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Introduction
The
insurance survey, Condition and Value survey or C&V as it
is often referred to, is a type of survey intended for use by
insurance companies for evaluating whether or not they wish to
insure a particular vessel. For over 30 years surveyors have been
providing this type of survey. But, unfortunately, the insurance
industry has never set a standard as to the nature and extent
of information that they require, and so surveyors have largely
been left to guess at the kind of information that different insurance
companies want. This guide will assist the surveyor in identifying
the most appropriate information to be covered in the survey and
report.
Insurance
surveys can also serve as an appropriate format when lending institutions
request "appraisals." While there is no commonly accepted
format for anyone who requests an appraisal, but the insurance survey
format fills this purpose quite well.
C&V
Defined: An insurance survey is a limited form of survey that
is intended to assist insurance underwriters in making underwriting
decisions. The survey has two primary purposes: (1) to identify
the vessel, its equipment, condition and general value, and (2)
to identify defects, damages or hazardous conditions that pose a
potential threat to the safety of the vessel and its passengers,
or any other such condition that is likely to result in loss or
damage. Insurance surveys should never be provided to a client who
is purchasing a vessel for the purpose of making a purchase decision.
A
report format consisting of both a pre designed form and narrative
description is recommended. It is fundamental to a proper survey
report that the surveyor should clearly state in a narrative format
or by an appropriate form all such areas which were inspected and
which were not inspected. While underwriters don't particularly
like forms, and often complain about them, forms serve a very important
function for surveyors. First, the form serves as a guideline to
insure that all major areas of concern are covered. Second, the
form records necessary information and serves as verification that
these major areas were inspected.
Insurance
surveys are not intended to certify that a vessel is built, or conforms
to, any standard or standards set by any official standards organization.
Standards such as the ABYC Standards for Small Craft and NFPA 302
Pleasure and Commercial Motor Craft are voluntary standards. While
most reputable builders make an effort to comply, others do not.
Surveyors must use their own judgment when making reference or recommendations
for compliance, based on the surveyor's perception of hazard.
It
should be remembered that the surveyor's report is his work product.
It is the one example that illustrates to the industry the degree
of his professionalism and competence It is from his reports that
his work will be judged. Survey reports are often seen by many people,
not only in the present, but often far into the future. It reflects
his competence and constitutes one of his best forms of advertising.
Therefore, the surveyor should strive to produce a report that meets
the highest professional standards. This guide is intended to assist
the surveyor in achieving that goal.
Insurance
surveys should contain the following information:
A
statement of the purpose of the survey
Date
and location of survey plus status of vessel either afloat or hauled
Builder,
model (if any), and year of construction completion
Vessel
type, such as flying bridge sport fisherman, open fisherman, aft
cockpit sloop, center cockpit ketch, etceteras.
Identifiers
should include hull number, registration number and engine serial
numbers
Specifications
should include principle dimensions, machinery parameters such as
model number, horsepower, turbo charged, transmissions, etc., plus
fuel capacities
A
general statement describing the vessel, whether its production
or custom built, major alterations, additions or refits, major builder
add-ons such as bait & tackle centers, towers, custom tops,
exterior seating arrangements or any other major features that significantly
affect the value of the vessel.
Equipment
inventories should include only items of significant value or aggregations
of smaller items that add up to substantial value. The creation
of long lists describing everything on the vessel should be avoided.
Underwriters neither want nor appreciate this. Comments on the presence
of fine arts, large amounts of personal effects, the presence of
unusual items such as computers, costly decoration or any other
items of significant value. This is useful to insurance companies
in the event of claims, and to help assess value.
CATEGORIES
TO BE CONSIDERED
Construction:
A general statement describing the hull construction and superstructure
is generally all that is necessary for most production built vessels,
unless the nature of the construction or design is unusual or unique.
