Query received related to Insurance Policy and Transport Doc

[AbdulkaderBazara]

We post query as received:

1 Our credit called for insurance policy …for full invoice value plus 10%
covering …..
Insurance policy presented gave an insured amount rounded upwards to the
nearest $. Is it acceptable?
What if it is rounded upwards to the nearest $10, e.g. $12,612.58 to
$12,620.00?



2. Credit called for full set of original clean on board ocean Bills of
lading with shipment from Port Klang, Malaysia to Koahsiung, Taiwan.
Transhipment is allowed.Under other conditions, credit has stated that
Multimodal transport document is acceptable.

Are the BLs acceptable in the following scenarios assuming all other
requirements are in order: -

A

Place of Receipt: Port Klang,Malaysia Port of Loading: Singapore

Port of Discharge: Koahsiung, Taiwan Place of Delivery:Koahsiung,
Taiwan


B

Place of Receipt: Subang, Malaysia Port of Loading: Port Klang
Malaysia

Port of Discharge: Hong Kong Place of Delivery:Koahsiung,
Taiwan

C

Place of Receipt: Port Klang, Malaysia Port of Loading: Port Klang,
Malaysia

Port of Discharge: Koahsiung, Taiwan Place of Delivery: Blank

[T.O.Lee]

TWO QUERIES ALREADY RESOLVED BY ICC BANKING COMMISSION OPINIONS

Both queries have already been dealt with by the ICC Banking Commission previously. They should be available in the DC Pro searching facilities.

FURTHER COMMENTS FROM MS. HALENA KWOK OF CIBC TORONTO IN DCI

For the first query on percentage of insurance named in the DC, please refer to the letter from Ms. Halena Kwok of CIBC Toronto in the current issue of the ICC Documentary Credits Insight (DCI) (page 13 of Vol.7 No. 4 October-December 2001 issue).

REVERSED ICC OPINIONS ON PERCENTAGE OF INSURANCE AMOUNT

We have already pointed out the problems in the article "Problems on Percentage of Insured Amount" now available in our website. Later on the original ICC Banking Commission opinion (Queries & Responses DCI Vol. 7 No. 3), has been reversed which shares our opinions in the above article disagreeing with the decisions in the old ICC Banking Commission opinions (Case 129 in ICC Publication 459 and Case R195 Issue 2 in ICC Publication 565).

ICC RESPECTING INSURANCE TRADE PRACTICES

We appreciate very much the attitude taken by the ICC Banking Commission to respect and take into account of the insurance trade practices in examination of insurance documents, rather than soley relying on a banker's perspective in determinaton of discrepancies.

Since Halena has now joined the DC Pro, may we hear more from her in this regard?

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[edited 1/6/02 7:03:11 PM]

[larryBacon]

I presume that all references to Koahsiung should read Kaohsiung.

On the insurance issue, I would be inclined to accept a small positive increase in the percentage covered as suggested. However, despite a previous ICC Banking Commission decision allowing higher percentages, I object now as I did then, as it may be an indicator of fraud.

Laurence

[StankaJurca]

Point No. 1:
My personal views, are:
I would accept insurance policy rounding insurance amount upwards to the nearest currency unit;
e.g. USD 12.612,58 to USD 12.613,00.
Rounding upwards to nearest second currency unit or higher would be taken as a discrepancy.

Point No. 2:
It's my personal opinion, based on UCP and standard banking practice, that the only acceptable version of B/L presented would be that under Subpoint C.
Taking into an account the stipulation ''Transhipment is allowed'' first two subpoints would be acceptable only in case the Port Klang and Koahsiung (or Kaoshiung – the typing error is not the issue in this case) would be indicated as ports of loading and discharge respectively and other ports only under column or box ''via''. Under subpoints A and B there is no assurance that the relations Port Klang to Singapore (A) and Hong Kong to Port Klang are covered by the ocean vessel, which is a case when ''via'' is used on B/L. Furthermore notation ''on board'' at Port Klang under subpoint A would also not be acceptable. ''Transhipment is allowed" can not be used for pre-carriage or ''further"-carriage (vessels).
In case of shipments by master vessels relations shown in subpoints A in B should be specifically stipulated in Order Confirmations, Proforma Invoices and/or Contracts and later in L/C terms.
Regards,
Bojan Zidar, Slovenia

[larryBacon]

although I personally agree with Bojan Zidar's assessment of the amount permissible & not permissible for an indicated +10% for insurance, this does not agree with standard practice as decided by a previous Banking Commission meeting where Gary Collyer and T.O. Lee, amongst others, spoke in favour of a higher permissible percentage. If memory serves, it was in Paris last year, but perhaps T.O. might confirm this.

