Insurance Document - LC terms and Requirements

[GlennRansier_]

Hello Everyone, I have received a couple of questions on this issue and would appreciate other opinions. A LC is calling for an insurance document covering XXX terms. The nominated bank is receiving the insurance document that bears a box titled:
"Letter of Credit Terms and Requirements (LCT&R)". The Ins. Cert. (issued against an open policy) in this case then proceeds to quote exactly the LC requirements such as "issued to" and "covering XXX". The insurance document then goes on to provide preprinted "special conditions" which again reflect different insurance coverage’s and it duplicates a majority of but not all the coverage’s indicated in the LCT&R box. There is nothing in the insurance document that would indicate that the LCT&R is for informational purposes and the “assured party” is only stated the LC T&R box. I believe that the document is in compliance with the LC and UCP. However, an issuer, on more than one occasion, has attempted to refuse the document because the insurance coverage in the "special condition" section is incomplete in their view and they are disregarding the information and coverage’s provided in the LCT&R. Has anyone else seen this and what are you doing when these insurance documents are received?

[GlennRansier_]

For further reference and to append to the above question, The cert does reflect: "This is to certify that XYZ company is insured subject to open policy number...". In the LCT&R box it states: "issued to the order of ZZZ company" as requested by the LC.

[GlennRansier_]

Sorry, I may have not explained the various situations clearly. The questions received on my site, www.loc.cc are as follows:

We confirmed an L/C that required an insurance document with the following conditions:
“Insurance policy/certificate ISSUED TO the ORDER OF (issuing bank) covering institute cargo clause (a), etc.".

Beneficiary presented an insurance certificate that stated as its first paragraph: "This is to certify that XYZ company (the Beneficiary) "IS INSURED" subject to Open Policy number...".
In the LCT&R box it states: "ISSUED TO the order of ISSUING BANK" covering institute cargo clause (a), etc." as requested by the LC.
Beneficiary did endorse the back of the ins. cert. and as noted, it also had a special condition section that included various coverage clauses such as SRCC, War, etc.

Questions:
1. Since the LC required insurance "to the order of the Issuing Bank" would the statement in the LCT&R box "issued to the order of issuing bank (actual name provided)"satisfy the LC requirement?
2. Would you deem that the cert.’s assured party as inconsistent due to the statement that the beneficiary is insured under open policy... whereas the LCT&R box reflects the wording: "issued to the order of issuing bank (actual name provided)"?
3. If the special conditions section did not state: "institute cargo clause (a)" but the LCT&R box states: “covering institute cargo clause (a)”, would be acceptable?

As an FYI, I understand that the beneficiary is a large well known company.
I would appreciate your comments.

[DanielD]

One thing is sure, If I have a say in the next revision of the ISBP, I will request that evertything in connection with endorsement be deleted because the insurers do not care. They indemnify against presentation of the insurance documents and other required documents.
Regards
Daniel

[HOANGTHIANHTHU_invalid]

Hi Glenn,

Interesting but hard to comment. I have come across the same insurance documents where LC requirements for insurance document are stated in LCT&R box, but also stated in Conditions of Insurance. I would try to answer your questions:

1) By requesting an insurance document to be issued to its order, the issuing bank is seeking to receive a document which enables it to become the assured party and can transfer its title by endorsement. The statement “issued to the order of the issuing bank” which is stated in LCT&R box is not valid for the issuing bank to exercise its right under the insurance document, hence, the answer is “No”.
However, it may be acceptable if the insurance document is endorsed to the order of the issuing bank as this helps guarantee the issuing bank as a the assured party (holder).

2) In accordance with the above reasoning, I would raise the discrepancy “assured party not as per LC requirement” (unless the bill of lading is endorsed to the order of the issuing bank).

3) This may possibly lead to dispute as to insurance conditions in case of claim for damages. I tend to say “No”.

Other comments are appreciated.

Regards,
N.H.Duc

[GlennRansier_]

Hi N.H.,
In essence, you believe that the information in the Letter or Credit Requirement box is for informational purposes and should generally be disregarded? Would you put this in a procedure for document examiner training purposes? Also if the refusal should need to be defended in a court of law, how would the confirming bank’s refusal be justified?

[HOANGTHIANHTHU_invalid]

Hi Glenn,

Yes, I believe so. I would draw participants’ attention to this issue in our coming document examiner training seminars. Yet, it will be more convincing if there is an ICC official opinion or a case law on the issue.

In my opinion, if the confirming bank must defend its refusal in a court of law, it should evidence the fact that insurance conditions required by the letter of credit are stated in LCT&R box only is not the practice of the insurance industry.

I see that insurance requirement is normally stated in the box for insurance coverage whether or not the insurance document includes LCT&R box.

I’m looking forward to other comments.

Regards,
N.H.Duc

[edited 11/11/2009 2:17:58 PM]

[DonSmith]

Glenn,
I have also been asked the identical question. My response:
1. What does the LC require
2. What does the Ins doc show re the LC requirements (Assured).
3. Does the Ins doc say what the box "LC Terms and Conditions" means - i.e. is it mentioned anywhere in the balance of the Ins doc?

I would like to see a copy of the actual Insurance Document.
Regards,
Don