Article

1. Facts of the Case

1) The defendant is a corporation established by The Trade Insurance Act in order to improve international competitiveness through efficient management of trade and overseas investment by export insurance program to cover risks arising from trade.

2) The short term export insurance is non-recourse to the exporter with the purchasing bank of the export receivables becoming the insurance applicant making insurance contract with the defendant. When the purchasing bank is unable to recover their advance by payment from the importer, the loss can be covered through the said export insurance.

3) The defendant had been extending the insurance coverage to Monuel, the Korean exporter.

The plaintiff entered into purchase agreement with Monuel for the export receivables of Monuel on a non-recourse basis.

4) The insurance application by plaintiff and the issuance of the export insurance by the defendant.

a) ASI Computer Technologies

The plaintiff applied for export insurance to cover the risk of purchasing the export receivables of Monuel to ASI Computer Technologies Inc., and the short term export insurance was issued by the defendant.

b) Newegg Inc.

Following the insurance application by plaintiff to cover the risk of purchasing the export receivables of Monuel to Newegg Inc., the short terms export insurance was issued by the defendant.

c) ASI Utobia Corp.

Following the insurance application by plaintiff to cover the risk of purchasing the export receivables of Monuel to ASI Utobia Corp., the short term export insurance was issued by the defendant.

From April 4, 2014 to September 18, 2014, the plaintiff purchased the above export receivables amounting to USD 80,372,200 and paid Monuel the proceeds and notified the defendant of the said purchases. The insurance contract regarding the same was established.

5) The bankruptcy proceedings against Monuel started and the claims made to defendant on the insurance contract

a) The plaintiff did not receive the payment for the export receivable from the overseas importers and Monuel filed for bankruptcy on October 20, 2014.

b) The plaintiff notified the defendant on October 30, 2014 on the accrual of the insurance claim and requested payment. The defendant refused payment on January 23, 2015 citing various reasons for non-payment.

6) Reasons for non-payment

a) Negligence in examining the documents at time of purchase

Ante-dated bill of lading purchased, non-receipt of ocean insurance policy, unit price unreasonably high, short shipment etc.

In addition to the above incidents, there were occasions for suspicion of illegal activity which were not followed up by the bank.

b) No insurance contract established

The export insurance is based on acceptance of goods by the importer which is not evident in the documents. Thus there is no insurance contract.

7) Discovery of fraud on the part of Monuel

After bankruptcy proceedings were started, it was discovered that Monuel had forged contracts with overseas importers, purchase orders, invoice and pretending that there were legitimate transactions, and sold export receivables to the banks.

8) Argument by Plaintiff

a) The insurance contract does not exempt the coverage of the insurance in the event of fraudulent export as in this case. Thus the defendant is obliged to make payment under the insurance claim.

b) Monuel deceived the banks with fraudulent documents and took the proceeds. The management of the export insurance took bribes from Monuel and increased the insurance coverage of the export insurance making this fraud possible. As the management of Monuel acted illegally as a co-conspirator with Monuel, they are legally liable to compensate the bank for the loss arising from this fraud.

9) Arguments by the Defendant

a) The insurance contract is premised on a normal export transaction. Thus a fraudulent transaction is not covered under the insurance contract.

b) As the insurance contract covers the risk of non-payment by the overseas importer, and there were no exports made to the said importers, there is no transaction to be covered under the insurance contract.

c) The insurance contract stipulates the duty of care on the part of the examining bank of the relevant documents. When there is negligence on the part of the examining bank, the export insurance is not obligated to pay under the insurance contract.

d) Thus the export insurance corporation is not obligated to make payment under the insurance claim made by the banks.

e) When the management of the export insurance corporation increased the insurance coverage for Monuel, there were no violations of internal regulations and thus there is no illegal activity involved. There is no connection between the increase in insurance coverage and the incidence of fraud in this case.

f) The management of export insurance corporation could not foresee the fraud of Monuel and they did not get involved in the fraud nor turned a blind eye to the fraud. There is no legal liability on the part of the management of export insurance corporation.

