Institute Cargo Clauses (A) or (Air), as Applicable – Does It Meet an LC Requirement for Institute All Risks?

Questions relating to insurance documents continue to generate a surprising number of discrepancies under letters of credit. One area that occasionally causes uncertainty is whether an insurance document must expressly state “All Risks” when the credit requires such coverage.

In the following case, the LC called for insurance covering “Institute All Risks”, while the presented insurance document referred to “Institute Cargo Clauses (A) or (Air), as applicable.” Does this wording satisfy the LC requirement?

This question provides an opportunity to revisit the relevant provisions of UCP 600 article 28(h) and ISBP 821 paragraph K18.

Question

Dear Mr. Old Man,

Request your expert opinion on the below case:

An LC requires insurance to cover Institute All Risks.

The presented insurance document contains the word Institute and, in the general risk conditions, states “Institute Cargo Clauses (A) or (Air), as applicable.”

According to ISBP, where an LC requires coverage of “All Risks”, an insurance document indicating Institute Cargo Clauses (A) is acceptable.

Does this principle also apply in the above scenario?

Please advise.

Regards,
Priya

_______

Answer

Dear Priya,

Thank you for your question.

I would draw your attention to the following provisions:

UCP 600 article 28(h):

“When a credit requires insurance against ‘all risks’ and an insurance document is presented containing any ‘all risks’ notation or clause, whether or not bearing the heading ‘all risks’, the insurance document will be accepted without regard to any risks stated to be excluded.”

ISBP 821 paragraph K18:

“An insurance document indicating that it covers Institute Cargo Clauses (A) or Institute Cargo Clauses (Air), when dispatch is effected by air, satisfies a condition in a credit calling for an ‘all risks’ clause or notation.”

Based on the above, an insurance document indicating coverage under Institute Cargo Clauses (A), or Institute Cargo Clauses (Air) where the shipment is by air, is regarded as satisfying a credit requirement for “All Risks” coverage.

In your case, the wording “Institute Cargo Clauses (A) or (Air), as applicable” is generally acceptable, provided that the mode of transport allows the applicable clause to be identified. For a sea shipment, Institute Cargo Clauses (A) would apply; for an air shipment, Institute Cargo Clauses (Air) would apply.

Therefore, assuming the shipment mode is consistent with the applicable clause, the insurance document would satisfy the LC requirement for Institute All Risks coverage.

Best regards,

Mr. Old Man