Insurance Document – Part II | Trade Samaritan

Insurance Document – Part II

There are many shipping horror stories, for instance consignment comprising of rare stones disappeared, shipment containing glass sheet found to be broken into a thousand pieces at destination or a dent on an imported car.

Shipping insurance is the oldest form of insurance. Marine cargo insurance can be traced back to the Phoenicians, the earliest known ocean traders. For a long distance shipment is prone to more dangers and needs extra protection and cover. Besides covering the shipper for the cost of the goods (financial loss), insurance also covers the legal liability of the exporter and intermediaries such as shipping company, clearing, freight and handling agents as goods may have been damaged because of reasons beyond their control.

We have discussed the basics and contents of an insurance document in our earlier article. Now let us delve further into balance characteristics of a CLEAN cargo/marine insurance document under credit.

Endorsement

1. Unless specifically called for by the credit, the insurance document should not evidence that the claims are payable to the order/favor of the beneficiary or any other party other than the issuing bank or applicant. And if it states so then;

  • such an insurance document should be blank endorsed or endorsed in the favor of either the issuing bank or;
  • applicant by the beneficiary or the other party in whose order/favor it was originally issued.

Endorsement of an Insurance Document

2. As partly explained in point # 1, insurance document issued to the bearer or to the order of shipper/beneficiary must be endorsed so that the right to receive payment under it passes upon or prior to the release of the document.

3. In practice for usance import bills under LC, the issuing banks retain the original insurance document with themselves so that in case of default by the importer on the maturity date the issuing bank will have claim on the goods. In such cases, the insurance document is released to the importer only under special circumstances identified under bank’s policy.

4. If the credit calls for an insurance document issued ‘to the order of’ a named party, then the document not stating the words ‘to the order of’ is acceptable provided;

  • the name of the required party is appearing in the insured party or claims payable to column and;
  • assignment of claim by endorsement should not be prohibited under such an insurance document.

5. The issuing bank should note that the credit cannot call for a insurance document with a blank ‘to bearer’ or ‘to order’. The name of the insured party is mandatory.

Issuer and Signature

6. Signature of Insurance Company or Underwriter or their agent or proxy is acceptable, broker may sign in the capacity of agent or proxy.

insurance document signatures

7. Insurance document issued on broker’s stationery is acceptable if it is signed as depicted in the above chart. If signed by the agent or proxy, the insurance company or the Underwriter on whose behalf it is signed must be indicated;

  • in the signature column or;
  • somewhere on the face of the document.

8. When an insurance document is issued directly by the “insurer”, the insurance document need not indicate that it is an insurance company or underwriter.

9. If documentary states that cover notes are acceptable then insurance document issued by the Broker or his Intermediary is acceptable

10. Insurance companies often use a trading name such as AIG (American International Group) or CNA (Loews Corporation). If the signature field on an insurance document shows its trading name, then the name of the insurance company must be identified somewhere on the face of the document.

11. When the credit calls for a counter signature of the insurer, insured party or any third party, it must be counter signed accordingly.

Dates

12. If the date of issuance of Insurance document is greater than the date of shipment then the effective date must be before or on the date of shipment.

13. If no effective or issuance date is stated on the insurance document, the countersigning date will be considered as the effective date of insurance coverage.

14. If the insurance document is issued on the date later than the shipment date, then it should clearly indicate that the insurance coverage is effective from the date of shipment.

15. Expiry date of the insurance document should be greater than/ equal to last date of shipment.

16. Expiry date if stated on the insurance document should be for loading on board and not for lodging of claims.

Value and Claims

17. As stated in point # 17, insurance document should not indicate any last or end date for submitting claims.

18. Insurance document may indicate that the cover is subject to a franchise or excess (deductible).

19. If the credit asks for insurance to provide for claims payable ‘irrespective of percentage’, in such cases it is not mandatory to quote the exact words ‘irrespective of percentage’ on the insurance document but it should not evidence any reference to deductions by way of Franchise or Excess (deductible), as franchise and excess tend to reduce the claim value.

20. Insurance document must evidence that claims are payable in the place as shown in the documentary credit.

21. In case of multiple insurers, each insurer will bear his liability severally, ie without any regards to the other policies affected.

22. If one insurance document is presented and it has more than one insurer, then the insurance document should clearly state;

  • the name of the insurer and;
  • the percentage of cover provided by each insurer.

23. In case of above, one agent, proxy or insurer can sign on behalf of all insurers or co-insurers.

24. If the percentage of coverage is not indicated (credit is silent) then at least;

  • 110% of CIF/CIP value of goods or;
  • amount honored or;
  • amount negotiated; whichever is greater is required.

25. There is no ceiling on the maximum percentage of insurance coverage.

26. For large value shipments there could be multiple insurance companies (insurers) involved, if multiple insurance documents are submitted;

  • then each document must indicate the value and;
  • that the each insurer will bear its responsibility severally without any dependency on the any other insurance document affected for that particular shipment.

27. The total across all insurance documents presented must be equal to or greater than the insured amount required by the credit.

28. Calculation of Insurance cover must be based on Full Gross Value of the goods without considering any adjustments/deductions such as discount, future date payment and pre-payment.

29. If an insurance document indicates that the premium is unpaid and that the it is stated on the same insurance document that the validity of the document depends on the payment the premium, such an insurance document will be considered discrepant.

30. There is no requirement for insurance coverage to be calculated to more than two decimal places.

Capture

While the shipper is usually responsible to obtain the cover, the importer or the issuing bank must be in a position to submit the claim/receive the payment. Banks usually mandate submission of insurance document in order to extend post shipment finance.

Insurance companies work in close association with ICC to draft legal insurance contracts. In some countries big size insurance companies functioning as financial institutions even issue documentary credits.

Insurance companies and Governmental agencies offer a variety of insurance covers ranging from an open cover which covers series of shipment to a single voyage policy. Further such insurance policies cover single, multiple or all risks such as war risk, catastrophic, theft etc. The cost of the insurance depends upon the distance, route, value and the nature of the consignment. Insurance increases the cost of goods but at the same time minimizes the financial and legal loss.

Comments:

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