Article

by Wang Xuehui (Ofei)

There are still misunderstandings concerning the endorsement on insurance documents. This article will focus on the insured party in these documents.

The reasoning

Section 23 (1) of the Marine Insurance Act (hereinafter MIA), 1906, UK clearly states that a marine policy must specify the name of the insured or of some person who effects the insurance on its behalf. Consequently, London market practice is that the insured is identified on the insurance contract. A contract of insurance subject to English law, which is issued simply "to bearer" without any indication concerning the identity of the original insured party, is arguably not a valid contract of insurance, nor is it in accordance with best practice.

Insurance documents - either an insurance policy, certificate of insurance or the insurance slip - are all evidence of the contract of insurance1. However, the MIA emphasizes that a contract of marine insurance is inadmissible in evidence unless it is embodied in a marine policy. The policy may be executed and issued either when the contract is concluded, or afterwards2. Therefore, no matter whether there is a contract of insurance or insurance documents, each must evidence a specified insured party.

A similar stipulation also appears in other insurance acts, for example, the Insurance Law of The People's Republic of China (2009 revision) which indicates in Article 18 that an insurance contract shall contain the names and residences of the insurer and the insured. Article 217 of the Maritime Code of The People's Republic of China also expressly states that a contract of marine insurance must include the name of the insured.

Under the Insurance Act, Singapore (Cap 142, 2002 Rev Ed), the insurer must be a registered company or a society registered under the Co-operative Societies Act (Cap 62, 1985 Rev Ed). In Singapore, under company law, a company's capacity to contract is limited by its memorandum and articles of association. If it acts beyond its powers, the contract is void, subject to statutory exceptions to protect the innocent insured who has unknowingly entered into a contract with the errant insurer. Therefore, if an insurance document fails to indicate the name of the insured or merely expresses it by "to order", the insurance policy/certificate is deemed to be void.

Regretfully, it is not clear why the ISBP and its third revision, currently under consideration, may still allow an insurance document to be issued "to bearer" or even admit that an insurance document can be silent in the "insured box", which means the insured may be equivalent of "to bearer" or only a blank item. During my long years of experience, I have never seen an insurance document issued either "to bearer" or being blank in the "insured box".

Who is the insured?

Generally, the insured refers to the entity that has purchased the insurance coverage stated on the insurance documents and is considered to be the first named insured.

In the MARINE INSURANCE UBC Law 332, Christopher J. Giaschi defines the insured as the person who has taken out the policy and is obliged to pay the premium. He also mentions an additional insured, which refers to either a named additional assured(s) or contains a clause that extends the insurance to additional assureds by description.

Consequently, it's very odd if in an insurance document there is no indication to prove who is the person purchasing the insurance coverage if no specified party is listed in the "insured box".

Why specify the insured?

An insurance document is transferable even if there is no indication in the document to this effect. This is totally different from a bill of lading. If a bill of lading is made out to a specified party, it constitutes a straight bill of lading and cannot be transferred. However, even if there is a specified insured party in the insurance document, this does not affect the ability of the insurance document to be transferred.

Take a CIF contract for example. The seller may apply for insurance and obtain the insurance policies or certificates, on which he may name himself as the insured. When the goods are on board the vessel, the risks have been transferred from the seller to the buyer. If losses or damages occur during transit, it is the buyer who has the insurable interest to lodge claims against the insurer.

As per Article 6 of the MIA, the assured must have an interest in the subject matter insured at the time of loss, though he need not have an interest when the insurance is effected. This requirement has been admitted and adopted worldwide. Further, Article 51 of the MIA stipulates that where the insured has parted with or lost his interest in the subject matter insured, and has not, before or at the time of so doing, expressly or impliedly agreed to assign the policy, any subsequent assignment of the policy is inoperative. Therefore, the seller needs to transfer the insurance policies or certificates either by endorsement or in another manner to the buyer. In these circumstances, the buyer obtains the insurable interest through transfer from the seller.

Conclusion

To be in line with practice in the insurance market, an insurance document must specify a named party or some person who effects the insurance on its behalf. The apparent confusion surrounding the insured should be cleared up during the current revision of ISBP 681.

WANG Xuehui (Ofei) is a Lecturer in the School of Economics and Management at Anhui Agricultural University in Hefei, Anhui, China. She is also a contributing editor to Trade & Finance under The State Administration of Foreign Exchange, China.

Her e-mail is ofeiliya@hotmail.com.

The author wishes to express her gratitude to Kim Sindberg for his suggestion to write this article.

1 Article 21 of MIA.

2Article 22 of MIA.