Standard Deviations...

more on the cport meeting....
At one point, a question was posed asking why C-PORT wasn't the logical forum for the industry to create some standards that would reflect what would be "fair and reasonable" salvage demands. This discussion was swiftly squashed as the executive director (correctly) pointed out that any discussion of prices or fees was strictly forbidden under anti-trust laws, and would jeopardize C-PORT's non-profit status.

I have some great news for Red Right Returning readers: this blog is not affiliated with C-PORT, and in fact I'm not even a member of C-PORT. I wish I could make money writing this blog, but I don't make a nickle. Even so, RRR is not subject to any laws that govern non-profit entities. Finally, since I don't own a towing company (any more), I'm free to discuss the subject with impunity, and I probably will in the near future. (Full disclosure: I am a summertime sub-contractor to a privately held towing and salvage company.)

But couldn't C-PORT at least cozy up to the issue by discussing some billing standards, or disseminating an industry wide lexicon, so we are all talking about the same thing when we use jargon like "soft-aground" or "Open Form."

The insurance industry would like to see us adopt some standards, right? OK, let's play a little game of "good for the goose, good for the gander". I say we contact the American Insurance Association , and propose that we jointly adopt the following:

C-PORT salvors will abide by the International Convention on Salvage-1989, as ratified by the United States of America, whenever applicable.
The insurance companies will refrain from ignoring or attempting to renegotiate international treaties, and instead recognize that as companies licensed to do business in the USA, they too are bound by the treaties signed by their government.

C-PORT salvors will document everything we can, with photos, video, audio, witness names and signed contracts.
The insurance companies agree that someone who has check writing authority will actually read/watch/listen to that stuff BEFORE they pass it on to an attorney.

C-PORT salvors will submit a written report detailing everything that occurred, and back up our details with the above mentioned documentation.
The insurance companies agree to submit any evidence - including verbal statements that contradict our version of the events - from their clients or witnesses to us in writing, with names and contact info for each.

C-PORT salvors agree to notify the insurance company within 24 hours after the vessel's redelivery (if not sooner) and request that a claim be opened.
Insurance companies agree to open a claim when they have knowledge of a salvage event, and provide all the parties a claim number when one is requested.

C-PORT salvors agree to submit a detailed salvage report within 15 days of the vessel's redelivery.
Insurance companies agree a supply a copy of the declaration page of the policy to the salvor within 5 business days after they receive notice that a salvage claim is pending.

C-PORT salvors agree that they are bound by the arbitration clause in signed salvage contracts.
Insurance companies agree that they are bound by the arbitration clause in salvage contracts signed by their clients.

Don't even get me started about Letters of Undertaking.

....I'm ready to duck.....let 'em fly.

Traveler'sGate?

I use a service called FeedBurner that helps me keep track of how often people actually visit RRR, and manage the email subscription service. The graphic here shows the top six most visited pages for the last 30 days. (click on it for a larger view)

My post about Traveler's Insurance buying back their umbrella logo continues to be the most popular single topic, even though I posted that muse back in June. Gadzooks! (#1 and #3 on the list are just the home page links of RRR, and don't refer to any particular post.)

Based on my FeedBurner reports, I've suspected for months that a link to my post is being passed around the halls over at Traveler's, which is the only explanation I can think of to account for the continued popularity of that post month after month. I seriously doubt it is any RRR regulars, as most, if not all of you read that post way back in June. Is someone at Traveler's out to get me? Could they actually be passing links to my umbrella post around the office? I don't even own an umbrella, for cryin' out loud!

Go back and read my original post. I took a swipe at Traveler's for spending millions to get their logo back; a little poke in the ribs, nothing more. Yesterday, someone named "Jess" left this comment on that post:

i work for travelers in the flood claims dept...you may want to reword your article, only due that we follow regulations of the federal government...meaning that we have to follow certain rules in the entire insuring process

AHA! People who work at Traveler's actually DO read my blog. (Evidently they don't use capital letters, lack basic grammatical skill and generally speak in non sequiturs and sentence fragments - whatever...)

What the heck does flood claims have to do with marine salvage? Why are people in the flood claims department reading Red Right Returning? Is Jess a boat owner? What part of my post needs rewording? Did 179 people at Traveler's actually have time to read that post in the last 30 days? What federal regulations? What's going on here? WTF!?!

Can you say conspiracy? I think someone should call Oliver Stone!

