2. Implications of Inverse association of receipts and hull 

 Insttrance losses . In the meantime, let us Inquire Into the far- 

 reaching implications of an inverse relationship of receipts and 

 hull Insurance losses. During declining receipts, frequency and 

 severity of hull insxxrance accidents may increase somewhat because 

 the vessel owner may intensify his fishing operations and, at the 

 same time, postpone some of the maintenance expenses normally 

 required for the upkeep of the vessel. But developments such as 

 the above cannot possibly explain wholly the adverse experience 

 of insurers, especially in New England and Gulf Area and, to a 

 lesser extent, in California. 



The possibility that a vessel owner may consider the hull 

 insurance contract as a means of overcoming impending financial 

 difficulties either partially or wholly cannot be overlooked. 

 Sometimes moral hazard is loosely defined to include accidents 

 arising from unintentional hviman action such as negligence. But 

 usually moral hazard implies an Increase in the expectation of 

 loss because of changes in the Intentions and character of the 

 insured, irrespective of the nature of the Insured property. 

 Since the Intent of the Insured oimer is the criterion, it is 

 almost impossible to prove moral hazard. However, its probable 

 presence is confirmed by both the vessel o'vmers themselves and 

 insurance people. 



IThether a hull damage or a damage to machinery or equipment 

 is covered by insurance is frequently a matter of circumstances 

 subject to a wide range of interpretation. According to one New 

 England owner, "Hull insurance premiums are too high due to 

 exorbitant charges made by all the boatyards and phony claims." 

 At times of falling receipts and mounting bills, the temptation 

 to take advantage of the provisions of the insurance contract 

 may be very strong. An owner from the Gulf Area remarks: "Too 

 many boat owners take advantage of the insiorance company, and 

 therefore, rates are too high." In the opinion of an interviewed 

 insurance surveyor in New England, "Approximately 90 percent of 

 repairs or inspection of hull and machinery paid by insurance 

 companies should not ordinarily be paid." 



The probable presence of moral hazard in cases of total loss 

 of vessel Is also confirmed. The poignant remarks of a nonlnsured 

 owner from the Gulf Area previously quoted are pertinent to the 

 subject. "I am not planning to burn my boat; why should I insure 

 it?" A California vessel owner who justifies the presence of 

 moral hazard remarks as follows: "Uith the high values placed 

 on boats as compared to market value, there is little incentive 

 to save the boat that had an accident." A New Englander is quite 

 succinct: "Honest owners are paying for deliberate losses and 

 scuttllngs, which is ridiculous." A New England surveyor describes 

 the situation in quite explicit terms: "I can tell you which 

 vessels will sink in a short time by the following indications: 



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