted by an insured peril, such as fire or flood. Extensions can be purchased to cover losses arising from perils such as:
Breach of Canal
Damage in the vicinity of Premises or to Contractor Exhibition Sites
Denial of Access to the vicinity of Premises
Damage to Moulds, Patterns, Jigs, Dies, Tools, Plans, Designs, etc
Loss or Damage to Property stored in locations other than own premises
Loss or Damage to Property in Transit
Damage to Premises of Suppliers or Customers
Loss of Utilities
Disease Illness
Just as it is essential to ensure property on the correct basis to avoid insurers applying "Average" in the event of a claim, it is vital to ensure the correct level of Gross Profit is used to determine Business Interruption cover.
The definition of Gross Profit in insurance terminology differs from that of accountancy. A business should always check with its provisions as to the exact terms of their Business Interruption policy but the procedure below provides a general system that should fit most insurers' methodology:
Obtain the income statement for the last full operating month and locate the net profit amount. Employers Liability Tracing Office
Review each individual expense line item on the income statement to identify costs of operation that are not directly related to production, also referred to as "standing charges." For example, office rent is due whether the business is in operation or not, and the price does not fluctuate based on production, whereas some worker salaries (such as casual, seasonal labor) would cease when trading is interrupted. Employers Liability Tracing Office
Add each standing expense identified in Step 2 to the net profit obtained in Step 1 to obtain gross profit or the company's loss from lack of operations.
Money: Provides insurance for cash, cheques etc whilst on premises, in transit or in bank night safes. Some policies will also provide extensions for money in directors' homes and at an exhibition or contract sites. Policies will usually provide a Personal Accident extension that offers nominal sums in the event of Death or Disability arising from assault during attempted robbery or theft.
Defective Title of Vessels: Reimburses the purchase price of a vessel bought or sold by a business in the event of the true owner of the vessel reclaiming it (or its value). It will also provide indemnity where a business has a valid claim brought against it as a result of being unable to provide a good title for the vessel.
Employers Liability: It is a statutory requirement for all businesses to carry Employers Liability Insurance where they employ people be it on a paid or voluntary basis. It indemnifies the business in respect of its liabilities arising from death, injury or illness to its employees
Premium is based on the total annual wages of the business. Each occupation within a business' workforce will attract its own premium rating based on the perceived hazards associated with that particular occupation. A rigger, for example, will attract a higher premium rating than an employee engaged in light yard work.
You should ensure you accurately declare your annual wageroll to insurers. Deliberately under-declaring could be construed as failing to disclose a material fact and may result in a claim being repudiated.
Labour only sub-contractors should be treated as Employees as far as insurance is concerned. Generally, they work under the direction of the Insured and do not provide their own materials or tools (with the exception of small hand tools). A cover would, therefore, be arranged for such individuals by the hiring business under the Employers Liability Section of their policy.
There is a requirement that businesses must confirm their Employers Reference Number (ERN) or as it is commonly known Employers PAYE Reference to the insurer covering the Employers Liability which is recorded centrally with the Employers Liability Tracing Office (ELTO). This is to ensure that the correct insurer can be identified where claims are submitted by an individual, which can be years after their employment has ceased. It is not unusual, for example, for certain diseases or conditions such as respiratory disease, industrial deafness or repetitive strain injury to take many years to manifest.
The ERN is the unique reference which attaches to a business and does not change which means that it will identify the correct employer and then the insurer for any given time period from 2011 onwards.
Public Liability: Indemnifies your legal liabilities to third parties arising from your business activities that result in death or injury to any person or loss of or damage to property. The insurance only attaches to those activities disclosed to your insurer and noted on your schedule so it is essential that a full description of all your business activities is provided.
Premium is based on the estimated annual turnover of the business. Each activity will attract its own premium rating based on the perceived hazards associated with that particular activity. Paint Spraying, for example, will attract a higher premium rating than Chandlery Sales.
You should ensure you accurately declare your annual turnover. Deliberately under-declaring could be construed as failing to disclose a material fact and may result in a claim being repudiated.
Exclusions and Extensions to Public Liability Insurance vary from insurer to insurer. For example, some policies will automatically provide Yachtyard Liability Insurance as a standard extension to their Public Liability cover. Others will charge an additional premium for Yachtyard Liability.
Liability in respect of hiring-in of cranes is normally excluded from most Marine Trade policies unless specifically requested. The additional premium for this cover is based on your estimated annual hiring-in costs. Standard cover is usually £100,000 which may not be adequate to replace the crane you hire. Find out what your exposures are and get your cover topped-up if necessary.
Yachtyard Liability: Protects your liabilities in respect of moving vessels on water for reasons such as testing, demonstration, and deliveries. Like most policy sections, the scope of cover will vary from insurer to insurer. For example, policies will restrict your permitted range, but the distance you are permitted will vary greatly.
Not all insurers provide this cover under the "Yachtyard Liability" heading. Some insurers will provide "General Liability" that will automatically encompass the Yachtyard Liability element of other policies.
Products Liability: Ensures your legal liabilities in respect of the products you manufacture and/or supply.
