In the case of a marine transit insurance Contract, the terms of the sales contract are what will affect who will get compensated. The main parties to a sales contract are a seller and a buyer. Others associated with the sales contract are bankers, carriers and clearing agents among others.

If a sales contract is made between two parties on a FOB (Free on Board) basis by the seller, this means that the buyer is the one responsible for arranging insurance for the goods. Upon loss or damage to the goods while in transit, the buyer is the one who will be entitled to compensation from the insurance company.

Read More: What is Marine Insurance?

On the other hand, if a sales contract is made on CIF basis (Cost, Insurance, and Freight), then the seller will be the one arranging the insurance for the goods. And if any loss or damage to the goods occurs, then it is the seller who will be entitled to compensation by the insurance company.

There are many terms on a Sales Contract which indicate who will be responsible for the insurance.

Here is a list of the main ones:

  • Free on Board (F.O.B) – The Seller’s responsibility for safeguarding the goods ends when the goods are loaded on the vessel. The buyer takes over once on board and can get the goods insured wherever he wants.
  • Free on Rail (F.O.R Contract) – Same terms as above but this is used for internal purpose.
  • Cost and Freight (C & F) – Again the buyer’s responsibility starts once the goods ore on the vessel and he can get insurance for the goods whenever he wants.
  • Cost, Insurance, and freight (C.I.F) – In this case, it is the seller who is responsible for the insurance of the goods. He then transfers the premium cost of the insurance to the buyer through the invoice.

Case:1 

M.S Engineering is a leading name in the engineering industry. The company exports engineering items worth millions of dollars every year via sea route to its buyers situated in the Middle East. In most of the cases, the sales contract is made on the basis of the FOB (Free on Board), where the buyer is responsible for paying the insurance expenses.

Last month, when the company exported its engineering goods to a buyer situated in the Middle East, the sales contract was again made on FOB basis. As a result, the insurance expenses were borne by the buyer who after reviewing and comparing bought the marine transit insurance policy from the insurer A.

Unfortunately, when the consignment was still under transit, it was caught in heavy rainfall and thunder which not only damaged the consignment but also delayed it.

When the consignment reached the Middle East after a two-day delay than the scheduled date, a major portion of the boxes was damaged due to water. In this case, as the buyer had a marine transit insurance policy, he immediately informed his marine insurance company who appointed a surveyor to inspect the cause and extent of the loss.

Read More: Why do You Need Marine Insurance?

After a thorough inspection, the surveyror found that though the goods were packed in an optimal condition, the heavy rainfall damaged major portion of the consignment. The surveyor found the claim genuine and submitted a detailed report to the insurance company who settled the claim on the basis of it.

Case: 2

It was a huge order of Rs 1 crore which M.S Fashion Hub was ready to export to its buyers situated in Maldives. Considering the amount of the order, the company did not want to take any risk and therefore, made a special team of 5 people who were the sole in-charge of the order.

The company also purchased a marine transit insurance policy to get coverage in case of any loss or damage. Before buying the insurance, M.S Fashion Hub consulted with its buyer who advised the company to insure the goods on the basis of Cost, Insurance, and freight (CIF) and added the premium cost in the sales contract.

Read More: What Is Subrogation in Marine Insurance?

M.S Fashion Hub finalised the marine transit insurance policy on the basis of CIF and paid all the insurance premiums, However; the company added the premium cost to the total cost of the consignment order, which was Rs 1 crore.

Though the consignment safely reached Maldives, at the time of unloading of goods, some containers got damaged when the worker who was carrying them fell and injured his leg. The buyer informed M.S Fashion Hub and returned the damaged containers.

M.S Fashion Hub informed the insurer who appointed a surveyor to inspect the loss and settled the claim on the basis of its report.

[cta id=”984″ vid=”0″]