Boats, Recreational Vehicles and Personal Floaters
A Michigan household owns more than a house and two cars. It may have a pontoon boat, an all-terrain vehicle, a snowmobile, a motorcycle and a ring worth more than the homeowners policy will pay for. Each of these sits at the edge of a standard policy, and each edge is a place where a claim fails. The homeowners and auto policy language at those edges is read here and applied to cases. It then works a scheduled property loss. Policy wording comes from the standard homeowners 3 form (edition 05 11) and the personal auto policy (edition 09 18), and a client’s own edition governs. Names and figures are invented for practice.
What a Homeowners Policy Does for a Boat
The homeowners 3 form handles watercraft in three separate places, and each gives a different answer.
On the property side, Coverage C limits all watercraft, including their trailers, furnishings, equipment and outboard engines, to $1,500 for any one loss. The peril of windstorm or hail covers a boat only while it is inside a fully enclosed building. Theft is not a covered peril for watercraft or their equipment and engines when the theft occurs away from the residence premises. A boat on a lake or at a marina dock is therefore close to uninsured under this policy.
On the liability side, the policy excludes watercraft liability unless the craft falls into a described group. Liability for a craft is covered while it is stored. Otherwise coverage depends on the type and size of the boat and on who owns it.
| Watercraft | Liability under the homeowners form |
|---|---|
| Sailboat under 26 feet, owned | Covered |
| Sailboat of 26 feet or more, owned or rented by an insured | Not covered |
| Sailboat of 26 feet or more, borrowed from a friend | Covered |
| Outboard of 25 total horsepower or less, owned | Covered |
| Outboard of more than 25 horsepower, owned, acquired during the policy period | Covered for the policy period |
| Outboard of more than 25 horsepower, owned before the policy period | Covered only if declared at inception or reported in writing within 45 days after acquiring it |
| Inboard or inboard-outdrive boat, owned by an insured | Not covered at any horsepower |
Each row is a coverage decision a producer must make before the loss. A client who buys a 21-foot inboard-outdrive cruiser has bought a boat the homeowners policy will not defend a suit over, and neither will it pay a judgment. The exclusions for racing, for renting the boat to others, for carrying persons or cargo for a charge and for business use also apply. The racing exclusion does not apply to a sailing vessel or a predicted log cruise.
A Worked Boat Loss
Priya Nair owns an 18-foot runabout with a 90-horsepower outboard motor and a trailer. Together they have an actual cash value of $26,000. She keeps them in her garage over the winter.
A garage fire destroys the boat, the motor and the trailer. Fire is a covered peril, but the special limit for watercraft and their trailers is $1,500, so a client with only the homeowners policy is paid $1,500 before the deductible. The remaining $24,500 is uninsured.
Priya does have a boat policy, which describes the runabout, its motor and its trailer. A boat policy is a package that insures the boat and covers liability from its operation. Boat policy forms vary a good deal by insurer, but a boat policy is generally written on an all-risk basis, with property losses settled at actual cash value subject to a deductible. The homeowners form does not cover articles separately described and specifically insured in other insurance, so the boat policy is the one that answers the fire. Suppose the deductible is $500 and the boat policy pays the $26,000 actual cash value. It pays $26,000 less $500, or $25,500. Later, a storm damages the runabout at a marina dock. Windstorm does not reach it under the homeowners policy, since it is outside a building. The boat policy pays the repair cost, $11,400, less $500, or $10,900.
When a client buys a boat, the producer asks four things: the length, the type of power, the horsepower and where it will be kept. Those four facts decide whether the homeowners liability coverage applies and what the boat policy must provide.
Snowmobiles, ATVs and Other Off-Road Vehicles
An all-terrain vehicle or a snowmobile is a “motor vehicle” under the homeowners definition, which includes any self-propelled land or amphibious vehicle. That label has two effects.
First, Coverage C does not cover motor vehicles, with narrow exceptions such as vehicles used only to service the residence. Property damage to the ATV itself is not a homeowners claim.
