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November 15, 2018

Yacht maintenance and repairs – Are you covered while in a shipyard?

Before entering into a yard contract agreement or carrying out any works, review your policy conditions and the yard’s terms with your insurance broker to identify your responsibilities, potential coverage conflicts under your policy, and possible solutions.

Yachts are generally brought into the shipyard annually for routine maintenance or repairs. These yard periods take considerable planning, and although insurance is not always the first thing that comes to mind, it’s an important piece of the puzzle. Lifting and crane operations, hot work, and dozens of workers around the yacht create additional hazards. Furthermore, yard repair agreements typically limit or shift all risk to the yacht owner for liabilities or damage resulting from the yard’s or contractor’s negligence. So, who is actually responsible when the yacht is in the yard? The answer often lies in the terms and conditions of the yard contract.

Shipyard repairs and insurance conditions

Consider this example: Your $25 million yacht is scheduled to be hauled out for maintenance and hot work repairs at a shipyard. To reserve a spot for this work, the yard requires you to sign a contract for the repair work. Their terms and conditions stipulate they are not liable for loss or damage to the yacht over a cost of $300,000.

Neither the yard period nor the shipyard’s limitation of liability requirements are reported to the yacht’s insurer. During hot work repairs, the yacht catches fire and is completely destroyed.  What are the potential insurance implications under your yacht policy?  

  • Your insurer may deny paying the claim citing non-compliance with the refit and hot works clause in the policy.
  • Regardless if your policy includes a refit and hot works condition, signing a yard contract waiving rights of recovery without the carrier’s consent is problematic and could result in the claim being denied.
  • Your recovery against the yard would be limited to the terms of your agreement with them.

Some key issues to consider

  • Yacht underwriters consider yard periods to be material to the risk and typically request additional information along with prior notification before work commences.
  • Some yacht policies include conditions that specifically apply when the vessel enters a yard for a refit and/or hot work. These policy conditions vary with each insurer. Failure to comply with policy requirements can result in a denial of coverage.
  • The Waiver of Subrogation clause in the yacht policy may not permit the owner to waive rights of recovery against any other party unless it is specifically agreed by your insurer in advance. Agreeing to a yard’s waiver or a limitation of liability without the insurer’s prior consent will void coverage.
  • Yacht policies typically exclude any additional liability assumed by signing a contract or agreement. Unless specifically approved, assuming responsibilities and liabilities belonging to another party is not covered.
  • Hot work is often considered to be any operation that results in the release of sufficient heat, energy, hot particles, or flames to ignite flammable materials or vapors in and/or near the area of work including, but not limited to, welding, cutting, brazing, arcing, grinding, or other fire spark-producing operations, which includes the use of hot rivets or other similar work.  Some policies define hot work while others do not.

What can I do to protect myself?

Before entering into a yard contract agreement or carrying out any works, review your policy conditions and the yard’s terms with your insurance broker to identify your responsibilities, potential coverage conflicts under your policy, and possible solutions. Failing to take these precautionary measures can result in the yacht owner being financially responsible without the benefit of insurance coverage.

For more information, please request a personal risk review.