Article 7

There seems to be a rash of salvage claims being challenged by insurance companies on the grounds that the entire contract is void because it was signed "under duress or undue influence" - i.e. the boat owner was compelled to accept a salvage agreement because he felt he had no other choice.

Perhaps the insurance companies are confusing the "duress" of actual bodily harm with "marine peril" and its potential for physical damage to a vessel. IF a salvor has threatened to leave a crew to die or get injured aboard an imperiled yacht, that salvor is probably guilty of using "undue influence" to force a salvage contract. But to ask an otherwise healthy and un-injured crew to accept that a yacht in perilous circumstances should be covered under a salvage contract is acting completely within the spirit of Blackwall and SALCON 89.

Lets have a look at what SALCON 89 actually says about the influence of danger. Salcon 89, Article 7 states:

“A contract or any terms thereof may be annulled or modified if: (a) the contract has been entered into under undue influence or the influence of danger and its terms are inequitable; or (b) the payment under the contract is in an excessive degree too large or too small for the services actually rendered.” (bold emphasis mine)

The word and in part (a) is a key to understanding what Article 7 is about. During any true salvage situation, there is obviously going to be some danger. Indeed, every salvage is contingent on the presence of PERIL. And everyone who is on scene at the time is certainly going to be influenced by the presence of the dangers involved.

The authors of Article 7 were not suggesting that any agreement made while in the heat of a dangerous situation would be automatically void. The intent of Article 7 is to link the danger to equitable terms - that is why the word and is in part (a). To make an equitable agreement, the terms should fit the situation, which if covered by SALCON 89, is by definition a situation that involves danger (Article 1, para 1).

To claim that the presence of danger somehow voids a marine salvage contract is constructing an argument based some very torturous logic. How can you toss out a contract to resolve a perilous situation because there was danger present?

Furthermore, the challenge to the contract based on the influence of danger almost always includes the additional argument that there is no salvage because the peril so insignificant that it didn't even exist at all!

This is where they shoot themselves in the foot and the entire argument falls apart. If you are going to challange an agreement based on the presence of danger, don't go on later in your plea to downplay the danger and argue that it didn't exist.

Travelers buys its umbrella logo back.

I found this back in April, but I forgot to post it:

Travelers snatches its umbrella logo back from Citi. - By Seth Stevenson - Slate Magazine

How much did this cost? Travelers wouldn't tell me, but newspaper reports peg the transaction in the millions. "It was a substantial investment," says Shane Boyd, vice president of communications and branding for Travelers, "but we think well worth it.

Or, another article here says:

"All I can tell you is that it was not an insignificant amount," says Marlene Ibsen, spokesperson for Travelers. "Our research shows that the umbrella is well-recognized as a symbol of insurance protection and as a symbol of Travelers as well."

Now, if you get a salvage on a boat with golf clubs inside, maybe they can find some money here:

.....St. Paul Travelers Companies Inc., along with the PGA Tour and the Greater Hartford Jaycees Community Foundation Inc., last April 2006 into a four-year agreement to be the title sponsor of the PGA Tour tournament. The initial investment to Travelers was $10 million. The tournament purse will be raised to $6 million this year, $1 million more than in 2006, and will increase by an additional $100,000 in each of the remaining years of the four-year agreement. The event will be played June 18-24 and televised live by CBS Sports and the Golf Channel.

Thought I should post this, just in case you've had a Travelers claim recently, and they complained about belt tightening and hurricanes and lions and Tiger Woods and bears, oh my!

If they want to negotiate you down on a big claim, just tell 'em to open the umbrella, 'cause when it rains, it pours....

Beating a Dead Horse

Well, if you read my blog about the Princess Gigi decision (and I hope you read the decision), then you probably got my point about how insurance companies are perhaps "predisposed" to fight a salvage claims. There is a misconception on the part of some members of our industry who continue to believe that the reason insurance companies will balk at paying a salvage claim, or even a large wreck removal invoice, is because a few bad apples have a long history of submitting exorbitant claims. I know I have whipped this horse before, but I want to beat this nag totally dead once and for all.

The misconception goes something like this: there are two kinds of salvage companies, those that send fairly priced bills (lets call them Base Hit Salvors) and those that send outrageously priced bills (we'll call them Home Run Salvors). Over the years, the Base Hit Salvors have found that many insurance companies continue to try and negotiate their invoices, or complain at the price even when the invoice was fairly priced in the first place. The Base Hitters feel that they are being forced to lower the totals of their invoices simply because of the history of the Home Run Salvors. In other words, The Base Hitters are paying a Home Run penalty.