Second, the policy excludes motor vehicle liability in several situations. Look at an off-road vehicle owned by an insured. Its liability is covered only if the occurrence takes place on an “insured location,” which the form defines as the residence premises and certain other places. If the same accident happens off an insured location, the exclusion applies. An off-road vehicle that an insured does not own, such as a borrowed ATV, has no such limit. Several other categories are never covered: vehicles registered for public roads, vehicles not registered where the law requires registration for use at that place, and vehicles raced, rented, used for a charge or used for business. A motorized golf cart is covered only within narrow conditions, one of which is its location at a golf facility.
The personal auto policy does not fill the gap. Its liability coverage does not apply to ownership, maintenance or use of any vehicle that has fewer than four wheels or is designed mainly for use off public roads, with narrow exceptions such as trailers and a non-owned golf cart. Medical payments coverage also excludes an injury sustained while occupying a motorized vehicle with fewer than four wheels.
Two Accidents, One Vehicle
Tyler Beaumont owns an ATV. In the first accident, he runs over a visiting neighbor’s child in his own yard. The yard is part of the residence premises, so the homeowners liability coverage applies. In the second accident he collides with a rider on a public trail miles from home. The ATV is owned by an insured and the occurrence is not on an insured location, so the homeowners policy does not respond. The auto policy excludes the vehicle. Michigan’s no-fault chapter does not fill the gap either. It defines “motor vehicle” to exclude an ORV, which includes an all-terrain vehicle (MCL 500.3101(3)(i), (k)). Tyler needs a policy written for the vehicle itself. Many insurers extend an auto policy to such vehicles by a miscellaneous type vehicle endorsement, and others write a separate recreational vehicle policy. The terms differ by insurer, so a producer reads the endorsement.
Motorcycles
A motorcycle falls under the auto policy’s exclusion for vehicles with fewer than four wheels, so it needs its own policy. Michigan law sets the structure.
A motorcycle is not a “motor vehicle” under the no-fault chapter (MCL 500.3101(3)(i)). Its owner or registrant must carry liability security that conforms to MCL 500.3009(1), and an insurer that covers a motorcycle must also offer first-party medical benefits only, in increments of $5,000 (MCL 500.3103). That is not personal protection insurance. A motorcyclist who is hurt in an accident that involves a motor vehicle claims personal protection benefits first from the insurer of the owner or registrant of that motor vehicle, then from the insurer of its operator, then from the motor vehicle insurers of the motorcycle’s operator and owner, in that order (MCL 500.3114(5)). An insurer in that order whose policy carries no personal protection coverage, because of an election under MCL 500.3107d or an exclusion, is passed over for the next one (MCL 500.3114(6)). When no motor vehicle is involved, the order does not come into play, and what the rider has is the first-party medical coverage on the motorcycle policy, if the rider bought it.
Where Each Item Goes
A short review of a client’s belongings shows where the gaps are. The table summarizes the answers worked above.
| Item | Homeowners policy | Auto policy | What the client needs |
|---|---|---|---|
| 18-foot runabout, 90 horsepower | $1,500 on property, no liability for an owned motor over 25 horsepower unless acquired during the policy period, declared or reported | No | Boat policy |
| Owned ATV or snowmobile | No property coverage, liability only on an insured location | Excluded | Vehicle endorsement or separate policy |
| Motorcycle | No property coverage, no liability when registered for public roads | Excluded | Motorcycle policy with the liability security Michigan requires |
| Engagement ring | $1,500 theft limit | No | Scheduled jewelry |
| Golf cart | Narrow conditions at a golf facility | Non-owned only | Check the policy, then endorse |
Cancelling a Policy on a Boat or Recreational Vehicle
A Michigan casualty policy, including all motor vehicle coverage, must allow the insured to cancel at any time, with a refund of the premium above the pro rata amount for the expired time (MCL 500.3020(1)(a)). One exception matters here. An insurer may provide for a short rate premium for insurance on a motorcycle, watercraft, off-road vehicle or snowmobile (MCL 500.3020(4)). Short rate lets the insurer keep more than the pro rata share, because the early cancellation costs it the expense of writing the policy.
Take a $720 annual boat premium cancelled by the insured after 150 days.
