Some businesses, such as ferries and commercial fishermen, use watercraft in their day-to-day operations. Others use boats for a purpose that is incidental to their primary occupation. An example is an engineering firm that rents a yacht to entertain visiting clients. Businesses that use watercraft for any purpose should not rely on their general liability insurance to protect them from boat-related lawsuits. This is because liability policies exclude coverage for most (but not all) watercraft-related claims. If your company ever uses watercraft, you should understand the kinds of claims that are, and are not, covered by your policy.
Most general liability policies contain an exclusion under Coverage A (Bodily Injury and Property Damage Liability) entitled Aircraft, Auto or Watercraft. The exclusion eliminates coverage for 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. It also excludes claims arising out of any watercraft that you (or any other insured) rent, borrow or entrust to someone else.
The watercraft exclusion applies to the boat operator as well as anyone who is supervising or monitoring that person. For example, suppose that your firm hosts an employee picnic on a cabin cruiser it owns. The picnic takes place on a lake near your office. Bill, your company president, is an experienced helmsman so he steers the vessel to the middle of the lake and drops the anchor.
An hour into the picnic an employee named Mark asks Bill for permission to take the boat for a spin. Mark assures Bill that he's an experienced boat pilot so Bill agrees. Mark hoists the anchor and takes control of the steering wheel. Twenty minutes later Mark accidentally rams the cruiser into a rowboat, injuring one of its passengers. The injured passenger sues Mark, claiming that his negligent operation of the boat was the primary cause of the accident. She also sues Bill for negligent entrustment, alleging that Bill contributed to the accident by failing to properly supervise Mark. Both claims are excluded by the watercraft exclusion in your firm's liability policy.
Coverage Provided By Exceptions
The watercraft exclusion contains exceptions that provide coverage for three types of claims.
Watercraft on Your Premises
One exception applies to bodily injury or property damage that arises out of boats located on your premises. For example, suppose your firm owns a small motorboat it uses to take clients on occasional fishing trips. You store the boat in a shed behind your office during the winter. One day in early spring, you are in the shed cleaning the boat when a customer stops by to check on an order. He is intrigued by the boat and attempts to climb in. Unfortunately, his foot slips and he falls, breaking his hip. If the customer demands compensation from your firm for his injury, your liability policy should cover the claim.
Another exception covers bodily injury or property damage that arises out of an occurrence involving watercraft that isn't owned by any insured. This exception is subject to two conditions. First, the watercraft must be less than the length specified in the policy. The typical size restriction is 26 feet but some policies or extended coverage endorsements cover boats up to 50 feet or even 75 feet.
Secondly, non-owned watercraft are covered only if they are not used to transport people or property for a charge. For instance, suppose you rent a 25-foot sailboat for a business function and invite five people for a boat ride. To defray the cost of the rental, you charge each guest $25. If a guest is injured on the boat and demands compensation, the claim will not be covered by your liability policy.
A third exception covers liability you assume under an insured contract for the ownership, maintenance or use of watercraft. For example, you rent a 25-foot boat from Les Bateaux. The rental contract requires you to indemnify the rental firm for any bodily injury or property damage you cause to a third party while using the boat. If you accidentally injure someone or damage someone's property while operating the rented boat and the injured party seeks restitution from Les Bateaux, your policy should cover the cost of compensating the injured party.
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.
If your firm owns a boat that it uses for business purposes, you should purchase watercraft liability insurance. This coverage is often written in combination with boat physical damage insurance (called hull coverage) under a single policy. Consult your agent or broker for details.