Insurance and transferable credits

JoeE · Post by **JoeE** » Fri Jul 06, 2012 1:00 am

A transferable LC calls for an insurance certificate for 110% of the invoice value. It is transferred thus with not changes in the percentage as allowed by article 38G. Assuming presentation of transferred LC is in order the insured amount would not tally with that of the exchanged invoice and value of the first beneficiary. Would this be a discrepancy?
I thank you Joee Malta

NigelHolt · Post by **NigelHolt** » Fri Jul 06, 2012 1:00 am

The transferring bank cannot refuse the second beneficiary’s presentation and has to treat it as complying (if it does not contain other discrepancies). However, it can refuse the first beneficiary’s presentation, assuming the transferring bank followed the first beneficiary’s instructions. Unless the first beneficiary can quickly cure the discrepancy the second beneficiary's documents must be forwarded to the issuing bank per 38(i) (and settled by the transferring bank if they have confirmed).

DanielD · Post by **DanielD** » Mon Jul 09, 2012 1:00 am

See "Transferable credits and thwe UCP 500" Banking commission, 30 October 2002.
I have always wondered what could happen if the transferring bank increases the percentage according to 38g without consulting the first beneficiairy and the second beneficiary finds out the profit magrin of the first beneficiary
Daniel

NigelHolt · Post by **NigelHolt** » Mon Jul 09, 2012 1:00 am

Daniel, I would find it odd if a bank's transfer application form did not cover the matter of insurance. Regards, Jeremy

JoeE · Post by **JoeE** » Mon Jul 09, 2012 1:00 am

I thank you both but, frankly, I am more perplexed on the issue. The UCP article 38g merely states that the percentage for which insurance cover "may" be increased implying, in my opinion, that the first benefiary and the transferring bank can choose either option without prejudicing the eventual presentation of the first beneficiary. Otherwise it should not have been a "may" exception but a "must" since ultimately it would be impossible to match the 1st beneficiary's presentation without a percentage increase in the cover at transfer.

DanielD · Post by **DanielD** » Mon Jul 09, 2012 1:00 am

In that case, your reasoning also applies to the amount, expiry date, period for presentation since "may" is used as well.
Daniel

NigelHolt · Post by **NigelHolt** » Mon Jul 09, 2012 1:00 am

While I can see the reasoning behind your thinking Joee, the simple fact is that if the first beneficiary substitutes invoices for an amount greater than the second beneficiary's the insurance must be for 110% of the first beneficiary's invoices in order to meet the terms of the 'original' credit.

GSham · Post by **GSham** » Thu Jul 26, 2012 1:00 am

DOCDEX Decision No. 274 would be relevant.