Saturday, November 6, 2010
Navigator Bulletin - MSC CHITRA Special - November 2010.
Navigator Bulletin - MSC CHITRA Special - November 2010. - Download File by clicking below.
Sunday, April 18, 2010
A Query in Marine Insurance terms of sale!
Recently I received a query in relating to a claim in Marine Insurance and I am putting it up here for your reading as well:
Dear Sir,
The marine insurance is a very interesting subject and full of technicalities. However terms have been invariably interpreted by insurers only and claims are denied.
A consignment is billed on FOB basis, but on credit and consignor has its insurable interest till his payment is received. Consignor buys an insurance for FOB value +10% for a journey upto destination port. Is the claim payable or not. Since most of the clients lack the knowledge of the terms, insurers invariably fool them on terms
A consignment is billed on FOB basis, but on credit and consignor has its insurable interest till his payment is received. Consignor buys an insurance for FOB value +10% for a journey upto destination port. Is the claim payable or not. Since most of the clients lack the knowledge of the terms, insurers invariably fool them on terms
My Answer to the same:
Dear Sir,
Terms of payment need to be differently looked upon from terms of sale actually. Terms of sale, i.e. FOB / CIF / DDU / CIP / Ex-works actually suggests where the title of the goods are changing and how seller actually is intending to deliver the goods to the buyer and where buyer will take over the risk of loss or damage.
Deferring payment terms can not entitle the consignor to claim for damages from Insurance company under the policy copy where coverage is FOB +10% as this amounts to fraud (on consignee's account) actually considering there was no intention to contract in the first place, of course, if seller has the ECGC (Export Credit Guarantee Corporation of India Ltd.) insurance etc, he may claim the same under that. Seller can further claim for damages (monetary / sue buyer) through legal channels in the goods imported country.
Furthermore, your mail is unclear as to where the loss has taken place? At destination port? If so, it is the role of the consignees to claim under the contract of Insurance as title of goods have changed when the vessel was loaded at port of loading itself.
Further, when Consignor buys insurance on FOB +10% (I assume here coverage terms are FOB +10% as well), then the contract of insurance ends when the vessel is loaded itself. The question now is, where did the loss occur actually? Therefore, the consignees need to have taken care of Insurance of the cargo from the point vessel was loaded up to final destination of the cargo, whatever that was.
The incoterms / ICC clauses have been prepared to rule out ambiguities in global trade actually and lack of knowledge on account of consumers and their actions / in actions based on such information amounts to issues relating to diligence and negligence actually and blaming the underwriters for the same would be inaccurate, to be honest.
That is where brokers and consultants come in to picture. But, competition and trade in itself acts as a hindrance for consumers to seek specialized opinions prior to ensuring that their cargo worth lakhs / crores reaches safely to destination for they intend to save every penny and maximize profit, the very basis of trading.
Terms of payment need to be differently looked upon from terms of sale actually. Terms of sale, i.e. FOB / CIF / DDU / CIP / Ex-works actually suggests where the title of the goods are changing and how seller actually is intending to deliver the goods to the buyer and where buyer will take over the risk of loss or damage.
Deferring payment terms can not entitle the consignor to claim for damages from Insurance company under the policy copy where coverage is FOB +10% as this amounts to fraud (on consignee's account) actually considering there was no intention to contract in the first place, of course, if seller has the ECGC (Export Credit Guarantee Corporation of India Ltd.) insurance etc, he may claim the same under that. Seller can further claim for damages (monetary / sue buyer) through legal channels in the goods imported country.
Furthermore, your mail is unclear as to where the loss has taken place? At destination port? If so, it is the role of the consignees to claim under the contract of Insurance as title of goods have changed when the vessel was loaded at port of loading itself.
Further, when Consignor buys insurance on FOB +10% (I assume here coverage terms are FOB +10% as well), then the contract of insurance ends when the vessel is loaded itself. The question now is, where did the loss occur actually? Therefore, the consignees need to have taken care of Insurance of the cargo from the point vessel was loaded up to final destination of the cargo, whatever that was.