It is important for underwriters to know if a vessel is built of
exotic, unusual or experimental designs or materials, or whether
it is an unusual or experimental design. It is generally not necessary
to describe in great detail the scantlings of the hull such as dimensions
and spacing of frames and stringers, etc. It is sufficient to state
that the hull is lightly, moderately or heavily built without going
into great detail, unless there is a real need to do so.
Cockpit
Designs: Sport fishing vessels and other vessels with cockpits
that are particularly low to the water line should be inspected
for the potential of sinking the vessel should there be a significant
change in trim, heavy rain storms or other adverse conditions.
Propulsion
Machinery: Particularly for motor vessels, the propulsion machinery
constitutes a major part of the vessel's value and therefore deserves
careful attention by the surveyor.
Model
& serial numbers
Engine
hours or approximate age
Overhaul
dates if known
Apparent
condition of exhaust risers
Whether
exhaust risers are of adequate height to prevent backsurge
Visual
condition of exhaust piping and mufflers
Fire
protection of non water cooled exhaust systems
Condition
of belts, hoses and engine wiring
Inspect
connections of throttle and shift control cables
Stuffing
boxes tight or leaking
Existence
of significant fuel, oil or coolant leaks
Presence
of water or exhaust temperature alarms
Presence
of neutral safety switch (engine won't start in gear)
Potential
for carbon monoxide hazard to passengers from gas engines
Auxiliary
Machinery & Generators:
Generally
same information as propulsion machinery
Name,
model and serial number if possible
Carbon
monoxide hazard with gas generators
Equipment
that should be tested and proved operational:
Bilge
pumps, number and capacity
Navigation
lights & horn
Steering
system
Engine
controls
Fuel
System: A General Description of the fuel tankage, fuel lines,
fill system, valves and filters should be given either in narrative
or a form. Fuel systems have the potential for fire, explosion and
pollution hazards so that the integrity of these systems should
be dealt with in detail.
Compliance
with ABYC H-24 should be considered mandatory for gasoline systems.
Condition
of gasoline fuel tanks, particularly foamed in place aluminum tanks,
should be reported. If tanks are not accessible, that should be
so stated in the report.
Electrical
Systems: While it is not possible to survey an electrical system
to a standard such as ABYC or NFPA-302, basic compliance of the
fundamental system safety features of both AC and DC systems should
be considered and referenced when possible. Reports should describe
the basic system design and circuit protection. It is recommended
that AC system polarity be checked.
Cooking
Facility: Compliance with ABYC section A-1 should be considered
mandatory for LPG systems and section A-22 for CNG systems. Section
A-3 compliance is recommended for electric systems. The presence
of flammable or unprotected materials around the stove should be
reported.
Plumbing
Systems: Should be inspected with a view toward the water tight
integrity of all sea water systems. This means that materials should
be highly corrosion resistant and systems designed in such a way
as to avoid hazards for reverse siphoning, especially for such things
as cockpit drains, bait and fish wells, shower and bilge pumps.
Type
& quality of sea cocks, strainers and hoses on all through hull
systems
Bilge
pumps, bait wells, heads, shower pans and sumps should be checked
for reverse siphoning potential.
Piping
and hoses should be of good quality and be adequate supported, properly
joined and free of dissimilar or highly corrosive materials such
as iron, steel, aluminum and raw copper. All deficiencies should
be reported.
Safety
Equipment: It is mandatory that a vessel meet U.S.C.G. requirements
for safety equipment as these are statutory requirements. The survey
should contain a detailed itemization of the equipment, the dates
of inspection or reinspection (such as for life rafts, fire equipment
and emergency transmitters), and notation of whether vessel is in
compliance.
Basic
Vessel Design: Statements as to seaworthiness can only be made
in the negative since seaworthiness is a relative term. The following
are some relevant issues to be considered:
Is
vessel suitable for the area where being used? Note any limitations
or recommended restrictions on use. Examples would be inland houseboats
near oceans, sailing vessels lacking adequate auxiliary power in
areas of strong tides or currents, vessels with low power or poor
maneuverability on swift flowing rivers.
