Insurance Policy Discrepancies

It is a common practice in the commercial world to insure goods in transit. Briefly, the following reasons compel traders to contract transport insurance:

• Protection against financial losses resulting from damage, pilferage, theft and non-receipt of entire or part of a consignment; and
• Protection against financial claims that can be made against the owner of goods on board a vessel in case of a “declared general average” (the goods themselves being undamaged). (1)

According to the Incoterms rules, if the parties agreed on CIF or CIP trade terms, the exporter must provide an insurance policy or an insurance certificate to the importer at his own expense.

Consequently, if letter of credit has been chosen as a payment method with an underlining sales contract that had been established either with CIF or CIP incoterms, then the issuing bank adds an insurance document to the required documents list.

On this page you can find most common letter of credit discrepancies related to insurance documents, such as insurance policies or insurance certificates.

Insurance Policy Discrepancies

• Insurance Policy not Issued and Signed by an Insurance Company or its Agent
• All Originals of Insurance Policies Have Not Been Presented
• Insurance Coverage is Insufficient
• Insurance Policy does not Include the Risks Specified by the L/C
• Insurance Policy is not Endorsed
• Insurance Policy Shows Date of Issue to a Later Date than Date of Shipment
• Insurance Policy Show Different Currency than the Commercial Invoice
• Correction/Alteration on the Insurance Policy is not Authenticated Properly
• Insurance Certificate Shows that Insurance Cover Subject to a Franchise or an Excess

Important Definitions Regarding the Insurance Documents under Latest Letter of Credit Rules:

• An insurance policy, insurance certificate or declaration under an open cover will be examined by banks as per UCP 600 article 28.
• An insurance policy, an insurance certificate or a declaration under an open cover, must appear to be issued by an insurance company, an underwriter or their agents or their proxies.
• An insurance policy, an insurance certificate or a declaration under an open cover, must appear to be signed by an insurance company, an underwriter or their agents or their proxies.
• Presentation of cover notes will not be accepted instead of presentation of insurance policies, insurance certificates or declarations under an open cover.
• An insurance policy is acceptable in lieu of an insurance certificate or a declaration under an open cover.
• 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.
• The insurance document must indicate the amount of insurance coverage and be in the same currency as the credit.
• 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.

References:

1. Shipping and Incoterms, Practice Guide, UNDP Practice Series, Page:18

Marine insurance is a type of commercial liability insurance that provides coverage (financial backing) against perils and losses associated with the transportation of goods.

Marine insurance is possibly the oldest type of commercial insurance in the world, dating as far back as the thirteenth or fourteenth century.(1)

According the current letter of credit rules, when the insurance document indicates that it has been issued in more than one original, all originals must be presented.

For example, if the insurance policy states on its face that ‘this policy has been issued in two originals to the same effect’, then both originals must be presented.

If the issuing bank finds out that all original insurance documents have not been presented, then the issuing bank will raise a discrepancy, which is known as all originals of insurance policies have not been presented.

Discrepancy Example: All Originals of Insurance Policies Have Not Been Presented:

A letter of credit has been issued in SWIFT format, subject to UCP latest version, with the following details:

Letter of Credit Conditions

Field 45A: Description of Goods and or Services: 100mtons of Iron Ore. Delivery Terms: CIF Port of Rotterdam, Netherlands Incoterms 2010.

Field 46A: Documents Required:

1. A signed invoice in duplicate indicating the details of the descriptions of goods as per the L/C
2. Certificate of Origin issued and certified by the Chamber of Commerce in Beneficiary’s country indicating South African origin of the goods.
3. Insurance certificate or policy in assignable form and endorsed in blank for 110% CIF commercial invoice value covering all risks showing claims payable in Netherlands in commercial invoice currency.
4. A full set (3/3) original bills of lading issued to the order of the issuing bank marked “freight prepaid”‘ and to notify the issuing bank and the applicant.

The beneficiary presented an insurance policy as shown on the below picture.

Insurance Policy

Insurance Policy Discrepancy: The insurance policy indicates that it is issued in two originals. All of the original insurance policies should have been presented but only one original insurance policy presented.

Reason for Discrepancy: When a credit requires the insurance document to be issued in more than one original, or when the insurance document indicates that it has been issued in more than one original, all originals are to be presented and are to appear to have been signed.

References:

1. Keenan, Marie. 2016. “Marine insurance.” Salem Press Encyclopedia Research Starters, EBSCO host (accessed February 24, 2018).

Cargo insurance, also referred to as a marine cargo insurance, in general, means the insurance on goods being shipped in international trade by vessel, aircraft or overland conveyance. (1)

An insurance policy, an insurance certificate or a declaration under an open cover will be regarded as an insurance document under current letter of credit rules. (UCP 600 at article 28)

An insurance document must appear to be issued and signed by an insurance company, an underwriter or its agents or proxies, and that 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.

If the issuing bank finds out that an insurance document has not been signed as per UCP 600 article 28, then the issuing bank will raise a discrepancy, which is known as insurance policy not issued by an insurance company or its agent discrepancy.

Discrepancy Example: Insurance Policy Not Issued and Signed by an Insurance Company or Its Agent:

A letter of credit has been issued in SWIFT format, subject to UCP latest version, with the following details:

Letter of Credit Conditions

Field 45A: Description of Goods and or Services: 20 mtons of %100 Pure Tunisian Dates. Delivery Terms: CIF Port of Barcelona, Spain Incoterms 2010.

Field 46A: Documents Required:

1. Beneficiary’s hand-signed and dated commercial invoice in 3 originals bearing full description of goods and its quantity, net and gross weight, unit and total price.
2. Certificate of Origin issued and certified by the Chamber of Commerce in Beneficiary’s country indicating Tunisian origin of the goods.
3. Insurance policy in assignable form and endorsed in blank for 110% invoice value (CIF value) covering all risks showing claim payable in Spain in invoice currency.
4. Full set original clean on board, marine bills of lading marked freight prepaid and made out to order and blank endorsed, marked notify applicant stating the name, telephone and fax numbers of carrier’s agent in port of discharge. Bill of lading should evidence shipment in 20′ closed containers.

The beneficiary presented an insurance policy as shown on the below picture.

Insurance Policy

Insurance Policy Discrepancy: Although insurance policy indicates the name of the insurance company, insurer, it is not signed by the insurance broker on behalf of the insurance company.

Reason for Discrepancy: 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.