Stand by to yawn.....
In general, liability insurance coverage protects you from claims made against you for the whole spectrum of negligent conduct. "Gross negligence" is a type of negligence and is covered under every liability policy I've seen. There is a difference between ordinary negligence and gross negligence, but it is not a distinction that matters in the "what is covered" question - at least that I've ever seen.
"Ordinary" negligence is generally defined as the failure to exercise reasonable care.
"Gross negligence" is distinguished by state of mind. It's a step beyond ordinary negligence. The definition varies by jurisdiction, but generally it is acting with conscious or flagrant disregard for the rights and welfare of others. Generally, it involves some actual subjective appreciation of a high degree of risk and a deliberate decision to ignore it. For example, deciding to buzz another boat to scare them or rock them with the wake. It's clearly creating a danger. You don't intend to hit them, but you know you're doing something risky and do it anyway.
Like I said, typical liability policies do not distinguish between the two. You're typically covered even for gross negligence. Otherwise, you'd never be able to collect against a drunk driver's insurance.
Where you are typically
not covered is for
intentional acts, also sometimes called "willful" -- and by intentional I mean where the result of the conduct is intended.
So, you allow yourself to be distracted while driving the boat and cause an accident - covered. You're drinking and horsing around and cause an accident because of risky behavior (but you weren't trying to cause the accident) -- gross negligence but you're covered. You intentionally ram someone - not covered.
That's a generalization, but pretty standard.
There are instances where the difference between negligence and gross negligence is important, but not generally on the coverage question.
I'm not a lawyer, or an insurance dealer in this or any state, but I just read my last boat policy, which was a 2 million dollar policy, and the specific exclusion wording in my P&I policy was:
Would need to see the whole policy and endorsement, but sounds like this is directed at a situation where you are receiving coverage (to protect you) from liability arising out of the conduct of others (driving your boat), and the exclusion is making it clear that the policy is not extending coverage to THEM for THEIR own liability for their own conduct. i.e., you're protected under your policy but they aren't. However, that's just a guess without seeing the whole thing. It's hard to analyze an exclusion without seeing the scope of coverage.
Lastly, this is just USA, not Cayman - other countries' laws/policies/standard coverage may be very different. Here, different states have some variations, but the above is pretty generally accurate.