Are
decks safe with adequate hand railings or hand holds? Are there
unsafe features that could cause bodily injury such as badly designed
flying bridge ladders or lack of railings on an upper deck? Are
the cockpit deck and drain scuppers properly designed and of sufficient
height above water line to prevent inadvertent sinking, particularly
outboards and other small craft with low, open cockpits?
Are
doors, windows, hatches and portholes suitable for marine use? Do
all openings have a provision for locking from the interior? Are
locks of good quality or are they easily broken? This is some of
the information that underwriters find useful for assessing risk.
General
Considerations: Reports should be prepared and written in such
a way as to indicate that all basic systems either were or were
not inspected. For example, when a gasoline fuel system is inspected
for condition and leaks, the report should say so. Otherwise, the
reader can rightly assume that the system wasn't checked if the
report does not so indicate.
A
good survey report is one that indicates that all systems of major
importance were either inspected and the condition noted, or it
indicates that the system, or parts thereof, were not accessible
for inspection. The surveyor lets the reader know what he has done,
or was not able to accomplish. It does not reflect poorly on the
surveyor to state that something wasn't, or couldn't be inspected
or tested. On the contrary, to do so is a sign of integrity and
thoroughness in reporting.
Describing
Conditions: Because surveyors are dealing with the property
of others, they have to be careful what they say and avoid injurious
remarks or generally insult the vessel owner. There is a fine line
to be walked between accurately portraying the condition of the
vessel and describing things in such a way as to invite controversy.
Remember the adage that one man's trash is another man's treasure.
If
the surveyor has been attentive to detail, making diligent note
of all substandard conditions, he won't find it necessary to make
sweeping generalizations about the overall condition. The itemization
of substandard conditions and defects will generally serve to size
up the whole.
However,
conditions such as high wear and tear, lack of maintenance, uncleanness,
clutter and disorganization reflect more than just the value of
the vessel. It may reflect the owner's state of mind and financial
condition and have a direct bearing on risk assessment. Such conditions
deserve comment, but should be made with discretion.
Example
"The interior of a vessel shows heavy wear and tear, poor housekeeping
and is generally dirty and unkempt with excessive accumulated unsecured
clutter." Instead of using this description, state: "Interior
shows above average wear and tear and requires improvements in housekeeping
and removal of clutter and stowage of all loose items to ensure
safety at sea." While not stating outright that the vessel
is a terrible mess, it does allow the underwriter to read between
the lines and form an accurate impression while reducing the risk
of the surveyor insulting his client. After
all, if the owner paid the surveyor, it is the owner who is the
client.
Language
& Terminology: Consider that the end users of survey reports
may not have a marine technical background. Survey reports should
not be pedantic, but written in as common language as possible while
maintaining professionalism and referring to appropriate marine
terminology.
Avoid
ambiguous words and phrases such as "proper," "good
marine practice," "safe," "certified,"
"approved" and "qualified marine technician",
without describing what these terms mean. Certified or approved
by whom? Qualified by whom? Proper according to whom or what standard?
If a particular standard must be met, describe or provide a copy
of the relevant standard. Otherwise simply state, "repair or
restore to original condition" since the prior condition will
be obvious.
Reporting
Style and Length: Judging by the length and numerous pages of
many reports, some surveyors apparently feel that the more pages
a report contains, the more thorough the report will appear. Perhaps,
but busy underwriters may have to review many reports every day.
They will be more appreciative of the surveyor who understands what
information is needed and is able to convey that with an economy
of words and paper.
Long,
flowery descriptions of the vessel, its systems and equipment should
be avoided, particularly for production built boats, or boats built
of conventional materials and design. Custom or foreign built boats
which are likely to be unknown to the underwriter deserve additional
description that should be brief and to the point.
