ICC Digital Library Forum

If an LC calls for Insurance covering "All Risks" without specifying particular risks.
Query : Whether the use of any insurance clause is acceptable under all risks coverage?
How do we relate to Art 36 of dealing with all risks cover?

The all risk clause falls within the treatment of FIVE articles under UCP 500
1. Art. 12 unclear instructions at which time the nominated, confirming or advising bank should draw the attention of beneficiary and the issuing bank to this stipulation.

2. Art. 21 unspecified contents of documents where such documents have to be accepted with whatever data it contains provided they do not contradict with other L/C documents.

3. Art. 35, which requires specifically that the “Credits should stipulate the type of insurance required and, if any, the additional risks which are to be covered. Imprecise terms such as "usual risks" or "customary risks" shall not be used; if they are used, banks will accept insurance documents as presented, without responsibility for any risks not being covered.”

4. Art. 36 which expressly states that the insurance document might be presented bearing the magic word “all risk” however there might be certain exclusion are there and that may render the document to cover B Clause rather than A clause which might be the intention of the applicant or the issuing bank.

So in conclusion if any insurance document bears on its face the magic word “all risks” the bank is bound to accept that document even if the actual insurance coverage is the minimum. This is restrictedly under UCP 500.

You would obtain a better explanation from your insurance company or advisors. If your enquiry refers to Marine Insurance Policy, Cargo Clause (A) may satisfy the “all risk” coverage. Point number one under Risk Covered section of “Institute Cargo Clauses (A)” reads as follows:

This insurance covers all risks of loss or damage to the subject matter insured except as provided in Clauses 4, 5, 6 and 7 below.

This wording meets the requirement stipulated in article 36 of UCP 500.

HISTORICAL PROBLEM

To answer this query, we have to go back to history for a moment. In the good old days, there were three kinds of cargo insurance available: all risk(s) (AR), with average (WA) and free of particular average (FPA) which are updated to become ICC (A) (B) and (C) of today.

OLD INSURANCE TERMS STILL BEING USED

We notice that some DC practitioners are still living in the world of UCP 290 or 400 and hence still use the older terms of cargo insurance in their DC, thereby creating the problem that leads to this query.

POSSIBLE SOLUTION

As we cannot stop people using those old terms, shall we put in UCP 2005 a clause

"Whenever a DC requires "All Risk(s)", provision of ICC (A) would be deemed to satisfy such requirements" or words of similar effect.

The present Articles in the UCPO 500 are not specific enough for this particular issue.

http://www.tolee.com

[edited 10/31/01 6:31:32 PM]

1. KNOWELDGE OF INSURANCE PRACTICES IS A MUST FOR BANKERS

The Institute of London Underwriters have approved numerous 'clauses' defining the risks covered, circumstances excluded, etc. to be incorporated into insurance policies. Some of these have broad application and are therefore in everyday use. Others are specific to certain trades and classes of goods.

Therefore, the standard policy document represents only the skeleton of a marine insurance contract. It is the clauses, which are incorporated by attachment to the policy, that are the essence of the contract, but the policy may contain, by agreement, specific wordings which extend or restrict the basic cover by imposing, for example, warranties, special conditions, a franchise or an excess.

The Institute Cargo Clauses, which consist of, for example:
· Institute Cargo Clauses (A)
· Institute Cargo Clauses (B)
· Institute Cargo Clauses (C)
Each set of these clauses is self-contained and designed to stand on its own. It is very important to understand that The Institute Cargo Clauses are not used for all types of cargo where there is a special 'trade risk' (i.e. related to the specific nature of a product), specialized clauses are used. Therefore there is Institute Trade Clauses. These clauses have been formulated in conjunction with the trade body concerned and are based on the Cargo Clauses. Examples of trade clauses are those relating to the following commodities: coal, oil, corn, flour, frozen meat and produce, raw sugar, rubber and timber. On the other hand Additional Clauses may be added to a policy to ensure cover for specific risks not otherwise insured against in the Institute Cargo Clauses e.g. Malicious Damage Clause, or Institute Replacement Clause.

