The insurance implications of superyacht refits
When heading into the yard for refit, winter works or routine maintenance, a superyacht is often exposed to an increased risk. “These circumstances ultimately affect the insurance cover because owners need to make sure that the coverage they have in place is sufficient for the planned works and that their policy covers dry-dock periods,” explains Jens Ploch, superyacht sales manager at Pantaenius Yacht Insurance. “This is one of the major reasons why the involvement of the yacht’s insurance provider in planned refits is usually regarded as a necessity.”
Another factor often overlooked is that refit and maintenance contracts will include a clause that waives the yard’s liability to some extent. Such clauses or waivers essentially transfer a shipyard's liability for damage to the vessel to the client and limits the rights of recourse of both the owner and the yacht's hull insurer. In a recent conversation with SuperyachtNews, a prolific yacht manager explained that this is something his team is constantly flagging with yachts going into refit or maintenance periods, and that captains and owners need to be more aware of the implications of signing shipyard terms and conditions without first communicating with the yacht’s insurance company.
Waivers of liability
“The majority of yard lifting, refit or repair contracts contain a Limitation or Waiver Clause in respect of the yard’s liability to the owner and vessel – these are generally restrictive or complete Waivers of Liability,” comments Paul Miller, director of underwriting at Hiscox. “Essentially, when a boat goes into a shipyard, the yard wants a waiver of responsibility should anything go wrong. A typical example might be where the ‘yard limits its liability to €250,000 or the value of the work, whichever the lesser’. This is very restrictive for a yacht worth €100 million that is signing a €10-million refit contract.”
Miller advises that the ICOMIA refit contract works well in this respect and most European yards will have reasonable clauses, but different countries will have different attitudes. “A reasonable amount would be for a yard to have up to €10 million worth of cover and request a waiver for anything in excess of that, and most insurers are happy with this,” he recommends.
Legally captains and owners cannot sign these waivers without the prior agreement of their insurance company. If they do then this will invalidate the insurance contract and the yacht may no longer be covered. Unfortunately, this is something that insurance providers observe often due to a lack of awareness of the potential consequences.
"The other issue for us as insurers is that we only get told last minute about refit contracts, and that happens far too frequently," says Miller. "If we are given enough warning, then there is often room for negotiation about these waivers. Sometimes the yards will try and back the clients into a corner, and it is just the yards trying to be commercial, but they will try to push the exposure onto the owners, so it is up to the captains and the managers to push back."
Other issues can occur when a yacht goes into a yard and then the captain decides to get other works done and starts to deal with contractors directly. "This means that the yacht is responsible for those works and not the yard," Miller points out. "The benefit of doing everything through the yard and paying the extra premium is that they have the shiprepairers' liability insurance in place, but that is not really understood."
Aggravation of risk
A refit on a yacht often represents a substantial investment for the yacht owner. Whether this investment represents an aggravation of risk is another factor to consider and depends on the perspective from which the matter is viewed, plus the type of works that are being carried out on the yacht.
“For the owner, there is definitely an increase in risk as he has more capital invested in his yacht and, in a worst-case scenario of loss or damage befalling the vessel, the owner may suffer a greater financial loss than he would have incurred before the refit,” says Ploch. “The owner may wish to consider insuring this additional exposure. Usually underwriters would be willing to insure the additional investment, unless the works carried out during the refit are deemed to be maintenance works, which would not represent an increase in the objective value of the yacht itself.”
Ploch points out that if, however, substantial modifications to the yacht are being carried out, for example increasing the hull length, increasing the engine output and speed of the vessel or carrying out modifications to the yacht that may have a direct or indirect influence on the seaworthiness and structure of the yacht or its classification, these would definitely present an aggravation of risk for the underwriters.
“It is important to note that any material change to, or aggravation of, the risk must be disclosed to insurers immediately for further risk assessment,” advises Ploch. “Insurers may need to amend the terms and conditions of the policy, or adjust the premium, in order to continue full cover for the revised risk.”
Insurance companies, Pantaenius included, can offer special refit or fitting-out clauses with cover specifically designed for the period during which the yacht is ‘under construction’. “Materials, tools and equipment can be insured, usually at preferential rates,” Ploch concludes. “We encourage owners, captains and managers alike to contact their insurance partners before any works are carried out or contracts are signed, to assess and address any insurance implications.”