INSURANCE EXCLUSIONS: A DISCREPANCY UNDER UCP 600?

Introduction

An insurance policy may contain several exclusion clauses. But does the presence of additional exclusions automatically make the insurance document discrepant under a Letter of Credit (LC)?

The answer is not necessarily. Under UCP 600, we need to distinguish between the acceptability of exclusion clauses and whether the insurance document provides the coverage specifically required by the LC.

Let us consider the following question.

Question

Dear Mr. Old Man,

I hope you are well. I would like to seek your advice on a point concerning insurance documents presented under a Letter of Credit (LC).

The insurance policy contains the following clauses:

• Institute War and Strikes Clauses
• Five Powers War Exclusion
• Exclusion – Indian Ocean, Gulf of Aden and Southern Red Sea Shipping Route
• War & Strikes, Riots and Civil Commotions (SRCC) Exclusion – Middle East Shipping Route

Meanwhile, the LC requires the insurance document to cover:

“INSTITUTE CARGO CLAUSE (A), INSTITUTE WAR CLAUSE (CARGO) AND INSTITUTE STRIKE CLAUSE (CARGO)”

Could these additional exclusions in the policy be considered discrepancies in relation to the LC requirements?

I look forward to hearing from you.

Thank you very much for your time and support.

Best regards,
Maeve

_____

Answer

Dear Maeve,

Thank you for your question.

According to UCP 600 sub-article 28(i):

“An insurance document may contain reference to any exclusion clause.”

Furthermore, sub-article 28(h) provides:

“When a credit requires insurance against ‘all risks’ and an insurance document is presented containing any ‘all risks’ notation or clause, whether or not bearing the heading ‘all risks’, the insurance document will be accepted without regard to any risks stated to be excluded.”

These provisions address two distinct matters: the acceptability of exclusion clauses in an insurance document and the treatment of exclusions when the LC requires insurance against “all risks”.

In the case at hand, the LC specifically requires coverage under Institute Cargo Clause (A), Institute War Clause (Cargo) and Institute Strike Clause (Cargo).

The insurance policy lists certain war and strikes clauses, together with additional exclusions. However, the information provided does not establish whether the policy also provides the required Institute Cargo Clause (A) coverage.

It is important to distinguish between the two issues:

1. Additional exclusion clauses

Under sub-article 28(i), an insurance document may contain references to exclusion clauses. Therefore, the mere presence of additional exclusion clauses does not automatically constitute a discrepancy.

2. Coverage required by the LC

The insurance document must nevertheless evidence the coverage required by the LC. If the policy does not provide the required Institute Cargo Clause (A) coverage, the insurance document would be discrepant on that basis.

Accordingly, the issue is not simply whether the policy contains additional exclusions, but whether the insurance coverage satisfies the LC requirements. The actual policy wording, including its coverage provisions and endorsements, would need to be examined before reaching a definitive conclusion.

I hope this clarifies the matter.

Best regards,
Mr. Old Man