MyYachtsInsurance - Yacht Insurance Community

Reviewed by Alex Short, Independent Yacht Insurance Risk Analyst

TL;DR

Agreed value coverage in yacht insurance is a hull policy feature where the insurer and owner pre-establish the vessel's insured value. This coverage type activates upon total loss or constructive total loss [CTL-CLAUSE], with payout based on the agreed value regardless of market fluctuations. Coverage is limited by exclusions such as the care, custody, and control clause [IYIC-CLAUSE-10] and deductible requirements [IYIC-CLAUSE-10]. It does not apply to losses excluded under the policy, such as those arising from unseaworthiness or failure to maintain the vessel in good condition [IYIC-1985].

Trigger Conditions

Trigger	Policy Impact	Consequence
Material change not disclosed	Breach of warranty under IYIC-1985	Coverage void [IYIC-1985]
Class suspended or withdrawn	Breach of maintenance obligations	Losses excluded [IYIC-1985]
Refit/lay-up not notified within 30 days	Breach of notice requirement	Deductible increased or coverage denied [IYIC-CLAUSE-10]
Navigation limits breached	Breach of warranty under ITC-H-1983	Losses excluded [ITC-H-1983]
Hot work without approval	Breach of safety clause	Losses excluded [IYIC-1985]
Contractor assumes custody	Breach of care, custody, and control clause	Coverage void [IYIC-CLAUSE-10]

Underwriter's Checklist

Survey reports: Underwriters verify the vessel’s current condition and agreed value to ensure accurate valuation and coverage limits align with the agreed value clause [IYIC-1985] [IYIC-CLAUSE-10].
Class certificates and status: Confirm the vessel is in good standing with a recognized classification society, ensuring compliance with safety and construction standards [IHC-2003] [MIA-GUIDELINES].
Maintenance logs: Review for regular and documented maintenance to assess risk of mechanical failure and uphold policy conditions [IYIC-1985] [IYIC-CLAUSE-10].
Refit/modification records: Evaluate the impact of any structural or mechanical changes on the vessel’s value and risk profile, ensuring coverage remains appropriate [IYIC-1985] [IHC-2003].
Crew qualifications: Confirm crew competency and licensing to mitigate human error risks, especially for vessels operating in complex or international waters [MIA-1906] [IYIC-1985].
Navigation area endorsements: Verify the vessel’s operating area to ensure coverage is valid for the agreed value and risk exposure [IYIC-1985] [IYIC-CLAUSE-10].
Loss history declarations: Assess prior claims to evaluate the vessel’s loss experience and determine appropriate agreed value and premium [MIA-1906] [IYIC-1985].
Named storm deductible declarations: Confirm the vessel is subject to a named storm deductible clause, aligning with standard practice for agreed value coverage [LSW-3000] [IYIC-CLAUSE-10].

Policy Wording Traps

Clause Type	Trap Mechanism	Scenario	Coverage Result
Agreed Value Clause	Policy value is fixed at time of issue, no adjustment for depreciation	Owner agrees to $1.2M agreed value for a 10-year-old yacht; later it depreciates to $800K	Insurer pays only $1.2M, even if actual value is lower [IYIC-1985]
Deductible Clause	Deductible applies to all claims, including partial losses	Yacht sustains $10K damage from a storm; deductible is $5K	Insurer pays $5K, owner bears remaining $5K [IYIC-CLAUSE-10]
Latent Defect Carve-Out	Excludes losses from pre-existing hidden defects	Owner purchases a used yacht with a hidden hull crack; it later causes flooding	Claim denied as loss is due to latent defect [IYIC-1985]
Material Change Warranty	Policy void if substantial change not disclosed	Owner converts yacht into a commercial charter vessel without notifying insurer	Insurer denies claim due to breach of warranty [MIA-1906]
Faulty Workmanship Exclusion	Excludes damage from poor repair or construction	Owner hires a contractor who improperly installs the engine; it fails	Claim denied as loss is due to faulty workmanship [IHC-2003]

Operational Reality

Yard operators often fail to document agreed value assessments accurately, leading to disputes during claims [IYIC-1985]. Owners may sign off on initial valuations without fully understanding the binding nature of the agreed value under the policy, which is typically set at the time of placement and does not adjust for depreciation [IYIC-CLAUSE-10]. Surveyors are usually involved during the initial underwriting process and again post-loss to confirm the vessel's condition, but their reports are not always updated to reflect changes in market value or condition [IHC-2003]. Documentation requirements include a signed agreed value endorsement, surveyor's report, and proof of prior valuation, all of which must be submitted to the underwriter before policy inception. A common mistake is failing to update the agreed value when significant modifications are made, which can result in underinsurance or overinsurance. Notice of claim must be provided "as soon as practicable," though specific timeframes are not codified in the available references [MIA-1906]. Underwriters may reject claims if the agreed value is not substantiated by proper documentation or if the vessel has undergone changes not reflected in the policy. Class societies are not typically involved in agreed value assessments unless the vessel is registered with a classification society that mandates specific valuation protocols.

Related Risks

Underinsurance risk → Agreed value coverage may lead to overpayment if the yacht's market value exceeds the agreed value at the time of loss [IYIC-1985].
Depreciation discrepancy → The agreed value may not account for rapid depreciation, creating a gap between the insured value and actual cash value [IYIC-CLAUSE-10].
Salvage and general average participation → Agreed value may influence the insured's contribution to general average under York-Antwerp Rules 2016 [YORK-ANTWERP-2016].
Constructive total loss determination → The agreed value may affect the threshold for declaring a constructive total loss under MIA 1906 s.60 [CTL-CLAUSE].

Questions for Your Broker

Does the policy specify the agreed value of the vessel, and are all appraised values documented in accordance with [IYIC-1985] and [MIA-1906] valuation principles?
Are coverage limits for machinery, electronics, or other specified items clearly defined and subject to sub-limits under [IYIC-CLAUSE-10] or [IHC-2003]?
Does the policy exclude coverage for damage caused by named storms, and if so, is a deductible under [LSW-3000] applicable?
What is the required notice period for claims under [IYIC-1985], and are there specific reporting requirements under [MIA-GUIDELINES]?
Under what conditions does the deductible apply for partial losses, and is it subject to a separate deductible for total loss under [IYIC-CLAUSE-10]?
Does the policy require the vessel to comply with warranties under [IYIC-1985], and what are the consequences of non-compliance under [MIA-1906] s.60?

References

Constructive Total Loss (MIA 1906 s.60) (legal) — https://www.legislation.gov.uk/ukpga/1906/41/section/60
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
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
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
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
MIA Guidelines (other) — https://www.marineinsurance.org/
Marine Insurance Act 1906 (UK) (legal) — https://www.legislation.gov.uk/ukpga/1906/41/pdfs/ukpga_19060041_en.pdf
LMA/IUA Named Storm Deductible Clause (LSW 3000) (framework) — https://www.lmalloyds.com/LMA/Wordings/Marine/Marine_Cargo/LMA_Marine_Cargo_Clauses.aspx
York-Antwerp Rules 2016 (General Average) (framework) — https://comitemaritime.org/wp-content/uploads/2018/06/2016-York-Antwerp-Rules-with-Rule-XVII-correction.pdf

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.

Agreed Value Coverage in Yacht Insurance: Definition and Implications