Hypothetical question

[Seahope]

Scenario: Boat with large marine mortgage outstanding with 9 years outstanding suddenly sinks at its berth and the owners are told (say) that they are not covered for this scenario by their insurance policy. Boat is insured for £60k.

Repairs are estimated (say) in the £30 - £40k range (engines salvageable but need stripping & rebuilding). The owners do not have this sort of money readily available but have an excellent credit record.

Disclaimer: This scenario is purely hypotehical and does not reflect real people or actual events

How would you handle this situation and what are the realistic options?

 

[benjenbav]

The first thing I would do would be to re-examine the insurance position. It would not be the first time that an insurer had denied liability only to admit it subsequently when pressed.

 

[benjenbav]

BTW, I think marine insurance is written on the basis that the owner pays for everything to be fixed and then gets repaid up to the value of the admitted claim. Unlike car insurance for example. So the hypothetical owner would still have to flex the plastic even if the insurance company accepted liability in principle.

 

[Nick_H]

Agree with BJB. If the insurance policy doesn't cover accidental sinking on its berth, then what on earth does it cover, and how did they get such a policy past the mortgage provider?

 

[Chrissie]

agreed, the insurance policy sounds dodgy, and must have been miss-sold, I would get legal advice.

 

[MapisM]

How would you handle this situation and what are the realistic options?

I would name and shame the insurance co. on MoBo forum, to start with.

 

[Deleted User YDKXO]

Agree with BJB. If the insurance policy doesn't cover accidental sinking on its berth, then what on earth does it cover, and how did they get such a policy past the mortgage provider?

Maybe the insurance co is taking the view that the sinking wasn't all that accidental! Wouldn't be the first time. Or that there was gross negligence involved

 

[Deleted User YDKXO]

How would you handle this situation and what are the realistic options?

Assuming that the insurance co cannot be made to pay up, then the first thing to do is to decide whether the boat is worth repairing. The owner has 2 options, either sell the boat for salvage value and pay off the mortgage from other funds or repair the boat and hope its worth more than the repair cost afterwards. Its impossible to advise which one is best without knowing exact figures but it could go something like this

Scenario 1 - sell boat as it is

Salvage value £20k
Mortgage o/s £50k
-------
Loss £30k


Scenario 2 - repair boat

Repair costs £35k
Value after repair £50k
Mortgage o/s £50k
----------
Loss £35k

Decision - sell boat for salvage value but it all depends on the figures. As to how the loss is funded, I guess most people would increase their house mortgage

 

[DAKA]

Post deleted, I hadnt seen the previous post detailing the issues.

 

[volvopaul]

Accidetal sinking on its berth, what would actually make it sink other than being hit by another vessel causing damage below the waterline, thus creating water ingress beyond the rate the bilge pumps can cope with, or untill the batteries go flat, yes im sure they should pay up for that.

Mechanical defects, if your boats maintained to a good standard but has sunk due to a mechanical issue then id still say its sunk due to marine peril, so should be covered.

Another issue of vessels sinking and after this years big freeze many have sunk after the ice has thawed due to cracked hoses on toilets and engines, now the moral of that is to always turn off every seacock when you leave the boat,and read your small print ref your insurers policy. How many owners actually turn off every underwater seacock when they leave the boat, no matter what the weather? I do but force of habit has always made me do that.

If builders fit seacocks in places where you cannot get to them then they should be liable for the consequences, I recently attended a boat thats aircon pump shaft seal had failed, the pump was below the waterline so water poured in as the owner could not get to the seacock, imagine had this failed when he was not on board, would/should the insurers pay out for this? was that down to poor maintainance?

Most policies cover for frost damage and corrosion but only if the owner has taken reasonable steps before winter to minimise this, ie boat being winterised by a marine engineer.

I have recently seen a new boats oil coolers and heat exchangers wrecked by frozen water expanding the end caps and be covered by there policy, so why no cover in this case of sinking, as said especially when the boat has a mortgage on it.

 

[rafiki_]

Severtal boats at our Marina sank during the thaw, either due to sea cocks cracking, or heat exchangers damaged in the frost. I believe that unless you can show that you made every sensible effort to winterise the boat, then the insurers will not pay out.

 

[[2068]]

There is a nasty clause in most Marine Insurance policies that is something like:

###
We shall not pay the cost and expense of rectifying or repairing:
(i) a fault in design or construction;
(ii) any part (including the whole or any part of the hull) which is
subject to a fault in design or construction or to a latent defect
###

i.e. if your boat sinks due to syphoning water through a poorly designed / positioned exhaust or toilet fitting, you are not covered.