The
most important feature of the report is that it should be well organized
and concise. Nearly all end users prefer letter size pages rather
than legal size so that the report doesn't have to be folded to
fit into a file. Report covers are not necessary and will be discarded
when the report is placed in the underwriters file. It is perfectly
acceptable, and probably preferable, for the surveyor to provide
his report unbound.
Narrative
reports should be categorical. Reports using a form to record vital
information can omit detailed descriptions and go straight to describing
in a narrative only that which isn't recorded on the form. Form
design should be simple and easy to read. If it's more than three
one-sided A-4 pages, its probably too long. Forms are only useful
for recording general data and should not be used to describe deficiencies
or condition. Comments on condition are best dealt with in the narrative.
Describe
conditions and recommendations completely. Avoid the use of linguistic
short hand or unnecessarily abbreviated descriptions. Pages should
be numbered similar to "Page 1 of 7" so that end user
will know whether all pages have been received.
Vessel
Security: The security of the dock or mooring location of a
vessel is often of major importance to underwriters, although few
actually request this information. However, many surveyors include
information on the security of the marina or dock against wakes
of passing vessels, tides, floods on rivers, storms, hurricanes
and theft risks. Poorly constructed docks, inadequate mooring lines,
pilings that are not adequate for the tidal range are among the
things to be considered.
Theft
risk is another important consideration. Interior security was already
mentioned, but what about unsecured electronics, dinghies and outboard
motors that could easily be stolen. These are all appropriate considerations
for the insurance survey.
Summaries:
Summaries are generally not necessary but can be useful particularly
for sizing up vessels that are in particularly good condition or
are otherwise unique or out of the ordinary. The use of superlatives
such as excellent, A-1, first class or Bristol condition should
be avoided unless accompanied by a description or facts supporting
such superlatives. There is no universal agreement on what these
terms mean so that their use should be justified.
Surveyors
should not make statements such as "this vessel is considered
to be a good marine insurance risk." Surveyors are not underwriters
and they have no basis for making such statements and should avoid
doing so. A simple reference as to whether the vessel appears to
be suitable for its intended use, and whether there are conditions
which affect the safety of the vessel are sufficient.
References
to condition can usually be effectively handled by making a statement
about the general level of wear and tear - high, low, medium,
or average, below or above average, are statements that allow
the surveyor to paint the picture without resorting to harsh or
insulting words. Example: The interior upholstery and carpet
shows heavy wear. Or , exterior finish is oxidized and shows
numerous abrasions and scratches. Conversely: Exterior finish
shows a high gloss and is lacking in normal wear and tear.
Rating
Systems - a few surveyors employ rating systems to evaluate the
overall condition. Since there is no universally agreed standard,
the use of such systems should be avoided. The interior, exterior
and machinery will often be found to have different levels of maintenance
and it is appropriate to summarize each category separately.
Avoid
references to "cosmetic condition." There is no standard
definition of what this means. Instead, refer directly to the individual
condition of such things as gelcoat, paint, varnished woods, hardware,
upholstery, carpet and the like.
Recommendations:
When receiving a survey report, most likely the first thing
the underwriter will look at is the Recommendations section, for
this is the section that tells him most about the condition and
insurability of the vessel. The recommendations section should consist
of statements of fact pertaining to any and all deficient, substandard
or dangerous conditions as would affect the safety and seaworthiness
of the vessel or its passengers. The recommendations should include
a statement of generally how a deficient condition should be restored
to acceptable condition.
The
most common shortcoming found in surveys is the failure to describe
a defect sufficiently. The surveyor should take good notes and describe
the condition fully, including the potential results of failure
to correct the condition.
Priority
Recommendations: Underwriters often like surveyors to indicate
and highlight any such defects that affect the immediate safety
of the vessel. It is useful to them for surveyors to prioritize
in terms of "immediate," 30, 60 or 90 day time frames
to complete the correction, based on the surveyor's assessment of
the hazard.
