Insurable value

Marine insurance cover can be taken out either by the seller or the buyer. This is dependent upon the nature of the contract and the delivery term (Incoterm) under which that particular contract is being negotiated. However, it is normally true to say that the insurance cover taken out is for the benefit of the buyer, who will usually be the party who discovers the loss or damage and therefore would be the party who would claim. The insurance value must be that value which provides the buyer with sufficient indemnity so that he can fully replace the goods upon settlement of the claim.

The insured value must include all the costs, charges and expenses, which the importer will pay right up to the moment when the goods are delivered to his place of receipt. In addition the value should be increased sufficiently to include a reasonable profit margin, freight, duties, inland transport costs and VAT and in addition take into consideration fluctuations in the exchange rate.

Insurable interest

It is a fundamental principle of marine insurance that only one party, the party having the insurable interest in the goods at the time of the loss or damage would be entitled to claim. The insurance cover taken out attaches to the goods from the warehouse of origin to the warehouse of destination The buyer only has the right to claim in respect of loss or damage which occurs after the risk in the goods has been passed onto him.

To give a practical example of this, assume that the goods are sold to the importer under the Incoterm FAS (Free along side ship), at the port of loading. The risk passes from the seller to the buyer when the goods are placed alongside the vessel at the port of loading. If the goods are damaged by fire in mid-ocean, then the buyer has the right to claim. He has the insurable interest because the risk has passed to him.

The whole issue of “insurable interest”, raises immediately the question: If a buyer can only claim after the risk in the goods has passed to him, then why would cover be based on a “warehouse to warehouse” basis? The answer is two fold:

  1. An importer is entitled to take out warehouse to warehouse insurance cover in anticipation of his acquiring an insurable interest in the goods at some point in their transportation.
  2. If, upon the arrival of the goods the buyer discovers damage. It is not always possible to ascertain at what point in the transportation chain that the damaged occurred, as the insurance cover only attached from FAS. The insurer would be entitled to challenge the claim, by demanding that the buyer proves at which point damage occurred.