CAUSATION

The insured is normally responsible for proving, on a balance of probabilities:

• The amount and scope of their loss; and

• That their loss was ‘proximately caused’ by a peril covered by the policy, unless the policy states that the loss may be ‘directly or indirectly’ caused by such a peril (or similar).

Quite often, losses involve a chain of events, one or more of which are excluded from coverage. Generally, if there are two proximate causes of loss, one covered and one not covered, the underwriter will be on the hook for that loss. But if the insured cannot establish which peril (covered or not covered) caused the loss, or if none of the causes appear inherently likely, there will be no coverage.

DUTY TO CO-OPERATE

The insurance contract normally obligations of cooperation for both the insured and the underwriter when a claim is filed. In the case of a liability policy, the underwriter is generally required to negotiate with third party claimants in good faith, taking into account the insured's best interests – and, if necessary, assume responsibility for defending against a third party claim. The insured, meanwhile, must not admit liability without the underwriter's consent – and must obtain the underwriter's approval before settling a third party claim.

PAYING CLAIMS

Underwriters must pay valid claims within a ‘reasonable’ timeframe. If there is a delay or failure to pay, the insured can sue for damages for any additional losses suffered.

It’s up to the insured to establish that the payment was only made after an unreasonable delay. Where the underwriter has reasonable grounds to dispute the claim, the manner in which it handles the claim can be a relevant factor in determining whether the implied term of timely payment was breached.

SUBROGATION

When an underwriter pays out money to an insured under an indemnity policy, such as Hull & Machinery, the rules of ‘subrogation’ allow the underwriter to recover all or part of that money from the third party who caused the loss. Subrogation means that the underwriter can step into the insured's shoes and pursue the third party itself, seeking to recover what it’s just paid out.

The underwriter can not only claim the rights of the insured but also any benefits awarded by a court, such as interest on judgment debts and costs. The right of subrogation can be explicitly stated in the insurance contract, but it is also a pre-existing legal right.

As set out above, it is essential for the insured not to jeopardize the underwriter's subrogation rights by settling or abandoning the claim against the third party, as this could lead to the underwriter seeking damages from the insured.

FRAUDULENT CLAIMS

Underwriters are always alive to the possibility of fraud. They’re seen it all before. Even where a settlement has been reached between underwriter and insured, this can be invalidated where it’s later shown that there was a fraudulent misrepresentation by the insured.

Underwriters have the option to terminate the insurance contract from the date of the fraudulent act - without refunding any premiums. This means that the underwriter can refuse liability for genuine losses or claims made after the fraudulent act. Claims made before the fraudulent act will be unaffected.

DOUBLE INSURANCE

Recent years have seen a rise the use of support yachts, carrying large tenders and helicopters. If close attention isn’t paid to the policies of both yacht and tender (itself often a large motor yacht), it is possible to end up in a situation where the tender is ‘double insured’.

In the event of a loss, the insured generally has the freedom to choose under which policy to claim payment. However, this is subject to the terms and conditions of each insurance contract, and some policies may prevent the making of a claim if there is other insurance covering the same risk.

Double insurance does not provide additional protection to the insured. Instead, it may complicate the claims process and require coordination between multiple insurers. If an underwriter pays out a claim under an insurance policy, it may have the right to seek a contribution from another underwriter that provided coverage for the same loss.

CONCLUSION

Should any incident ever arise, potentially involving damage to the yacht or liability to a third party, sitting back is not an option. The insured is usually under an express obligation to notify the underwriter, and do everything reasonable to minimise the loss. The advice of the underwriter or broker, at the initial stages of an incident, is therefore vital, but the interests of underwriter and insured not being one and the same, and it will be prudent for you to take independent advice, right away.