Whether you are manufacturing or distributing (wholesale or retail), you need to make sure the products you supply are safe. Failing to meet your responsibilities can have serious consequences. You could face legal action with possible fines or even imprisonment. You could also be sued by anyone who has been injured or has suffered damage to personal property as a result of using your product.
Products Efficacy Insurance: Designed to cover the failure of an item to perform its intended function Efficacy Insurance is often excluded from the Public Products Liability Sections of Marine Trade policies. If your business is involved in the manufacture, supply or installation of performance critical products you need to check with your insurance provider to ensure you and your business have the right scope of Liability Insurance.
Marine Risks: Non-Marine Commercial policies have virtually no insurance provision for vessels. They are specifically excluded, with the odd exception such as rowing boats. The Marine Section of a specialist Trader's policy is divided into 3 distinct parts:
1. Vessels: This part of the Marine Section will cover all vessels not undergoing construction and includes Stock Vessels, Work Boats, your Private Craft and Charter Vessels. It can also be extended to cover other types of Marine Stock such as engines and parts.
Sums Insured for vessels are usually determined on an "Agreed Value" basis. This can be the price you paid for the vessel plus the cost of any improvements, or it can be a depreciated or written-down value.
The cruising range of your vessels will be clearly defined in this Section of your policy. You should check to ensure that you and your hirers are actually insured to sail or cruise to your intended destinations. For example, an insurer may assume that, if you are based on the Thames, you are only on the non-tidal stretch and will endorse your policy for"Inland Waterways" use only.
The are several extensions that can be purchased for this part of your policy such as:
Social use of vessels by Directors, Employees, Family Members.
Racing Risks (Sails, Masts, Spars Rigging).
Water Skiing, Towing of Toys.
Angling and/or Diving Parties.
Personal Possessions
Exclusions in respect of vessels will vary from policy to policy. You should ask your provider to go over any exclusions with you in detail in case you require a special endorsement or extension.
2. Builders Risks: Whilst scope and definitions may differ from one insurer to another, Builders Risks insurance will usually cover your vessel at the yard or dock where it is being constructed, including the yard or premises of a subcontractor. It may also cover the vessel whilst in transit between your yard and your subcontractor's yard. Extensions can also be obtained to cover:
Movement of the vessel on the water around the dock where it is being built.
Sea Trials
Delivery voyages under own power
If the vessel in the build is being towed on the water a special extension is usually required to ensure this activity.
The premium for this Section is based on a combination of the maximum completion value of an in-build vessel and the maximum value of vessels in-build at any one time.
3. Marine Third Party Liability: This insurance is an extension of the Vessels Section and covers your legal liabilities in respect of your interest in or use of your vessels by your skipper and crew. The usual limit of indemnity provided is £3,000,000 but higher levels of cover can be purchased where required.
Policy Conditions, Exclusions, and Warranties
As detailed above, policy conditions and exclusions will vary from insurer to insurer. Even if you are purchasing your policy by telephone you should always ask your provider to go through them with you in addition to any warranties that will have been imposed. There are significant differences between each of these:
Conditions: Policy conditions basically set out a code of conduct you're your business and also outline duties and obligations required for cover to be in effect. If policy conditions are not met, the insurer can deny a claim specific to that condition.
Eg. A theft from business premises is discovered and not reported to the insurer for a month. If there is a policy condition that all losses must be reported within 7 days, the insurer could refuse to pay the claim.
Exclusions: An exclusion actually removes the cover from the insurance policy.
Eg. Boats are excluded from the Goods in Transit Section of a Marine Trades Policy unless an endorsement is put into effect.
Warranties: A policy warranty is an instruction by the insurer that must be carried out by the insured. For example, the business may be warranted to work on vessels worth no more than £500,000. In such a case, if the business worked on a more valuable vessel then it would be in breach of warranty.
The breach of a warranty by a business would enable an insurer to void the whole policy. In the above example, if the business owner suffered a theft of outboard engines, the insurer could void the policy on the grounds that the business had breached a warranty - even though that warranty was totally unrelated to the theft.
As you can see, warranties can potentially have a huge impact on your business. You should ensure your insurance provider goes through each warranty with you and explains what it means. Insurers can impose a warranty for just about anything - some common examples are below (the list is by no means comprehensive):
- Compliance with Flammable Liquids LPG Regulations.
- No paint or GRP Spraying.
- Automatic fire alarms to be tested weekly.
- Fire extinguishers to be professionally inspected annually.
- Fireproof doors to remain closed during working hours.
- All stock to be kept at least 15cm off the floor
- Waste dirty clothes to be kept in metal bins.
- Waste bins to be kept outside premises out of working hours.
- Intruder alarm to be set whenever premises are unoccupied.
- Electrical circuits to be inspected within 30 days of policy inception.
- Cash registers to be left empty open when premises closed.
- Vehicles to be fitted with immobilizers and alarms.
- Premises to be inspected daily.
- No artificial heating to be used on premises.
- Machinery only to be running when premises are occupied.
- No flammable liquids to be kept on premises.
