Liability insurance protects shop owners from
being swamped by possible misfortunes.

Predicting the future is like forecasting the weather. You think you know what’s going to happen—then it doesn’t. There has been a great deal written in the past few years concerning the legal liability of companies, usually in terms of a weather-related crisis or the likelihood of personal injury. But to what extent do marine fabricators and other players within the marine industry have to pay attention to liability insurance? Quite a bit, say the experts. Despite risk-management practices that have reduced frivolous claims, companies of all sizes continue to feel the effects of operating in a litigious society.

Why liability insurance

In our “sue first, ask questions later” society, litigation has become so costly that a single lawsuit can significantly impede a company’s ability to do business. Liability insurance provides protection for a business against any claim of personal injury or property damage brought by customers, vendors or anyone else—other than employees, who are covered by workers compensation laws.

At its core, liability insurance does not cover injuries to an employee while working or damages to the business owner’s property through fire, theft, storm or the like. Rather, liability insurance protects a business owner from claims against the business for injuries suffered by someone else as the result of the negligence of the business and its employees.

Liability insurance does not cover damage to property through a storm, fire, theft or similar type of loss—those are covered by casualty insurance. Also, liability insurance does not cover injuries to workers in the scope of their employment—those are covered by workers compensation insurance.

As Thomas J. Simeone, attorney with Simeone & Miller in Washington, D.C., and liability-insurance expert explains, an owner of a canvas shop operation requires liability insurance to protect any vendors or other company employees who may come to its location, since they can be injured. “Likewise, if they have a high volume of traffic of customers on the premises, there is an increased risk of injury to those customers,” Simeone says. “Every business, including a marine shop, should have liability insurance because they are considered a ‘deep pocket’ and an injured person will look to satisfy any claim or judgment against the business’ assets should they not have insurance.”

The amount of insurance to have depends on the company—the larger the company and the higher the risk of a claim, the more liability insurance the company should obtain. For example, a company with 200 employees will have more risk of a claim than a company with three employees. Moreover, a marine shop will likely have a higher risk if they have drivers on the road and a lot of customer and/or vendor traffic on their premises.

“In my experience, most businesses have a commercial liability policy with $1 million in coverage,” Simeone says, “although it may be possible to obtain less and definitely should be possible to obtain more. For a marine shop owner, the same rules apply as to any other business—they should have a policy sufficient to cover any claims that are made against them and to protect their assets.”

What’s covered

According to Tom Santamorena, account executive at Minto & Wilkie Insurance Agency in San Rafael, Calif., business owners who specialize in boat repair services catering to both private and commercial boat or yacht owners need to determine the most appropriate type of liability insurance for their company.

As Santamorena explains, marine business owners may offer a variety of services to their customers, including storage facilities, either wet or dry. Their services may include painting, cleaning, refitting or winterizing. They may also have retail sales of accessories or supplies. Additionally, they may have a launching slip for customers’ use or travel off premises to hoist a large vessel from the water and return it after storage or repair. Possibly, they may also operate marinas.

To be covered under a liability insurance policy, the insured must be liable, as determined either by a court of law or by the insurance company after investigating the claim. If the insured is not legally liable for someone’s loss, the insurer has no duty to pay damages for that loss.

According to Arthur Flitner, senior director of knowledge resources for The Institutes, an insurance-industry education provider, all liability policies contain exclusions.

“Exclusions in general liability policies eliminate coverage for losses that are more commonly covered under other policies,” Flitner says. “For example, a general liability policy excludes auto liability and workers compensation losses; they eliminate coverage for losses that are not commercially feasible to insure; and they eliminate coverage that most insureds don’t need or that require special underwriting expertise. These and other exclusions help to keep insurance affordable. Businesses that need more specialized coverage can obtain them.”

Flitner offers a couple of examples in which liability insurance plays a key role a marine shop’s business practices. For example, if a shop actually takes possession of customers’ boats, the shop then has a “bailee” liability exposure, meaning the shop can be held legally liable for any damage that occurs to the customer’s boat (and any furnishings, gear or other property onboard) as a result of the shop’s negligence (failure to exercise the required degree of care under the circumstances).

If, for example, a shop employee takes a cigarette break onboard the vessel (which in and of itself is probably a negligent act) and accidentally starts a fire that destroys the boat, the shop will be held liable for the resulting loss because the shop (through the actions of its employee) breached its duty as a bailee to exercise ordinary care for the customer’s property. In contrast, if the boat caught on fire because of lightning striking the boat, the shop would likely not be held liable, because the lightning strike was a natural event that did not result from the shop’s negligence.

