Who Needs Hull and Machinery Insurance?

The terms and phrases that are associated with nautical ventures can have an archaic quality that can make insuring a new water craft a confusing prospect. Although lay people would refer to any vessel that is water worthy as a boat or ship, maritime activities differentiate between two types of vessels: commercial and pleasure. The insurance that is available for these two classes of vessels is called hull and machinery insurance, and as the name indicates, covers loss and damage to a vessel from its hull to the machinery and equipment needed to run it. People who own yachts do not have the same kind of concerns as the owner and captain of a cargo freighter, but the language is applied equally to both kinds of vessels as is the insurance.

marine insurance
Image by Dennis Jarvis / Flickr

Marine insurance is actually the oldest and most developed kind of insurance that we have in the world, with all non marine insurance policies being derived from marine insurance policy. The policy itself that is used today is actually a marriage of English common and merchant law that was codified in 1906 with the Marine Insurance Act. Marine insurance had the advantage of being incredibly thorough from two centuries of use with all of the trade and exploration in this period. It was only in 1991 that the Marine Insurance Act was updated to replace some of the more archaic terms that are no longer in use.

Typically, hull and machine insurance covers only vessels. The cargo of vessels is covered under a separate insurance policy. There are two kinds of collision liabilities that hull and machinery insurance covers. A collision with another vessel is called a running down, and is the most common kind of coverage for hull and machinery insurance. Collision with an object is called harbour. Hull and machinery insurance covers the costs of repairing damages, reimbursement following a complete loss of a vessel, and the expenses associated with a claim.

Hull and marine insurance is underwritten on a subscription basis and is either set up to cover a voyage or to provide coverage for a period of time, usually one year. Since hull and machinery insurance only covers three quarters of the value of the ship, ship owners will create Protection and Indemnity Clubs to cover the last quarter of the ships value. This practice goes back centuries, and although it is an old practice, it is used to provide shipowners some measure of protection with regard to oil pollution and nuclear accidents. With hull and machinery insurance, there are two kinds of losses. The actual total loss is a term used to refer to damages and the cost of repair equals or exceeds the value of the property. A constructive total loss occurs when cost of the repair and the salvage exceed the the value of the vessel. Unlike auto insurance, claims for hull and machinery insurance do not always need physical proof.

The process for insuring a pleasure craft like a yacht is a little simpler than a cargo freighter, and because of this it is a special policy under hull and machinery insurance called simply yacht insurance. It is used to insure any pleasure vessel. Hull and machinery insurance is generally insured through a company specializing in this kind of insurance, but general insurance companies providing insurance on boats use the same policy guidelines.

About the Author: Sisily West writes for insurance blogs. If you have questions about the ins and outs of hull and machinery insurance, you should check out her recent blogs.

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