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INSURANCE DOCUMENT ISSUED TO ORDER

By Mr Old Man
Posted on June 3, 2015
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QUESTION

Dear Mr. Old Man,

I am a newcomer at a forwarding company. I have a question for you:

LC issued by SHINHAN BANK SEOUL stipulates:

“Full set of marine insurance policy or certificate endorsed in blank for 110 % of invoice value with claims payable in Korea in the currency of draft, covering the institute cargo clauses.”

The beneficiary requests the insurance company to issue an insurance policy that indicates the assured party as “TO THE ORDER OF SHINHAN BANK SEOUL”.

Is the beneficiary correct?

Is it true that all insurance documents required under LCs must be issued to order?

Could you please explain to me why an insurance policy needs to be endorsed in blank? As far as I know, unlike a bill of lading, an insurance policy/certificate is not a document of title that is transferrable by endorsement.

Thanking you for reading my mail and looking forward to your answer.

Best regards,

NA

—————-

ANSWER

Hi,

According to the LC’s requirement, the beneficiary is  correct in insisting an insurance document that indicates the assured party as “SHINHAN BANK SEOUL” or “TO THE ORDER OF SHINHAN BANK SEOUL”. However, he should not so insist. What if the issuing bank refuses the documents (due to discrepancies) and returns the documents? It would not endorse the insurance document back to the beneficiary.

Under CIF terms, the assured party to be indicated in the insurance document would be the seller that buys insurance for his goods. To comply with the LC requirement, the insurance policy/certificate in this case will indicate the beneficiary as the assured party who will endorse the insurance policy/certificate in blank.

It’s true that an insurance policy/certificate is not a document of title. Some experts say an insurance policy/certificate is a quasi-negotiable document, i.e., not really a negotiable document. It is encouraged by ICC that insurance policy/certificate should not be issued “to order”.  However,  in practice, insurance companies still issue “to order” insurance policy/certificate at the request of the assured and such insurance policies/certificates are acceptable.

It is not true that insurance documents under LCs are required to be issued to order. A common requirement for presentation of insurance policy/certificate would be as follows:

“Insurance Policy/certificate IN ASSIGNABLE FORM AND ENDORSED IN BLANK for 110% of invoice value covering all risks …”

Under CIF terms the risk transfer point from the seller/beneficiary to the buyer/applicant is when the goods have been loaded on board. The fact that the insured/beneficiary endorses the insurance policy/certificate in blank is to assign the right to claim compensation under the insurance policy/certificate to the buyer/applicant or to the holder in due course.

Kind regards,

Mr. Old Man

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19 Comments

19 Comments

  1. lenha

    July 1, 2015 at 7:04 pm

    Dear Anh Duc

    I may think beneficiary is not wrong here to demand to show assured party as “TO THE ORDER OF SHINHAN BANK SEOUL as LC is silent on that party.

    LC called for
    —————–
    Full set of marine insurance policy or certificate endorsed in blank for 110 % of invoice value with claims payable in Korea in the currency of draft, covering the institute cargo clauses.”
    ————-
    Under ISBP 745 K21)
    where a credit is silent as to insured party :
    > not to show claims payable to the order /favor of beneficiary or any entity
    other than the issuing bank / applicant
    > if claims payable to the order /favor of beneficiary must be endorsed in blank
    or in favor of the issuing bank / applicant.
    Source : Understanding Changes to ISBP – Citibank

    And seller demand to show assured party as issuing bank which allowed under K21. Endorse in bank can be satisfied by stamp and signed on insurance.

    True, agreed that may be having discrepancy raised by some checkers but i believed that point can make argument.

    The good and safe way to protect payment is to show a assured party as blank.

    Regards
    Le nha

    Reply

    • mroldman

      July 1, 2015 at 8:49 pm

      Well pointed out! You are correct in saying that where LC is silent as to insured party, the insurance policy may show claim payable to the issuing bank/applicant as per K21.

      What if the documents are not complying and the issuing bank returns the documents including insurance policy without endorsement to the beneficiary?
      That is the reason why the beneficiary is advised not to insist on the insurance policy showing claim patable to the order of the issuing bank or applicant.