2. "ALL RISKS" CLAUSE IS JUST A “MAGIC WORD”

Any sensible banker may notice that the “all risks” is written in italic, presumably to draw his attention to this “misnomer” clause. In addition to that, one can notice that the exclusions are more in number than the risks covered (3 vs. 4) Therefore any ill-informed banker or merchant may think that "all risks" clause may save him from perils but in reality it may not.

3. UNDESIRABLE INSURANCE CLAUSES BY BANKERS

Bankers should endeavor to secure the use of LCs of reasonable insurance clauses, free as far as possible from ambiguity. Therefore, setting out certain insurance clauses encountered as above indicate, insofar as these fall short of the ideal, wherein lie their deficiencies, should be our concern. Some clauses appearing in LCs opened by responsible banker’s emphasizes the need for a closer study by bankers of their implications

“Covering marine and war risks W.P.A; covering all risks subject to S.R. and C.C. clauses (extended cover)’.

COMMENT
“W.A.” insurance can hardly be against all risks: war risk clauses are not W.A. It is probably that this clause requires a policy, say, subject to Institute Cargo Clauses (W.A.), including Institute War Clauses and Institute Strikes Clauses (extended cover), but this, certainly, is not what is stated in the clause. Apart from the fact that W.A. is an old name.

--
“Marine and War Insurance policy or certificate covering 20% above CIF value from warehouse to warehouse in Denver.

COMMENT
There is no indication as to what form of marine insurance cover is requisite. On a literal interpretation of the clause both warehouse at point of departure and place of destination in Denver.

--
“W.P.A. insurance irrespective of percentage covering Institute Cargo Clauses (all risks), Institute Strike Clauses (extended cover); also theft, pilferage, short or non-delivery, bursting and tearing of bags, damage by rain, fresh or sea water, also war risk. Claims if any, payable at Jeddah”.

COMMENT
It may be deduced that the intention here is to effect insurance subject to Institute Cargo (clause A). Institute war clauses and Institute strike clauses (extended cover) in such case; it is undesirable to include "super added" risks such as theft, pilferage, etc. The intention is to include short and non-delivery.

--
“Marine and War Risks on usual Lloyd’s conditions.”

COMMENT
There are no such things as ‘Usual Lloyd’s Conditions’. Surely it is not meant that the insurance shall be on plain Lloyd’s form of policy, but this is the only interpretation, which makes sense. It is true that the Institute Cargo clauses are in common use at Lloyd’s, but it is requisite that the precise clauses to be called for should be specified.

4. UNDESIRABLE INSURANCE CLAUSES BY INSURANCE COMPANIES

To hold balance fairly, difficulties with insurance sector does not stem from the banking industry alone, it is not a one-way trail and that at times bankers are inclined to lodge objections to particular practices observed amongst marine insurers.

A. The negotiation by some agents of insurance on restricted terms (say: (F.P.A.) wherein at least (W.A.) is required by reason of the nature of goods). Any ill-informed merchants on insurance may believe that this restricted cover is “quite sufficient’. However, this criticism may not always be warranted, for it is difficult to believe that substantial merchants are so naïve as to think that there can be wide divergences between premium quotations covering precisely the same risk.

B. The sale of policies that contain unusual provisions:

a) Excluding all extraneous perils:

b) ‘Not withstanding the terms of the warehoused to warehouse clause, it is a special condition of this insurance that the survey shall be made in the landing shed within a period of seven days after the discharge from the steamer and that underwriters shall not be liable for any loss by theft or pilferage occurring after the above mentioned survey or for any loss or damage whatever except fire after the above-mentioned survey or for any loss or damage whatever except fire after removal from landing shed.”

5. THE UCP GUIDANCE

It is evident the UCP has in effect warned against the “all risk” clause by setting out an exclusive article to it. In the UCP 500 & 400 Compared Mr. Charles Del Busto states “ this article emphasis that the all risk insurance cover is not what it appears to be since not all risks are covered”

THE FIRST HURDLE - TO UNDERSTAND EXCLUSIONS OR RIDERS IN CARGO POLICIES

To respond to Hatem's opinions on cargo insurance, for bankers to understand the exclusions or riders in cargo policies, we would say that the ocean of knowledge and experience in cargo insurance is as big as that of transport, multimodal and maritime charter party transports included.

