Protection from 3rd party claims by owning your boat via a company

[MedMilo]

A great friend of mine is about to buy an Oyster 65 and is being told by his lawyer that he ought to incorporate a company via which to own the boat. The main reason given is that this will protect him from claims from 3rd parties who might sue him for damage caused in an accident. I think the idea is that, in suing a limited company, a claimant could only sue the company (which would have just one asset; the boat) and couldn’t bring a claim against him personally. He’s not trying to avoid VAT or other liabilities with this structure.

I’m pretty cynical about this strategy for a number of reasons;

• any responsible boater (which he would certainly be!) would in any event take out 3rd party insurance via their normal yacht policy - this normally has pretty high limits; mine is £5m
• it’s hard to imagine a situation where a claimant successfully brings a claim against the owner but the insurer is able to successfully refute the claim thus leaving the owner with the bill
• in any case, in most situations wouldn’t it be more likely that the skipper would be held responsible for any accident, in which case my chum (who’ll mostly be the skipper) will be in the firing line for the claim, regardless of how the yacht is owned?

In general I‘m pretty suspicious of lawyers’ and accountants’ tendencies to like to over complicate thing as, in many situations, they’re the recipients of the higher fees which accrue from their enthusiasms! I’ve always just owned boats in my name and kept things simple though this has got me thinking somewhat. How about a situation where you’re tied up in a marina, head out for supper, your boat catches fire and sets the five yachts on either side on fire too, total loss say £20m? Fire investigators conclude that, say, your 63A to 32A shorepower adaptor overheated and caused the fire. Could the neighbouring 10 boat owners (and/or their insurers) bring a claim against you personally for the amount over and above your policy’s 3rd party limit?

Sorry for the long post and we may miss input from JFM (who’s likely double busy working towards being on the Lurssen client list ?) but would be very interested to know what others think...

 

[ashtead]

Why would you want to risk the value of the boat and not be able to berth long term if in a marina at least in uk ? I suspect more to it than as suggested. That said it might be that some who run sailing schools abroad have limited insurance allegedly even though they are trading. Main reason in buying in a company might be to do with a subsequent sale or running cost recharge ? Unless subsequent purchasers might prefer to buy the company with the asset?

 

[Portofino]

You summed it up with the first line second para .

“In general I‘m pretty suspicious of lawyers’ and accountants’ tendencies to like to over complicate thing as, in many situations, they’re the recipients of the higher fees which accrue from their enthusiasms!”


What are the other minor reasons to incorporate as you say the “ main reason “ is the 3P liability exemption over the insured amount ?

You friends lawyer is gonna be the one on the Lurseen client list .

The bigger as in boat value marinas I have visited normally send a sparky round or give you the number to call if there’s a shore power incompatibility or the shore boxes kinda noddy proof in terms of breakers tripping etc .
Your friend could seek a larger 3P limit if he thinks adjacent boats tot up to over his 3P .....after speaking with the underwriters.

 

[MedMilo]

Why would you want to risk the value of the boat and not be able to berth long term if in a marina at least in uk ? I suspect more to it than as suggested. That said it might be that some who run sailing schools abroad have limited insurance allegedly even though they are trading. Main reason in buying in a company might be to do with a subsequent sale or running cost recharge ? Unless subsequent purchasers might prefer to buy the company with the asset?

Not sure I understand the long term berthing point? Don’t think there’s any other motivation for this company structure recommendation that the lawyer’s made, other than the fear that if something went horribly wrong and there was an enormous claim, my mate (who’s pretty wealthy separate from any boat shenanigans!) might end up being sued personally. As I say, that’s not something I’ve ever considered, but maybe it’s a justified concern!!

 

[Poignard]

The first question to ask is: What's in it for the lawyer?

 

[MedMilo]

You summed it up with the first line second para .

“In general I‘m pretty suspicious of lawyers’ and accountants’ tendencies to like to over complicate thing as, in many situations, they’re the recipients of the higher fees which accrue from their enthusiasms!”


What are the other minor reasons to incorporate as you say the “ main reason “ is the 3P liability exemption over the insured amount ?

You friends lawyer is gonna be the one on the Lurseen client list .

