AMOUNT OF COVER

QUESTION

The LC was issued for $8,000 showing as follows:
– Field 45:
Commodity: Fabrics
Total amount: $10,000
TT advance $ 2,000
– Field 46:
Insurance cert cover for 110% invoice value

Documents presented:
– Invoice shows:
Commodity: Fabrics
Actual shipped goods amount: $10,000
TT advance $ 2,000
Invoice amount: $8,8000
– Insurance Certificate shows:
Sum insured: $8800.

Is the Insurance Certificate complied with LC requirement?

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ANSWER

Hi,

The insurance certificate does not comply with the LC requirement.

According to ISBP 745 paragraph K15, when it is apparent from the LC or from the presentation that the amount demanded only represents a certain part of the gross value of the goods (for example, due to discounts, pre-payments or the like, or because part of the value of the goods is to be paid at a later date), the calculation of insurance cover is to be based on the full gross value of the goods as shown on the invoice or the credit and subject to the requirements of UCP 600 sub-article 28 (f) (ii).

Please also refer to ICC Opinion R468 (Question 5):

QUOTE
100% of the gross amount of the invoice is the value of the goods before any deduction. For example, a credit which is issued for US$ 100,000.00 and allows for 80% to be drawn against shipping documents with 20% having been paid in advance. This would entail the beneficiary producing an invoice for 100% of the goods value (US$ 100,000.00) and showing a deduction in respect of the advance payment – resulting in a bottom line figure of US$ 80,000.00

In this case, the insurance must be for a minimum of 110% of the gross amount of the goods (goods value $100,000.00 plus minimum 10%) and not a minimum of 110% of $80,000.00
UNQUOTE
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Kind regards,

Mr. Old Man