What is my survey going to be used for?

  • Date: 05/11/2019

Liability of a marine surveyor

A marine surveyor received a telephone call from a marine insurance broker requesting the survey and valuation of a 17 year old yacht for insurance purposes. He was told that the yacht had just been sold for AUS$ 95,000 and the vendor was arranging insurance for the purchaser. 

The survey was carried out on this basis and the vendor was present throughout. The invoice for the valuation survey was made out to and paid by the vendor. Two days later, the vendor telephoned the surveyor and asked him to inspect the yacht out of the water and the fee was again paid by the vendor. In the  surveyor's opinion AUS$ 95,000 was a fair figure for insurance purposes, bearing in mind that this was what the purchaser had already paid.  

Subsequently, the purchaser spoke to the surveyor by telephone and was told that in general, the maintenance of the yacht was not good.  A few weeks after completion of the sale, the surveyor received a letter from lawyers acting on behalf of the purchaser claiming damages of AUS$ 51,000 plus interest.  Apparently, the purchaser had obtained a full survey and market valuation which valued the yacht at AUS$ 58,000 and listed many items which needed attention. 

In response the surveyor maintained that his report was intended to be used only for the purpose of an insurance valuation and that he was not aware that his professional advice was to be relied upon by the purchaser for the purpose of buying the yacht.  

Furthermore, he had conducted his survey on behalf of the vendor who had paid his fees and not the buyer with whom he had only one telephone conversation to discuss the general condition of the yacht. 
Legal proceedings were issued by the claimant against the surveyor.  An independent broker then valued the yacht at AUS$ 60,000.  After interviewing the surveyor and the purchaser, ITIC’s lawyers recommended settlement of the claim and this was achieved after negotiations between the parties. 

The concept of "insurance valuations" (the cost of replacement) as opposed to "market valuations" (what the yacht would sell for on the current market) often gives rise to difficulties.  However, since underwriters expect to insure a vessel for its market value, it is impossible to justify any difference between the two.  It was this fact which persuaded ITIC to seek a negotiated settlement.

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