There’s a myth floating out in commercial diving land (or water, in this case) that diving insurance is too complex to understand. Proper understanding of your insurance can be thedifference between your business sinking or remaining afloat. Though diving insurance has its share of complexity (like all insurance), I’ve tried to narrow this article down to the core characteristics with real-life application.
As a maritime business owner, some aspects of US diving insurance may be confusing, especially if you’ve just started your business or are expanding your service offerings. Simply put, insurance is defined as partially or fully covering a loss you may take on as a business owner. You pay an insurance premium and the insurance company provides a guarantee of compensation for specified loss, damage, illness or death as per the terms of the insurance policy.
Loss: A significant setback to your physical or financial state.
How Size Affects Your Business
In the commercial diving world, there’s typically a mixture of independent small businesses and large maritime companies.
Smaller size may mean less complications in insurance paperwork, but it can produce a heavier percentage of premium to overall Gross Receipts or Payrolls. The Association of Diving Contractors International‘s guidelines state that a dive team consists of at least three divers for contract work:
- Commercial Diver
- Standby Diver
- Tender (surface communication)
Small-time crews can easily go under the radar when it comes to complying with standards of equipment safety and practice. On the other hand, themajority of small maritime businesses practice safe diving and enjoy a much closer camaraderie, given few employees.
Larger crews may receive better rates on insurance based on their higher generated Payrolls and Gross Receipts, but with an increase in size also comes with an increase in complication with insurance coverages. It is critical to align yourself with an agency that specializes in the type of risks you as a business owner are exposed. Otherwise, your coverages may not be adequately cover your exposures and a claim could be denied by your insurance carrier.
James: Business Owner & Underwater Welder
James is an underwater welder for Underwater Welding, Inc (UWI). One day, he’s assigned to inspect and conduct a small weld on a pressurized coastal pipeline. James dives from the company’s vessel to perform the work.
While performing the repairs, the pipe explodes, damaging nearby utility conduits resulting in loss of power and communications for nearby residences and businesses. The explosion also destroys the welding equipment, damages UWI vessel’s hull and a nearby third party vessel’s hull, and it causes serious injury to James. UWI is served with multiple suits and files a claims with their insurance carriers to provide a legal defense and indemnify them from resulting judgments.
Though James and UWI are fictional, the surrounding circumstances provide a window into the world of insurance coverage for businesses. As we explore the various types, I encourage you to refer back to this story and see how the coverage would apply to you as the owner of UWI.
Essential Maritime Insurance Types
When choosing your insurance plan for your business, focus on the essentials and then purchase add-ons if necessary. These insurance types can be looked at from the perspective of a maritime business owner. “Essentials” include, but are not limited the following list. Alwaysconsult with your insurance agent regarding your actual exposures to confirm your coverages are sufficient:
- Marine General Liability Policy
- Maritime Employer’s Liability
- Commercial Hull Protection and Indemnity
- Equipment Coverage
- Worker’s Compensation
Marine General Liability
In general, Marine General Liability provides coverage against third party suits of alleged bodily injury or property damage. This coverage trickles down to employees that directly work for the company. Coverage extends to these areas (all third party):
- Physical injuries
- Personal injury (slander)
- Marine property (including vessels)
- Advertising injury (false advertising)
For your diving employees, there are no shortcuts to liability insurance. Make sure your coverage extends to all diving activity, as it can significantly impact your business if you are involved in an incident. Sure, monthly premiums may be higher, but a diving accident can incur major costs that can dry up assets and any other business investments you may have.
Pay special note to required endorsements such as watercraft exclusion deletions, In-Rem, Primary and Non-Contributory, Action Over Buy Back, XCU, and Shiprepairer’s Legal Liability. The added endorsements could mean the difference between a loss being covered or denied by your insurance carrier.
In the example above, a properly written general liability insurance policy will respond against suits brought against UWI for the following:
- Property damage to the nearby third party conduit
- Third party loss of business due to the downtime of the damaged conduit to the surrounding businesses
- Third party property damage to the nearby vessel
- Action over claims that James may bring against UWI
Maritime Employer’s Liability (MEL)
Under this policy, injured seaman or crew members can receive benefits. Under the Jones Act, a “seaman” is defined by one’s work duties, connection to vessels, and several other factors. As a rule of thumb, one must be in the maritime profession spending 30% or more of their time in conjunction with a named vessel or named fleet of vessels in navigable waters to be considered for Jones Act benefits. In addition, a seaman retains his or her rights onshore while employed.
Unlike your typical workers compensation, the Jones Act allows for the injured seamen to sue their employer and the vessel they were injured upon while receiving benefits.
- Nature, location and duration of work being performed
- Receipts, payroll and payroll estimates for USL&H and Jones Act exposures
- Average and maximum number of employees exposed at any one time
- Claims History
Referring back to our story, a properly written MEL insurance policy will respond against suits brought against UWI; in this case, the Jones Act suit brought against UWI by James.
Commercial Hull Protection & Indemnity
Commercial Hull P&I is composed of two parts: Coverage for watercraft (hull and machinery) and liability (P&I) from third party property damage and/or physical injuries. In certain situations, property damage or bodily injury can severely cripple your maritime operations, so having Hull P&I is especially crucial. This policy may extend coverage into these areas:
- Vessel cargo damage
- Docks and other fixed floating object damage
- Salvage expenses
- Collision liability
- Injury, sickness and death to passengers, crew and third parties (exception to compensation acts)
- Coverage for the crew of the vessel
In the story of James and UWI, a properly written commercial Hull P&I insurance policy will respond against losses UWI sustains due to the following:
- Damages to UWI’s vessel
- Damages to the nearby vessel and that vessel’s crew/passengers
This coverage protects mobile property and equipment that is owned by a maritime business while in storage, in transit or on the job in the field. Coverage may extend into these areas:
- Heavy machinery
- Small equipment
- Rented/leased property (if included in the policy)
- Waterborne coverages for submerged equipment
From our story, a properly written equipment insurance policy will respond against losses UWI incurs for damages to UWI’s weld equipment.
Worker’s compensation provides coverage for an employee who has suffered an injury or illness resulting from job-related activities. Coverage includes medical and rehabilitation costs and lost wages.. Coverage may extend into these areas:
- 1099 subcontractors unless they have their own coverage and provide you with Certificates of Insurance proving their coverage
- Federal Acts (USL&H, Jones Act)
- Defense Base Act
Under the federal acts, a worker will be awarded compensation in either the USL&H or the Jones Act court, but not both. Your employee’s attorney may seek benefits under both in the beginning stages, but will eventually be categorized under the jurisdiction of one or the other. Both you and your employees need to have full awareness of what these federal acts entail.
In the example above, a properly written workers compensation insurance policy will respond against losses suffered by UWI for bodily injury James receives during his diving activities.
Honesty as a Business Strategy
As a maritime business owner, you’re hopefully familiar with these insurance types and the consequences of not having coverage. However, your employees also need to understand this information. A small “misunderstanding” in coverage can create a larger rift that can incur damages among your employees and relationships with other businesses.
To create transparency within your company, encourage your divers and other workers to conference with you regarding your level of coverage. Keep your employees aware of changes in insurance policy coverages and premiums on a continual basis. As with all good business practices, you’ll reap the long-term benefits of honest, clear communication.
– Primary source for this article: Eric Green, John W. Fisk Company