MyYachtsInsurance - Yacht Insurance Community

Reviewed by Alex Short, Independent Yacht Insurance Risk Analyst

TL;DR

Agreed value coverage in yacht insurance specifies the pre-determined value of the vessel for claims purposes under a hull policy. This coverage affects claims resolution by eliminating the need to appraise the vessel’s market value at the time of loss. However, coverage is limited by exclusions such as the "care, custody, and control" clause and deductible requirements outlined in [IYIC-CLAUSE-10]. The agreed value becomes binding upon the occurrence of a loss, including constructive total loss as defined in [CTL-CLAUSE].

Trigger Conditions

Trigger	Policy Impact	Consequence
Material change not disclosed	Breach of warranty under [IYIC-1985]	Coverage void
Class suspended or withdrawn	Non-compliance with [IHC-2003] the primary coverage clause	Coverage excluded
Refit/lay-up not notified within 30 days	Breach of [IYIC-CLAUSE-10]	Deductible increased or coverage void
Navigation limits breached	Violation of [MIA-1906] s.38	Loss not covered
Hot work without approval	Breach of [IYIC-1985] the relevant policy clause	Exclusion of loss due to negligence
Contractor assumes custody	Activation of "care, custody, and control" clause [IYIC-CLAUSE-10]	Coverage limited to deductible

Underwriter's Checklist

Survey reports: Underwriters verify the vessel’s condition and agreed value to ensure alignment with the policy terms and to assess depreciation or damage history [IYIC-1985] [MIA-1906] [IHC-2003].
Class certificates and status: Confirm the vessel is maintained to recognized standards and is in good standing with a classification society, which affects risk assessment and claims handling [IYIC-1985] [IHC-2003] [MIA-GUIDELINES].
Maintenance logs: Review for regular servicing and compliance with manufacturer or class requirements, which can influence the determination of total loss or depreciation [IYIC-CLAUSE-10] [IHC-2003] [MIA-1906].
Refit/modification records: Ensure any structural or mechanical changes are documented and approved, as unapproved modifications may affect coverage or agreed value [IYIC-1985] [IHC-2003] [MIA-GUIDELINES].
Crew qualifications: Verify that crew members are licensed and trained, particularly for vessels operating in international waters, to mitigate human error risks [IYIC-1985] [IHC-2003] [MIA-1906].
Navigation area endorsements: Confirm the policy covers the vessel’s intended operating area, as claims arising from unauthorized voyages may be denied [IYIC-1985] [IHC-2003] [MIA-1906].
Loss history declarations: Review prior claims to assess the vessel’s loss experience, which may impact agreed value and future claims expectations [IYIC-1985] [IHC-2003] [ICA-2015].
Salvage agreements (LOF): Confirm compliance with standard salvage agreements to avoid disputes over salvage charges and general average claims [LLOYDS-OPEN-FORM] [YORK-ANTWERP-2016] [MIA-1906].

Policy Wording Traps

Clause Type	Trap Mechanism	Scenario	Coverage Result
Agreed Value Clause	Policy value may not reflect actual market value at time of loss	Owner insures yacht at $2 million agreed value, but market value has depreciated to $1.5 million at time of total loss	Insurer pays $2 million, but owner may be liable for the difference if the agreed value was inflated [IYIC-1985]
Deductible Clause	Deductible applies to each loss, including partial losses	Yacht sustains two minor hull breaches in a single storm, each under $10,000 repair cost	Insurer applies deductible to each incident, reducing total payout [IYIC-CLAUSE-10]
Faulty Workmanship Exclusion	Excludes losses caused by poor craftsmanship or installation	Owner hires an unqualified contractor to install a new engine, which later causes a fire	Claim denied due to faulty workmanship exclusion [IYIC-1985]
Latent Defect Carve-Out	Excludes losses from pre-existing hidden defects	Yacht sinks due to a hidden hull crack that existed before the policy was issued	Claim denied as loss is attributed to latent defect [MIA-1906]
Material Change Warranty	Policy becomes void if yacht is modified without insurer approval	Owner upgrades the yacht's engine without notifying the insurer, and the upgrade causes a breakdown	Insurer may deny the claim for breach of warranty [ICA-2015]

Operational Reality

Yard operators often delay submitting detailed damage reports to underwriters, assuming that verbal updates suffice, which leads to disputes over the agreed value of the yacht [IYIC-1985]. This behavior creates friction when the owner expects a prompt settlement based on the pre-agreed valuation. Documentation requirements include a written proof of loss, surveyor’s report, and repair estimates, all of which must be submitted within the policy notification period, typically aligned with the timeframes outlined in the Institute Time Clauses Hulls [ITC-H-1983]. Surveyors are usually engaged after the initial damage assessment by the yard, and their involvement is critical in verifying the extent of damage and confirming alignment with the agreed value. However, if the surveyor is not engaged promptly, discrepancies may arise between the yard’s initial assessment and the underwriter’s evaluation. Underwriters may also require a second survey if the initial report lacks clarity or contradicts the agreed value. Common mistakes include incomplete documentation, failure to involve a surveyor early, or not adhering to the notice requirements under the Marine Insurance Act 1906 [MIA-1906]. These errors can delay claims processing, reduce the settlement amount, or even result in a total loss being declared under the abandonment provision of the MIA 1906 [CTL-CLAUSE]. Class societies may also be involved if the yacht is classed, adding another layer of documentation and compliance.