As I have often seen happen, there is ambiguity in the B/L requirement of this L/C. Initially it calls for an ocean B/L, but subsequently permits multimodal B/L. As the requirements under Article 26 are less restrictive than Article 23, there is no issue to be decided regarding port of loading or port of discharge indicated in the B/L matching those in the L/C. Again transhipment is not an issue if the B/L presented is multimodal.

Laurence

[T.O.Lee]

Laurence,

NO RECORD IN ICC MEETING MINUTES FOR ICC QUERIES DISCUSSIONS

You too are one of the frequent contributors in the ICC Banking Commission meetings. I try to speak less now in order not to be too much in the lime light, particularly after the retirement of one of my best friends, Heinz Hertl of Creditanstalt, Austria.

As the ICC meeting minutes do not deal with every details in the ICC Queries discussion sessions, so I cannot trace for the exact date of my involvement in the insurance percentage debates.

I remember that I spoke on several occasions about this subject to alert the bankers that they should consider the insurance trade practice and the real intent of the parties, rather than determining discrepancies solely on the face, requiring insured amount to be exact, and most unreasonable of all, up to two places after the decimal point!

AMOUNT INSURED HAS NOTHING TO DO WITH INSURER'S PAYMENT OF CLAIMS

From insurance cargo claim point of view, it does not matter whether the round up is to the nearest dollar or to the nearest ten dollars, if you will, since the insurer's payment in meeting a claim may not have to stick to the insured amount, but rather based on the market value of the goods at the time of distress, and also subject to franchise, excess or deductible, whatever it may be.

So being too strict on the 110% on CIF value is meaningless and without common sense. This would only destroy the credibility of DC in international trade. It is glad that the ICC Banking Commission, led by Gary Collyer, takes this view and reverses the previous ICC Opinions, as pointed out on page 13 in DCI Vol. 7 No. 4 October-December 2001 issue.

Those document examiners that insist on strict compliance in this regard are in fact digging their own graves.

A MONSTER CREATED BY BANKERS AND CARRIERS SWALLOWS THE POOR BENEFICIARIES

For the port of loading and port of discharge disputes, it is due to the ignorance in multimodal transport and liner transport by the DC practitioners and also due to lack of effective communications between the bankers and the carriers. A monster is created that swallows the poor beneficiaries who have done nothing wrong.

LLOYD'S OF LONDON ARTICLES DEAL WITH ALL TRANSPORT ISSUES IN DC OPERATIONS

Upon the request of Lloyd's of London, we have already written a lot of articles in this repect that are now available in our DC & BL website. We do not wish to reiterate our opinions here to make this comment brief.

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[edited 1/9/02 3:41:22 AM]

[StankaJurca]

Amount Insured:
I must admit that I agree with Mr. T.O.Lee, but there are circumstances which unfortunately leed to decissions which are contrary to the basic opinion in the line of the ICC recommendations:
- there are countries which banks insist on "crossing of 't's' and the dotting of 'i's'" and there are also confirming banks, who will always find the documents discrepant.
- the question otherwise arises only when L/C specifically stipulates the insurance policy to be for 110 percent (omitting the word minimum) of invoice value, ignoring the fact that insured amount is clearly determined by the UCP, and in such case we must not neglect the wording of Article No. 34 e, which begins "Unless otherwise stipulated in the Credit …"
- the seller's bank should bring his attention to the possibility that documents might be rejected by the confirming or the issuing bank merely on the basis of higher amount insured and
- negotiating bank may suffer a loss in case it accepts insurance policy showing amount insured which differs to L/C terms, stipulating amount insured of 110 percent instead of minimum 110 percent.

Otherwise we, as issuing bank, have always been trying to issue the majority of L/Cs without specifically stipulating insurance policy to be issued for 110 percent of invoice value and our tolerating in this respect, when checking documents, is in the boundery of common sense, for which, I would say we must all admit, there is the lesser place after UCP500.

