International Trade CFR Examples Analysis Case Analysis Insurance

Difference: "warehouse to warehouse" under three conditions

A foreign trade company signed three export contracts at FOB, CFR and CIF prices respectively. The relevant insurance covers all risks with "warehouse-to-warehouse" clauses. Covered losses are incurred while the goods are being transported from the warehouse at the place of origin to the port of shipment. A claim was made to the insurance company based on the insurance policy, but as a result, only the claim for goods under the CIF contract was rejected by the insurance company. The reason is that the claim conditions under FOB and CFR contracts are insufficient, mainly due to insurable interests.

Under FOB and CFR conditions, when an accident occurs to the goods, the seller has an insurable interest in the insured subject matter, but is not the insured (buyer) or legal assignee of the insurance policy, and therefore has nothing to do with the insurance. There is no legal and valid contractual relationship between the companies, so the seller has no right to claim.

Why was the buyer’s claim rejected? Although the buyer is the insured or holder of the insurance policy and has a legal and valid contractual relationship with the insurance company, he has not yet obtained ownership of the policy at that time, so he is not responsible for any risk losses that occur before the goods are shipped. responsibility. Therefore, he has no insurable interest in the subject matter before shipment and is therefore not eligible for claim.

Under CIF conditions, the seller is insured, and there is a legal and valid contractual relationship with the insurance company. Moreover, the risk before shipment is borne by the seller and has an insurable interest, so the insurance company provides compensation.

It can be seen that under different trade terms, it does not mean that as long as the cargo damage occurs during transportation covered by the "warehouse-to-warehouse" clause and is caused by risks within the scope of insured liability, the insurance company will Will compensate. The key is to see whether the insured had an insurable interest in the goods when the loss occurred.

This is the key to people's misunderstanding of "warehouse to warehouse". Everyone knows that if there is no legal and valid contractual relationship with the insurance company, you have no right to exercise the right to claim. When we judge who has an insurable interest in the goods at a certain moment, the standard is who bears the risk of the goods at that stage. This is also done under the meaning of insurable interest.

For example, under FOB and CFR conditions. Marine cargo insurance is handled by the buyer, and the division of risks and responsibilities between the buyer and seller is based on the ship's rail at the port of shipment. Although according to the "warehouse to warehouse" clause, the damage to the goods occurred during the transportation covered by it, the buyer is not responsible for the damage to the goods during this period and has no insurable interest in the goods, so it cannot claim compensation.

It can be seen that under FOB and CFR conditions, the insurance liability actually starts and ends from "ship" to "warehouse". Although the buyer is responsible for the insurance, according to the risk classification, the buyer generally does not insure the goods before shipment. Only under the CIF price terminology, the beginning and end of insurance liability are truly "warehouse" to "warehouse". Because at this time, the insurance is handled by the seller. From the time the goods leave the warehouse at the place of shipment until they cross the ship's rail, the damage to the goods is borne by the seller (with insurable interests); when the seller delivers documents and settles foreign exchange after the goods are loaded on board, the seller will include this insurability The interest is transferred to the bank through endorsement of the bill of lading and insurance policy. After the buyer pays the redemption note, the insurable interest is immediately transferred to the buyer. From this point of view, if a risk within the scope of insurance occurs during the entire process from the shipper's warehouse at the departure port to the consignee's warehouse at the destination port, the insured can obtain compensation from the insurance company.

Suggestion: Risk prevention of "warehouse-to-warehouse" under three conditions

Under FOB and CFR conditions, how does the seller solve the risk before shipment? Since the buyer is insured, what should the seller do if the goods are rejected or payment is refused for some reason? Under CIF conditions, is the seller's insurance entirely for the buyer's benefit? How should the seller choose the type of insurance?

Before the goods are shipped, under FOB and CFR conditions, because the buyer is insured, the seller cannot hold an insurance policy; and because the buyer does not have insurable interest when insuring, that is, there is no ownership of the goods, so it cannot The policy is transferred to the seller, so the seller cannot become the policy transferee.

Therefore, the seller cannot claim compensation from the insurance company.

For this reason, in this case, the seller must insure the "road transportation insurance" covering the distance from the warehouse to the shipping port to avoid possible risks. Under FOB and CFR conditions, the buyer handles insurance. After the goods are loaded on the ship, the risk liability is also transferred to the buyer.

However, if due to some reasons, including the buyer's inability to pay the price, force majeure, or the goods do not match the samples, the goods are received or refused to be paid, at this time, if the seller adopts various options of exporting to domestic sales, or Damaged in transit, the risk that had been transferred is now transferred back. The seller's interest in the goods arising from the unexpected receipt of the goods by the buyer is called a "contingent interest" at sea.

The marine insurance industry has developed a seller's contingent interest insurance. Mainly for when the two price terms FOB and CFR are used and the collection payment method is adopted, as the exporter, there is no bank credit protection and no marine insurance protection. If the seller takes out this insurance before the goods are shipped, the seller can obtain compensation from the insurer if the buyer refuses to accept the goods and the goods suffer risks within the scope of the insurance. Of course, for insurance purposes, this insurance can also be purchased under CIF conditions.

Under CIF conditions, the seller’s insurance is not entirely agency-based. As in this case, at least the period before the goods are shipped is insured for its own benefit. Therefore, sellers must purchase appropriate insurance based on the characteristics of their products and must not be negligent. In practice, regardless of whether the "warehouse-to-warehouse" clause is complete, the seller should take risk precautions before shipment.