Guide to Marine Cargo Insurance-Part 6

Who arranges marine insurance? The seller , the buyer or both? This is determined by the mechanism of risk transfer. There is a "critical point",  during a voyage,  when the risk of loss or damage to the goods is transferred from the seller to the overseas buyer.

The Incoterms envisage differernt critical points for the purpose of risk transfer:

At seller’s preemies or named place: ExW or could be FCA

Carrier at agreed location: FCA

Placed alongside vessel: FAS

Delivered to first Carrier: CPT/CIP

On board the vessel: FOB/CFR/CIF

At agreed wharf, warehouse, port of destination: DAT

Named place of destination:  DAP/DDP

This blog contains a very detailed article on Incoterms 2010. However the following chart summarises the risk transfer point under each term along with a recommendation as to who should arrange the "main" insurance:

Incoterm 2010	Risk Transfer	Main Insurance covered by
CIP	When delivered to first carrier (it will be usually seller’s premises)	Seller
CPT	When delivered to first carrier (it will be usually seller’s premises)	Buyer
DAP	Named place or terminal	Seller
DAT	Discharging port of arrival	Seller
DDP	When goods are delivered duty paid at named place at destination (could be buyer’s premises)	Seller
ExW	When goods are placed at disposal of the buyer (usually at seller’s premises) ready for loading	Buyer
FCA	When goods delivered to the Carrier at named place (could be seller’s premises like in ExW or a terminal)	Buyer
CFR	When goods loaded on board the ship	Buyer
CIF	When goods loaded on board the ship	Seller
FAS	When goods are placed alongside the ship at the named port of loading. (could be a barge or a wharf)	Buyer
FOB	When goods loaded on board the ship	Buyer

Note: Only in CIF and CIP, insurance is mandatory as per Sale Term. For others the above chart only recommends who should arrange the main insurance.

Under ExW, the buyer will typically arrange a warehouse to warehouse marine insurance cover. The seller will need no insurance but in cirtain circumstances may procure a Seller' Interest (also called Sellers' Contingency) cover.

In CIF/CIP, the seller procures marine insurance and the premium is included in the invoice that is raised on the overseas buyer. This policy may insure the transit upto the time of discharge from the oversea vessel or may extend right upto the buyer's warehouse.

In all other terms, there would be typically two insurances-one protecting the seller upto the time he bears the risk and another protecting the overseas buyer.

In international trade the passing of risk and title is at different times. For example, the risk passes upon loading in the case of FOB or CFR but the ownership or title passes much later-typically when the buyer pays for the goods. What if the overseas buyer repudiates the contract of sale and the seller remains unpaid? The unpaid seller will not be able to claim for the lost or damaged goods from the buyer's insurance policy as he had no insurable interest in the voyage (the goods were at buyer's risk).  To address such scenarios, the seller has the option of buying what is called a Seller's Interest (also called Seller's Contingency) insurance cover. This is not to be confused with credit risk insurance.  The Seller's Interest cover responds only when there has  been a physical loss or damage to the goods by an insured peril during the voyage and the buyer has repudiated the contract of sale.

It is therefore advisable that when risk and title pass at differernt times, the seller not only insures the goods till the risk transfer takes place but also opts for an additional protection by way of a Seller's Interest cover. 

Similarly the buyer should carefully examine if he requires a buyer's Interest cover.

Note: There is a wide variety of Seller's Interest wording. Differernt underwriters have differernt views on when the risk under a Seller's Interest clause attaches! Yet, very few cargo owners or their brokers examine this cover carefully enough. My book Insuring Cargoes devotes an entire chapter on this complex subject.