Insurance Document And The Currency Of The Credit

[JoeKohl]

I would like to pose a question concerning insurance documents.

If a L/C states: “Insurance policy / certificate for 110% of invoice value evidencing claims payable in Shanghai, in the currency of the draft”. The currency of the credit and draft is USD. The document presented is an insurance policy that is in USD and states “Claims are payable in Shanghai”. Also, there is a separate notation indicating a claims settling agent in Shanghai. Does the document actually need to state that “claims are payable in the currency of the draft”, being that it is made out in the currency of the draft?

All comments welcome. Thank you.

[larryBacon]

Joe,

Welcome to the Forum.

The short answer to your question is : YES.

The slightly longer answer is :
If the LC calls for the insurance policy to be typed on green paper with pink stripes, tell the beneficiary that he has a small challenge for his stationer !

You obviously live in a hard currency world. In other parts of the world, the insurance assessor will often prefer to pay in local currency based on the FOREX on the date of the claim, but settled some time later. This can represent a considerable saving for the insurance company, especially if the claim is delayed/contested for any reason.

Hence the importance of adherence to the clause in the LC.

Laurence

[JoeKohl]

Laurence, thank you for your welcome and your reply. There was quite a bit of discussion at our bank and we were pretty evenly divided on the subject. One side said that the L/C condition should be taken literally and should be stated on the document word for word, while the other stated that if the amount insured is in USD then it is reasonable to expect the claim will be paid in USD provided nothing is stated to the contrary on the face of the document. Again, thank you for your reply.

[Yahya]

Joe,
My view for your case is very different.
Such a notation on an insurance doc.that" " claims are payable in the currency of the draft " has no clear meaning.
to meet the requirement of the L/C , the insurance doc. should state " claims are payable in USD , EUR,GBP... (which required and stated in the presented draft)
I mean, it must be possible to establish " the currency of claims payable " from the data in the insurance doc.itself.

yahya,
[edited 1/24/2005 3:08:41 PM]

[larryBacon]

Yahya raises a good point which I overlooked. If this clause is quoted verbatim in the insurance document, it complies with the LC, but without further qualification may be meaningless.
There is no requirement that the literal clause is quoted and in fact if it quotes that claims are payable in USD, this would also be acceptable for this LC and also make sense.

Laurence

[NigelHolt]

Bit late in the day perhaps, but my own personal interpretation is that the credit requires that the insurance document is in the currency of the draft and that it states that claims are payable in Shanghai. In other words I do not believe that the credit requires that the insurance document states that claims are payable in any particular currency. This is of course without liability/responsibility.
[edited 1/25/2005 11:00:01 AM]

[larryBacon]

Jeremy,

might I suggest that you read the original posting again "...claims payable in Shanghai, in the currency of the draft...".
To me this is a clear and specific instruction to pay claims in the currency of the draft (USD) and that only that currency would be acceptable.

Laurence

[LeoCullen]

There's a joke on the back of a book I read on a plane
recently:

------

A panda walks into a café and orders a sandwich. He eats it,
takes out a gun and fires it into the air, then gets up to
leave the restaurant.

"Hold it," says the waiter. "What on earth was that all
about?"

"I'm a panda," says the bear. "Look it up." And with that
the animal tosses a badly punctuated book about wildlife on
the counter and heads for the door.

The waiter flips to the relevant page and reads, "Panda:
Large black-and-white bear-like mammal, native to China.
Eats, shoots and leaves."

-----

The book is "Eats, Shoots & Leaves: A Zero Tolerance
Approach to Punctuation", by Lynn Truss.

-----


So, be careful everyone! In this case it looks like there may
be a panda out there shooting a gun.

I would imagine that both interpretations provided by Lawrence
and Jeremy could be argued.

Though I personally would lean towards Jeremy's interpretation
- the credit requires that the insurance document is in the currency of the draft
- and that claims are payable in Shanghai

[NigelHolt]

Leo,

Thank you. The book you mention has enjoyed quite a bit of coverage in the British media. Keep meaning to buy a copy and forgetting.

Notwithstanding sub-Art 34(f)(i), it is I believe quite common for credits to include a stipulation that the insurance document must be in the currency of the credit or -as in this case- the draft. Allied with the comma, I have no doubt that this is the intention here. However, I nonetheless quite accept that there is possibly room for dispute on this and thus that the credit has been poorly drafted. Ultimately, and I mean no disrespect here to anyone, if my views are not accepted on this particular issue I’m really not bothered.

Jeremy

[larryBacon]

Since it is standard practice to pay claims in the country and/or port of destination, this begs the question - why insert it here ? - except to emphasise that such claims are payable in USD in Shanghai.
Nonetheless I accept that it could have been drafted better.

Laurence