Boat Damage and Insurance Questions


Insurance Contract Issues | Understanding Boat Damage | What Charterers Should Do

Insurance Contract Issues

The Contract

Each charter company has different contract terms, but most companies more or less go along the lines below. The charterer has a choice of either:

  • Paying a damage waiver insurance which varies from $25 to $35 per day PLUS a security deposit of $400-$700 (usually a credit card imprint), which covers the insurance policy deductible. This deposit is refundable at the end of the cruise after the boat has been checked. Some companies make this mandatory and do not offer option 2 below.


  • Declining the damage waiver and leaving a large security deposit from $3,000 to 5,000. This deposit is refundable at the end of the cruise after the boat has been checked.

In both cases, if there is damage, the charterer is liable up to the amount of the deposit.

Most charterers opt for option 1, and pay the insurance premium, as few of them would be prepared to leave a $US 3 to 5,000 damage deposit, let alone losing it.

Now, at first glance, one could argue that an insurance premium at $29 per day is exorbitant. In effect, $29 x 365 days = $10,585 while a typical insurance premium for a 40ft. sailboat is about $4,000 to 5,000 a year. Here is the reality: A charter yacht in an average company will charter for approximately 160 days per year which means that the total amount of hull insurance collected, at $29 per day, would be around $4,640.

Further, charter companies, argue that this mechanism is an economic necessity, exactly the same way that one would pay collision damage waiver when renting a car. All yachts have a deductible that can be as high as $5,000, depending on the insurance company and the current value of the yacht. This means that the insurance company will not pay for damage that falls within the cost of that deductible. The purpose of the hull insurance is therefore to cover damage costs which fall between the amount of the damage deposit and the amount of the insurance deductible. Here is an example:
Say a charterer causes $3,800 of damage to a yacht that has a $4,000 deductible. The charterer has paid a $500 damage deposit, plus $25 per day for hull insurance on a 7-day charter = $175. Therefore, the damage ends up costing the charterer $675 ($500 damage deposit + $175 hull insurance).

The charter company, on the other hand, will end up having to pay the additional $3,125. One can quickly see that to cover that $3,125 of damage, the charter company will have to sell 125 days of hull insurance at $25 per day.

Going one step further: in the example above, the charter company has had to pay out $3,125 for one single incident. But if same yacht has a second "incident", the charter company will end up losing money. And more than one "incident" per year would not be at all unusual.

So that is the charter companies' logic. When one understands the way those numbers work, it kind of makes sense. Besides, there is no way around this anyway!

Things to look for

• Most contracts, as always with reputable charter companies, have clear provisions. But some contracts are very poorly written, sometimes with sentences that make little sense. Intentionally or not, we are not sure. The point is that few charterers probably read these contracts anyway.  Be sure to read yours thoroughly, because accidents DO happen. Do not hesitate to modify anything you do not like or does not make common sense as appropriate, and/or at the very least, to ask for clarifications on everything obscure.

• Large charter companies have a jurisdiction clause in USA or UK, which is fine. However, some contracts have a jurisdiction clause stipulating only a difficult place - e.g.: the BVI's or the Grenadines, etc. This is not really unreasonable, when the charter company is owned and operated locally. But in case of litigation, it would be cost prohibitive for the charterer to hire, for example, a BVI attorney and travel to the BVI's to pursue a case. However, in the real world, a charter company would probably not sue a charterer for damage - it is expensive, has no jury appeal and almost impossible to prove.  HOWEVER, this rule would not hold true if there was near total loss and very large amounts of money were at stake.

  • Most contracts do not cover gross negligence or carelessness. They also do not cover you if you do not respect the rules of the charter company. For example, if you damage the boat while being in a cruising area prohibited by the company, or if you sail at night — most companies prohibit it-you will be fully responsible. So read the fine print carefully and understand all the exclusions.

  • Some contracts apply the deductible to each incident and not to the entire cruise. Verify that point.

Understanding Boat Damage

There can be a thin dividing line between "normal wear and tear" and "damage". In case of doubt, and if the "damage" is not too severe, reputable charter companies will usually err in the charterer's favor. Why? It's in the interest of the charter company to ensure that, even if a client experienced a problem, that he/she goes home feeling that he's been fairly and decently treated. They do not like to lose a potential repeat customer for the sake of a few hundred dollars. Therefore, they will give the benefit of the doubt to the charterer and eat the cost themselves, which they view as the cost of doing business.

Items that would fall within the realm of normal wear and tear:
Sail seams which require restitching; lines or sheets which part on account of age; any item of equipment that fails as opposed to breaks on account of incorrect operation; loss of a deck cushion or a winch handle.
Items that we would consider to be damage:
Chunks out of the transom gelcoat caused by letting a dinghy bash up against the stern, or by hitting a dock too hard; damage caused to toe rails when docking; broken gooseneck fitting caused by an uncontrolled jibe; lines or sheets being cut in half by a dinghy or boat prop; loss of important piece of equipment, like the dinghy for example; and obviously, major accidents like groundings or collision with another boat.

In the end, we feel that it is incumbent to the charter company to be fair and reasonable. And most companies are. But when it is obvious that significant damage has been caused, the charter company will charge the charterer.

What Charterers Should Do

Before leaving

It's really essential for the charterer to inspect the boat thoroughly when boarding. This includes:

• The hull and the prop (take a short dive at your first stop.)
• Inspection of the sails the first time you raise them, ease of raising and lowering them.
• Handling the hatches etc.
• The engine, instruments and electronics
• The dinghy and its outboard motor
• Anchor and windlass
• Check the equipment aboard the boat against the inventory list.

Take written notes of the problems before you leave for your cruise. Ideally, have the charter company sign off to acknowledge these problems/ defects. If you discover a malfunction after you have left, call the charter company on the VHF or on the phone and inform them of the problems you found. This procedure will save everyone a lot of hassle at the end of the charter and/or have the charter company fix whatever is not working properly.

Bottom Line

Many charter clients express indignation when asked by a charter company to pay for damage that they truly have caused. In reality, there are many parallels between rental cars and charter yachts: a glaring and unfortunate one is that people who rent things, whether cars or yachts, do NOT take as good care of the equipment as they would have, had they owned the equipment themselves. They all like to think that they do, but the reality is that most do not. Charter companies even claim that approximately 80% of the charterers, no matter how experienced, end up causing some sort of damage to the vessel or her equipment.

Our strong advice is: If you damage something, be upfront about it. Believe it or not, a significant number of charterers try to hide damage. In other words, be honest. If the company is well organized, they will do a checkout before you leave and they will probably find the damage you caused anyway. Now, chances are, if the charter company rep. does not find anything wrong with her, and if you go home with your deposit in your hands, that will most probably be the end of it. If they find something wrong after the fact, you might get a nasty letter, but they will probably never really sue.

In Conclusion

Treat the boat like your own. Not only to avoid damage. But because, unlike a rental car, your charter boat belongs to a family who has invested a lot of money in it and cares a lot about her. Remember that.