To believe this, you have to believe that insurance companies have somehow adjusted their business practice to address this problem of Home Run Salvors, and now routinely quarrel with every salvage bill, no matter how reasonable the bill is, with the assumption that the bill must be too large. The blame for all the negotiating is placed on the Home Run Salvors, rather than on the insurance company, where it belongs.

If we are to accept that the Home Run Salvors have so much influence that their billing history has actually affected the way these huge insurance companies conduct their business, one must concede that insurance companies are comparing the salvage invoices they receive from Home Run companies with those invoices sent from Base Hit companies.

If they are not making this comparison, then the entire argument that one invoice could have an effect on another falls flat on it’s face, and this horse never left the barn. So, to buy into this theory that the huge claims make it hard to collect the small claims, you have to accept that insurance companies engage in invoice comparisons, if not between companies, then at least by looking back in time.

But wait a minute; wouldn’t the logical result of all this invoice comparing be that the insurance companies would recognize that the Base Hit invoices were more reasonable in comparison to the Home Runs? Wouldn’t the insurance company be more willing to pay those reasonable invoices, rather than less? (In which case Base Hitters would be thanking Home Runners for making their Base Hit prices look so good.)

And yet, this is not the case. Many of the Base Hit salvage claims are routinely challenged by the insurance companies; hence the complaints that it seems like insurance companies fight every salvage claim. The insurance companies are not more willing to pay the Base Hit invoices, and they continue to try and negotiate these invoices too.

We are left with only one conclusion: they are not comparing the huge, Home Run invoices to the Base Hit invoices they receive, and therefore the billing practices of the Home Run hitters is not logically the cause of all this contentious negotiating.

Perhaps there is some other theory that could account for all the negotiating, even when the invoices appear reasonable to the Base Hit Salvors?

I believe that the insurance companies should be attempting to negotiate practically every invoice they receive; especially those invoices that are by definition open to negotiations, like a salvage claim. They are large, publicly held corporations, and therefore their directors, managers and employees have a fiduciary, legally binding responsibility to do everything in their power to maximize the return to the shareholders. They are not in the business of paying claims, or to be friendly with outside contractors. Indeed, the large insurance companies have recognized the value of negotiations as evidenced by the rigorously and sometimes contentiously negotiated price lists for services like health care and automobile repairs. Allstate does not happily pay collision repair bills, they negotiate them: not because some repair shops always charge more than others, but because it is in the Allstate’s best interest to negotiate.

That is why the insurance companies try to negotiate lower prices; its good business.

Yacht Sinks, Insurance company sues: The Princess Gigi decision.

If you attended the 2007 C-PORT conference, you probably remember my somewhat abbreviated seminar on salvage and insurance. Once the session was aborted, there were some heated debates about why insurance companies fight salvage bills. Indeed, some of the participants singled out one company as primarily responsible for the industry's billing problems with the insurance industry in general. I believe the term (supposedly used in the derogatory) was "[They] always swing for the fences." In baseball, that would be a good thing, but somehow when salvage invoice negotiations are the topic, there is an assumption that the salvors and the insurance companies are on the same team. If you believe that, I have some news for you; insurance companies are always on their own team, and do not invite other to sit in their dugout.
In fact, I have argued that insurance companies are financially obligated to negotiate whenever they can. They have a fiduciary responsibility to their shareholders, after all, to maximize their profits, not to recruit teammates. So they put up a good fight, and that fact isn’t evidence that one company has been charging too much.

Another reason marine salvage cases seem to be so vehemently contested is that most insurance companies have very little admiralty experience; they treat a marine loss like it was an automobile or a house, and hence their arguments are colored by landlubber laws, rather than admiralty.

Probably the best reason to fight an insurance claim is to avoid paying out over $7.2 million. In a recent case, Federal Insurance Company (connected with Chubb Ins) didn’t want to pay a total loss claim on a Mega-yacht that sank in the Bahamas. They didn’t have a single reason to deny the claim, but that didn’t stop them from seeking a declaratory judgment in federal court, denying any liability for the loss. You can read the judges decision here.

The decision is 40 pages long, but it is very interesting reading. A variety of surveyors, at least two yacht builders, banks, brokers, insurance agents are all called on to offer their opinions as to whether the yacht Princess Gigi was actually covered at the time of the sinking.

