Is Watercraft Covered By Your Liability Policy?

Yacht on the water
Image courtesy of [Marin Tomas] / Getty Images.

Does your company utilize boats to carry out its business? If the answer is yes, your firm's general liability policy may not protect you against a boat-related claim. Most liability policies contain an exclusion that eliminates coverage for claims arising out of the use of watercraft. However, exclusion contains some exceptions that give back coverage for certain types of claims. This article will explain what kinds of claims are covered and which are not.

Importance of Liability Insurance

Liability insurance is critical if your company uses boats for business purposes. Insurance is important whether the boat is owned by your firm or someone else. If you or an employee are piloting a boat, you could inadvertently cause an accident. The accident could injure another person or damage someone's property. It could also cause damage to the boat itself. If an injured party sues you or your firm for injury or damage, the claim won't be covered by your general liability policy unless it falls within an exception to the watercraft exclusion.

Watercraft Exclusion

Most general liability policies contain an exclusion entitled Aircraft, Auto or Watercraft. The exclusion is located under Coverage A, Bodily Injury and Property Damage Liability. It applies to bodily injury or property damage arising out of the ownership, maintenance or use of any watercraft that you (or any other insured) own or operate.

It also applies to any watercraft that you (or any other insured) rent, borrow or entrust to someone else.

The watercraft exclusion applies to the boat operator as well as anyone who is supervising or monitoring that person. For example, suppose that your firm is hosting an employee picnic on a cabin cruiser it owns.

The picnic takes place on a lake near your office. Bill, your company president, pilots the vessel to the middle of the lake and drops the anchor.

An hour into the picnic an employee named Mark decides to take the boat for a spin. When Bill isn't looking, Mark hoists the anchor. Bill doesn't notice the boat is moving until ten minutes later, when Mark accidentally rams the cabin cruiser into a rowboat, injuring one of its passengers. The injured passenger sues Bill for negligence, alleging that the accident occurred because Bill failed to properly supervise Mark. While the suit is based on allegations of negligent supervision, not negligent operation of the boat, it is precluded by the watercraft exclusion in your firm's liability policy.

Coverage Provided By Exceptions

The watercraft exclusion contains three exceptions. These exceptions provide coverage for the types of claims described below.

Watercraft on Your Premises

Your liability policy covers bodily injury or property damage that arises out of boats that have been brought ashore and are on your premises. For example, suppose that your firm owns a small motorboat that you use to take clients on occasional fishing trips. During the fall and winter months, you store the boat behind your office.

One day, a customer arrives for a meeting and brings his six-year-old son. You and the customer are talking and don't notice that the child has slipped outside. The boy is playing on the boat when he falls, breaking his leg. If the customer demands compensation from your firm for his son's injury, your liability policy should cover the claim.

Non-owned Watercraft

Most liability policies cover bodily injury or property damage that arises out of an occurrence involving watercraft that is not owned by any insured. This coverage is subject to two conditions. First, the watercraft cannot exceed the size specified in the policy. Many policies, including the standard ISO policy, limit coverage to boats that are less than 26 feet long. However, some insurers offer policies or extended coverage endorsements that cover boats up to 50 feet or longer.

Secondly, non-owned watercraft are typically covered only if they are not used to transport people or property for a charge. For instance, suppose that you rent a 25-foot sailboat for a business function and invite five people for a boat ride. To defray the cost of the rental, you charge each guest $25. The boat will not be covered because you charged a fee to transport people.

Contractual liability

Most liability policies cover liability you assume under an insured contract for the ownership, maintenance or use of watercraft. For instance, suppose you rent a 25-foot boat from Les Bateaux. The rental contract contains an indemnity provision. It requires you to indemnify the rental firm for any bodily injury or property damage you cause to a third party. If you accidentally injure someone or damage someone's property while operating the rented boat, and the injured party seeks restitution from Les Bateaux, your policy should cover the cost of compensating the injured party.

No Coverage for Damage to the Boat

A watercraft rental agreement may hold you responsible for any physical damage you cause to the watercraft itself during the term of the rental agreement. Such damage is not covered by a general liability policy. This is because liability policies exclude property damage to property you own, rent or occupy. They also exclude damage to property in your care, custody or control.

Watercraft Endorsement

Suppose that your firm owns watercraft that you occasionally use for business purposes, such as entertaining clients. Your insurer may be willing to add the watercraft to your liability policy via a boat endorsement. This endorsement covers watercraft you own, use or rent. If the endorsement is not available, you'll need to purchase marine liability insurance.