There’s nothing nicer than fixing up your sailing pride and embellishing it with all kinds of facilities and details. Mr and Mrs Schmitz found out that sometimes other details are lost from sight in the process.
Ten years ago, Mr. and Mrs. Schmitz bought a used steel cabin sailboat of about 15 meters, with which they hoped to roam Europe’s inland waterways after retirement. The purchase was inexpensive, but in return there was a need for considerable investment to optimize sailing enjoyment. For example, over the years the interior paneling was completely replaced at a cost of about € 40K and a new Iveco engine with Python Drive was installed at a cost of about € 25K. For an amount of approximately € 6K all the benches in the ship were reupholstered and the curtains and beds were 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.
Schmitz submitted his claim to his insurer. His yacht was insured for a so-called insured sum of €110K plus €20K for the propulsion system. The household effects were insured for an amount equivalent to twenty percent of the insured value of the yacht, approximately €22K. The surveyor came by and arrived at a damage amount of €55K. 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 compensation 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 Schmitz’s case this meant the following: The boat (including contents) was insured for € 152K The damage amounts to € 50K. After checking the insured amount the actual value turned out to be € 180K. After applying the above formula: 152K/180K x 55K leads to a damage payment of €46,444.44. Of the damages almost € 9K remains for the account of the Schmitz. The sum insured was € 28K too low for which, incidentally, proportionally less premium had been paid.
The reason Schmitz suffered such a blow was that he had never adjusted the insured value in his policy. In a policy based on the sum insured, a fixed amount is determined when the insurance is taken out, whether or not on the basis of a valuation, which is to be used as the starting point in the event of a claim. When the value of a boat increases, for example because you make substantial investments/improvements to the boat that go far beyond normal maintenance, the original sum insured continues to apply as long as you do not have a new valuation carried out. So where Schmitz’s work had increased the value of the ship, he got nothing. The value of the vessel had increased over the years to €180K, but he was only paid on the basis of the insured sum of €152K. The insurer’s position was perfectly in line with the policy conditions; Jacobsen’s 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 modernize 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 case of the sum insured being higher than the actual value. Since the law has stipulated that an insured 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, which is what you paid premium for, so it is worth being sharp there too.