Related Risks

Discrepancy between agreed value and actual market value at the time of loss → May result in underinsurance or overinsurance claims disputes under [IYIC-1985] and [MIA-1906] s.102.
Failure to adjust agreed value for depreciation or upgrades → Can trigger deductible application under [IYIC-CLAUSE-10] and affect total loss valuation under [CTL-CLAUSE].
Constructive total loss declaration based on agreed value exceeding repair costs → Triggers s.60 of [MIA-1906] and may conflict with salvage obligations under [LLOYDS-OPEN-FORM].
Named storm deductibles applied to agreed value losses → May reduce recovery under [LSW-3000] and interact with time clauses under [ITC-H-1983].

Questions for Your Broker

Does the policy specify the agreed value of the vessel, and are all appraised values documented and agreed upon in writing by both the insured and insurer [IYIC-1985] [MIA-1906]?
Are there sub-limits for specific coverage components such as machinery, electronics, or furnishings, and are these clearly defined in the policy schedule [IYIC-CLAUSE-10] [IHC-2003]?
Does the policy exclude coverage for damage caused by named storms, and if so, is a separate deductible clause such as LSW 3000 [LSW-3000] incorporated into the policy wording?
What is the required time frame for notifying the insurer of a loss, and does the policy specify the method and recipient of such notification [ICA-2015] [IYIC-1985]?
Does the policy require a surveyor’s report for any claim exceeding a certain threshold, and is this requirement outlined in the claims procedure section [IYIC-CLAUSE-10] [MIA-GUIDELINES]?
Under what conditions does the deductible apply, and is there a separate deductible for total loss versus partial loss scenarios [IYIC-CLAUSE-10] [CTL-CLAUSE]?

References

Institute Yacht Clauses (1.11.85) the relevant policy clause (Deductible) (framework) — https://www.fortunes-de-mer.com/documents%20pdf/polices%20corps/Etrangeres/Royaume%20Uni/Institute%20Yacht%20Clauses%201.11.85.pdf#clause10
Constructive Total Loss (MIA 1906 s.60) (legal) — https://www.legislation.gov.uk/ukpga/1906/41/section/60
Institute Yacht Clauses (1.11.85) (framework) — https://www.fortunes-de-mer.com/documents%20pdf/polices%20corps/Etrangeres/Royaume%20Uni/Institute%20Yacht%20Clauses%201.11.85.pdf
International Hull Clauses (01.11.03) (framework) — http://www.fortunes-de-mer.com/documents%20pdf/polices%20corps/Etrangeres/Royaume%20Uni/International%20Hull%20Clauses%202003.pdf
Marine Insurance Act 1906 (UK) (legal) — https://www.legislation.gov.uk/ukpga/1906/41/pdfs/ukpga_19060041_en.pdf
MIA Guidelines (other) — https://www.marineinsurance.org/
Insurance Act 2015 (UK) (legal) — https://www.legislation.gov.uk/ukpga/2015/4/pdfs/ukpga_20150004_en.pdf
Lloyd's Standard Form of Salvage Agreement (LOF 2020) (framework) — https://www.lloyds.com/market-resources/salvage-arbitration-branch/lloyds-open-form-lof
York-Antwerp Rules 2016 (General Average) (framework) — https://comitemaritime.org/wp-content/uploads/2018/06/2016-York-Antwerp-Rules-with-Rule-XVII-correction.pdf
Institute Time Clauses Hulls (1.10.83) (framework) — https://www.fortunes-de-mer.com/documents%20pdf/polices%20corps/Etrangeres/Royaume%20Uni/Institute%20Time%20Clauses%20Hulls%201.10.83.pdf
LMA/IUA Named Storm Deductible Clause (LSW 3000) (framework) — https://www.lmalloyds.com/LMA/Wordings/Marine/Marine_Cargo/LMA_Marine_Cargo_Clauses.aspx

Disclosure

This content is provided for informational purposes only and does not constitute insurance advice. Coverage terms vary by policy, jurisdiction, and underwriter. Consult a licensed marine insurance broker for guidance specific to your vessel and operations.