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Specialty Insurance

Smooth Sailing

Specialty Insurers and their risk management partners find a way to keep historic vessels in use.
By: | February 22, 2016 • 8 min read

When the Lettie G. Howard first sailed the North Atlantic in 1893, she faced fierce winter storms, icy waters and long stretches at sea.

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Today, as a designated historic landmark and teaching vessel docked at New York’s South Street Seaport Museum, life is calmer for the fully restored 125-foot wooden schooner.

But historic vessels like the Lettie G. Howard face many other challenges, including unique risk and liability issues. Luckily, there are a small number of specialty insurers that know exactly how to manage those risks.

Historic vessels range from elegant tall ships to massive steel icons of World War II and even riveted iron ships. Their insurance needs can vary based on construction, purpose, mobility, uniqueness and ownership.

“It’s primarily a marine risk, so you’re going to have hull and P&I, and liabilities for the vessel,” said Robert Riske, senior vice president at Worldwide Facilities LLC.

“The larger ones have some shore-side operations, which might involve a gift shop, the parking lot, etc., so you can get involved in a regular GL-type package risk as well.”

Simon Winter, director, Simon Winter Marine Ltd

Simon Winter, director, Simon Winter Marine Ltd

“We call them commercial combined liability policies. It is one policy packaged together in different sections,” said Simon Winter, director of the UK-based Simon Winter Marine Ltd.

Typical sections include damage to the hull, marine third-party liability, public liability, and employers’ liability, as well as personal accident and crew medical, and, for income-earning vessels, loss of use.

One of the biggest challenges of insuring historic vessels is determining an accurate valuation.

“At the bottom end you’ve got scrap value and at the top side you’ve got whatever historical value you can put to it. Then you’ve got the economic value, as in, this is going to bring visitors to either the community or the vessel or the organization,” said Riske.

Surveyors will generally try to base valuations on purchase price, according to Gene McKeever, vice president, board member and marine insurance specialist at Allen Insurance and Financial.

“There is a reason for that. … If someone were to buy one of these vessels for … $1.2 million, and the replacement cost is $4.5 million, you may be creating a moral hazard by that person going, ‘Well, if I insure for $4.5 million, the thing is worth more resting on the bottom of the ocean than it is in my hands.’

“So the underwriters say no, if the person bought it for $1.2 million that’s what they want it to insure it for,” said McKeever.

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Donated vessels have no sale price, however, leaving underwriters searching for sales of comparable vessels, a particular challenge for unique vessels.

Ultimately, valuation can involve more art than science.

“Underwriters would always prefer to underwrite a risk at market value. An owner of an historic vessel … would much rather be insuring for an amount nearer to new-build value, and those values can vary by millions.

“We always tend to achieve a compromise, but it involves a negotiation between the three parties: the broker, the underwriter, and whichever entity is writing the valuation,” said Winter.

Maintaining historic vessels also presents challenges.

“Generally we ask that those vessels have a maintenance schedule, so this year we’re going to do the planking, next year … the framing, the year after that we’re going to work on the deck beams, that sort of stuff,” said McKeever.

Gene McKeever, vice president, board member and marine insurance specialist, Allen Insurance and Financial

Gene McKeever, vice president, board member and marine insurance specialist, Allen Insurance and Financial

“Many of them actually have the historic plates … from the government, being a national historic place. They have to be very precise and very careful … because they have to keep them totally authentic.”

At the same time, he said, the vessels use modern fasteners and modern electronics.

“The hull insurance is easier to get than the liability. … You know you are looking at a finite thing when you are looking at the hull and its value.  Liability is not finite at all.

“When someone gets injured … there’s no dollar limit on what that injury might cost.”

Riske agreed.

“Liability is the real exposure. Underwriters are concerned with the numbers of volunteers, crew, visitors or passengers, special events, educational events involving minors, fireworks displays, and on-shore activities, like ticket sales, cafes, souvenir shops, parking.”

Many historic vessels rely heavily on volunteers and they can all count as crew. Especially in the case of ships from World War II, they are often sailors who originally served on those ships, meaning an aging population working on aging equipment.

“Once it’s operational, you’ve got numerous public liabilities,” said Riske, citing steep ladders, low bulkheads, possible asbestos, and sometimes food and special events.

“They present a challenge for trying to get the proper pricing for them, but most of all they’re a good risk.”

