| <1> Summary |
- It has transferable marketable security character and usually 2 sets are issued,
when 1 set is accepted, the other one become invalid.
- Standard documents to add if price term is CIF, CIP standard.
- Insurance related wording examples for that are generally required by L/C.
| - "Insurance policy or certificate in duplicate, endorsed in blank for 110% of invoice value. Insurance policies or certificates must expressly stipulate that claims are payable in the currency of draft and must also indicate a claims settling agent in USA, Insurance must include institute cargo clauses(A/R) institute war clauses and institute S.R.C.C. clauses" |
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<2> Acceptable insurance documents |
- As per the Article No. 34 of UCP, it regulates in a written statement of the
requisites of the insurance documents for a bank to accept.
1. Insurance policy |
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- If the insured conclude an insurance contract, a bank should accept this since it is a insurance contract documents issued by an insurance company.
(The Sub-Article No. 34-a of UCP) |
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- A professional exporter computes the amount for the insurance subjected
goods for a certain period (Per 6 month or per 1 year ) and conclude a
comprehensive contract with an insurance company. It should be accepted
because this is the actual insurance ertificate received by an insurance
company when an insurance is actually purchased.
(The Sub-Article No. 34-d of UCP) |
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- If the insured purchase insurance through an insurance broker, the insurance
documents issued by the insurance broker are not acceptable by a bank.
(The Sub-Article No. 34-c of UCP). |
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<3> Insurance terms required by L/C |
| 1 Issuing date of insurance documents |
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- A bank refuse to accept the insurance documents that are issued later than
the date indicated on the transportation documents in general.
(The Sub-Article No. 34-e of UCP).
- If an insurance policy is presented based on the open policy and if a special
agreement for compensation for retroactive is indicated in an insurance
policy : Subject to acceptance regardless of issuing date.
- Insurance documents acceptance condition that are issued after shipping date. |
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- Except for the following examples, there is a doctrine that a banks should
accept by recognizing the effect. |
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a. If "Lost or not Lost clause" is indicated as an insurance term which is a
retroactive agreement, an insurance company is also liable for payment
regardless of coverage date so a bank accepts this. (ICC's opinion is
injustice).
b. If insurance is purchased on "warehouse to warehouse" term: Since an
insurance company's payment liability ranges extends from a exporter's
warehouse to an importer's warehouse, the coverage date become
meaningless therefore, accepts. (ICC's opinion is injustice)
c. If an Insurance certificate is presented as the insurance documents:
Since a exporter is suppose to present a certificate for the said shipping portion that is already cover by an open policy before the shipping bank accepts the documents. (ICC's opinion is also positive) |
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| 2 Insurance payment currency and currency of a L/C's correspondence |
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| - To eliminate inconvenience of the possible foreign exchange rate changes if
the payment is not made with the L/C indicated currency, acceptance is
refused. (The Sub-Article No. 34-f-i of UCP) |
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| 3 More than 110% coverage of L/C amount |
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- Coverage should be 10% more increase term on the minimum insurance
amount from CIF or CIP and if computing CIF or CIP amount is difficult, the
larger amount between Nego amount (Bill amount) and the commercial
invoice amount should be the standard.
(The Sub-Article No. 34-f-ij of UCP)
- Reason for 10% increase than the subject goods : In assuming that an
importer has made at least 10% profit from the transaction, this is a tenor to
reserve the expected profit and this 10% is called expected profit. |
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- The ranges of incident to be cover by an insurance have to be specifically
regulated in L/C and refrain from using expressions such as usual risks and
customary risks.(The Sub-Article No. 35-a of UCP)
- For the marine carrier according to ICC regulations: It request that the range
of risks should be more than minimum -FPA(Icc (c)), and TLO term is now
allow to be apply on the marine transportation.
- Coverage terms for the airline carrier: According to IATA(International Air
Transport Association) regulation, only A/R Air term is permitted, and the
range of a marine transportation's A/R is different and rather similar to TLO.
- Ranges of risks that insurance guarantees |
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| - The kinds of accident is caused by a strand of vessel, capsized, a fire
and collation, which all the insurance subjected matters are total loss. The compensation is made in this case. |
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| 2 FPA(Free from particular Average) : ICC(C) |
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| - Other contacts than TLO, Compensation is made only when the insurance subjected matters are total loss due Stevedoring and jettison from the port of distress. ICC(c) includes total loss of packaging in units for compensation range during Stevedoring process. |
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| 3 WA(with Average) : ICC(B) |
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| - It has been expended from FPA terms to earth quake, struck by
lightening, washing overboard, seawater damage etc and also it covers for the partial loss for the insurance subjected matters. |
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| - Except war and riot, all the risks are covered. New agreement should
indicate this as ICC(A). |
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| - Risks that are covered only by special agreement. |
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| - If an accident occurs due to war, riot and strike : A/R is not enough for
coverage so, conclude a special agreement by paying extra fee. |
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| - Cases that are not subjected for coverage |
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- If a cause of incident is not by an accident and found as 'necessity', it
would be terminated from subjected for coverage. It can not also be
compensated by the special agreement. (War agreement etc.).
- ICC lists these examples in waiver clauses (General waiver clauses) |
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1 Accident occurred intentionally
2 Necessity accident
3 Accident occurred by packing defect
4 If a vessel is awarded as lack of seaworthiness |
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| 5 Problems with Irrespective of percentage |
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- The principle of petty claim non-indemnity is regulated on the back of
insurance certificate as print clause.
