MARINE INSURANCE
International Trade usually occurs through water i.e. via Marine lines. According to the Marine Insurance Act, 1906 marine insurance has been defined as a contract between the insurer and insured whereby the insurer undertakes to indemnify the insured in a manner and to the interest thereby agreed, against marine losses incident to marine adventure. Marine insurance covers the sacrifice salvage charges on the basis of average, provides compensation in cases of collision or overturning and natural calamities like earthquake or lightning and it also covers washing overboard and survey fees charges.
The insurance does not cover the charges of wear and tear of goods, the loss caused because the cargo was delayed or if when the packaging quality is not standard and has caused loss. Loos in terms of war, strikes, bankruptcy, insolvency or liquidation is also not covered.
The elements of marine insurance are as follows:
• Features of a general contract: A marine insurance contract just like any contract should have a proposal and an acceptance conveyed to each other.
• Good Faith
• Insurable Interest
• Utmost Good Faith
• Doctrine of Indemnity
• Subrogation
• Warranties
• Proximate cause
COST, INSURANCE AND FREIGHT CONTRACT (CIF):
Cost, insurance and freight (CIF) is a a contract made when import or export shipping occurs and this contract covers the terms of insurance of freight along with the cost of goods that the buyer has to pay to the seller. Once the CIF charges are paid as per the CIF Contract the responsibility shifts from the seller to the buyer. The CIF fee is a fee that is paid when the shipment is in transit. As per the contract, seller picks up the goods from an agreed port, procures a bill of lading and then the goods are shipped to the port agreed in the contract i.e. the goods and commodities are transported into a port specified in the contract of sale. From the time the goods are loaded for shipment to the time they have reached the specified port, the seller has the benefit of insurance policy that the ship possesses and also bears any loss or injury until then. The title for the goods remains with the seller until the necessary documents are tendered, and is transferred once tendered. Till the time the title and possession is with the seller any extra custom fees are also a duty of the seller.
The CIF is advantageous to both the seller and buyer in one way or another. The CIF is advantageous to the seller as the seller has a chance to procure low charges on insurance and freight as the seller is usually a frequent exporter and is familiar with the local regulation of export. One important aspect of CIF is that tendering of documents is an essential. If the contract provides the seller an option for tendering an contract, then the contract cannot be termed as an CIF Contract.
The buyer when the shipment arrives gets served with the documents such as bill of lading and has to accept the shipment. The buyer cannot deny the shipment and even cannot conduct an inspection to check the condition of the goods but the documents that are presented to the buyer are enough as a security and the buyer can open a credit line and also ask for compensation if any loss has occurred.
The responsibilities and duties of seller entail:
The first and foremost duty of the seller is to procure and produce a contract for carriage and produce a commercial invoice. The seller has to make sure that the goods delivery occurs at the same time and port as specified in the contract and the seller has to purchase the product export licenses. Along with this the seller has to conduct product inspection and cover the loss of goods if any and bear the extra shipment fees or any fees that may occur.
The buyer’s duties are as follows:
The buyer’s duties consist of making the payment on time and obtaining the documents that the seller has furnished. Once the shipment has reached the buyer has to bear the loss and risk henceforth including the charges of of-loading, taxes and customs.
CIF is one of the terms of foreign exchange or international commerce known as Incoterms. Incoterms are common trade rules established by the International Chamber of Commerce in the year 1936. The ICC established these terms to govern the shipping policies and responsibilities of buyers and sellers who engage in international trade.
The ICC’s official definition of CIF is as follows:
“The seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination. The seller is also responsible for insuring to cover the risk of loss or damage during carriage. Further insurance beyond the required minimums must be agreed upon between the buying and selling parties or must be arranged for separately by the buyer. It is also important to note that the term applies only to sea and inland waterway transport."
INCOTERM CIP:
The international Chamber of Commerce has coined a term called Incoterm for international trade in order to fill the gaps of confusion or grey area. There are 20 incoterms under the ICC. One of
the intercom is CIP i.e. Cost and Insurance Paid To. It is different from CIF as CIF applies to only sea transport whereas CIP applies to trade transport trough air, water and land. Under CIP, the seller’s responsibility is transferred to the buyer as soon as the goods reach the designated point as per the contract and the risk is transferred when the cargo is transferred to the First carrier of the cargo. As per the CIP agreement, it is the duty of the seller to buy the insurance and borne all loses till reaching the first carrier.
Author – Aditi Kamble
Symbiosis Law School, Pune
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