      Reply

  2. Naima

    November 15, 2017 at 2:26 pm

    Good Day Mr. Old Man ,,
    Please i have one question about the insurance :
    I have one documentary credit which is saying that the
    Port of loading is :Jebel Ali Seaport , Dubai , UAE
    Port of Discharge: Jeddah Seaport , Saudi Arabia
    The shipment is CFR JEDDAH SEAPORT, SAUDI ARABIA
    Goods are manufactured abroad but shipped to Dubai and from Dubai to Saudia
    As beneficiary we are in Dubai and we will ship the goods to Saudia .
    L/C is not asking for any insurance but as beneficiary we want to insurance the goods my question here : how the insurance will work in this case ?
    Is the insurance is for all kind of shipments means for LCL Shipment , FCL ?
    As we will be the Assured , so do we have to insure the goods only from the origin of country of manufacturing to Dubai Seaport or to make a full insurance up to Saudia Seaport ( in this case the incoterm will be CIF ? )
    For my knowledge CFR is not covering risks but CIF is covering
    My other worry is that if we are making insurance to Saudia in that case who will claim the applicant or the beneficiary ( as we the assured )
    Can a insurance document is to the assured ( beneficiary ) but made for CIF means goods insured from port of loading to port of destination but we will make claims if any damage or loss happened ? will the applicant in this case interfere and ask for claims even though he did not ask for any insurance ?

    Reply

    • mroldman

      November 15, 2017 at 5:42 pm

      Hi
      Under CFR the seller assumes no responsibility for buying insurance. The risk is transferred from the seller to the buyer right at the time the goods are shipped on board at the port of loading. So, the buyer will bear risk of damage to the goods from port of loading to port of destination if he does not buy insurance.
      Under CIF term the buyer assumes to buy insurance covering risk from port of loading to port of destination. The insurance document is in assignable form, the seller will endorse the insurance document so that the buyer becomes the beneficiary of the insurance and can claim compensation if the goods are damaged or lost in transit.
      Kind regards,
      Mr. Old Man

      Reply

      • Naima

        November 15, 2017 at 6:05 pm

        Hi ,,
        Thank you very much for your reply.
        Please the buyer did not buy any insurance ,shipment is CFR but we are making the insurance for our goods.
        My worry is that if we are making the insurance from the port of loading to the port of destination we will make the shipment CIF which is not and the buyer will ask for claims .
        So my question , that if we are the assured and making insurance from port of loading to port of destination , can the customer ask for payment claims even he does not ask for insurance ?
        My option is to make the insurance only from the port of loading to the port of transit ( from which we are making ) the shipment to the port of destination so that if any damage are found we will make claims and be paid without involving the customer ( shipment will be CFR to the customer ).
        Please your comment is highly appreciated.

        Reply

        • mroldman

          November 15, 2017 at 9:05 pm

          I wonder why you have to buy insurance for the goods from port of loading to port of destination while the risk is transferred to tge buyer at the port of losding.. However, you you buy insurance and not endorse the insurance document, the buyer cannot claim under insurance document.
          You can buy insurance for the goods in transit to the portbof liading and if there is danage to the goods before they are shipped on board you can claim compenesation.

          Reply

  3. Naima

    November 15, 2017 at 9:43 pm

    Hi,,
    Thank you for your reply.
    We are making insurance as we are shipping goods in LCL not in FCL
    Please what do you mean by not endorse the insurance document.

    Reply

    • mroldman

      November 16, 2017 at 10:18 am

      As ithe term is CFR, you are not required to present insurance document, there’s no need for you to endorse the insurance document to pass the right to claim under the insurance document to the applicant.
      If you buy insurance from your warehouse or somewhere to port of loading, you have the right to claim insurance compensation if lost or damage occurs on the way to port of loading.
      In practice, seller would not but insurance in this case.

