WHO IS THE REAL ASSURED IN AN INSURANCE DOCUMENT?

Introduction

In documentary credit transactions, an insurance document may sometimes contain several parties whose respective roles are not immediately clear. The insurance broker, the named assured, the beneficiary and the underwriters may all appear in the same document.

Does the issuing bank need to investigate who is actually behind the insurance arrangement? Or should it simply examine the document as presented?

The following question from a reader provides an interesting example.

Question

Dear Mr. Old Man,

Good day! Hope this email finds you in good health.

I would like to seek your advice on an insurance document. I came across a document and require a few clarifications.

The insurance document contains the following information:

1. It is issued on the letterhead of DEF Brokers Ltd.
2. The assured is ABC Ltd, which is neither the beneficiary nor the applicant. However, upon checking the internet, ABC Ltd appears to be a broker. Its name is different from that of the broker shown on the letterhead.
3. The insurer is mentioned as Certain Underwriters at Lloyd’s.
4. The insurance document is signed in accordance with ISBP requirements. DEF Brokers Ltd is identified as the proxy of the insurer and has signed the document.

Page 2 of the insurance document provides details of the transaction, including the shipment date, description of goods, place of departure and destination. It also contains the following statement:

“We hereby declare that under the authority of underwriters at XXX that an Insurance has been effected for account of ‘Bene Name’ or order.”

The LC requires the insurance document to be made out in favour of the applicant.

Page 3 contains an endorsement by ABC Ltd, the broker named as the assured on page 1.

Could you please clarify the following:

1. Why is the broker’s name mentioned as the assured on page 1?
2. Who is the real assured in this scenario?

Regards,

Priya

______

Answer

Dear Priya,

Thank you for your question.

Based on the information provided, my comments are as follows:

1. Is the insurance document acceptable?

The insurance document appears acceptable, provided that it otherwise complies with the LC requirements and the applicable provisions of UCP 600 and ISBP 821.

DEF Brokers Ltd is identified as the proxy of the insurer and has signed the document. ABC Ltd, being the named assured, has also endorsed the insurance document, as required by the LC.

2. Why is ABC Ltd mentioned as the assured?

This may depend on the underlying arrangement between the beneficiary and the parties involved in arranging the insurance.

ABC Ltd may be acting as an insurance broker or intermediary on behalf of the beneficiary, or under an arrangement whereby it is named as the assured.

3. Who is the real assured?

The actual insured interest may belong to ABC Ltd or the beneficiary, depending on their underlying arrangement.

However, from a documentary examination perspective, banks are not expected to investigate such underlying arrangements or establish whether ABC Ltd is acting on behalf of the beneficiary.

Banks examine documents on their face, in accordance with UCP 600 and ISBP 821.

It is therefore not necessary for the issuing bank or the applicant to seek clarification from the issuing broker or underwriters regarding the respective roles of the parties. As long as the insurance document, on its face, complies with the LC requirements and the applicable UCP 600 and ISBP 821 provisions, the bank should examine the document accordingly, without investigating the underlying insurance arrangement.

4. Acceptability of the insurance endorsement

In my tolerant view, where the LC requires the insurance document to be endorsed in favour of the applicant, an endorsement in favour of the applicant, to the order of the applicant, or even in blank may be accepted, provided that the endorsement effectively transfers the relevant insurance rights to the applicant.

The purpose of the endorsement is to enable the applicant to exercise the rights under the insurance policy. Therefore, I would not necessarily consider an endorsement in blank a discrepancy merely because the applicant’s name does not expressly appear on the endorsement.

A final thought

Remember, banks deal with documents, not the underlying goods, services or performance to which the documents may relate.

The same principle applies here. The bank’s responsibility is to examine the insurance document, not to investigate the commercial or contractual relationships behind it.

Of course, this does not mean that the named assured and the ultimate party whose interest is insured must always be the same. That is a matter of the underlying insurance arrangement, not ordinarily a matter for documentary examination.

Cheers!

Mr. Old Man