The incoterms / ICC clauses have been prepared to rule out ambiguities in global trade actually and lack of knowledge on account of consumers and their actions / in actions based on such information amounts to issues relating to diligence and negligence actually and blaming the underwriters for the same would be inaccurate, to be honest.
That is where brokers and consultants come in to picture. But, competition and trade in itself acts as a hindrance for consumers to seek specialized opinions prior to ensuring that their cargo worth lakhs / crores reaches safely to destination for they intend to save every penny and maximize profit, the very basis of trading.
Thanks and Regards,
Varun Gawarikar.
Some useful web resources for the same:
INCO Terms
Indian Contract Law
Friday, April 16, 2010
Terms of Sale and Transfer of Risk
Many a times we come across questions as to what is incoterms and what are it's implications on Marine Claims. If we understand the basic concept in Marine Insurance, one requires insurable interest, in Marine Insurance, during the time of loss. Thus, this aspect is of utmost importance.
Incoterms, standardized international terms of sale actually, clearly defines what are the sellers & buyer's responsibilities and when does the risk transfer.
Courtesy: http://store.iccbooksusa.net/images/products/detail/614.1.jpg
Now that we know what incoterms are and how it affects the contract of marine insurance, lets see what can different terms of sale, transfer of risk and choice of cover can do and the consequences can be dire!
The most widely used covers today in the market are undoubtedly FOB (Free on Board) and CIF (Cost, Insurance and Freight). And number of times we have received question on how to calculate indemnity in such covers. The cover has to be compared with terms of sale on the invoice as well.
Example: A policy covered cargo ’warehouse to warehouse’ from Ranchi to Libya. However, on FOB (!) cover. The cargo was damaged at JNPT en-route from CFS (container freight station) to JNPT port.
While FOB cover takes care of the goods up to the point when the goods cross the rails of the ship, includ-ing 14 days storage risks at CFS premises; the twist in this case is “Warehouse to Warehouse”. When a shipment is covered on FOB, the risk terminates when the cargo reaches the CFS (warehouse) from its hin-terland warehouse/factory premise. So even if cargo is damaged in the warehouse during its 14 days stor-age period, the claim would fall beyond the scope of the policy.
The best way to cover: we should refrain from extending covers beyond ‘destination port’, especially in African, middle eastern and some of the European countries. FOB cover should not be attached along with the ‘warehouse to warehouse clause’. The best bet is to cover import consignments on CIF cover and ex-port consignments on FOB (for FOB and C&F terms of sale) cover.
Incoterms, standardized international terms of sale actually, clearly defines what are the sellers & buyer's responsibilities and when does the risk transfer.
Courtesy: http://store.iccbooksusa.net/images/products/detail/614.1.jpg
Now that we know what incoterms are and how it affects the contract of marine insurance, lets see what can different terms of sale, transfer of risk and choice of cover can do and the consequences can be dire!
The most widely used covers today in the market are undoubtedly FOB (Free on Board) and CIF (Cost, Insurance and Freight). And number of times we have received question on how to calculate indemnity in such covers. The cover has to be compared with terms of sale on the invoice as well.
Example: A policy covered cargo ’warehouse to warehouse’ from Ranchi to Libya. However, on FOB (!) cover. The cargo was damaged at JNPT en-route from CFS (container freight station) to JNPT port.
While FOB cover takes care of the goods up to the point when the goods cross the rails of the ship, includ-ing 14 days storage risks at CFS premises; the twist in this case is “Warehouse to Warehouse”. When a shipment is covered on FOB, the risk terminates when the cargo reaches the CFS (warehouse) from its hin-terland warehouse/factory premise. So even if cargo is damaged in the warehouse during its 14 days stor-age period, the claim would fall beyond the scope of the policy.
