The credit opened by company H has CIF term, requires 110% insurance amount, 2 copies of insurance certificate stating All Risks Insurance cover. But in the actual submitted insurance documents was 100% collateral of CIF amount and a condition with 5% excess. And according to the letter of the insurance certificate, it indicated All Risk but exempt when strike and during a war. The company H sent notification of payment refusal because the insurance certificate is inconsistent to the credit terms.
Case study
1. Indicating memorandum clause with insurance certificates
According to the U.C.P., unless there is a restriction, the insurance documents preconditioned franchise or excess must be accepted. (The Article 35 of U.C.P 500)
2. Franchise and Excess
Franchise is (i.e.: 5% Franchise), for the damages under fixed ratio, the insurer is exempt from a risk but if exceed the ratio, the insurer is to collateral even the memorandum parts. Excess (i.e.5% Excess) is, when there is a damage exceeding fixed ratio, the insurer is deducting the memorandum parts and collateral for the exceed parts only. Banks have to accept process even the insurance certificates indicates such memorandum clause.
3. All risk insurance cover in credit terms
In the Cargo insurance provision, a insurance company is exempt from a risk arisen from a war or a strike even if it is All Risk memorandum clause terms. Accordingly, to collateral this kind of risk, there should be additional insurance purchased. Then if All risk is the credit term, there is a concern if a bank should accept All risk according to the Institute of London Underwriters. (The Article 36 of U.C.P 500) |
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36-All Risks Insurance cover
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