Incoterms_® and Commercial Contracts

The CIP Incoterms® rule is identical to the CPT Incoterms® rule except for the obligation of insurance.

Although the seller has little insurable interest after delivery of the goods to its carrier, it may indeed be practical for it to contract for insurance via its freight forwarder to the benefit of the buyer. Putting both transport and cargo insurance in the hands of one person may be a proper way to synchronise the contract of carriage (route, dates) and the insurance policy at a reasonable cost. Note however that while the use of a policy procured by a freight forwarder or a carrier may offer advantages in some cases (especially when the shipper has just a few shipments), this solution cannot be both universally recommended and the best one. It may even be totally unsuitable for shippers with numerous shipments in a same year.

Note that some countries limit the possibility of contracting with a foreign transport insurance company when importing goods and thus prohibit the use of the CIP Incoterms® rule. Note too that in some countries the matter of insuring, or even giving insurance advice, may be restricted by law to suitably qualified and registered companies and individuals.

The Incoterms® rules do not regulate the insurance contract itself, but merely the relations between seller and buyer as regards insurance. The party responsible for the payment of the insurance cover, i.e. the seller, will have to enter into a specific insurance contract.

The CIP Incoterms® rule requires the seller to obtain at its own expense cargo insurance complying at least with the minimum cover as provided by Clauses (C) of the Institute Cargo Clauses (LMA/IUA), contracted with underwriters or an insurance company of good repute. Depending on the country of shipment, the nationality of the carrier, and the means of transportation, other standard insurance conditions might be applicable.¹ However, if the buyer requests, the seller must procure, subject to preconditions, insurance as provided by Clauses A or B of the Institute Cargo Clauses (LMA/IUA) or any similar clauses. The same goes for war and strike insurances.

The insurance should entitle the buyer, or any other person having an insurable interest in the goods, to claim directly from the insurer. Moreover, the insurance shall cover, at a minimum, the price provided in the contract plus ten per cent (110%). Any other insurance concluded by the seller, which does not have these minimum qualifications, would not fulfil the seller’s insurance obligation under CIP Article A3(b).

If the seller concludes a global transport insurance policy, such policy may not fulfil the requirements of the CIP rules² since it may:

1. not automatically allow the buyer to claim directly from the insurer as the seller is the beneficiary, it may need to enter into special arrangements with the insurer;
2. not provide cover, at a minimum, of the contractual price plus 10%. Some policies provide for a policy excess and a limit.

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