Our PAR insured firm took over from another agency the coverage on two 60+ foot yachts. Early on, our insured’s staff member sent an e-mail to the client stating that the replacement policy was “identical” to the prior coverage.

What the staffer failed to specify was that the latest policy was “identical” only in regards to the limits and types of coverage. In fact, it was learned the new policy required an “approved, full-time, paid and licensed captain” to be at the helm in order for the coverage to apply. This warranty had not been in the policy which was replaced. Although the captain mandate was made known to the client -- in writing, and on several occasions -- the e-mail using the word “identical” had been sent before there were any communications regarding the captain.

It was smooth sailing until the client acted as his own captain and took one of the yachts into open water (his regular, named captain was not available). The client was not named as a captain in the policy, nor was he licensed to fill that role. While the client was out with the yacht, an alarm sounded. The client merely reset the alarm and continued on with his trip. It was determined later that the alarm triggered due to a broken hose clamp flooding the engine room with water, resulting in $225,000 worth of damage.

Citing the requirement for an “approved, full-time, paid and licensed captain,” the insurer of the yacht refused to pay for the loss. The client argued the PAR agency’s earlier reference to the word “identical” was set in his mind, and that he didn’t focus on the subsequent correspondence regarding who was permitted to captain his yachts.

Both parties to this claim believe they have a basis for blaming each other. The client maintains that the term “identical” was misleading. The agency points to the written communication which occurred after the “identical” e-mail.

This E&O claim currently is dormant. But it is clear the problem could have been avoided had the agency employee not mentioned the word “identical” in describing the replacement policy -- or had at least spelled out the particular elements of the new policy which met that definition.

Remember, loose lips may sink ships, but so can the casual use of a powerful word.