INSURANCE CERTIFICATE COVERING ALL RISKS AND WAR RISK CONTAINS INSTITUTE WAR CANCELLATION CLAUSE

Special Q&A with comments from TSU editors who are international experts on letters of credit. It may be published in the next issue of LC Monitor/Trade Services Update.

QUESTION

Dear Mr. Old Man,

This is Phoebe. I’ve been your follower since 2021 when I started to work in the import-export industry, and firstly I’d like to say thank you for all your helpful information posted on your blog, which helped me and others from around the world a lot.

Currently I have an issue with the insurance certificate with the clause of Institute War Cancelation Clause and need your expert opinion:

LC requires the insurance certificate as below:

“Insurance policy or certificate issued in duplicate to order of CIB Bank – Cairo, covering marine risk and war risk and all risks for full CIF invoice value plus 10PCT from Beneficiary warehouse to applicant warehouse indicating that claims are payable in LC currency at port of destination and shows insurance premium has been paid and indicating vessel name”.

The insurance company drafts an insurance certificate with the insurance clause covering marine risk, war risk and all risks as required by LC. However, it also contains Institute War Cancelation Clause.

The beneficiary’s bank requests the insurance company remove the clause of Institute War Cancelation Clause from the insurance certificate; otherwise, this certificate will be discrepant. Their reason is this clause conflicts with LC term, which requests war risk coverage. However, the insurer argues that insurance covers the risks as required. The Institute War Cancellation Clause should be treated as an exclusion clause as per UCP 600 article 28(h) and ISBP para. K17 and K18. Therefore, it is acceptable.

Please  let me know who is right, the beneficiary’s bank or the insurance company?

Looking forward to hearing from you soon.

Best regards,

Phoebe

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ANSWER

Dear Phoebe,

As I replied to you in the previous email, my view is that Institute War Cancellation Clause should be treated as an exclusion as per UCP 600 article 28(h) and ISBP para. K17 and K18. Therefore, the insurance certificate in question is acceptable.

I edited the question and sent it to TSU editors who are international experts on letters of credit to seek their valuable comments and  I also promised you that I would forward their comments (if any) to you for further reference.

And now here are some comments from them:

From Dobáš Radek

“Under UCP 600 there appears to be no discrepancy. And I looked up the wording of the cancellation clause itself and if I understand it correctly, it should not apply to an insurance already granted. Therefore, if the insurance company issued the insurance certificate to that specific shipment, no cancellation should be possible (and I cannot imagine an insurance company issuing an insurance certificate after having placed a notice of cancellation of the insurance)”.

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“Under UCP 600 there is no discrepancy. For me this certificate is acceptable.”

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From Domenico Del Sorbo

“I did a quick Google search and found excellent insights on the Institute War Cancellation Clause (Cargo) at the following link:

https://www.proteusinsurance.co.nz/2023/12/01/cancellation-clauses/

In light of the information provided in the article, I would tend to consider this clause as a legitimate condition set by the insurers in line with insurance industry standards.

Therefore, in my opinion, the insurance document should be accepted.”

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I hope these answers are helpful.

Best regards,

Mr. Old Man