- If the insurer wish to receive indemnity for the petty claims, it has to be
concluded as Irrespective of percentage agreement.
- As per the Sub-Article No. 35-c of UCP, even the insurance without
Irrespective of percentage is regarded as valid insurance contract. |
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| a. Irrespective of percentage(Franchise) |
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- For WA term coverage : Insurance are not suppose to cover smallest
damages in general rule, it indicates non-covering range differently as per
the items. |
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1 Partial loss for Bulky cargo such as grains and salts are not for
indemnity except general average and vessel strand.
2 Goods that are 5% damage with sugars, cigarettes, hemp and raw hide
are not for indemnity.
3 Other items except above state items, are not for indemnity those
damages are less than 3%/ |
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- Even with Irrespective of percentage application, insurance companies will
deduct 3% or 5% from damage occurred amount for the "deductible
Franchise" compensation indemnity.
- As long as the range of damage exceed more than waiver rate for
"Non-deductible Franchise", entire amount is for indemnity without any
deduction. |
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| b. WAIOP(With Average Irrespective of percentage) |
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- For insurance contract with WA terms : If wish to receive indemnity for
even petty damages, this term should be indicated in L/C and conclude
special agreement of WAIOP with an insurance company.
- For those Bulky condition grains or fish types: Apply petty claim additionally
is physically impossible and an insurance company refuses to conclude
WAIOP agreement. |
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- Contract with FPA, WA : If wish to be cover for special risks that are not
listed in the insurance policy, the said risks item should be added to the
insurance subjected matter and pay additional risks rate.
- The kinds of risks to be added--1 TPND
2 RFWD
3 Breakage
4 Leakage and Shortage
5 contamination
6 Hook & Hole
7 Denting & Bending
8 Others |
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1 Insurance period--For marine insurance, compensation is only from the risk
that a cargo get loaded on board until unloading from the arrival port. If
agree to extend the insurance period as "warehouse to warehouse" , up to
60 days from the unloading can be cover.
2 Transfer the right to request insurance --Since an insurance policy is
marketable securities, it can be transfer to others by endorsement. If insert
".....endorsed in blank" term in L/C, the right to request insurance can be
exercised by an exporter before on board, and importer after on board.
3 Indicating insurance payment period--With CIF contract, in order to facilitate
the convenience of the request when an accident occurs, indicate the
insurance payment location as the importing country and also a claims setting agent should be nominated on the insurance contract.
4 The insurance coverage date should be before the shipping date of B/L, or
there should be a special decapitate compensation agreement. |
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<4> Preparing method |
a. insurance policy no.-- serial number that the insurer attach on insurance policy
to the person insured.
b. a person insured (or name of the insurance applicant)--indicate name of
export/import company.
c. reference no.--a number for the insurer to refer for transactions.
d. insurance amount--coverage amount of a person applied for the insurance
contract. The maximum amount to be paid when a claim occurred as a Loss or
Claim Paid. |
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- If the insurance amount exceed the insurance price, it becomes excess insurance and the exceed part is invalid.
- Insurance amount is usually 10% up of the CIF goods price.
(The Sub-Article No. 347-b of UCP)
- That is , insurance amount = {Net price(C, that is, F.O.B price) +
Insurance amount(I) + Freight(F)} x 1.1 |
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e. Insurance terms--The terms are decided between the sales parties when
concluding an export/import contract and the details are indicated on the sales
contract or on a L/C.
f. Insurance money paying location--Generally for an export, the final tended port
of the cargo is the location but for importing, the said insurer should be indicated.
g. Loss accident notification--For export: The name of branch and address of the
insured at the final intended port should be cleary stated. For export: Indicate the insured name.
h ,i. If the shipping place and the place of shipment for cargo is different, indicate
transportation cargo's coverage of the place of shipment to the shipping location
h is domestic conveyance i is the place of shipment or the place of shipping port.
j. Indicate the name of vessel to load cargo
k. Indicate the year, month and date or expected year, month and date of a vessel
to be loaded on and depart the shipping port vessel. Specially for exporting, the
information has to be corresponds to the information of B/L.
l. is the shipping port,
m. is the transship port if it exist ,
n. is to indicate unloading port.
o. The final destination and conveyance --If the final destination is located in the
country of inland so the destination with unloading port is different, indicate the final destination and request transportation.
Ex)-If transporting using a rail freight cart : Indicate together with 'thence to
Chicago by rail'.
-If conveyance is unclear: Indicate land conveyance or any conveyance.
p. Statement of the damage insurance cargo -- The name of cargo, quantity, and
stamp should be indicated as per L/C or per B/L.
q. The issuing location and the date of the insurance policy--The issuance date
must be before the B/L issuance date.
r. Number of issuing set of insurance policy--Usually 2 sets are issued.
s. Insurer's signature --The marine insurance policy must be sign by the insurer or
by a representative appointed by the insurer. If the insurer is a corporation, the
corporation's seal is sufficient.
t. Agreement of the body of the letter--The the body of the letter of the revised
insurance policy new form is composit with governing law agreement,
other insurance agreement, consideration agreement, and oath agreement.
u. Important Clause which regulates the process and measurement for a person
insured to take when a claim occurs. |
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L/C(Letter of Credit)
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