OVER INSURANCE

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QUERY FROM AYMAN MESAOWA (Egypt)

Hello Mr old man,

I hope you are doing fine !
First and foremost, I would like to thank you for all your valuable informations and helps whenever I come to you with questions.

FIRST: ENQUIRY:

1) Regarding ucp 600 article 28-f(ii)

Ii. A requirement in the credit for insurance coverage to be for a percentage of the value of the goods, of the invoice value or similar is deemed to be the minimum amount of coverage required.

If the credit require insurance document to be for specific amount $
And the presented documents indicate greater amount than requested

Q: Can it be accepted as per article 28 f ii ?

Or Is the article only applied if credit requires insurance cover as percentage of invoice value or goods value?

SECOND: ENQUIRY

2) How can we ascertain that insurance docs. is negotiable

Q: Is it necessary for insurance document to be in negotiable form to be issued/ to order ?????

What if it issued to show?
Assured : beneficiaty and endorsed by him . In blnk
Is it then considered to be negotiable ??

I look forward to your professional reply .

Regards,
Ayman Ibrahim Mesaowa

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ANSWER

Dear Ayman Ibrahim Mesaowa,

1) The below quoted from ICC Opinions R648 and R581/TA111 can help answer your question:

R468
The inclusion in an L/C of a term such as "Insurance for 110% invoice value" is a bank's way of trying to mirror the UCP requirement of 110%. However, it has not always been translated as such. Consistent with the UCP construction, banks that issue credits with such a clause generally are looking for a minimum coverage rather than an exact one. If a bank requires the insurance document to be issued for exactly X% or X amount or words to similar effect, then the credit must expressly state this requirement. This opinion overrides Issue 2 of query R195 which appears in ICC Publication No. 565.

R581/TA111
Where a credit does not specify a percentage, fixed amount or maximum amount for insurance cover, the insurance document may be expressed for any amount above the minimum of 110 per cent of the gross CIF or CIP value.

So, whether “over insured” is a discrepancy depends on the wording of the L/C. Not sure 100% but I’m afraid it is a discrepancy as your description shows that the L/C requires the insurance document to be issued for a fixed amount while the documents presented shows an amount greater than requested. Sub-article 28 (f) (ii) is not applicable to this case.

2) Some experts say that an insurance document is not a negotiable instrument (!?) but an assignable instrument allowing the assured party (the beneficiary) to assign his right to receive the payment under the instrument to another party (e.g., the issuing bank or the applicant) by endorsement.

Notwithstanding the argument as to whether an insurance document is a negotiable instrument or assignable instrument, an insurance document is considered to be negotiable/assignable when it is issued in assignable form as required in the L/C and endorsed by the assured party or by the party to whose order claims are payable.

So, an insurance document issued to the assured party or to the order of the assured party can be acceptable provided it is endorsed by that party.

Hoping it is of your help.

Best regards,
Mr. Old Man