CLAIMS PAYABLE, SETTLING AGENT, FRANCHISE, EXCESS (DEDUCTIBLE)

QUESTION

Dear Mr. Old Man,

I have two questions regarding insurance documents that need your explanations:

• LC requires:

“INSURANCE POLICY/CERTIFICATE IN DUPLICATE FOR 110 PCT INVOICE VALUE WITH CLAIMS PAYABLE IN SAUDI ARABIA IN THE CURRENCY OF THE CREDIT…”

• Insurance policy presented shows:

CLAIMS PAYABLE IN SAUDI ARABIA IN THE CURRENCY OF THE CREDIT SETTLING/SURVEY AGENT: INCHCAPE SHIPPING SERVICE DUBAI LL, UAE

DEDUCTIBLE: 0.187 PCT OF TOTAL INSURED FOR ANY ONE LOSS.

• QUESTIONS:

1. I see the insurance policy shows “claims payable in Saudi Arabia whereas the settling agent is in UAE. Is the data on the insurance policy conflicting?

2. Please give me examples of paragraph K14 ISBP 821. When is “deductible” not indicated on the insurance document?

Thank you.

Best regards,

BD

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ANSWER

Hi,

1. CLAIMS PAYABLE IN/AT … AND SETTLING AGENT

For convenience and to avoid complicated formalities when making claims for compensation for damaged or lost goods, the LC would require an insurance document to indicate that claims, if any, are payable in the country of the applicant and the name and the address of the settling agent in the country of the applicant.

Notwithstanding the above analysis, the fact that the insurance policy indicates the name of the settling agent which is in a country other than that of the applicant does not prevent claims from being payable in the country of the applicant. The fact that the insurance policy in question indicates “Claims payable in in Saudi Arabia” is deemed to satisfy the LC requirement.

2. EXAMPLES FOR PARAGRAPH K14 ISBP 821

Paragraph K14 ISBP 821 has two terms that needs to be clarified by examples, they are “franchise” and “excess” (deductible).

Franchise

If the insurance document for amount of USD100,000 states: “SUBJECT TO FRANCHISE OF 0.187% TOTAL INSURED FOR ANY ONE LOSS”, it means that the insurer will not pay any claim below 0.187%, i.e., below USD187. Any claims above USD187 will be paid in full.

Excess (deductible)

If the insurance document for amount of USD100,000 states: “SUBJECT TO EXCESS OF 0.187% TOTAL INSURED FOR ANY ONE LOSS”, it means that the insurer will deduct USD187 from the amount of any claim that is paid.

According to paragraph K14 ISBP 821, an insurance document may indicate that cover is subject to a franchise or excess (deductible). When the LC requires the insurance cover to be irrespective of percentage, the insurance document is not to contain a clause stating that the insurance cover is subject to a franchise or an excess (deductible).

So, if you want the insurance not to indicate “deductible clause”, the LC should require the insurance cover to be IRRESPECTIVE OF PERCENTAGE.

Kind regards,

Mr. Old Man