In such a case, I would be thinking about proceedings against the dealer that sold me the boat with the latent defect or design fault.

dv.

 

[Seahope]

Some may want to keep quiet or the mortgage provider will most likely demand immediate settlement.

This is an interesting point. Marine mortgages are secured only on the vessel. If the borrower defaults on repayments the finance company would take possession of the vessel, but in the case where the boat is seriously devalued that would not cover the outstanding amount.

I don't believe that the bank can suddenly demand full repayment of a marine mortgage unless the mortgagee(s) defaults on a payment?

If there was a default, then I am not a lawyer and I don't know whether the finance company would then be able to reclaim the difference in some way if the sale of the boat did not cover the owed amount?

Obviously, it would not a good option to default on a mortgage since one's credit history would be toast

Of course, since the finance house holds the deeds to the vessel one would need to borrow additional funds (probably against fixed assets) to pay that off before one could sell the boat for salvage.

The financial analysis earlier in this thread is quite stark. I'm sure only a few on this Forum could afford to loose around £30k suddenly, so in this hypothetical case let's hope the Insurance Company does not actually use one of the weasel clauses in the policy booklet to avoid paying out.

 

[Deleted User YDKXO]

This is an interesting point. Marine mortgages are secured only on the vessel. If the borrower defaults on repayments the finance company would take possession of the vessel, but in the case where the boat is seriously devalued that would not cover the outstanding amount.

I don't believe that the bank can suddenly demand full repayment of a marine mortgage unless the mortgagee(s) defaults on a payment?

Don't most marine mortgages require some form of personal guarantee as well as security on the boat?

 

[MapisM]

Don't most marine mortgages require some form of personal guarantee as well as security on the boat?

Precisely what I thought while reading the previous post from Seahope.
IIRC, we debated this in the past, and I said that I'd rather give up boating than subscribe a marine mortgage where the bank can take my house whenever the boat is not enough.
But someone explained me that this is how it works, like it or not.

 

[longjohnsilver]

What caused the boat to sink?

 

[Deleted User YDKXO]

IIRC, we debated this in the past, and I said that I'd rather give up boating than subscribe a marine mortgage where the bank can take my house whenever the boat is not enough.
But someone explained me that this is how it works, like it or not.

Yes I think the same as you but for many people this is the only way of acquiring the boat they want, not forgetting also that the availability of finance underpins the whole boat building industry. Without the availability of finance allowing people to buy boats, the industry would be a fraction of the size it is. Anyway, a personal guarantee is not necessarily the same as putting your house at risk. You could always put the house in the wife's name

 

[jfm]

The first thing I would do would be to re-examine the insurance position. It would not be the first time that an insurer had denied liability only to admit it subsequently when pressed.

I completely agree. Generally in life you think you're insured, till you make a large claim. Then you have a battle. I spent the last 18months, till 2 months ago, arguing with my insurers ( a leading UK plc, household name) about a large claim that I made. They tried everything to avoid paying and it was a major task beating them and getting the full payment due.

So please don't assume that you are not due an insurance payment just cos your insurers say that

It's hard to advise in any more detail cos the devil is in the detail and I'd need to read the policy etc. If you can provide more detial we can help. If you'd like professional help I can recommend Henry Dony in Watford(googlable, and www.dony.org.uk I think)

 

[jimmy_the_builder]

I completely agree. Generally in life you think you're insured, till you make a large claim. Then you have a battle. I spent the last 18months, till 2 months ago, arguing with my insurers ( a leading UK plc, household name) about a large claim that I made. They tried everything to avoid paying and it was a major task beating them and getting the full payment due.

So please don't assume that you are not due an insurance payment just cos your insurers say that

It's hard to advise in any more detail cos the devil is in the detail and I'd need to read the policy etc. If you can provide more detial we can help. If you'd like professional help I can recommend Henry Dony in Watford(googlable, and www.dony.org.uk I think)

Jfm, given that we are in the same room I realise that I could have just told you this (!) but the correct url for Henry Dony is http://www.henrydony.co.uk/ . Right, time for a drink...

Cheers
Jimmy

 

[Seahope]

Jfm, given that we are in the same room I realise that I could have just told you this (!) but the correct url for Henry Dony is http://www.henrydony.co.uk/ . Right, time for a drink...

Cheers
Jimmy

Thanks Jimmy & JFM that may come in handy.

As this is a hypothetical thread I had better update my previous one as to what really happened ;-)