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We have a client who ships goods overseas on CIF terms, and therefore has to arrange insurance to cover the goods including when risk transfers to the purchaser.

They have suffered a loss which appears to have occurred after loading - therefore after risk has transferred to the purchaser.

If the insurance covers the full journey, are there any implications of the transfer of risk on lodging a claim under the policy?

Presumably as the policy is in the client's name, they have to lodge the claim anyway?

Also this loss occurred a couple of months ago, but client wasn©t aware of the extent or details until after the period for lodging a claim with the carrier had passed.

Would the insurers be within their rights to decline the claim on this basis?

Reply: Pauline Davis

One of the obligations on a CIF seller is to both procure marine cargo insurance and to provide the buyer with evidence of having done so, generally by way of a certificate of insurance issued by (or with the authority of) the insurer. From your comment about the policy being in the client's name, I assume that the client holds a marine open policy which allows it to issue such certificates.

The benefit of the insurance evidenced by a certificate transfers with the risk in the goods. So the strict position is that when the goods were loaded, your client ceased to hold either an insurable interest in the goods or the risk of loss or damage, both of which passed to the buyer. Your client was, at best, left with a right to be paid the purchase price or any outstanding balance of it, which would remain whether the goods made it intact to destination or not - this is a simple right to recover the debt which is not contingent on the condition of the goods on arrival. At the same time, the right to claim the insurance proceeds passed to the buyer.

So, technically, the insurer would be entitled to decline a claim lodged by the seller and to require the buyer to claim. As a matter of practice though, the point is not always taken. If your client was not paid for the goods and is therefore the party with the loss, something can normally be worked out.

Failure to lodge a claim with the carrier is, on the face of it, a breach of the claims conditions in the policy. If an assessment of the loss indicates that the damage was likely caused by the carrier and that a timely notification would likely have led to a recovery, the strict position is that the insurer can reduce the amount of the claim payment by the amount of any prejudice suffered, which may in turn depend on a number of factors including how any applicable package limitation would operate. A more substantial concern may be that delay in notifying anyone of the loss (including, it would seem, your client and the insurer) could raise issues as to whether the damage really did occur during transit rather than at some later time, whether the loss can be properly quantified and whether it was appropriately mitigated. All here will depend on the facts and what documentation / photographs and the like may be available to substantiate the claim.

June 2019

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