Point by point, judge Rakoff finds that the insurance company's evidence is immaterial, and in almost every example, he further states that even if you consider that the evidence was material, it doesn't constitute a legal reason to deny coverage. On more than one occasion, the judge questions the veracity of Federal employee's sworn testimony:

"....the court does not credit their self-serving and largely conclusory testimony." (bottom of page 13)

I urge you to read the entire decision. In this case, an insurance company wrote a $7.2m yacht policy without requiring a survey, and when provided the survey, didn't even read it. Once the yacht sank, all of a sudden everything in the survey is important. By their own admission, waiting for surveys is bad for business.

Lest you think this is just an isolated incident, driven by recent hurricane losses or the huge dollar amount involved, here is a $60,000 case from 1971 where the same Federal Insurance Co. attempted to weasel out of paying a total loss claim: http://bulk.resource.org/courts.gov/c/old/F2/450/450.F2d.779.19381.html

Back to my original point: how is it that one salvage company that started "swingin' for the fences" in 1984 somehow accounts for the actions of the insurance industry in 1971? Of course it doesn't, and the idea is completely bankrupt. The billing practices of one or two small salvage companies, attempting to maximize their profits, have zero bearing on how insurance industry acts, or reacts, when faced with paying out claims. They hate to pay claims, they are not in the business of paying claims, and they will employ a variety of strategies to avoid paying claims.

Wreck Removal Coverage

I was snooping around on the Progressive Insurance website, when I came across this item about boat insurance:

Wreckage Removal coverage is automatically included with Comprehensive and Collision coverage. If you use Comprehensive or Collision coverage, Wreckage Removal pays for reasonable costs you incur for any attempted raising, removal or destruction of the wreckage of your insured boat or PWC. Wreckage Removal limits vary based on whether or not you are legally required to raise, remove or destroy a boat or PWC.

Comprehensive & Collision is what we would call hull insurance. I guess its hard for them to break out of the auto insurance vocabulary. The part I find so interesting is their statement that the "removal limits vary based on whether or not you are legally required to raise...."

Last summer, I had a case where a boat settled on top of a mooring anchor's shank. Thats right - a 500# mushroom anchor shank came right up through the bilge between the engines. Pictured here is the top of the shank in his bilge, surrounded by our Rule 8000 pumps and hoses. The hole was about 4" in diameter. The job was an adventure in its own right, but back to the wreck removal issue.

The boat owner was insured with Liability only insurance through Progressive (not Comp & Collision). The local Harbor Master wrote a letter (after the job) that said that the owner was liable to remove his vessel from the town mooring field. We charged a six figure fee to get this boat safely on to a trailer, and Progressive re-imbursed him the entire amount. Now that's a happy ending for everyone.

Go Fast, and prosper...

So, I was talking with one of my west coast compadres, who recently raised a 38' Go Fast that was sunk at the dock. He charged a premium rate to raise the boat, and the insurance company complained that his price was more than they were used to paying.

The owner of this boat claims he was doing 105 mile/hr the day before (that is why they're called "go fast", right?), and perhaps that is why there is some huge open gash in the hull?

Some of you may know that I am also a licensed Private Pilot. I am licensed to fly "Single Engine Land" and I hold a High Performance rating. In pilot speak that means I am licensed to fly something just barely faster than a turtle with wings, something akin to a Cessna 182, rated at 235hp. Even if I get thousands of hours of experience in that type of aircraft, there is no way that I can fly a twin-engine aircraft, a retractable gear aircraft, or even a single jet engine aircraft with fixed gear, until I get some further training.

If I win the lottery next week and go buy myself a Lear Jet, I can get an FAA Lear Jet rating in about a week (pretty scary, huh?) That would be according to the FAA. However, I will probably have to log about 300-500 hours flight time in an actual Lear Jet accompanied by a Certified Flight Instructor (qualified in a Lear Jet) before any insurance company will insure me to fly that aircraft by myself. In the world of aircraft risk management, insurance companies are notoriously gun-shy. The difference between 180hp and 300hp is huge, and that leap alone could take months of training. When you start talking propeller verse jet, you are talking leaps and bounds of training and actual time behind the wheel.

Which brings us back to the boat story. What are the criteria for getting insurance on a "go fast" 2000hp boat? How many hours, and what training does that boat owner have to get before the insurance company says "go for it, Dude!”? As far as I can tell, it amounts to: “how much horsepower insurance can you afford, Dude?”

When an insurance company makes the wrong call, and should have said "no way, dude,” why is it that they suddenly feel the urge to call our business practices in to question when it was their dude who did exactly what we all knew he would?