Marine Policy under Letter of Credit
1. The Document. Insurance documents must appear on their face to be is-sued and signed by insurance companies or underwriters or their agents [Article 34 (a)].
Insurance may be arranged through insurance brokers. If the proposal is acceptable to him he would issue a cover note which would later on be replaced by an insurance policy. The insurance is effective from the date of cover note. Cover notes issued by brokers will not be accepted unless specifically authorized in the credit [Article 34 (c)].
Unless otherwise stipulated in the credit, banks will accept an insurance Certificate or a declaration under an open cover pre-signed by insurance companies or underwriters or their agents. If a credit specifically calls for an insurance certificate or a declaration under an open cover, banks will accept, in lieu thereof, an insurance policy.
2. Number of Copies. If the insurance document indicates that it has been issued in more than one original, all the originals must be presented unless other-wise authorized in the credit [Article 34 (b)].
3. Type of Insurance. Credits should stipulate the type of insurance required and, if any, the additional risks which are to be covered. imprecise terms such as “usual risks” or “customary risks” should not be used; if they are used, banks will accept insurance documents as presented without responsibility for any risks not being covered [Article 35 (a)].
Failing specific stipulations in the credit, banks will accept insurance documents as presented without responsibility for any risks not being covered [Article 35 (b)]. When a credit stipulates “insurance against all risks”, banks will accept an insurance document which contains any “all risks” notation or clause, whether or not bearing the heading “all risks”, even if the insurance document indicates that certain risks are excluded, without responsibility for any risks not being covered [Article 36]. It may be noted that the present Institute Cargo Clause (A) corresponds to former Institute Cargo Clause (All Risks).
4. Franchise Clause. Unless otherwise stipulated in the credit, banks will accept an insurance document which indicates that the cover is subject to a franchise or an excess (deductible) [Article 35 (c)]. Franchise is a stipulated percentage which must be reached before a loss can be recovered under the policy. If the percentage is exceeded, the entire loss is paid. Excess is a percentage which is deducted from all claims on the policy. If the amount of loss does not reach the specified percentage, it is not payable at all; if it exceeds the percentage only the excess is payable and not the entire loss.
5. Amount of Insurance. Unless otherwise stipulated in the credit, the minimum amount for which the insurance document must indicate the insurance cover to have been effected is the CIF (Cost, insurance and freight…”named port of destination”) or CIP (Freight/carriage and insurance paid to …”named port of destination”) value of the goods, as the case may be, plus 10%. However, if banks cannot determine the CIF or CIP value, as the case may be, from the documents or their face, they will accept as such minimum amount 110% of the amount for which payment, acceptance or negotiation is requested under the credit, or 1 10% of the gross amount of the invoice, whichever is greater [Article 34 (f) (ii)].
6. Currency of Insurance. Unless otherwise stipulated in the credit, the insurance document must be expressed in the same currency as the credit (Article 34 (f)(i)
7. Date of Policy. Unless otherwise stipulated in the credit, or unless it appears from the insurance document(s) that the cover is effective at the latest from the date of loading on board or dispatch or taking in charge of the goods, banks win not accept an insurance document which bears a date of issuance later than the date of loading on board or dispatch or taking in charge as indicated by the trans-port document(s) [Article 34 (e)].
8. Coverage of Voyage. The insurance should cover the entire voyage. If transshipment is permitted in the credit, the insurance cover should be available for transshipment risks also.