Legal Analysis:

2. Legal Analysis

1) Validity of the insurance contract and the insurance coverage of this case

a) An insurance contract is interpreted in good faith and without taking into account the subjective intention of the parties, the average understanding of the common person should be applied on an objective basis and when the meaning of the provisions are susceptible to two meanings, the one which is in favor of the insurance applicant is to be preferred.

b) The word “export” in the insurance contract is not defined as a true export and there is no provision for dealing with fraudulent export as in this case. As long as the bank purchases the documents outlined in the insurance contract, the insurance contract is established and there is no provision for the present fraudulent export situation.

Thus the word “export” had to be interpreted in good faith taking into consideration the purpose of the export insurance and based on the average understanding of the common person. Thus based on all of the evidence presented, there is no indication that only true export transaction is covered under the insurance contract.

(1) In a reply by the defendant to the plaintiff on whether the plaintiff has the duty to report fraudulent transactions, the defendant concluded that as the plaintiff is unable to discover fraud in its examination of documents, they do not have such a duty. As such a duty is premised on the establishment of the insurance contract, and that the insurer can cancel the contract with knowledge that violation of such duty had occurred, thus even if there is fraud in the transaction, the insurance contract can be said to have been established.

(2) The defendant has in the past reviewed the duty of care on the part of the banks when dealing with fraudulent cases without pointing to the non-establishment of the insurance contract when deciding whether to make payment under the insurance claim.

(3) As the insurance contract has to be interpreted in favor of the insurance applicant, the insurance contract is considered valid and the insurance contract is applied in this case.

2) The scope of risk covered under the insurance contract

Considering the foregoing points, it is reasonable to conclude that the risk of non-payment by the overseas importers in this case is covered under the insurance contract.

a) When describing the risk of non-payment by the overseas importer, it is not stipulated whether the non-payment is the fault of the importer or the fault of the exporter.

b) The short term insurance has been designed to exclude the exemption from payment due to exporter’s fault, thus it is reasonable to include the risk of non-payment arising from fraudulent documents of the exporter.

c) The insurance contract does not expressly exclude the risk of non-payment due to non-shipment of goods and forgery of shipping documents.

3) Obligation of defendant to make payment under the insurance contract

The plaintiff had purchased the export receivables from Monuel and no payment had been received by the plaintiff from the overseas importers. The insurance contract in this case is valid and the export transaction in this case is included in the risk covered under the said insurance contract. Thus the defendant is obligated to make payment under the insurance contract.

4) Review of exemption argument by defendant on the insurance claim

a) Duty of care on the part of the plaintiff

The defendant argues that the plaintiff should examine the documents for the authenticity of the export transaction. However this is not accepted by this court.

The insurance contract does not have any stipulations on the details of the document examination and its degree. The manual of export insurance corporation says that when the documents are regular on its face, even if the documents had been forged, that cannot be used by the export insurance corporation as a basis of exemption from payment.

b) Review of the exemption claim by the defendant

(1) The transportation personnel’ signature, lorry number and contact details that are required in the delivery order missing

The defendant argues that the delivery order issued by Monuel must have the signature of the transportation personnel, lorry number and contact details, but that the plaintiff overlooked the missing information in the delivery order documents.

However, the bank expert pointed out that such lack of information does not denote that the document is not regular on its face.

(2) Cargo insurance document missing

The defendant argues that in the export transaction, a cargo insurance document is required and that the plaintiff had overlooked this defect. However the insurance contract does not require such a document and it is beyond the scope of document examination by the bank.

(3) Whenever there is lack of insurance coverage line, the quantity shipped is tailored to the said line instead of the purchase order

The defendant argues that in some of the transactions, there was short shipment which was a violation of the contract prohibiting partial shipment and thus the plaintiff should not have purchased those documents.

However there is no express prohibition of partial shipment in the contract and thus there is no negligence on the part of the plaintiff in purchasing the documents.

(4) Suspicion of forged signature in the purchase orders and the designation of settlement account

Among the many documents, there are signatures which seem to be copies of one another and thus the plaintiff should have examined such possibilities. However the bank expert explains that signature stamps and electronic signatures are commonly used in the trade and thus they are not causes for suspicion of forgery.

(5) Some of the unit prices are unreasonably high

The defendant argues that the unit prices in the documents are unusually high and thus the plaintiff should have followed up on the suspicion of fraud in the transactions. However the bank expert explains that there is no need to examine unit price.