Port of Loading and Port of discharge:
- the stipulation "Multimodal transport document is acceptable." does not change the issue and/or the status of Port Klang and Koahsiung, which are determined in L/C terms as ocean ports by primary stipulation requiring presentation of "clean on board ocean Bills of Lading". Furthermore this additional credit term also does not change the definition of transhipment during the course of ocean carriage, but leeds to the further discussion if Multimodal transport document should bear 'on board' notation in case of subpoint 2B. Subpoint 2A is still not acceptable, because it makes Port Klang the place of receipt and indicates Singapore as port of loading, which is contrary to L/C terms, which indicate the Port Klang as port of loading.
- as already said by Mr. T.O. Lee the most problems arise from ignorance and malfunction of the carriers or their agents, who have at the first place collaborated in the creation of UCP500, but
- nevertheless, the beneficiaries are not without the blame. They are aware of transport possibilities and problems, which may arise, and they have done wrong in cases they have not eliminated such problems by incorporating the transport possibilities in credit terms and furthermore
- transport documents may be in some (although honest) cases taken as a fraud, because simply 'complying' with L/C terms does not always meet the applicants requirements or wishes ('they, the applicants, have also done nothing wrong')

Bojan Zidar - Slovenia

[T.O.Lee]

Mr. BojanZ,

SLIGHTLY OVER-INSURED SHOULD BE OK

We consider that bankers should not worry about marginal over insurance. This may not hurt the rights of the insurer, unless the over insured amount is unreasonable that has a tint of “fraudulent representation”, which is however not allowed by the UK MIA (Marine Insurance Act) upon which most insurance legislations are based, same as the UK COGSA (Carriage of Goods by Sea Act) in shipping and UK BEA (Bills of Exchange Act). The British is a pioneer in these three important fields.

SLIGHTLY UNDER-INSURED MAY NOT BE OK

On the other side of the coin, if the goods are under-insured, then one may have a problem to get a full claim. The insurer may say: ”I pay you USD999,999.00 because that is what you ask for and declare in the insurance application form, instead of USD1 million that you now claim”. We just make some fun on the difference of 1USDhere to demonstrate the reasoning behind.

CLAIM SETTLEMENT BY COMMERCIAL DECISION

Having seen both sides of a coin, there is also a third approach insurance people would settle claims – commercial decisions – which does not care about the theory. If the claimant is a very big customer and makes no claim in the last five year, the claim will be paid regardless!

BANKERS MAY ALSO USE COMMERCIAL DECISION IN PAYING SBLC/DC

In settling one DC disputes in Asia, one of the biggest banks there said to my beneficiary customer: “Well, I would like to make a “without prejudice” offer to you. I would pay your standby letter of credit despite the discrepancies under disputes if your company gave our bank all your staff retirement fund business”. At that time the government was enforcing the employers, particularly the SME, to provide retirement benefits to their employees and this is a big market for the banks. Some attendees of our workshop told us that for all staff members in a bank, regardless of departments, each has to bear a quota for such new business. This is another international “survival” banking practice, as we mention in other posting of this same date on unreasonable banking charges.

OVER-INSURED IS BETTER THAN UNDER-INSURED

Hence, from claim settlement point of view, which is what the insured is buying insurance for, we would conclude that a slightly over-insured amount has no problem and is much better than a slightly under-insured amount.

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DISCLAIMERS:

The opinions, comments and/or advices expressed here are solely for discussion or debating purposes. They may change with time, for example, when new perspectives are taken or after new developments or changes in trade customs and practices are seen in the respective fields. You should not rely on or act accordingly to such opinions, comments and/or advices and should seek professional opinions from your own lawyers, experts and/or consultants. We do not assume any liability or responsibility for any damages, losses or consequences of whatever nature, whether directly or indirectly related to or caused by our opinions, comments and/or advices.

[edited 1/11/02 6:11:54 PM]

[NigelHolt]

Re insurance, the '110% problem' would not arise if all banks issued credits, as my own bank does, that actually reflect sub-Article 34fii, i.e. calling for an insurance document for a MINIMUM of 110% of the invoice value. In this situation, if the insurance is for more than 110% there cannot any discrepancy.

[larryBacon]

Jeremy,

I agree that a clause indicating a MINIMUM 110% may avoid discrepancies due to negligible rounding up, but it also opens the floodgates to fraud. In circumstances permitting a minimum 110%, would your bank accept an insurance certificate for double the invoice value ? ; ten times the invoice value ? I suggest that you would have no choice but to accept it, even though you may suspect fraud.

Laurence