- Pro rata: $720 times 150 divided by 365 is $295.89 earned, so the refund is $424.11.
- Short rate: the insurer’s filed table decides. If, in an invented table, 150 days earns 50% of the annual premium, then $360 is earned and the refund is $360.
The $64.11 difference is the cost of cancelling early. For an automobile policy short rate is not allowed, because the statute lists only the four vehicle types. The refund is pro rata unless the insurer has filed a minimum retention rule, which cannot apply to a renewal policy (MCL 500.3020(2)). For other casualty policies, the minimum earned premium is the greater of the pro rata amount or $25 (MCL 500.3020(1)(c)). A producer should tell a boat owner about the short rate before the policy is sold.
Scheduled Personal Property and Floaters
A homeowners policy pays on contents at actual cash value and caps theft of jewelry at $1,500 and theft of silverware at $2,500. Scheduling answers both limits. A scheduled personal property endorsement, or a personal articles floater, lists each item with an amount of insurance. It is typically written on an open-perils basis with worldwide coverage and with no deductible. Settlement of most items is at the least of four amounts: the actual cash value, the cost to repair, the cost to replace, and the amount of insurance. Fine arts are paid at the scheduled amount, which is agreed to be their value.
Standard forms generally work this way, and a client’s endorsement controls.
A Worked Scheduled Loss
The Delacroix household schedules three items.
| Item | Class | Amount of insurance |
|---|---|---|
| Engagement ring | Jewelry | $8,500 |
| Camera and lenses | Cameras | $2,400 |
| Oil painting | Fine arts | $15,000 |
Three losses happen in one year.
- The ring is stolen. Its actual cash value is $8,100, replacement would cost $8,900 and the amount of insurance is $8,500. The least of those is $8,100. With no deductible, the payment is $8,100. Without scheduling, the homeowners theft limit would have paid $1,500, so the endorsement adds $6,600.
- The camera is dropped and a lens is damaged. Repair costs $780, actual cash value is $1,900 and replacement would cost $2,300. The least amount is the $780 repair, so the payment is $780.
- The painting is destroyed in a fire. Fine arts are paid at the scheduled amount, so the payment is $15,000 whatever a dealer would say the painting is now worth.
The three payments total $8,100 plus $780 plus $15,000, or $23,880. The ring shows the cost of an old schedule. Actual cash value caps the payment at $8,100, which leaves the owner $800 short of the $8,900 replacement cost, and the $8,500 amount of insurance is itself $400 under replacement cost. A producer reviews scheduled values every few years, and asks about new purchases. Many forms cover newly acquired items of a scheduled class for a limited time if the insured reports them and pays the premium.
The floater and the endorsement differ in how they are written. The endorsement is available only to an insured who has the homeowners policy and ends when that policy ends. A floater is a separate inland marine policy that can be written for someone who rents and has no homeowners policy at all.
Lesson summary
- A homeowners policy pays at most $1,500 for a boat, its motor and trailer, and covers windstorm to a boat only inside a fully enclosed building. Boats away from the residence premises are not covered for theft.
- Homeowners liability for a boat depends on type, length, horsepower and ownership. An owned inboard or inboard-outdrive boat, an owned sailboat of 26 feet or more and an owned outboard over 25 horsepower that was not declared or reported are not covered.
- A snowmobile or ATV is a motor vehicle under the homeowners form, so an owned one is covered for liability only on an insured location, and its own damage is not covered.
- The auto policy does not apply to vehicles with fewer than four wheels or those designed mainly for off-road use. Michigan’s no-fault chapter does not treat motorcycles or ORVs as motor vehicles, and a motorcycle owner must carry liability security and the insurer must offer first-party medical benefits in $5,000 increments.
- Michigan allows short rate on motorcycle, watercraft, off-road vehicle and snowmobile policies only. Otherwise a refund to an insured who cancels is pro rata, subject to the statute’s minimum earned premium and retention rules (MCL 500.3020).
- Scheduling sets each item’s amount of insurance, usually with no deductible, and settles at the least of actual cash value, repair cost, replacement cost and the amount of insurance. Fine arts are paid at the scheduled amount.