- Moorings to be lifted inspected at least annually.
- Terms of trade to incorporate BMF Terms of Business.
- No work carried out on commercial vessels
- Trailers to be secured with a wheel clamp whilst unattended.
- Vessel not is let out for hire or reward.
- The vessel will not tow or be towed
British Marine Federation (BMF) Terms of Business
Most Marine Trade policies warrant that you operate under the BMF Terms of Business. You do not have to be a member of the BMF to use their terms. The essential point from an insurance aspect is that you ensure all your customers ensure their own boats. This is a crucial factor that defines the mechanics of how your Public Liability insurance works and how it differs from non-Marine commercial insurance policies.
If you have a customer's boat, outboard etc in your custody or control and it is lost or damaged due to your negligence, your legal liabilities in respect of the property are covered under the Public Liability Section of your Marine Trade policy.
This cover would not be provided on a non-Marine policy as a legal liability in respect of goods in custody or control is specifically excluded. To ensure these items you would have to procure specific insurance which, as leisure craft and associated equipment are very expensive, would be financially prohibitive for a business to purchase.
Other Insurances for your Marine Trades Insurance Programme
Directors Officers Liability Insurance (Management Protection)
The modern legislation now means company directors can now be sued as individuals in respect to their decisions and actions as directors or managers of businesses. The duties of company directors are established in law and include the following areas of responsibility:
The duty of Care: Directors are required to act with 'the care an ordinary man would take in the same circumstances on his own behalf' and with the skill expected from someone with his 'particular knowledge and experience'. Where duties are delegated the Director is responsible for ensuring that the person to whom the duties are delegated is sufficiently experienced, reliable and honest.
Fiduciary Duty: Directors must act honestly, in good faith and in the best interest of the company and must ensure they do not have any conflict of interest.
Statutory Duty: Company directors are legally bound by legislation such as the Companies Act 1985, Insolvency Act 1986, Financial Services Act 1986, the Environmental Protection Act 1990, Health and Safety at Work Act 1974.
How Can Claims Arise?
Whilst public bodies such as the Health Safety Executive can prosecute directors if they are perceived to have failed to comply with their statutory duties, claims could also arise from numerous third parties such as employees, creditors, customers or suppliers.
With the number of employees injured at work increasing by over 100,000 in 2010 and lawyers able to act on a "No-Win, No-Fee" basis, directors appear to be more exposed than ever.
What Are The Financial Implications of a Claim? Directors will be personally liable for meeting the cost of legal expenses as well as any damages awards, fines or penalties. This means assets such as their cars, houses, stocks, and money could be lost. Companies are prohibited from indemnifying their directors in the event of their insolvency.
How Can Directors Officers Liability Insurance Help?
Whilst a DO policy will not cover any fines against directors it will cover the cost of defending a prosecution until the point when guilt is established. This could potentially save tens, if not hundreds, of thousands of pounds of an individual's assets in legal expenses. ADO policy can also cover awards for damages and legal expenses made against directors in civil cases.
Professional Indemnity Insurance
If you give advice, conduct surveys or inspections for a fee, your legal liabilities in respect of these activities are excluded on your Marine Trade policy. A stand-alone Professional Indemnity policy will fill the gap in your insurance coverage.
Tractor "Special Types" Insurance
Tractors and other special type vehicles which are road-registered are excluded from standard public liability policies, as are many unregistered vehicles, if traveling on, or crossing, public highways. This may also apply to areas where the public has access such as ports, harbors and boatyards. Types of vehicles that fit into this class are Tractors, Cranes, Fork Lifts, Cherrypickers, Boat Lifts, and another self-propelled mobile plant.
Third Party insurance is compulsory and a failure to have this basic cover is considered one of the most serious offenses. A substantial fine and disqualification are amongst the recommended penalties.
Driving uninsured (or allowing your employees to do so) is an absolute offense which means there is no discretionary defense available, ie the vehicle is either insured or it is not. If for any reason it is not insured, the offense is committed.
Without insurance, your business and your personal assets are at risk from potentially huge compensation claims being made against you
Comprehensive Road Risks insurance in for tractors and "Special Types" is available at very competitive rates from your specialist broker.
Summary
Modern businesses need modern insurance programmes. Cutting cover to cut costs is not the solution. Your 9-point step to getting the right cover for your business at the best available premium is:
1. Choose an independent specialist broker.
2. Ask them what they can offer you in terms of support in the event of a claim.
3. Ask them to visit you to look over your business.
4. Ensure you fully disclose all relevant information about your business
5. Accurately assess the value of your premises property and the levels of your turnover, payroll, and gross profit.
6. Request 3 quotations.
7. Ensure you have all conditions, exclusions, warranties explained to you verbally - a written summary is not sufficient.
8. If you think some of the exclusions or warranties are unreasonable then ask your broker to negotiate their removal.
9. Finally, negotiate the best premium you can get from your appointed broker.
Disclaimer: This article does not constitute specific advice or recommendation to any individual or business. Individuals and businesses should seek the advice of an appropriately authorized and regulated insurance broker or intermediary.
