5.4 Aviation, Watercraft & Yacht/Boatowners Coverage

5.4 Aviation, Watercraft & Yacht/Boatowners Coverage

Quick Reference: Standard liability forms deliberately push aircraft and larger watercraft out the door. The CGL excludes bodily injury and property damage arising out of the ownership, maintenance, use, or entrustment to others of any aircraft, auto, or watercraft owned, operated, rented, or loaned to the insured. The homeowners liability section excludes watercraft above stated size and power thresholds and excludes aircraft entirely. Those exclusions create the aviation and yacht/boatowners markets. An all-lines Texas adjuster can be assigned to either.

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1. Why These Exposures Are Excluded Everywhere Else

The CGL carves back a limited exception: liability for watercraft ashore at premises the insured owns or rents, and for non-owned watercraft under a stated length that is not being used to carry persons or property for a charge, remains covered. The mirror-image structure appears in homeowners forms. Read the size, power, ownership, and for-a-charge tests before concluding the exposure is uninsured — many small-craft claims are covered right where the candidate expects an exclusion.

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2. Aviation Insurance

Aviation is written by a small group of specialty underwriters, largely outside ISO forms, but the structure is consistent enough to test.

Hull Coverage — Three Standard Bases

The declarations state when physical damage coverage applies, and the difference decides entire claims:

"In flight" is usually defined as beginning at the application of power for takeoff and continuing until the landing run ends. Hull values are commonly written on an agreed value or stated amount basis, with deductibles frequently stated separately for in-motion and not-in-motion losses.

Aviation Liability — Separate Insuring Agreements

Aviation liability is customarily split, and the split matters because the passenger sublimit caps the largest exposure:

• Bodily Injury Liability Excluding Passengers — injury to persons on the ground and in other aircraft.
• Passenger Bodily Injury Liability — injury to persons aboard the insured aircraft, typically subject to a per-passenger sublimit inside the combined single limit.
• Property Damage Liability — damage to property of others, including other aircraft, hangars, and ground equipment.
• Medical Payments — small per-seat limits, paid without regard to fault.
• Admitted liability / voluntary settlement — a per-seat amount offered in exchange for a release, common where passengers are employees or guests.

A typical declaration reads "$1,000,000 combined single limit, $100,000 per passenger." An adjuster handling a six-seat aircraft loss must apply the per-passenger cap before the overall limit, not after.

The Clauses That Decide Aviation Claims

1. Pilot Warranty (Pilot Clause). Coverage applies only while the aircraft is operated in flight by a pilot named in the declarations, or by a pilot holding stated certificates, ratings, and minimum flight hours — total time, time in make and model, and instrument time. A loss with a non-conforming pilot at the controls is a denial in almost every aviation form. This is the most common aviation coverage dispute.
2. Purpose of Use. The declarations state the approved use: pleasure and business (no charge to passengers), industrial aid (company aircraft flown by professional crews), commercial (carrying persons or cargo for hire), special use (crop dusting, banner towing, flight instruction, patrol). Operating outside the stated purpose suspends coverage.
3. Geographic Limits. Coverage territory is stated — commonly the United States, Canada, Mexico, the Bahamas, and intervening waters. A flight beyond the territory is outside coverage.
4. Airworthiness. The aircraft must have a current, valid airworthiness certificate and be maintained under applicable federal regulations.
5. War, hijacking, and confiscation are excluded and bought back separately where needed.

Texas Note: Agricultural aviation is a live exposure across the Texas High Plains and the Rio Grande Valley, and it sits in the special use category with chemical drift and pollution issues layered on top. It is also a reminder that CGL excludes aircraft: a crop-dusting operator's general liability policy will not answer for the drift claim.

3. Watercraft: From Homeowners Sub-Limits to Yacht Policies

What the Homeowners Policy Already Does

Before reaching for a specialty form, an adjuster must check what the homeowners policy covers, because small-craft losses often belong there:

• Section I (Property): Watercraft, along with their trailers, furnishings, equipment, and outboard motors, are subject to a special limit of liability for theft and other perils that is far below the Coverage C limit. Texas homeowners forms and the HO-3 alike cap this exposure at a modest dollar figure.
• Section II (Liability): Coverage applies to small, low-powered craft but is excluded for watercraft above stated horsepower and length thresholds, for craft owned by or rented to an insured above those thresholds, and for any watercraft used to carry persons or cargo for a charge or used in a prearranged racing event (sailboats often excepted).

Boatowners Policies

A boatowners policy is a package for small and mid-sized recreational craft — runabouts, bass boats, pontoon boats, personal watercraft. It typically bundles:

• Physical damage to hull, motor, and trailer, often on an agreed-value or replacement-cost basis for newer craft;
• Liability for bodily injury and property damage to others;
• Medical payments for occupants;
• Uninsured/underinsured boaters coverage;
• Wreck removal, pollution liability, and on-water towing and assistance.

Yacht Policies

A yacht policy is written for larger pleasure craft (commonly 26 feet and up) and openly borrows ocean marine machinery:

Yacht policy warranties are the exam hook, because breaching one suspends coverage:

• Navigational limits — the waters in which the vessel may be operated (e.g., "Gulf of Mexico waters, not south of 22 degrees north latitude"). A Texas-based yacht that cruises to the Caribbean outside the stated limits may have no coverage.
• Lay-up warranty — the vessel must be out of commission and secured during a stated period each year, often in exchange for a reduced premium. Operating during lay-up breaches the warranty.
• Seaworthiness — the same implied marine warranty that governs commercial hulls.
• Named-storm haul-out — many Gulf Coast yacht policies require the vessel to be hauled or moved to a hurricane hole on a named-storm watch, with a percentage deductible if it is not.

WHICH POLICY PAYS? A WATERCRAFT DECISION PATH

Craft is a small, low-powered boat within the HO liability thresholds
   -> Homeowners Section II liability; Section I special limit for the hull

Craft exceeds the HO horsepower/length thresholds, or is carried for a charge
   -> Homeowners liability EXCLUDED; boatowners or yacht policy needed

Craft is a larger pleasure vessel, agreed value, with paid crew
   -> Yacht policy: hull + P&I + Jones Act/LHWCA for the crew

Craft is a commercial vessel carrying cargo or passengers for hire
   -> Commercial ocean marine: hull + P&I; Jones Act for seamen

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4. How an Adjuster Works These Claims

1. Read the declarations first, not the loss facts. Aviation and yacht coverage is warranty-driven. The pilot's logbook, the navigational limits, and the lay-up dates decide more claims than the physical cause of loss.
2. Confirm the operator. For aircraft, obtain the pilot's certificate, ratings, medical, and total and make-and-model hours, and compare them to the pilot warranty. For yachts, confirm whether paid crew were aboard, which pulls in Jones Act and Longshore exposures.
3. Preserve wreckage and records. Aviation losses involve NTSB and FAA proceedings; do not release wreckage without coordinating with counsel and the investigating authority.
4. Check the exclusion carve-backs before declining. Many "watercraft is excluded" conclusions are wrong because the craft fell under the CGL or homeowners size, power, or ownership thresholds.
5. Remember the Texas statutory treatment. A yacht written as ocean marine falls outside the Prompt Payment of Claims Act under TIC § 542.053(a)(5) and outside guaranty association protection under TIC § 462.007(b)(7). A boatowners policy written as inland marine or as a personal lines package does not enjoy those exclusions, and the Chapter 542 clocks run normally.