The best way to cover: we should refrain from extending covers beyond ‘destination port’, especially in African, middle eastern and some of the European countries. FOB cover should not be attached along with the ‘warehouse to warehouse clause’. The best bet is to cover import consignments on CIF cover and ex-port consignments on FOB (for FOB and C&F terms of sale) cover.
Marine Cargo Insurance and Money Laundering
How safe is it to insure cargo which only moves on
paper? You must have seen that happening in the
movie “Guru”. It does constitute breach of law as
per Indian constitution. However, one thing is sure
that there would never be a claim under that policy,
as the intention is not to send the goods in the first
place, but, to make black money white.
Also, under basic principles of Insurance and its
corollaries, the contract in itself can be avoidable
(including the liability under the contract) at a later
stage, once the insurer has booked the premium.
Does it then remain, finally, a question of ethics and
healthy business practice(?), is a question to be pondered
upon.
paper? You must have seen that happening in the
movie “Guru”. It does constitute breach of law as
per Indian constitution. However, one thing is sure
that there would never be a claim under that policy,
as the intention is not to send the goods in the first
place, but, to make black money white.
Also, under basic principles of Insurance and its
corollaries, the contract in itself can be avoidable
(including the liability under the contract) at a later
stage, once the insurer has booked the premium.
Does it then remain, finally, a question of ethics and
healthy business practice(?), is a question to be pondered
upon.
Moral Hazard: Bordering on fraud.
Recently We came across a case, wherein, due to
sheer negligence of CFS, a costly consignment was
damaged. The survey was carried out. However,
When the landing remark certificate was issued (this
is given by the port authorities), it reflected that the
subject consignment was delivered damaged.
There are two implications of this. Whilst the CFS’s
liability is unlimited, the Vessel’s liability is limited
per package / per Kg. And if the vessel and CFS are
owned by the same governing parties, they can reduce
their liability by a sizable chunk if the consignment
is of high value.
I do not understand what we should term such actions
by port authority personnel, a moral hazard or
outright fraud. While the insured gets his claim from
the Insurance Company. Subrogation is prejudiced,
technically speaking.. And the port has got nothing to
loose in this.
sheer negligence of CFS, a costly consignment was
damaged. The survey was carried out. However,
When the landing remark certificate was issued (this
is given by the port authorities), it reflected that the
subject consignment was delivered damaged.
There are two implications of this. Whilst the CFS’s
liability is unlimited, the Vessel’s liability is limited
per package / per Kg. And if the vessel and CFS are
owned by the same governing parties, they can reduce
their liability by a sizable chunk if the consignment
is of high value.
I do not understand what we should term such actions
by port authority personnel, a moral hazard or
outright fraud. While the insured gets his claim from
the Insurance Company. Subrogation is prejudiced,
technically speaking.. And the port has got nothing to
loose in this.
Wednesday, April 7, 2010
A Blog on Marine Insurance claims!
After Orkut and Linked forums and finding a huge response therein, I thought that I should make a blog on Marine Insurance Claims. Here it is!
So, invoking Gods that have blessed the cafe where Marine Insurance was created, I embark upon this quest of vast knowledge that Marine Insurance is. I usher you to help me onwards on this journey as well.
Picture in blog title is that of Exxon Valdez Oil spill
I wanted to keep a picture of Jahre Viking / Knock Nevis earlier, but then I thought the only thing grand and majestic about marine insurance claims is "Average Adjuster's Fees", hence, refrained. Okay, that was a joke.
All your comments and feed back is most welcome.
So, invoking Gods that have blessed the cafe where Marine Insurance was created, I embark upon this quest of vast knowledge that Marine Insurance is. I usher you to help me onwards on this journey as well.
Picture in blog title is that of Exxon Valdez Oil spill
I wanted to keep a picture of Jahre Viking / Knock Nevis earlier, but then I thought the only thing grand and majestic about marine insurance claims is "Average Adjuster's Fees", hence, refrained. Okay, that was a joke.
All your comments and feed back is most welcome.
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