Trip and Tow

While some historic vessels, known as Dockside Attractions, are no longer mobile, most are sometimes moved for events, maintenance or relocation, under their own power or towed by tugboats.

“How do you insure them when they’re generally speaking pretty fragile vessels and they have to go out on the big water to get to the next port? That sometimes presents a lot of challenges,” said McKeever.

Foreign vessels entering U.S. or Canadian waters confront issues involving pollution liability, jurisdictional disputes, and liability limits.

“If a vessel needs to be towed … they find a reputable tug boat operator, who will say they need a Trip and Tow survey. … ‘Can this vessel stand the stresses of being towed, whatever way it is being towed?’

“And that survey goes to the underwriter so they can determine if they are going to insure the trip,” McKeever said.

Towing a large vessel in international waters can involve another set of laws and requirements.

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“A majority of towing of large vessels tends to be done under TOWCON, which is a set of terms and conditions that is internationally recognized,” said Winter.

Foreign vessels entering U.S. or Canadian waters confront issues involving pollution liability, jurisdictional disputes, and liability limits. Ships from Europe often enter Canadian waters first, where the Transport Canada, the Canadian coast guard, will stop them and ask for a Certificate of Financial Responsibility (COFR).

“That’s the first thing they ask for and that’s actually pollution coverage. Most of them can’t produce it because they generally don’t have a problem with pollution from historic vessels … but neither the Canadians nor the U.S. will allow them in federal waters without it,” said McKeever.

Even tall ships and other wooden vessels must produce a COFR, but McKeever said that even though they have bottom paint and typically carry a diesel generator, they tend not to cause environmental problems.

“I have not seen a pollution claim against a tall ship and we’ve been doing it for a long time.”

The U.S. and Canada also require greater liability coverage than other countries.

And if, as is often the case, the vessel’s coverage stipulates local jurisdiction — meaning civil suits must be adjudicated in the vessel’s home port, according to its laws — both the U.S. and Canada require coverage that allows disputes to be settled in their respective courts.

Insurance Requirements Vary by Jurisdiction

Jurisdictional issues can be a factor more locally as well, said Maggie Flanagan, operations manager for the nonprofit New York Harbor Waterfront Alliance.

Maggie Flanagan, operations manager, New York Harbor Waterfront Alliance

Maggie Flanagan, operations manager, New York Harbor Waterfront Alliance

“Even different docks within the same city can have different requirements. … It’s not only city, state, federal — there’s also various park service agencies, economic development entities that manage certain parts of the waterfronts,” she said.

“The differences come in insurance coverage requirements for liability insurance put forth by the various docks in a port. … In New York City, between private lease holders on the waterfront, various government agencies and multiple park authorities, there are widely different requirements for insurance to be able to dock at the various docks,” said Flanagan, who worked with several historic and replica ships before joining the Alliance, which counts several historic ships among its 800 members.

Different ownership types have different needs as well.

Government-owned vessels tend to be self-insured. For-profit owners like restaurants have special requirements. Educational vessels are a whole separate subcategory.

“You’re likely to have minors involved … and that always has its challenges for insurance, especially if there’s an overnight program … you’ve got parental consents and all the things you can imagine go with it,” said Riske.

The majority of historic vessels, however, are governed by nonprofits.

“You are dealing with a board of directors, so typically you are dealing with non-insurance people,” said Riske.

Nonprofits also tend to have tight budgets, and insurance can take up a substantial portion of them.

The SS United States, now docked in Philadelphia, was a technical marvel when it was launched in 1952, and has served since then, “as an iconic symbol of American technological innovation and engineering might,” said Susan Gibbs, executive director of the Philadelphia-based conservancy that is searching for a permanent home for the vessel.

“The ship still holds the transatlantic speed record, achieved on her maiden voyage using only two-thirds of her power.

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“As a Naval auxiliary, she was packed with top-secret defense features and could be quickly converted to transport 15,000 troops more than 10,000 miles without refueling,” said Gibbs.

But the conservancy has been struggling to cover the ship’s carrying costs, and almost a quarter of the conservancy’s $60,000 monthly expenses go toward insurance.

“It can be a significant part of the budget,” said Flanagan.

All these factors combine to make a good broker invaluable.