It
is also acceptable for the surveyor to make recommendations or "suggestions"
that are not mandatory. These can include such things as installing
a bilge high water alarm or better locks on a door or hatch where
there is no standard or mandate that the owner do so, but where
the surveyor believes it is a reasonable precaution.
Photographs:
It is recommended that six (6) photographs of the vessel should
be provided, unless there is a demonstrable need for more. These
should include: exterior profile and frontal or stern view; one
or two views of the interior; engine room/machinery space; plus
photos of any major defects that seriously affect the safety of
the vessel. When making recommendations that will involve a major
expense to the owner, it is wise to have good photographic documentation.
These
are the photographs that should be provided with the report. However,
it is recommended that the surveyor document his file with photos
of all significant defects in the event a dispute should arise.
Photos
will be stored in an underwriting file and therefore should be mounted
and captioned. Since the file will probably be hole punched and
bound with a clip, allow a 3/4" margin on the left and top
margins with two photos per page side.
Appraised
Value: Professional surveyors are qualified to appraise boats
and yachts by virtue of the fact that they work with them on a daily
basis. While insurance value and market value are not the same,
the surveyor is not qualified to determine what amount is insurable,
and therefore should assess the Fair Market Value only. There are
frequently mitigating factors to market value, such as an owner
investment in the vessel that far exceeds the market value. In this
case, the surveyor should appraise the liquid value, while identifying
the excess amount of any recent investment, and let the underwriter
determine what additional amounts are insurable, if any.
A
typical example would be where an owner invests $75,000 in customizing
a twenty-four foot boat for which the market value would not be
more than $30,000. In this case, the amount invested in the vessel
should be indicated, but it should be up to the owner to provide
substantiation of the actual costs. It is then up to the underwriter
to determine how much of the additional investment that his company
is willing to insure.
The
basis for determining the Fair Market Value should be stated. Looking
up a price in an appraisal guide does not constitute an appraisal.
Insurance companies have appraisal books too. While insurance surveys
are not formal appraisals, and while it is not necessary to detail
the method of appraisal, the basis of the appraisal should be stated
whether extrapolation from a guide only, actual market information,
or both.
The
best approach for determining Fair Market Value is to determine
what similar or comparable vessels are selling for in a specific
region. The most useful tools for doing this are newspapers, yacht
brokers, magazine and specialty advertising publications, and even
the Internet. Asking prices are then adjusted for wishful thinking,
equipment and condition.
Limitations:
For the protection of both his client and the surveyor, the survey
report should contain a Statement of Limitations. An insurance
survey is a limited form of survey and those limitations should
be spelled out. Use of the survey for sales or purchase evaluation
should be disclaimed. That which was not considered, inspected and
evaluated should be itemized, along with any and all systems that
were not tested or operated. This is most easily accomplished in
a standard clause that is added to every report along with pertinent
modifications appropriate to each survey. The objective is to simply
identify the considerations and parameters of the survey so that
it is not left open to misinterpretation.
Conclusion:
Even though the survey may be commissioned and paid for by the vessel
owner, an insurance or finance company is a direct beneficiary and
end user. The surveyor has a fiduciary responsibility to anyone
who makes use of his report, and must strive at all costs to accurately
represent the condition of the vessel. Significant misrepresentation
or omission relating to the condition or value of the vessel may
result in financial loss to third parties for which the surveyor
could be held liable. Surveys should be issued with this sobering
fact in mind.
The
surveyor's report is his work product that represents to the industry
the degree of his professionalism and competence, and upon which
his work will be judged. This guide is intended to assist the surveyor
in achieving a quality and competent report. D.H. Pascoe & Company
does not represent or warrant that these guidelines are accepted
or approved by any insurance company or group of companies, any
standards or surveyor society either collectively or individually.
Guide
to Insurance Surveys and Reports is a copyrighted product of
D.H. Pascoe & Company, Inc. and may not be reproduced or distributed
in any manner without the express consent of the publisher.
(c)1997
D.H. Pascoe & Company, Inc.
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