Examining insurance financial commercial and official documents
Learning objectives This chapter highlights the requirements when examining documents such as insurance documents or financial, commercial and official documents. By the end of this chapter, you should be able to: ◆◆ understand the key examination criteria for insurance, financial, commercial and other official documents; ◆◆ identify the different characteristics of commercial and official documents; and ◆◆ explain the general practices that relate to the examination of documents subject to the provisions of ISBP 745, sections B, C, K, L–N, P and Q.
15.1 Examining insurance documents
Whether it is an applicant or beneficiary that will arrange and pay for insurance coverage of the goods will depend upon a number of factors that, for the purpose of this study text, are not discussed. However, it should be noted that if it is agreed in a sales contract that goods are to be sold on a ‘cost, insurance and freight [named port of destination]’ (CIF) or ‘carriage and insurance paid to [named place of destination]’ (CIP) basis, an insurance document should be listed as one of the documents to be presented by a beneficiary under a documentary credit.
Requirements for an insurance document will vary from issuing bank to issuing bank, depending upon their own internal guidelines, and from industry to industry. These requirements can also depend on the export and import regulations of the concerned country. In any event, a requirement in a documentary credit for the presentation of an insurance document should be written so that at least basic cover in respect of the goods is achieved.
As an example, the usual marine insurance requirements seen in a documentary credit are Institute Cargo Clauses, Institute War Clauses and Institute Strikes, Riots and Civil Commotion Clauses. Insurance documents, in general terms, provide basic cover in the terms of these clauses or variations of them. The best-known clauses are the Institute of London Underwriters Clauses 1982 (or 1/1/82), updated in 2009, but yet to be widely referred to or applied, and the American Institute Clauses.
15.1.1 The application of UCP 600, article 28
UCP 600, article 28, is the rule that applies to the examination of insurance documents.
a. An insurance document, such as an insurance policy, an insurance certificate or a declaration under an open cover, must appear to be issued and signed by an insurance company, an underwriter or their agents or their proxies. Any signature by an agent or proxy must indicate whether the agent or proxy has signed for or on behalf of the insurance company or underwriter. b. When the insurance document indicates that it has been issued in more than one original, all originals must be presented. c. Cover notes will not be accepted. d. An insurance policy is acceptable in lieu of an insurance certificate or a declaration under an open cover. e. The date of the insurance document must be no later than the date of shipment, unless it appears from the insurance document that the cover is effective from a date not later than the date of shipment. f. i. The insurance document must indicate the amount of insurance coverage and be in the same currency as the credit. ii. A requirement in the credit for insurance coverage to be for a percentage of the value of the goods, of the invoice value or similar is deemed to be the minimum amount of coverage required. If there is no indication in the credit of the insurance coverage required, the amount of insurance coverage must be at least 110% of the CIF or CIP value of the goods. When the CIF or CIP value cannot be determined from the documents, the amount of insurance coverage must be calculated on the basis of the amount for which honour or negotiation is requested or the gross value of the goods as shown on the invoice, whichever is greater. iii. The insurance document must indicate that risks are covered at least between the place of taking in charge or shipment and the place of discharge or final destination as stated in the credit. g. A credit should state the type of insurance required and, if any, the additional risks to be covered. An insurance document will be accepted without regard to any risks that are not covered if the credit uses imprecise terms such as “usual risks” or “customary risks”. h. When a credit requires insurance against “all risks” and an insurance document is presented containing any “all risks” notation or clause, whether or not bearing the heading “all risks”, the insurance document will be accepted without regard to any risks stated to be excluded. i. An insurance document may contain reference to any exclusion clause. j. An insurance document may indicate that the cover is subject to a franchise or excess (deductible). The application of UCP 600, article 28, is confirmed in ISBP 745, paragraph K1. A requirement in a credit for the presentation of an insurance document, such as an insurance policy, insurance certificate or declaration under an open cover, means that UCP 600 article 28 is to be applied in the examination of that document.
UCP 600, sub-article 28(a), specifically provides for the acceptance of open cover certificates and declarations, and banks will accept a pre-signed insurance certificate or declaration under an open cover provided that:
◆◆ it has been pre-signed by an insurance company, underwriter or its agent or proxy; and
◆◆ the documentary credit does not stipulate otherwise.