Yacht Insurance 101 - part 1
Now, for laymen who are unfamiliar with a lot of legal terms, the phrase “latent defect” is a constant source of question. What does it mean? What does it involve? What is its extent? The term itself is very broad, and it is very difficult to pin it down into a single context. In legal parlance, a latent defect is any defect that could not be known nor discovered in an inspection or test as the law may reasonably require under the circumstances. That is, the defect cannot be detected despite an inspection by a reasonably prudent man. To put it simply, the defect is simply not apparent to the eye even after a thorough inspection. It is important to understand that a latent defect clause in your yacht insurance is not meant to cover a defective vessel. The reason is that doing so would be the same as providing a warranty for a defective product, which has never been the responsibility of insurers. Rather, this responsibility falls under the warranties of a manufacturer who needs no paper to sign in order to make those warranties binding since these same warranties are implied. The moment the manufacturer sells you his product, he is making a warranty that the product is in good condition and that he shall be liable for any defects, whether in the form of replacement with a new product or payment for damage or loss you incurred as a result. On the other hand, the insurer typically provides coverage for damages and losses incurred due to causes other than inherent defects in the product. Even so, many insurance companies provide coverage for losses and damages that are incurred as a result of a latent defect. In short, the policy covers the resultant damage but not the defect itself. To illustrate, let’s take, for example, a vessel with an erroneous hull lamination. Because of this latent defect, the hull breaks open while the vessel is at sea, causing it to sink. In such a case, if your policy has a latent defect clause, your insurance would cover the damage and loss you suffered. Now that you know what latent defect covers, let us further break the term down to even simpler terms by going through the different aspects of damage covered by a latent defect clause. |
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