From our experience in providing cargo insurance trainings to bankers, there are three solid hurdles to clear.

From our view, it may not help just to study all the different endorsements, riders, attachments, or whatever names you like to call these special exclusions common in cargo policies, particularly for commodity trades, as pointed out by Hatem.

THE SECOND HURDLE - THE CORNERSTONE CONCEPTS

For a document checker, to understand cargo insurance really well, to the extend that he can determine discrepancies speedily, accurately, and authoritatively, he must ALSO know the basic conrerstone concepts in cargo insurance, which one cannot imagine just by applying simple common sense.

These cornerston concepts are quite profund and have been created from long experience over all these years. They may look strange to some if not all of us but they have deep down reasons for their existance and they have earned the respect of all practitioners, just like the UCP 500 which all of us are familiar with here.

THE THIRD HURDLE - THE JARGONS AND THEIR IMPLICATIONS ON PROPER CARGO HANDLING

The third hurdle is to understand the jargons used in cargo insurance policies, such as "general average", "sue and labour" and the like. Of course you know the meaning of each word in isolation but when the two words that you know are combined together to make one jargon, you simnply don't know what it really means.

It is crucial to be able to understand the real meanings and their implications on proper shipment handling procedures.

A sad thing is that when the claims are made, they are often rejected because the cargoes are not handled in such a way as to match those implied procedures as strictly required by the underwriters, and so the claims are refused.

We see many such claims failures. The traders pay for the cargo insurance premiums and yet they do not get any protection from the cargo policies just because the ways they handle the cargoes are against the cargo insurance requirements.

These are more serious than DC discrepancies in the cargo policies. DC Discrepancies may be waived but not these strict cargo insurance requirements in cargo handling.

THE FOURTH HURDLE - TO MAKE SUCCESSFUL CLAIMS

Although a banker needs not be concerned about successful claims, yet this fourth hurdle does affect the bankers' customers.

To master successful claims is even more difficult because you have to fight with the claim manager in the insurance company. Unless you know all the tricks and traps in the exclusion clauses, jargons and the cornerstone concepts, you may not be able to find a reason to convince him to pay your claims.

COMMERCIAL DECISIONS

Why then some of us do get paid sometimes? This is not because your cargo handling is compliant. There is one approach insurance companies use to settle their claims. That is what they call "commercial decisions" - to value you as their good and loyal customers and to keep you there so that they may continue to earn more of your premiums.

Sometimes they do so under pressure exerted by the sales and marketing team.

THERE IS ALWAYS A SOLUTION - IF YOU ARE DETERMINED TO HAVE IT

Having said that, there is always a solution to any problem. The problem is whether you would give yourself the chance. If you are determined to do it, you always have the time and the recourses. If you don't want to do it, you always have a thousand excuses not to do so.

http://www.tolee.com

[edited 11/1/01 6:04:29 PM]

Just to clarify the above, a letter of credit calls for an insurance policy that includes “Institute Cargo Clauses (All risks)” . We have issued a policy that includes “Institute Cargo Clauses (All risks)” but it also states “Excluding Rust/Oxidisation/Discolouration.” I believe that article 36 would allow this to happen and the banks cannot call it a discrepancy.

Do you think this is a discrepancy?

Provided that the credit did not specify that those excluded risks are to be covered, the (Rust/Oxidisation/Discolouration) the policy would be acceptable under article 36 if the credit calls merely for “all risks insurance cover”

That’s why I have said the “all risks” phrase is a magic word. Beware bankers somebody is gonna beat you if you do not stipulate what you expect to get in the policy.

BANKERS SHOULD UNDERSTAND STANDARD EXCLUSION CLAUSES
"Rust, oxidisation and decolouration" is a standard exclusion clause in insurance coverage for steel goods. Otherwise the insurance premium would be too high to be of practical value.

Bankers should know the basics of cargo insurance or they cannot do their jobs well, particularly in determination of discrepancies that requries actual understanding of the trade practices in other trades, in particualr, for shipping and cargo insurance.

http://www.tolee.com

[edited 11/12/01 10:51:48 PM]