The bigger as in boat value marinas I have visited normally send a sparky round or give you the number to call if there’s a shore power incompatibility or the shore boxes kinda noddy proof in terms of breakers tripping etc .
Your friend could seek a larger 3P limit if he thinks adjacent boats tot up to over his 3P .....after speaking with the underwriters.

Yes, perhaps it makes sense to try to negotiate a larger 3P limit but I suppose it’s a question of where does it stop?! In extremis one might crash into and sink a £100m super yacht! (The sparky point was just an example, could be a multitude of other possible mistakes made that cause the massive claim!)

 

[Deleted User YDKXO]

Not sure I understand the long term berthing point? Don’t think there’s any other motivation for this company structure recommendation that the lawyer’s made, other than the fear that if something went horribly wrong and there was an enormous claim, my mate (who’s pretty wealthy separate from any boat shenanigans!) might end up being sued personally. As I say, that’s not something I’ve ever considered, but maybe it’s a justified concern!!

I really don't see the point from a number of points of view. First what is your insurance policy for if not to protect you from claims from 3rd parties? Second, if the claim arises from your negligence or misconduct then a company ownership structure is not going to protect you from criminal prosecution. Third, if you set up a company to own your boat it is going to require annual auditing and accounts compliance and thats going to cost £'000s. Fourthly, and this is probably the most important point, a company set up for the sole purpose of owning a boat without any commercial activity is going to attract the attention of HMRC at some stage and youre going to find yourself answering some suspicious questions from them, even if you arent running expenses of the boat through it.

If your mate is that bothered about being sued as a result of his boating activities, maybe he shouldnt be doing it or he should employ a competent skipper!

 

[jon and michie]

So if I am reading this correctly " your friend damages another boat he is then not liable to pay for the damage he caused ?" so say your friend then closes the company then 3rd partly is left high and dry with a damaged boat or worse still if anyone is injured or killed?

I would advise your friend to take out life insurance as his other half would be making a claim as I am sure there would be people after his blood.
jon

 

[MedMilo]

I really don't see the point from a number of points of view. First what is your insurance policy for if not to protect you from claims from 3rd parties? Second, if the claim arises from your negligence or misconduct then a company ownership structure is not going to protect you from criminal prosecution. Third, if you set up a company to own your boat it is going to require annual auditing and accounts compliance and thats going to cost £'000s. Fourthly, and this is probably the most important point, a company set up for the sole purpose of owning a boat without any commercial activity is going to attract the attention of HMRC at some stage and youre going to find yourself answering some suspicious questions from them, even if you arent running expenses of the boat through it.

If your mate is that bothered about being sued as a result of his boating activities, maybe he shouldnt be doing it or he should employ a competent skipper!

Yes, I kind of agree and think I expressed most of those reservations at the beginning of this thread, perhaps not clearly enough! Truth is he’s a hugely experienced sailor and very responsible and cautious etc, like most of us. As I say HIS LAWYER is in my view potentially confusing the picture by suggesting that owning the boat in a simple company structure which he (the lawyer) is suggesting would at least protect my friend personally in the event of a mega claim. Forgetting the morals of this for a moment (as in this totally theoretical debate these are subjective and emotive!), I‘ve never heard of this rationale for owning a boat in a company (normally I think that’s only recommended if one’s chartering or trying to be clever with VAT etc). But it has got me wondering! So I guess I’m just asking if anyone has a view as to whether, as boat owners in command of vessels that can do a lot of damage which therefore have the potential to cause expensive claims, we are at risk of losing our homes and being made bankrupt in the event that we accidentally sink a £100m mega yacht through some form of negligence on our part?!

 

[MedMilo]

Oh, and for the avoidance of doubt in case this isn’t clear, he’s not suggesting NOT having the usual 3rd party insurances taken out by the company. The lawyer is just saying that to the extent that the 3rd party cover taken out by the shell company is insufficient (eg £5m 3rd party limit vs. £100m megayacht claim) my friend would at least not be the legal owner of the vessel and therefore is less likely to be able to be sued personally (assuming he wasn’t liable as skipper on the day of the incident, of course).

 

[petem]

It's worth noting that even car insurance doesn't have unlimited 3rd party liability and I imagine that most people are either unaware of this or accept the risk (you wouldn't create a company just to own a car).

