There is nothing nicer than to refurbish and embellish your sailing pride with all kinds of facilities and details. Mr. and Mrs. Jacobus have experienced that sometimes other details are lost from sight.
Ten years ago Mr. and Mrs. Jacobus bought a used steel cabin sailboat of about 15 meters, with which they hoped to roam the inland waterways of Europe after retirement. The purchase was not expensive, but in return there was a need for considerable investment to optimize sailing pleasure. Over the years, for example, the interior paneling was completely replaced at a cost of about € 35K and a new Iveco engine with Python Drive was installed at a cost of about € 20K. For an amount of approximately € 5K all the benches in the ship were reupholstered and the curtains replaced. With all the modifications to the ship, the investment amounted to about a ton in a few years. And then the unthinkable happened: while the doors in the front were being varnished, a fire started in the stern. Despite help from everyone in the harbor, it was not possible to prevent considerable damage to the ship.
Jacobus filed his claim with his insurer. His yacht was insured for a so-called insured sum of €104K plus €16K for the propulsion system. The household effects were insured for an amount equivalent to twenty percent of the insured value of the vessel, approximately €21K. The surveyor came by and arrived at a damage amount of €50K. However, the insurer did not pay out that amount, citing underinsurance.
Underinsurance means that the sum insured is lower than the actual value. The law states that an insurer cannot be obliged to pay more than the sum insured. In such a case, the compensation must be paid proportionately. The payment is calculated using the following formula: payment = (sum insured/actual value) x amount of loss.
In the case of Jacobus, this meant the following: The boat was insured for € 141K and the damage amounts to € 50K. After checking the insured amount the actual value turned out to be € 175K. After applying the above formula: 141K/175K x 50K leads to a damage payment of € 40,285.7. Of the damage, almost €10K remains for the account of the Jacobus. The sum insured was € 29K too low for which proportionally less premium was paid.
The reason why Jacobus suffered such a blow was that he had never adjusted the insured value in his policy. With a policy based on the sum insured, a fixed amount is determined at the inception of the insurance, whether or not on the basis of a valuation, which is to be used as a starting point in case of damage.
When the value of a vessel increases, for example because you make substantial investments/improvements that go beyond normal maintenance, the original sum insured remains valid, as long as you do not, for example, have a new valuation carried out. So where the work of Jacobus had increased the value of the vessel, he got nothing. The value of the vessel had increased over the years to € 175K, but he was only paid on the basis of the insured sum of € 141K. The insurer’s position was perfectly in line with the policy conditions; Jacobus’ investments had literally ‘gone up in smoke’.
TIP: You will undoubtedly also make investments in your yacht, not only because of regular maintenance, but also because an engine needs to be replaced or you want to modernise the interior. If these investments lead to an increase in the value of the yacht, make sure that this is recorded and, if necessary, have the yacht revalued. This can be done periodically or after a major modification, such as a new engine. In most cases such a revaluation is free of charge. The small increase in premium does not outweigh the huge financial hangover when the ship is lost through circumstances. Finally, make sure you have a proper inventory list, so that in case of damage you can easily show the insurer what the contents were.
Premier risque clause.
Please note! The above is so-called regulating law. An insurer may agree otherwise. The so-called ‘premier risque’ clause means that, regardless of whether there is underinsurance, the damage is fully compensated as long as it remains under the amount of the sum insured. Check your policy!
The reverse, by the way, is overinsurance: when there is a question of the sum insured being higher than the actual value. Since the law has stipulated that an insured person should not be in a better position after a loss (the indemnity principle), loss payout is limited to the actual value. Any damage is fully compensated, but the insured never receives more than the actual damage, for which you have paid a premium, so there too it is worth being sharp.