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All Marine Insurance Coverage: Testimonials

When Selling Yacht Insurance, Beware of Fraud on the High Seas

by George Williams, CPCU

With warmer weather ahead, boat shows are being held in many parts of the country. Manufacturers display their latest models on the floors of convention halls, and thousands of people come in to take a look. Many boats are bought at these shows, giving agents the opportunity to write new business. But they should take care. It’s just possible that someone who asks you for boat insurance will turn out to be more pirate than prospect.

Craig Schneider, vice president of Bruce V. Schneider Associate’s All Marine Insurance Agency, thinks he recently may have encountered such a person and e-mailed me about the incident. I then contacted him to obtain more information. Schneider’s experience, which follows below, certainly serves as a cautionary tale for all agents and brokers.

Schneider’s agency specializes in boat and yacht insurance, as well as commercial marine insurance, and does business on both a retail and wholesale basis. Several weeks ago, the agency had a booth at a major New York boat show. On the first business day after the close of the show, the agency received a phone call from a person who claimed to have attended the show and taken one of the agency’s business cards, although the individual did not have time right then to talk.

The caller was contacting the agency now to obtain coverage on a yacht, which the individual claimed to have just purchased and needed to move from the dealership to the proud new owner’s home port. The price tag was well over $500,000. Schneider said the agency obtained all the information needed to obtain quotes for this risk, including information on the owner, prior boating experience, loss history, vessel information, intended navigation area and other underwriting particulars.

The agency obtained quotes from several markets. It reviewed the quotes with the prospect. After several phone calls back and forth, the prospect asked to have coverage bound. Marine insurers customarily will permit agents to bind, Schneider said, as long as they obtain a signed application and send in a bill of sale within 30 days. But in this case, Schneider said he decided as a precaution to ask for the bill of sale first. The prospect duly sent him one. The signed bill of sale displayed the identification number from the yacht’s hull. But Schneider said the sales tax did not appear on the document, which struck him as odd. Also, there were no ID numbers for the yacht’s two inboard engines, not that they are necessarily required or always provided on a bill of sale. Still, the lack of engine ID numbers gave the agency a legitimate reason to contact the salesperson for further information, without appearing to make any implications about his client.

The bill of sale appeared to have been issued by a New England satellite office of a national boat dealership, which had jointly exhibited at the boat show with the manufacturer of the yacht the agency had been asked to insure. The satellite office had been in business for only a few weeks and had recently participated in a handful of shows in their immediate area. Sales representatives routinely display and distribute product brochures and business cards for interested clients at such shows.

The person Schneider reached at the satellite office expressed surprise at the call. This person, who was not the dealership employee named on the bill of sale, said he couldn’t recall any recent sale of such a high-value boat, which certainly would have gotten his attention. He said he would look into the matter and call back.

Subsequently, Schneider received a call not from the satellite office but rather from the director of sales for the national dealership itself. He told Schneider he was calling from a show room in New York, where he was standing next to the very boat with the hull ID number Schneider had inquired about. The director of sales asked for a copy of the bill of sale, which the agency faxed to him. He said the bill of sale was not their document, and that the individual who was alleged to have signed it would not have been authorized to do so.

Schneider said he had been concerned about the possibility of fraud all along. An extremely attractive sales opportunity had come out of nowhere, he said, from someone he never did meet in person. Adding to his suspicions was the fact that the caller had requested a territorial scope of coverage that extended from Maine to Florida and into the Bahamas. The caller also wanted coverage for a state-of-the-art life raft purchased for the yacht.

Given all of this, Schneider said he couldn’t help but wonder whether the caller had attended the boat show, gathered business cards from boat dealers and insurance agencies, and written down the identification number from the hull of a high-value yacht on display—all with the intention of committing fraud. The timing of the person’s call (immediately after the show) and the presentation of a bill of sale from a recently opened office could have been calculated to take advantage of any possible confusion, Schneider said. The caller could have used a personal computer to create a realistic-looking bill of sale, he added, using information from the business cards to complete it and forging a signature. Had the agency bound coverage on the boat, Schneider said, the caller could have submitted a claim for a total loss within a few weeks or even days, stating that the vessel irretrievably had been lost in a deep part of the Atlantic after the caller was forced to abandon it for the life raft. Furthermore, Schneider pointed out, if the agency had taken advantage of the full 30-day grace period it had to get the bill of sale for the insurer, such a fraud could have been committed before the agency even had a chance to see the document.

Interestingly enough, the caller contacted Schneider about three weeks after sending in the bill of sale to inquire about the policy. Schneider replied there was a problem—specifically that the identification number the caller provided also appeared on a boat still in a showroom. The caller expressed utter disbelief and suggested that perhaps a digit on the ID number was off, leading to the confusion.

Schneider relayed the boat dealer’s request to speak to the caller, who said to have him call. When I last spoke with Schneider, he said the boat dealer only had been able to leave a message, which so far had not been returned. Schneider said that because the caller had signed an application for insurance, his insurer decided to refer the matter to its fraud division, as well as notify the National Insurance Crime Bureau and the state attorney general’s office. He said the insurer also thanked the agency for its diligence.

As this was written, no one had been charged with a crime. No matter how the incident turns out, however, the moral of the story is clear. Always stay alert, Schneider advises, particularly when doing business in connection with boat and yacht shows. Although many insurers allow agents to bind coverage upon getting a signed app and a check, it’s wise to get the bill of sale first, he said, especially on a high-value yacht. And if you sense something could be amiss, he advised taking the extra step of contacting the boat dealer to make sure you’re not insuring a “paper” boat.

Finally, if you sell insurance to boat dealers as well as to boat owners, Schneider recommends that you include false pretense coverage. Although it would not necessarily apply in a case like this, where the yacht never left the dealer’s possession, Schneider said it can cover a loss caused by some other form of fraud that enables a perpetrator to actually make off with a boat.

Craig Schneider can be reached at Craig@AllMarineInsurance.com