“The bailee liability exposure for boats just described would not be covered under the standard Commercial General Liability (CGL) coverage form that almost all businesses purchase,” Flitner says. “That’s because the CGL excludes liability for property of others in the insured’s care, custody or control. A business that takes possession of customers’ boats would need to obtain either a CGL policy that has been modified—usually by adding an endorsement, a document added to the policy—to cover its bailee liability exposure, or a separate policy that specifically covers the bailee liability exposure.”

It is the same type of coverage that marina operators and boat repair facilities purchase to cover their potential liability for damage to customers’ boats. “Usually this type of coverage is obtained from an insurance company that has an experienced marine-insurance underwriting department that understands the loss exposures involved,” Flitner says.

Another liability concern specific to canvas shops is the possibility of bodily injury to a customer or other member of the public while on the shop’s premises. If the insured is legally liable for the bodily injury, it will be covered by the shop’s CGL policy unless an exclusion applies. “For example, the CGL excludes bodily injury caused intentionally by the insured, such as striking a customer as the result of a disagreement about an unpaid bill,” Flitner says.

Bodily injury or property damage resulting from defects in the insured’s product or completed work is another liability concern. “For example, a customer sues the insured for water damage to property being stored inside the boat that allegedly resulted from rainwater leaking through a canvas roof installed by the shop,” Flitner says. “The customer also sues for the cost to replace the defective roof. The CGL policy would cover the cost of defending against the suit. If the insured was held liable as alleged, the policy would also pay for the damage to the property inside the boat but would not cover the cost to replace the insured’s defective work.”

Costs involved

The costs of liability insurance vary greatly based on the size of the business and the contact the business has with vendors, customers and other third parties. “For a small business with a small or no showroom, the costs will be much cheaper than for a large business with a high volume of customers and vendors on site, because each customer or vendor may bring a claim if injured,” Simeone says.

So should a canvas-shop owner work with insurance companies specialize in marine shop coverage?

Experts agree it is not essential that the insurance company specialize in marine shop coverage, but it will definitely be helpful so that the insurance agent can properly assess the risks of a claim that the business faces so that the right amount of insurance can be purchased.

The key factors in selecting an insurance company are the financial stability of the company—so that you are sure they are around when you need them, their willingness to pay claims when necessary, and the cost.

“Everyone likes to save money, but a bargain is not a bargain if the insurance company is either bankrupt or not cooperative when you have a claim,” Simeone says. “That is why cost is not the most important factor.”

Flitner suggests finding an independent insurance agent or broker (the person who places the coverage with an insurance company), who understands your business and has experience placing similar marine businesses with insurers experienced at handling such risks. The agent or broker then selects the appropriate insurance company for you.

“It’s unlikely that any agent or broker would advertise itself as specializing in canvas shops, so look for agents or brokers who specialize in marine insurance, including pleasure craft, yachts, commercial vessels and marine businesses such as marinas, ship repairers, stevedores and so forth,” Flitner says. “Invite them to your shop for a look, and you’ll quickly be able to see if they understand your business. Then check on their background and reputation in your business community. If they have the Associate in Marine Insurance Management (AMIM) designation conferred by The Institutes, that’s an indicator that they are knowledgeable in all branches of marine insurance. If you’re not confident in their ability to handle your account for any reason, keep looking.”

Ask other marine businesses about their agents or brokers. If you belong to a trade association, see if it sponsors an association insurance program for the members. If not, you can still ask other members of the association for leads.
Maura Keller is a freelance writer from Plymouth, Minn.

In addition to Commercial General Liability (CGL) coverage, a canvas shop might need other liability policies as well. Here are some examples:

• Auto liability insurance: To cover the insured’s liability for the ownership, maintenance or use of automobiles.
• Workers compensation and employers liability insurance: To cover the insured’s obligations under workers compensation laws to pay for its employees’
  on-the-job injuries.
• Marine liability insurance: To cover the insured’s liability for the ownership, maintenance or use of watercraft.
• Umbrella/excess liability insurance: To cover losses that exceed the limits of insurance applicable to the insured’s various liability policies.
• Management liability policies: To cover the corporate directors and officers of the shop against various
  non-bodily injury loss exposures.