2019 boat insurance law doesn’t work, audit finds

A 2019 state law requiring boaters to cover the salvage costs if their boat runs aground has been almost entirely ineffective, according to a state audit.

Seven years ago, then-Gov. David Ige signed into law House Bill 1033, a measure requiring owners of boats operating in state waters to maintain insurance policies that would cover the removal and salvage of their vessels if they ran aground or sank.

The bill was introduced after the state Department of Land and Natural Resources’ Division of Boating and Ocean Recreation warned the state Legislature that it was spending too much money covering the costs of vessel removal and salvage itself. In 2019, DLNR reported that it had spent $2.2 million since 2002 to deal with 91 grounded vessels.

But HB 1033 hasn’t meaningfully reduced DOBOR’s salvage expenses. The State Office of the Auditor released a report this week concluding that DOBOR may not be capable of enforcing HB 1033’s insurance requirements and may not have ever been clear about what those requirements actually are.

“We could not determine whether the insurance requirement has ‘greatly reduced,’ as DLNR represented it would — or has even reduced — the department’s costs to remove and salvage grounded vessels,” the audit reads. “We could not determine whether the requirement has helped to ensure that vessel owners are held responsible for the costs.”

According to the audit, DOBOR informed vessel owners of the new insurance requirements in 2020 before the law took effect in March of that year. By 2021 or 2022, however, the audit discovered that DOBOR had stopped requiring proof of insurance because boaters kept telling the division that such coverage was effectively unobtainable.

Boaters reportedly told DOBOR that no insurer would issue a $100,000 salvage coverage policy for a boat worth less than that — in fact, a boat would need to be worth $1 million to receive such coverage. The audit reported that a former DOBOR administrator — who went unidentified in the report, but, as the report described him as leaving the position in 2024 after 17 years, is most likely Ed Underwood — estimated that about 80% of registered vessels in the state are “junk.”

Meanwhile, the audit also cast doubt on the $2.2 million figure DOBOR had used to justify HB 1033. According to the audit, DOBOR could not provide clear records of how much money it had spent salvaging grounded vessels or how much it may have collected from vessel owners as reimbursement for such expenses.

The audit does include a figure from DOBOR claiming that the division has spent another $1.7 million removing grounded vessels since 2014. But it also notes that DOBOR’s efforts to collect salvage costs from boat owners — as required by HB 1033 — amounted to a single demand letter that almost always went unanswered.

“We found DOBOR’s efforts more akin to an honor system than a collections process,” the audit reads, estimating that boaters didn’t respond to the demand letter “95 to 99% of the time.”

The audit does not include information about how many salvage operations DOBOR has conducted since 2019. But each salvage operation was estimated to cost between roughly $12,000 and $50,000, most of which would inevitably be paid for by DOBOR.

The aforementioned former administrator also told the Auditor’s Office that HB 1033 wasn’t initially intended to reduce DOBOR’s salvage expenses at all. Instead, he reportedly said that it was intended to cover occasional liability issues involving “trailered” boats that launch via state boat ramps.

“Things happen in the launch ramp areas, people banging into each other’s cars, they knock the light poles down, things like that,” the former administrator told auditors.

The audit states that DOBOR leadership seemingly and erroneously assumed that the salvage coverage required by HB 1033 would also cover general liability for vessels using boat ramps.

DLNR Acting Chair Ryan Kanaka‘ole responded to a draft of the audit in January, providing additional context for some of the report’s findings. He claimed, for instance, that HB 1033 was hampered by unforeseeable “constraints in the marine insurance market” that rendered it less effected than intended.

Furthermore, Kanaka‘ole wrote that DOBOR does make greater efforts to recover salvage costs from boaters, but added that DOBOR also has a responsibility to protect natural resources. Because a prolonged shipwreck will have negative impacts on the environment, DOBOR prioritizes removing a grounded vessel — at cost — over securing payments from vessel owners.

The final conclusion of the audit makes several recommendations for DOBOR, including but not limited to developing more comprehensive documentation processes for money owed to the division and determining exactly what types of insurance, if any, will actually reduce DOBOR salvage expenses.

 For the latest news of Hawai‘i, sign up here for our free Daily Edition newsletter.