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May 15, 2024.

Compulsory insurance of vessels - owners' peace of mind or just a regulatory requirement?

In our recent years’ practice, we have been witnessing a significant number of disputes arising from marine casualties involving Montenegrin flagged yachts and pleasure boats (the “yachts”). The most encountered casualties have been related to the collisions of the yachts and/or environmental pollution from the yachts. They usually result in full liability of the owners of the faulty yachts for damage caused to other collided yacht, i.e. for damage caused by pollution from their yacht, subject to applicable laws.

In many of the cases described, the owners relied on their compulsory insurance policy to cover their liability.  That is why they were shocked to find out that such insurance does not provide relevant coverage, leaving them obliged to compensate for the said damages by themselves.

The reason for this unfortunate misconception lies in insufficient attention paid by the owners to the liability and insurance issues when registering their yachts. Having and maintaining the insurance policies in place the owners sometimes consider just as meeting the regulatory requirements, so they lose from their sight the main purpose of insurance coverage – protection and financial security. They also underestimate the risks pertinent to maritime navigation.

Sometimes, the insufficient insurance coverage is also due to poor legal advice provided to the owners.

However, the reasons could also be traced back to somewhat misleading provisions of respective Montenegrin laws.

For example, for registering the yacht under the Montenegrin flag, the Law on Yachts prescribes a requirement of having a compulsory insurance policy “in accordance with the law regulating the compulsory insurance in traffic” (Article 13, paragraph 1(4)).

In lack of other respective laws and provisions, owners of yachts and other pleasure craft are referred to the Montenegrin law regulating compulsory insurance in traffic. The exception is made for Montenegrin registered vesselss of 300 GT or more for which the Law on Safety of Maritime Navigation prescribes obligation to have a certificate of liability insurance for maritime claims in accordance with the 1976 LLMC, up to the amount insurances established by the 1996 Protocol.

Article 2 of the Law on Compulsory Insurance in Traffic (Official Gazette no. 44/2012 and 146/2021) (the “Law”) prescribes that the classes of the compulsory traffic insurance for the vessels are (1) the insurance of passengers in public transport against accident (for passenger vessels) and (2) the owners’ insurance against liability for damages caused to third parties.

Whilst the passenger insurance is more or less self-explanatory, the third-party liability insurance requires more detailed understanding and explanation.

Article 45 of the Law stipulates that the owner or authorized operator of the vessel is obliged to conclude a liability insurance contract for damage caused to third parties by use of the vessel by inflicting bodily injuries, impairing health or death.

The above damage shall also include damage caused to a third party as a result of things falling from a vessel or things being thrown from a vessel.

Third party, in the sense of the Law, shall be any person, except the person responsible for the damage and the person who is not entitled to compensation in accordance with the Law.

The minimum insured sum shall be EUR 800,000.00 for the yachts.

As it can be concluded, the compulsory third party liability insurance does not cover damage to other vessel, port facilities or any kind of damage to property caused by yacht. It also does not cover any kind of damage caused to legal persons (who cannot suffer bodily injuries or death), financial losses of any kind, loss of income/profit etc.

Unless the owner has additional CASCO insurance policy in place, there would not be any coverage for damage caused to its yacht as well.

The situation can be more critical in case of environmental damage. Nowadays, there are many sources of pollution caused by the yachts (oil pollution, bunker spill, dumping of waste, ballast water pollution etc.) which can cause significant damage to the environment. The strict liability of owner for the said damage is more than good reason for having the appropriate insurance coverage in place.

There are many more risks to be considered by the owners when acquiring the yacht, depending on her purpose and navigation plan. It is our intention to give owners a heads up for at least some of the most common implications of sticking to the compulsory insurance policy only.

Therefore, it can be concluded that:

- It is crucial to note that the compulsory insurance coverage in Montenegro does not extend to damages caused to the property of the third parties. In other words, if the yacht collides with another boat or causes damage to someone else's property, the compulsory insurance won't cover those material damages. 

- It should be remembered that the compulsory insurance coverage is limited to the Montenegrin territory only and shall not extend outside the boundaries of its territorial waters.

- Unlike motor third-party liability insurance, which covers both material and non-material damages caused by vehicles, compulsory vessel insurance focuses solely on bodily injuries and health impairments.

- Environmental damages, such as sea pollution, are not within the scope of this insurance. Yacht owners should be cautious about any potential harm to the marine environment and take additional measures to prevent pollution.

- The law is clear: the use of a vessel without an insurance contract is forbidden. If the owners operate an uninsured yacht and cause damages, they will be personally liable for compensating the affected parties. It is advisable for the owners to avoid putting themselves in an extremely difficult position by ensuring their yacht is adequately insured.

- While compulsory insurance does not cover property damage to other vessels, owners can seek additional coverage for material damages. This extra protection must be agreed upon directly with an insurance company.

- Considering the potential costs associated with even minor accidents involving other vessels, it's advisable to explore these supplementary options.

The owners are warmly recommended to consider adding CASCO insurance to their policy which would cover damages to their own yacht, irrespective of who is fault for the damage.

In summary, owners shall always bear in mind that the compulsory vessel insurance in Montenegro serves as a safety net for bodily injuries and health-related incidents caused by their boat or yacht.

It should be remembered: A well-insured vessel ensures peace of mind and responsible navigation on Montenegro's beautiful waters.

With more than 30 years of advising clients in marine insurance related matters, Abaco is always ready to provide a tailored made advise for our clients and help them obtain the optimal protection and financial security.