Is Theft Covered in a Yacht Policy?

The post, “Is There Coverage For Pirates? Chip Merlin and His Friends Plunder Tampa on Gasparilla Day!” referenced a situation where a tug was not covered for theft because it was in a harbor and not on the high seas. Most modern-day policies covering pleasure yachts do not have such clauses.

An example of where the more modern marine all-risk policy was first considered in the pleasure marine context involved the theft of a boat’s motor. The court noted:

An ‘all risk’ policy has been defined as one which ‘provides coverage . . . against any loss without putting upon the insured the burden of establishing that the loss was due to a peril falling within the policy’s coverage. Although there may be exceptions to such coverage, . . . it is incumbent upon the underwriter to demonstrate that the exception applies’..

The precise question of whether a broad ‘all risk’ clause encompasses theft appears to be one of first impression in this state. However, in at least three other jurisdictions, language substantially identical to that of the present policy has been construed to cover theft….

It is clear, and this Court holds, that a small boat owner who takes out an ‘all risk’ policy which does not exclude theft has a right to assume he has purchased coverage for loss by theft.

The insurer, in disclaiming liability for the theft of claimant’s motor, relies primarily on the Machinery Damage Exclusion Clause in the policy, which provides that the insurer is ‘Not liable for loss of or damage to any rudder, propeller, strut, shaft or machinery, inside or outside the vessel, unless caused by burning, collision with another vessel, or sinking resulting from a peril insured against’. Does this clause deny coverage to claimant for loss by theft of his motor?

No New York case has been found which has construed language similar to the Machinery Damage Exclusion Clause, Supra, but in American Shops v. Reliance Ins. Co., 22 N.J.Super. 564, 92 A.2d 70, a New Jersey court considered a clause almost identical to the one herein. The New Jersey court rejected the defendant-insurance company’s contention that the word ‘machinery’ embraced all the mechanical equipment on the boat. It held that the doctrine of Ejusdem generis compelled a construction ‘limited to the same kind of machinery as ‘rudder, propeller or shaft’, Viz., underwater machinery. Obviously this would not include the engine’…. The court’s reasoning, applicable here, was that if the exclusionary clause were construed to include the motor, then the words ‘rudder, propeller or shaft’ would have no significance since they are encompassed by the word ‘machinery’. Such a construction would violate the established principle that every word in an insurance contract is deemed to have meaning, and each word is to be given effect if possible.1

Words in an insurance policy matter. Small changes in a phrase can impact coverage. When purchasing marine coverage, those words mean a lot, and my warning is not to buy a cheap marine policy. Make certain that the grants of coverage are broad and limitations slight. You never know when pirates or others may decide your precious boat or parts of it are too tempting to take for their own gain.

Thought For The Day

Life’s pretty good, and why wouldn’t it be? I’m a pirate, after all.

—Johnny Depp (as Captain Jack Sparrow)

1 Tuchman v. Public Service Mut. Ins. Co., 88 Misc.2d 336, 338 (N.Y. Civ. Ct. 1976).