(6) Acceptance of goods by importer missing

The defendant argues that the insurance contract requires the acceptance of goods by the importer but that the plaintiff has overlooked this point in its examination of documents. However the bank expert explains that the relevant transaction does not require such acceptance on the part of the importer.

(7) Late shipment

The defendant argues that when there is no shipment date, shipment should be made within 24 hours after receipt of purchase order but that the shipment had been made beyond that time and the plaintiff had failed to notice this defect.

However the bank expert explained that the shipment date can be modified by the exporter and the importer and that the above is not a defect.

(8) Date of delivery order is prior to the purchase order

The defendant argues that sometimes the date of the delivery order is prior to the purchase order and yet the plaintiff did not notice this defect in the documents.

However the bank expert explained that the date of the delivery order and the date of the purchase order can be flexibly modified by the traders and thus this cannot be seen as a cause for suspicion of fraud.

(9) Overlooking the DDP condition which is predicated on customs clearance of some of the documents

The defendant argues that in some of the transactions which do not involve customs clearance, the DDP condition is mentioned and this had been overlooked by the plaintiff in its examination of documents.

However, the bank expert explained that the DDP condition is used not only in international transactions involving customs clearance but in domestic transactions where the exporter pays for all expense (duties, taxes) and thus this is not a cause for suspicion of fraud.

(10) Settlement account information of one who is not the importer in the insurance document

The defendant argues that the settlement account information is not that of the importer in the insurance document but a third party and that the plaintiff had overlooked this defect.

However the third party is the agent of the importer and thus there is no cause for suspicion in this case.

(11) Difference of carrier in the delivery order and the transport documents

The defendant argues that the carrier in the delivery order and the transport documents differ and that the plaintiff has overlooked this defect in its examination of documents.

However such difference in carrier in the documents does not denote that no shipment had been made and thus this is also not a cause for suspicion for fraud.

(12) The difference of contract mentioned in the insurance contract and in the purchase order

The defendant argues that the export contract date mentioned in the purchase order and the export contract date in the export documents differ and that the plaintiff has overlooked this defect.

However the bank expert explained that the parties had a basic export contract and issued several purchase orders and that there were errors in the composition of the purchase orders but that this was not cause for suspicion of fraud.

(13) The difference in destination in the purchase order and the delivery order

The defendant argues that destination in the purchase order and that in the delivery order differ and that the plaintiff had overlooked this defect in its examination of documents.

However the bank expert explained that parties mentioned above are related and that thus such difference was not a cause for suspicion of fraud.

(14) Payment had been made by third party instead of by the importer

The defendant argues that the payment was received from a third party instead of the importer and that the plaintiff overlooked this point and failed to follow up on the matter for fraud.

However the bank expert explained that the third party was the subsidiary of the importer and thus there was no cause for such suspicion in the case.

(15) Purchase of forged bills of lading

The defendant argues that the bills of lading had irregular bill of lading numbers but that the plaintiff had overlooked this point. However, there is no duty of the bank to check the bill of lading numbers and this is not a cause for suspicion.

(16) Ocean insurance document missing

The defendant argues that the plaintiff should have checked the documents for the ocean insurance documents as the transactions were under DDP condition. However under the insurance contract, there is no such duty and it is beyond the scope of the examination of documents by the bank.

(17) The lapse of contract validity in the basic contract

The defendant argues that the export contract had expired by November 2, 2010 and yet the plaintiff did not check this fact before making the purchase of the export receivables.

However the export contract shows that it can be extended with mutual agreement and as the transactions continued, this cannot be a cause for suspicion of fraud.

(18) Difference in settlement method

The defendant argues that the settlement method in the export contract and the purchase order differ and that the plaintiff had overlooked this point.

However the settlement method can be changed according to circumstances and thus this is not a cause for suspicion of fraud.

(19) Non designation of delivery date

The defendant argues that the purchase order does not have a delivery date and that the plaintiff had overlooked this point. However such fact does not raise question of validity of purchase order.

In summary, based on the arguments and evidence presented by the defendant, this is no basis for concluding that the plaintiff had failed in its duty of care in its examination of documents and thus the defendant is not exempted from making payment under the insurance contract.

Presiding Judge Eun-Hee Lee

Judge Bong-Rak Lee

Judge Yoo-Jung Kim

End.

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