A couple of things there. That switch/VSR combination looks like one I had on a 20ft quintrex CC, with 2 batteries and an old school 1/2/Both switch. The batteries kept going flat. I mean this thing only had a GPS and a small fishfinder. So, on advice, I fitted an all-in-one Battery switch /vsr unit such as you have above. The batteries still kept going flat. Effectively, they are still a 1/2/both switch with a VSR built-in. I ended up troubleshooting it with a meter, connections had come mis-labelled ( stick-on labels) from the factory, it was On all the time. I corrected that, it worked OK for a few more years, running a 90hp Yamaha 2-stroke. But that setup you have shown is not the same as the one I have shown above. I believe they can fail closed on both, ie, their normal state is closed, they open on command from a voltage signal? I could be wrong, but that would explain it. Just the way it is sensing BOTH Battery 1 and Battery 2. With my original setup ( shown), the VSR only looks at the Start (1) battery, no input from the House (2) it doesn't care what's going on with House, it just gets its orders from Start. Start battery voltage is high enough (typically 13.2v) , it closes the switch so the House can get charge from the alternator. If Start drops below 12.7v, it opens again. (with a built-in delay) So, failure to operate means that the Start is unaffected, just means that House gets no charge. Which you can alleviate by closing the middle switch, to bridge it out, then carry on as if nothing has happened. Of course, this then opens you up to flattening your Start battery if you leave a lot of House load running. with the motor off.
So, to re-iterate, for a small CC like yours, I'd just go with a simple 2 battery setup such as i have described above, stick with a VSR between them, with a bridging switch, but fit a better VSR. Don't go with one of those all-in-ones with dual battery sensing/switching.
The Redarc SBI 12 is not IP rated as such, but it is designed to be fitted under the bonnet of a 4WD where it might get submerged anyway, and will certainly get more splash than your average boat setup. All the circuitry is encased in resin. Mount it inside your console? Where are the batteries located?