Selling a boat is difficult enough in perfect conditions. When representing a buyer or seller during the summer months, it is important to keep your eye on the horizon for tropical storms and hurricanes. The 2017 hurricane season serves as a reminder that our industry must work with Mother Nature, not against her. It is important to note how named storms can affect a closing, especially as it relates to insuring the vessel.
There are dozens of yacht insurance companies with differing underwriting timelines and guidelines. Every insurance company has its own underwriting criteria concerning imminent storms, and it has full authority to issue a moratorium (temporary prohibition of binding) anytime at its discretion. Depending on the path, size and strength of the hurricane, binding moratoriums may be issued for individual counties or as broad as the entire state.
It is important to remember, however, that just because your insurer is not accepting new business it does not mean that all other insurers are under the same restrictions. If you are working with a marine specialist who has access to multiple underwriters, there is a good chance that he or she will be able to offer a solution for your closing.
It is still possible to close on a boat with an approaching storm, but it may take some creativity and flexibility to get it done. For example, if it is possible to relocate the boat for closing, the vessel can be moved to a different state or county where insurers are still accepting new business. A benefit of living in South Florida is the opportunity to navigate north, south, east, or west depending on the storm’s path. The seller may incur additional costs to relocate the vessel, but the point is that you would be permitted to close with full insurance on the boat.
If relocation is not an option, you may still insure the vessel with a Hurricane Exclusion. The vessel will have full coverage for all perils other than damage caused by named storms. This might seem pointless with an incoming storm, but who knows, the buyer may already have reserved space in a CAT 5-rated indoor facility. Even better, he or she may plan on relocating the vessel north before the storm hits.
While it is not recommended to go uninsured, it is an option. If there are no other option, it is possible to close without insurance and obtain a full policy after the storm passes. In most cases it is not a legal requirement to have insurance, but most marinas, shipyards, and finance companies require the vessel to be insured.
After the storm
Just because a hurricane has passed does not mean that you can immediately obtain insurance coverage. For one, there may be a second or third hurricane tracking behind the initial storm, causing insurers to maintain the moratorium. Even with clear weather, most insurers will wait a few days or even weeks to lift the moratorium following a hurricane. Insurance companies need to assess their losses before accepting new business. They may choose to increase rates, restrict coverage, or rescind the quotation. Three weeks after Hurricane Harvey struck Houston, 50 percent of insurers were still not accepting new yacht business in the Gulf of Mexico. Hurricanes Harvey and Irma caused roughly $200 billion of combined damage, and subsequently put more than one insurance company out of business.
Once your insurer has re-opened for business after a hurricane, it likely will request confirmation that the vessel was not damaged during the storm. As a result, you may be required to obtain a new survey, but a basic “re-attend” survey also may be acceptable. Be sure to confirm with the insurer whether the survey needs to be afloat or hauled. In lieu of a survey, your insurer may accept photographs in conjunction with a signed “No Loss Statement” to confirm that the vessel has not sustained any damages since the initial pre-purchase survey was conducted.
The best advice is to start the process early. Insurance doesn’t have to be the last decision involved in a boat purchase. Once your buyer has obtained insurance quotes, they are often valid for 30- plus days. With a little bit of planning and diligence, coverage can be placed days or even weeks prior to closing. As long as the policy is bound before a moratorium is issued, your buyer will still have a binder in hand regardless of any incoming storms. If the date of closing changes, the binder always can be revised to reflect the actual date of closing.