      Reply

  4. ruben hiatt

    November 17, 2017 at 1:03 am

    Dear Mr. Old man,
    would be thankful for you opinion in this case.
    If an LC is issued with the following conditions is late presentation valid?
    (shipment occured 1.8, docs were presented 1.10 and lc expiry 31.12).
    48:documents to be presented within 21 days after B/L.
    But in additional conditions it is stated that ”documents presented within the validity of LC also acceptable”.
    So my question is can documents in order to be clean be presented after 21 days of B/L?
    There is no mention of stable docs acceptable or art 14c of UCP not valid.
    Grateful for your opinion in this case.
    Regards
    Ruben

    Reply

    • mroldman

      November 18, 2017 at 12:08 pm

      The condition is not clear but by so stipulating, the issuing bank intends to accept stale documents provided they are presented on or before expiry date. What’s more? The applicant/issuing bank bears the risk of umambiguity.
      In my opinion, it”s acceptable!

      Reply

  5. Naima

    December 3, 2017 at 4:49 pm

    Good Day Mr Old Man,,

    I hope that you are doing well,,
    Please Mr.Old Man , i have one question about the VAT ( Value Added Tax ).
    UAE is now asking for VAT and all the invoices have to mention the VAT from 2018.
    We have one running L/C which was opened in August 2017 but will be shipped in January 2018 , the problem now that the L/C is not asking for any VAT to be shown
    As per the L/C the invoice is CFR JEDDAH SEAPORT , SAUDI ARABIA.
    The L/C was issued on 03.08.2017, .
    As per UCP the invoice has to be as per the L/C ( means as per Description of Goods &/or Services ).
    If we have to include the VAT in this L/C , it will be shown , not shown ?
    If it is shown , will it make any discrepancy on the L/C? (the L/C is not asking for that )
    If it is not shown , will it make any discrepancy ?
    If VAT has to be in documents , it will be only in the commercial invoice?

    Thank you

    Reply

    • mroldman

      December 3, 2017 at 11:11 pm

      Hi,

      The fact that VAT is added to the value of the goods shipped can make the invoice discrepant. So, To comply with L/C requirement the presented invoice should not include VAT. The beneficiary may send directly to the applicant a set of VAT invoice to comply with UAE regulations.

      Kind regards,
      Mr. Old Man

      Reply

      • Naima

        December 4, 2017 at 4:16 pm

        Good Day Mr.Old Man,,

        Thank you for your reply.
        Please the amount of the goods is CFR JEDDAH SEAPORT, SAUDI ARABIA
        VAT is included in the price ( amount is inclusive of VAT)
        We have to pay VAT here in Dubai but we want to add the sentence in the Commercial Invoice (PRICE IS INCLUSIVE OF VAT).
        My worry is that this sentence (PRICE IS INCLUSIVE OF VAT) is not mentioned in the L/C ; neither in the amount ( article 32B) nor in the description of Goods &/or Services ( article 45A) and Additional Conditions ( article 47A).
        So if we are adding the sentence (PRICE IS INCLUSIVE OF VAT) in the Commercial Invoice, will it make any discrepancy ?
        I have asked our bank which is the advising and confirming bank and they told us that may be it will make a minor discrepancy from the issuing bank.
        Can you please comment

        Thank you in advance.

        Reply

  6. Naima

    December 5, 2017 at 1:02 pm

    Good Day Mr.Old man,,

    Thank you for your reply,,
    Please When you are saying OK. Ok that if we add the sentence (PRICE IS INCLUSIVE OF VAT) that will not make any discrepancy on the L/C ( L/C is not is not asking for that )

    Thank you

    Reply

  7. Naima

    December 6, 2017 at 1:27 pm

    Good Day Mr.Old Man,,

    Please Mr. i have asked you , when you told me that it is OK .
    I have asked you that we will add :
    (PRICE IS INCLUSIVE OF VAT) in the Commercial Invoice, will it make any discrepancy?
    You replied to me that : I think it is OK.
    L/C is not asking for that any where ; neither in the amount ( article 32B) nor in the description of Goods &/or Services ( article 45A) and Additional Conditions ( article 47A).
    Please could you confirm that when you are telling It is OK means that if we are adding the sentence (PRICE IS INCLUSIVE OF VAT) in the Commercial Invoice , it is OK no discrepancy will be raised from the confirming bank or the issuing one.

    Thank you very much for confirming

    Reply

    • mroldman

      December 6, 2017 at 10:43 pm

      I think it is acceptable since that statement is deemed to be additional iinformation.

      Reply

      • Naima

        December 7, 2017 at 2:48 pm

        Thanks

        Reply

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