Congratulations! You’ve spent a day or two at the Monaco Yacht Show and succumbed to your first superyacht, possibly upgraded your current yacht or bought another to keep in a different hemisphere…. Now, to make your mark on the vessel with your own irreprehensible style!

Whether it annual maintenance or a major refit, a superyacht is immediately exposed to a substantially higher risk, which, of course, affects the insurance cover. Yacht owners must work with their insurer from the outset to make sure sufficient cover is in place during the works.

Before the yacht even enters the yard, make sure that all the parties involved know the complete picture and plan, whether it’s the lawyers drawing up the contracts, the working parties involved, the crews’ contracts whilst in refit or, most importantly, the yard’s waivers of liability. This is vitally important and, basically, transfers the shipyard’s liability during the works to the owner of the yacht, and, with that, the risk to the yacht’s hull and machinery insurance. I cannot stress how important it is to let your insurer know the yacht is in for work, and not to leave this to the last minute. Another important point of note is that, legally, the yacht captain, yacht managers or owners cannot sign any waivers of liability without express permission of the insurance company.

A recent case in the U.S. courts demonstrated the importance of getting it right during a refit. The 31m yacht, Polar Bear, caught fire whilst undergoing repairs in a San Diego ship yard and was a total loss. In the court case that followed, Lloyd’s of London Underwriters v. Bear LLC, Civ No. 15-cv-630, 2017 WL 2180401 (S.D. Cal. May 17, 2017), the yacht owner of Polar Bear sought to hold his insurance broker, Marsh, liable for breaching its fiduciary and common law duties by failing to advise certain coverages whilst undergoing work in the yard. This also brought up another interesting point; in usual circumstances, an insurance broker has no duty to advise its client of the coverage that they need, unless there is an exception where a “special relationship” exists and where the insurance broker has assumed a duty to advise the client of coverage needed. The owner of Polar Bear believed that if his insurance broker had advised him of the Repair Clause (waiver of liability), the coverage he, then, would have bought to fill this gap in cover during the work would have covered the total loss of the yacht. The courts found in favour of Marsh; that they had obtained a policy for the agreed value of the vessel of $17m and provided Bear LLC with over a dozen explanations and warnings of the coverage in place and informed them of the terms and conditions. However, the courts also identified the broker’s involvement in the client’s decisions, through their “special relationship”’, and that Marsh sold itself as an expert on yacht insurance, therefore concluding that they were “in breach”, for failing to advise about the Repair Clause when Polar Bear went into the yard for work.

Almost all yards involved in lifting, maintenance, repair or refits have restrictive contracts, with a Limitation or Waiver Clause, which, in some cases, might even limit liability to €250,000, which could only be a fraction of the value of a vessel. Consideration also has to be made to “Hull & Machinery” insurance, for the increased value of the vessel because of the works. The most advised refit contract is the ICOMIA (International Council of Marine Industry Associations), and a figure of $10m worth of cover at a yard would be considered reasonable by insurers, whilst they cover the rest of the risk with the current or separate policy.

All of the work done on the vessel has to be within industry standards so as not to invalidate any of the insurance cover in place and keep everything legal. Those parties involved with the work need to keep ahead of all the latest safety rules and regulations set by the registries and classification societies. Below is a list of those organisations which can keep you updated of any changes:

• International Maritime Organisation (IMO)
• International Organisation for Standardisation (ISO)
• Convention on the International Regulations for Preventing Collisions at Sea (COLREGs)
• International Council of Marine Industry Associations (ICOMIA)
• Super Yacht Builders Association (SYBAss)
• MARPOL
• Load Lines
• Det Norske Veritas (DHV GL)
• Standard Training Convention on Standards of Training, Certification and Watchkeeping (STCW)
• Lloyd’s Register (LR)
• American Bureau of Shipping (ABS)

For every yacht owner sending his/her vessel into a yard for work, there is an increased risk, as more money is invested into the yacht in an effort to increase value, performance or comfort, and the risk of financial loss from damage during the work is a big concern to everyone involved. Any material change must be reported to the insurer, as well as a change of location whilst the yacht is in the yard, which, in most cases, would require underwriters to amend the terms of a policy and adjust the premium.

As ever, the key is making sure that your yacht is as well-covered as possible and there is absolute transparency with everyone. Keep your insurer, crew, the yard and, of course, your lawyer abreast of everything that is going on during this critical time whilst the yacht is having work done. Make sure that you inform everyone well in advance so that there is plenty of time to put everything in place.

Enjoy the 2019 Monaco Yacht Show!

Tom Montgomery

Private Clients & Marine Director – CKRe Ltd.