Insuring Non-owned Watercraft

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Image courtesy of [Dan Barnes] / Getty Images.

Many businesses utilize watercraft that the business doesn't own. Here is an example.

It's a weekday morning and you're in your office. You own a business consulting company and have just finished a phone conversation with Bob, a client of yours. Bob works in another town but is coming to your office in a few weeks for a meeting. You are a boat enthusiast and have invited Bob to accompany you on a boat ride around a nearby lake after your meeting.

Neither you nor your firm owns a boat so you will have to rent one at the marina.

Before you rent a boat you need to think about liability insurance. Your consulting firm is insured under a general liability policy. While operating a rented boat, you could injure another person or damage someone's property  You could also cause damage to the rental boat itself. Are claims arising out of your use of a boat covered by your policy?

Watercraft Exclusion

Most general liability policies exclude injury or damage you cause while operating watercraft. The exclusion 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. The exclusion also applies to any watercraft you (or another insured) rent, borrow or entrust to someone else.

While the watercraft exclusion is broad, it does contain three exceptions.

These exceptions provide coverage for the following types of claims.

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 spring and summer 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 accident involving watercraft that is not owned by you or any other insured. This coverage is subject to two conditions. First, the watercraft cannot exceed the size specified in the policy. Many policies limit coverage to boats that are less than 26 feet long. However, some 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 boat for a business function and invite 10 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 agreement. That is, it requires you to indemnify the rental firm for any bodily injury or property damage you cause to a third party. This means that if you accidentally injure someone or damage someone's property while operating the rented boat, and the injured party seeks compensation from Les Bateaux, you must reimburse Les Bateaux for the costs  of the claim.

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.