ABSTRACT
In international sales, goods are normally insured against the hazards they are likely to encounter during the voyage from the seller’s country to the buyer’s country. In the event of loss or damage to cargo due to perils of the voyage, the insured will be able, depending on the terms of the insurance policy, to recover his losses from the underwriter or insurer. In other words, under an insurance contract, the insurer undertakes to indemnify the insured (assured) against future losses/damage to goods caused by specific circumstances, such as fire, earthquakes and theft. The question of what type of insurance needs to be obtained to cover the cargo – for example, marine insurance, air cargo insurance – depends on the mode of transport agreed by the parties in the contract of sale. Where parties have concluded their contracts on cost, insurance and freight (CIF) and free on board (FOB) terms,1 goods will be transported by sea and will therefore be covered by a marine insurance contract. The question of who is responsible for effecting the insurance is dependent on the contract terms. A CIF contract requires the seller, at his expense, to obtain insurance cover for the voyage and tender the policy to the buyer (or the advising/confirming bank where the parties have agreed on a letter of credit arrangement),2 along with the bill of lading. In an FOB contract, there is no legal requirement to obtain insurance cover on the part of the buyer or the seller. The buyer, however, would be well advised to obtain insurance if he wishes to cover himself against losses or damage while the goods are on the high seas. It is not unusual for a buyer in an FOB contract to request the seller to arrange insurance cover on the understanding that the buyer will reimburse the costs incurred. Such contracts are known as FOB with additional services contracts.3
