Here’s a quick way to tell if you’re part of the maritime industry. Read the below and ask yourself: Does any of it make sense to you?
If you have better luck reading Egyptian hieroglyphs, congratulations. Your sanity is intact, you lead a fulfilling life, and you probably have a full head of hair to boot. If it does make sense, you have my sympathy: you’re one of the poor guys dealing with the wonderful world of maritime claims.
Here’s an excerpt from the TAYLOR form, a standard hull insurance policy.
Try to stay awake.
“This insurance also covers loss of or damage to the vessel named herein directly caused by: Breakdown of motor generators or other electrical machinery and electrical connections thereto, bursting of boilers, breakage of shafts, or any latent defect in the machinery or hull, (excluding the cost and expense of replacing or repairing the defective part);”
Maritime claims handlers will recognize it as “the bit in the policy that provides coverage for breakdown of the main engine.”
But here’s the thing: it doesn’t actually provide coverage for main engine breakdown.
Companies that for years have incorporated the standard TAYLOR 1953 (Rev. 70) into their policies—the boilerplate used by insurance policies around the nation—have been writing policies of hull insurance that may not provide coverage for engine breakdown.
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Maritime insurance is an industry defined by long-running tradition, an illustrious history that stretches back to the first policies written in Ancient Egypt, a discomforting tendency to interpret rules on-the-fly, and the use of language arcane enough to give the Illuminati a headache.
Take the Inchmaree Clause, for example. In his book, “Marine Insurance and General Average in the United States,” Leslie Buglass writes that one of the most important functions of the Inchmaree clause was to introduce coverage for crew negligence. He notes it also covers “accidental damage resulting from an electrical breakdown,” but that “This part of the clause merely means that the underwriters accept the breakdown of electrical machinery as a peril and the consequences would be paid for, even if the cause of the breakdown could not be established.” Over time this meaning was mangled appropriated and crowbarred incorporated into Hull policies, eventually finding its way into the TAYLOR form.
This still doesn’t explain much, so let’s take apart the wording of the TAYLOR form line-by-line. “Motor generators” as a single phrase (and as a question of English grammar) means a generator—any generator, so long as it’s powered by a motor.
A strict interpretation of the clause would mean that the breakdown of a generator would find coverage under the insurance clause.
The main engine is not a generator.
“The specific coverage that this clause affords is not the subject of the clause,” writes adjuster Alex Shaw of Richards Hogg Lindley in an analysis of the TAYLOR Form. The company specializes in interpreting law, giving maritime legal advice, and producing average adjustments. “Coverage would be afforded to the main engine, and generators and any other thing on the vessel so long as that damage was caused directly by the peril insured against (i.e. the breakdown of the motor generators, electrical machinery, etc.) and the conditions of the clause met (i.e. did not result from want of due diligence by the Assured etc.).”
Interpretation of the International Hull Clauses, upon which the TAYLOR form is based, is very strict: clauses are designed to provide coverage for specific perils, and even then only to the stated extent. In the context of most English-based policies, “machinery” typically refers to any equipment aboard the vessel that directly gives the vessel motive power. A “generator” on the other hand, would be equipment, appliances, or machinery used specifically in the generation of power, and not directly or even necessarily used in the propulsion of the vessel.
In an emailed response, Miles Duncan, a director and Average Adjuster at Richards Hogg Lindley, writes that the wording in question “certainly does not refer to ME breakdown and I think it would have to be caused by Breakdown of motor generators or other electrical machinery and electrical connections thereto, bursting of boilers, breakage of shafts, or any latent defect in the machinery or hull to be covered.”
The problem is known as a “syntactic ambiguity.” Wikipedia defines it as “when a reader or listener can reasonably interpret the same sentence as having more than one possible structure.” I define it as the difference between the heartwarming meal implied in “Let’s eat, Grandma!” and the delectable cruelty implied in “Let’s eat Grandma!”
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Identifying the problem also makes the solution obvious: slip in a comma.
The wording now covers “Breakdown of motor, generators, or other electrical machinery…” which provides coverage for the main engine since it can be reasonably defined as a motor. It also preserves coverage for generators and electrical machinery.
This simple change also sidesteps the problems associated with a re-write of the TAYLOR form template, very sensibly avoided because fixing one problem tends to break some other part of the policy. Even minor changes create conflicts and ambiguities in coverage, which is why the industry continues to endlessly revise policies in the hopes of one day getting it right.
Adjusters who have read up to here with increasing alarm (and decreasing hair) need not panic just yet. They’re vindicated by yet another nuance of adjusting: Machinery breakdown is de facto covered by the unmodified language found in the TAYLOR form.
“Sometimes US practice is not in accordance with a strict interpretation of the policy wording,” writes Miles Duncan, “as ‘practice’ is what is accepted by the people paying the claim!”
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The author disclaims liability for litigation, improperly adjusted claims, irate customers, job loss, hair loss, sleep loss, knowledge of the Illuminati, and the ingestion of loved ones that may result from foolishly taking a blog (written by someone who’s not a lawyer) as legal advice.
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