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Courtesy of Crowley

Protecting the Fleets in Alaska Waters

Crowley tug Nachik and barge DBL 165-2 off the coast of Kotzebue. The Nachik is a shallow-draft tug and the DBL 165-2 is a double-hull fuel and freight barge.

Insurance critical for marine transportation, commercial fishing, and other maritime businesses


By Tracy Barbour

he Alaska Marine Highway System (AMHS) has been rolling along since 1963, providing passenger and vehicle service to more than thirty communities in Alaska, plus Bellingham, Washington, and Prince Rupert, British Columbia. The AMHS has a fleet of eleven vessels that carry an average 312,000 passengers and ninetyeight thousand vehicles annually. However, none of this would be possible without the marine insurance the AMHS has in place to protect its vessels, passengers, and employees from certain risks associated with running the extensive system. Primarily, the state carries hull and machinery insurance to cover physical damage to the vessels, as well as protection and indemnity (P&I) coverage for the liability exposures (including pollution). “The exposure/risk would be too great if [we were] completely self-insured, so having the coverage is critical to the continuous operation of the fleet,” says General Manager Captain John Falvey Jr. Marine policies protect commercial vessels—ships, barges, tugs, fishing boats, factory trawlers, charter boats, and even shipping containers—for insured losses. The loss can include damages caused by machinery, fire, sinking, collision, inclement weather, and/or a pollution-related incident like an oil spill. Insurance also provides financial compensation for eligi-


ble maritime crews and other employees who suffer work-related injuries.

Types of Marine Insurance The two main types of policies purchased by marine transportation, commercial fishermen, and other maritime businesses are hull and machinery and P&I, according to Terry Johnson, a marine advisory agent and professor with the Alaska Sea Grant Marine Advisory Program. Hull and machinery insurance covers the vessel and its attached components, including engines, deck machinery, and electronics. Coverage is based on either the agreed or actual value. And the policy offers protection against “all risk” or “named hazards.” P&I insurance pays fleet owners if they suffer financial loss due to accidents involving or caused by their vessels. Covered incidents can include personal injury, illness to crew, wreck removal, salvage expenses, certain fines and penalties, and litigation expenses. Vessel owners who transport cargo and/or passengers for hire might need additional liability coverage and/or a cargo policy for equipment and other items not fixed to the boat. And depending on the circumstances, some maritime businesses also need breach of warranty insurance. This insurance pays off a lender in the event a vessel doesn’t have valid coverage due to being in

violation of its policy’s navigation limits, lay-up terms, crewing, or other provisions. So how much insurance is enough? It boils down to how much the vessel owner can afford to lose. “You’re not just insuring a boat; you’re insuring a business,” Johnson says. “You’re also insuring your future, so take into account all the costs that would be involved if you have a casualty with your boat.” Technically, hull and machinery insurance is a function of the vessel’s value, as determined by a survey—which minimizes the chances of under or over insuring. P&I insurance is more subjective, with minimum coverage often dictated by the lender. A P&I policy may not be nearly enough to protect all the owner’s assets, but the idea is to provide a big enough payoff (if the owner is found liable) to buy off a settlement or pay a court-ordered judgement, Johnson says.

Technically not a Legal Requirement Marine insurance is a practical necessity because of the myriad of risks and responsibilities that vessel owners have, according to R. Isaak Hurst, Esq., principal attorney for International Maritime Group PLLC—a maritime law firm based in Seattle. Vessel owners have serious legal obligations toward their employees. Here’s why:

Alaska Business Monthly | June

Alaska Business Monthly June 2015  

Ravn Alaska CEO Bob Hajdukovich on the tarmac in front of the company’s hangar at Ted Stevens Anchorage International Airport. The company’s...

Alaska Business Monthly June 2015  

Ravn Alaska CEO Bob Hajdukovich on the tarmac in front of the company’s hangar at Ted Stevens Anchorage International Airport. The company’s...