Marine Insurance

Sidebar_image1 Sidebar_image1 Sidebar_image1
1 3 2 4 5 6
Sidebar_image1 Sidebar_image1 Sidebar_image1

In the case of a marine transit insurance contract, the terms of the sales contract are what will affect and 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.

It is the seller often who enters a sales contract with the buyer. The two parties enter the contract on a FOB (Free on Board) basis. It implies that the buyer is responsible for arranging insurance for the goods. The buyer will receive compensation from the insurance company upon loss or damage to the goods while in transit. So How Does the Sales Contract affect the Marine Transit Insurance Contract?

Read More: What is Marine Insurance?

A sales contract made on a CIF basis (Cost, Insurance, and Freight) makes it the responsibility of a seller to arrange for insurance of goods. He receives compensation from the insurance company in the event of any loss or damage to the goods.

Different terms on a Sales Contract

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

Here is a list of the main ones:

  • Free on Board (F.O.B) – On loading the goods on the vessel, the seller’s responsibility for safeguarding the goods ends. The buyer takes over after onboarding and gets the goods insured wherever he wants.
  • Free on Rail (F.O.R Contract) – Same terms as above but this is used for internal purposes.
  • Cost and Freight (C & F) – Again the buyer’s responsibility starts once the goods are 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.


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. Mostly the sales contract is made on FOB (Free on Board) basis. It implies that the buyer is responsible for paying the insurance expenses.

Last month, the company exported its engineering goods to a buyer situated in the Middle East. Again, the sales contract was made on a 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 insurer A.

Unfortunately, heavy rainfall and thunder damaged the consignment that was still under transit. Moreover, it not only damaged the consignment but also delayed it.

The consignment reached the Middle East after a two-day delay than the scheduled date. However, rainwater damaged many boxes. 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?

Surveyor carried out a thorough inspection. He found several goods in damaged condition although they were packed in an optimal condition. Heavy rainfall damaged a 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 finalized 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.

The consignment safely reached Maldives.  The worker carrying them fell and injured his leg while unloading and some containers got damaged. 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.