Recently, some of underwriters in our market have been approached by Australian importers requesting insurance for loss or damage to goods in transit during the final leg between the discharge port and the receiver’s premises. The contracts of sale in question are generally on CIF Sydney terms and the issue has been whether the insurance arranged by the supplier terminates upon discharge at the port of entry or at final destination. Because the supplier’s freight obligations under the contract of sale ceases at port of discharge, importers (and apparently some brokers) think they need to buy separate “tail end risk” insurance for the port to final destination leg of the transit.
The confusion arises from the fact that there are three separate contracts involved in the transaction:
- The Contract of Sale – this will indicate, amongst other things, which party arranges the carriage and which party arranges insurance of the goods (if applicable). In the case of goods sold on CIF Sydney terms, the seller arranges carriage of the goods to Sydney and insurance of the goods in transit. The buyer arranges carriage from the port in Sydney to his/her premises.
- The Contract of Carriage – covers carriage the goods from the seller’s premises to the port of Sydney.
- The Contract of Insurance – usually incorporating the wording of the Institute Cargo Clauses (A). Depending on which version of the ICC(A) clauses are used (1.1.82 or 1.1.09), the cover is warehouse to warehouse and continues until completion of unloading from the carrying vehicle in or at the final warehouse or place of storage at the destination named in the contract of insurance.
To put it another way, the freight and insurance obligations are mutually exclusive with the transit insurance usually covering the final leg of the transit arranged by the buyer.
Whilst in one sense, arranging “tail end risk” insurance might provide the buyer with additional comfort, they will be paying twice for the insurance and may have difficulties in establishing that the loss or damage to the goods occurred during the period of transit between the port of discharge and their premises, should they want to claim under the separate “tail end risk” insurance.
What can I do?
- In CIF sales, check that the certificate of insurance covers the goods warehouse to warehouse(as the banks typically require as a condition in the letter of credit).
- Negotiate future purchases on CFR terms and arrange your transit insurance separately.