 

[MedMilo]

It's worth noting that even car insurance doesn't have unlimited 3rd party liability and I imagine that most people are either unaware of this or accept the risk (you wouldn't create a company just to own a car).

Yes, that’s a very good point which had occurred to me. Guess the only caveat is that the values around boating (esp larger boats, obviously) can be quite a bit bigger. But the point is well made for sure. The lawyers just seem to be inclined to recommend complex schemes to clients (for the reasons we know!) and my first reaction was that creating a boat ownership company solely for the objective of limiting possible exposure to very large 3rd party claims was a little extreme. But I guess one wouldn’t say that if your boat somehow caused a huge claim, you weren’t skippering at the time, but as the owner were somehow sued for the amount over and above your 3rd party limit. Unlikely scenario perhaps, but my last boat did catch fire in Mahon (a year after I’d sold it!) and nearly set fire to all the boats berthed downwind of it ? Given one of them was a Perini Navi valued at around £35m that could’ve been interesting for the new owner of my boat! Anyway, luckily the Mahon marineros had the presence of mind (at midnight!) to cut the lines and push the burning boat out into the middle of the Mahon channel out of harm’s way!

 

[Jon Stacey]

HMRC's main interest will be in determining the benefit in kind tax arising from the personal use of a company asset!

 

[Portofino]

It’s strange in the Med boat world where marinas ask for sight of current insurance which normally has a significant lower 3P limit than many vessels values in the said marina .
They just take a copy and file it .
Antibes and Monaco spring to mind but many others too .

The owners of the high value boats are presumed covered by there own policy set at the correct value .....this is about once the ins Co pay out to the owner for your sinking of Dilbar in Antibes , they come after you for the difference of your policies max 3P of £5 M or £10 M or what ever .

The reinstatement valve of Dilbar might be N of £800 M ( guess ) so a typical mobo 3P is a light by a few hundred million .

Remember it’s not the owner of the boat that you sunk it’s his ins Co that’s gonna come after you .Or the company that’s owns the boat ?

But wont the ins Co of Dilbar realise that 99 or even 100 % of other boats in the same marina ( Antibes ) will have peanuts in comparison 3P cover to Dilbars value , so they must accept the risk of big payout if it’s a total loss and zero chance of recovery of all of the payout by going after the other party once the other parties ins Co has coughed up £5M or £10 M in 3P .



I guess the answer is ensure you sufficient 3P to cover the scenario of a fire blamed on you destroying a few neighbours.
So for me £5 M or £10 M ( can’t remember which ) is I think enough .

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We don’t leave appliances on anyhow buts that’s not the point ,The point if I understand the post is that for what ever reason the fire starts on my boat and takes a few neighbours out and there ins Co come at my ins Co will the 3P be enough if they can make it stick .
I think so .

How ever if the boat valve was say £3m a new Itama 75 parked next to other 24 M , all new ish ...say three either side and two opposite that’s 8 x 3 so tots up to £24 M with a std industry 3P policy of only £5 or £10 M ??

Feels like as said if really worried pay for extra cover commensurate with adjacent boat values .

 

[Irish Rover]

I've never heard or read of a case where a boat owner was personally chased for losses over and above his 3rd party cover. Has anyone on here. The usual levels of cover seem to work in practice so if it's not broke don't fix. As regards professional advice I fell foul of that many years ago when my accountant recommended I register my boat under the ownership of my company. All was well until the coast guard boarded on day and asked to see my paperwork. Apparently to operate a Turkish registered company owned bost you need a commercial operators qualification. I was lucky. The officer took pity on me and gave me 2 weeks to transfer the ownership but he could in fact have impounded the boat there and then.

 

[jrudge]

HMRC's main interest will be in determining the benefit in kind tax arising from the personal use of a company asset!

Assuming it is private then the owner will be funding the running costs so his contribution should precisely equal the running costs = no tax. What they Will look for is a charter boat where the owner is using it for nothing and reducing the taxable profit ( and not paying benefit in kind )

syndicate assets are often held in a company ( three of us owned a plane ) for ease of ownership and also liability reasons.

the paperwork is nominal.

the aspect of surplus over a claim is rare but of course possible