Insurance Endorsement under an LC: “Endorsed to Bank” or “To the Order of Bank”?

Intro

Insurace documents under letters of credit often create confusion—especially when beneficiaries apply bill of lading concepts to insurance policies or certificates.

One recurring grey area is whether an insurance document should be endorsed “to” a named bank or “to the order of” that bank, particularly when the credit expressly requires the document to be transferable.

The following Q&A addresses this exact issue, with reference to ISBP 821.

Question

Dear Mr. Old Man,

I would appreciate your guidance on an insurance documentation issue.

The LC requires presentation of:

“TRANSFERABLE MARINE INSURANCE POLICY OR CERTIFICATE IN DUPLICATE COPIES FOR 110 PCT OF CIF VALUE COVERING ALL RISKS PLUS WSRCC CLAUSE FROM SELLER’S WAREHOUSE TO BUYER’S WAREHOUSE, ENDORSED TO BANK OF THE PHILIPPINE ISLANDS AT THE BACK OF THE DOCUMENT AND SIGNED BY THE ASSURED/BENEFICIARY.”

My understanding is that, to make the insurance policy or certificate transferable, it should show our company (the LC beneficiary) as the assured, and we would then endorse the document.

However, I am uncertain about the form of endorsement:

• Should the insurance document be endorsed “to Bank of the Philippine Islands”, as stated in the LC?
• Or should it be endorsed “to the order of Bank of the Philippine Islands”, so that the bank may further endorse it to the applicant if necessary?

I would appreciate your clarification.

Thank you.

Best regards,

LT

_______

Answer

Dear LT,

Thank you for your question. This is a very common area of misunderstanding in LC practice.

To comply strictly with the LC requirement, your company—as the assured—should endorse the insurance policy or certificate to Bank of the Philippine Islands, exactly as stated in the credit.

There is no need to endorse the document “to the order of” Bank of the Philippine Islands.

Unlike a bill of lading, which is a negotiable document and may be issued “to order,” an insurance policy or certificate is a quasi-negotiable document. Rights under an insurance document are transferred by assignment or endorsement, not by negotiability in the strict sense.

Accordingly, LC practice does not expect insurance documents to be issued or endorsed “to order.”

This position is clearly supported by ISBP 821 paragraph K20, which provides that:

• K20(a)

A credit should not require an insurance document to be issued “to bearer” or “to order.” A credit should indicate the name of an insured party.

• K20(b)

When a credit requires an insurance document to be issued “to order of (named entity)”, the document need not indicate “to order” provided that the named entity is shown as the insured party or claims are payable to it, and assignment by endorsement is not expressly prohibited.

In your case, the LC expressly requires endorsement to Bank of the Philippine Islands. Endorsing the document in that manner fully satisfies the credit requirement.

Whether the bank may later endorse or assign the insurance document onward to the applicant is a matter for the bank, not a concern for the beneficiary, provided the insurance document does not prohibit assignment.

I hope this clarifies the issue.

Best regards,

Mr. Old Man