“We are all nonprofits doing our missions and there is not a lot of extra resources in the office,” said Flanagan

“You look at the list of requirements and you’re like, ‘Oh my gosh!’ ….You get these requirements from the permit and then you cut and paste to the insurance broker and say, ‘Help me please!’ ”

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

The risk manager for Boyd Gaming Corp. says curiosity keeps him engaged, and continual education will be the key to managing emerging risks.
By: | May 1, 2018 • 4 min read

R&I: What was your first job?

I was trained as an accountant, worked in public accounting and became a CPA. Being comfortable with numbers is helpful in my current role, and obviously, the language of business is financial statements, so it helps.

R&I: How did you come to work in risk management?

Working in finance in the corporate environment included the review of budgets and the analysis of business expenses. I quickly found the area of benefits and insurance — and how “accepting risk” impacted those expenses — to be fascinating. I asked a lot of questions. Be careful what you ask for — I soon found myself responsible for those insurance areas and haven’t looked back!

R&I: What is the risk management community doing right?

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I have found the risk management community to be a close-knit group, whether that’s industry professionals, risk managers with other companies or support organizations like RIMS and other regional groups. The expertise of the carriers and specialty vendors to develop new products and programs, along with the appropriate education, will continue to be of key importance to companies going forward.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

As I’m sure many in the insurance field would agree, Hurricanes Katrina and Rita in 2005 changed our world and our industry. It was a particularly intense time and certainly a baptism by fire for people like me who were relatively new to the industry. This event clearly accelerated the switch to the acceptance of more risk, which impacted mitigation strategies and programs.

Bob Berglund, vice president, benefits and insurance, Boyd Gaming Corp.

R&I: What emerging commercial risk most concerns you?

The fast-paced threat that cyber security represents today. Our company, like so many companies, is reliant upon computers, software and IT expertise in our everyday existence. This new risk has forged an even stronger relationship between risk management and our IT department as we work together to address this growing threat.

Additionally, the shooting event in Las Vegas in 2017 will have an enduring impact on firms that host large gatherings and arena-style events all over the world, and our company is no exception.

R&I: What insurance carrier do you have the highest opinion of?

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With the various types of insurance programs we employ, I have been fortunate to work with most of the large national and international carriers — all of whom employ talented people with a vast array of resources.

R&I:  How much business do you do direct versus going through a broker?

We use brokers for many of our professional coverages, such as property, casualty, D&O and cyber. We are self-insured under our health plans, with close to 25,000 members. We tend to manage those programs internally and utilize direct relationships with carriers and specialty vendors to tailor a plan that works best for team members.

R&I: Who is your mentor and why?

I have been fortunate to have worked alongside some smart and insightful people during my career. A key piece of advice, said in many different ways, has served me well. Simply stated: “Seek to understand before being understood.”

What this has meant to me is try everything you can to learn about something, new or old. After you have gained this knowledge, you can begin to access and maybe suggest changes or adjustments. Being curious has always been a personal enjoyment for me in business, and I have found people are more than willing to lend a hand, offer information and advice — you just need to ask. Building those alliances and foundations of knowledge on a subject matter makes tackling the future more exciting and fruitful.

R&I: What have you accomplished that you are proudest of?

Our benefit health plan is much more than handing out an insurance card at the beginning of the year. We encourage our team members and their families to learn about their personal health, get engaged in a variety of health and wellness programs and try to live life in the healthiest possible way. The result of that is literally hundreds of testimonials from our members every year on how they have lost weight, changed their lifestyle and gotten off medications. It is extremely rewarding and is a testament to [our] close-knit corporate culture.

R&I: What’s the best restaurant you’ve ever eaten at?

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Some will remember the volcano eruption in Iceland in spring of 2010. I was just finishing a week of meetings in London with Lloyd’s syndicates related to our property insurance placement when the airspace in England and most of northern Europe was shut down — no airplanes in or out! Flights were ultimately canceled for the following five days. Therefore, with a few other stranded visitors like myself, we experimented and tried out new restaurants every day until we could leave. It was a very interesting time!

R&I: What is the riskiest activity you ever engaged in?

I am originally from Canada, and I played ice hockey from the time I was four years old up until quite recently. Too many surgeries sadly forced my recent retirement.

R&I: What do your friends and family think you do?

That’s a funny one … I am a CPA working in the casino industry, doing insurance and risk management, so neighbors and acquaintances think I either do tax returns or they think I’m a blackjack dealer at the casino!




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]