How To Determine Whether Marine Pportation Insurance Contracts Are Effective?

Determining the invalidity of an insurance contract, especially the carriage of goods by sea, is especially complicated.

First of all, the insurer in carriage of goods by sea is not a single concept.

Because the insured (applicant) who has signed an insurance contract may, after the conclusion of the contract, comply with the relevant provisions.

Invalidation case and determination of insurance contract for carriage of goods by sea

This case is taken from the civil judgment of a maritime court in our country in the past few years. According to the author's long experience in underwriting and compensation work of the marine insurance business, this case is a judgment of the dispute about the contract of carriage of goods by sea. We can see from this that the judgment of the invalidity of the contract of carriage of goods by sea is complicated.

The background of the case is that in August 23, 1999, the plaintiff entered into a sales contract with foreign A company and imported logs worth about $1 million 500 thousand. The terms of the contract were CFR Zhangjiagang.

According to the contract, the plaintiff has insured the goods against FPA and on deck insurance at the defendant's insurance company.

The above cargo was damaged by the sinking of the carrier in October 11, 1999.

Afterwards, the plaintiff submitted the cargo insurance policy and other documents required by the plaintiff to the defendant according to the defendant's request. However, the defendant refused to pay compensation on the grounds that the plaintiff violated the principle of utmost good faith and had no insurable interest.

The defendant said there was a serious defect in the sales contract signed between the plaintiff and A company. First, the plaintiff violated the contract stipulations and did not open the letter of credit in time according to the contract stipulations.

Secondly, the seller fails to deliver the goods according to the contract, pfer all documents relating to the goods and pfer the ownership of the goods.

Therefore, the plaintiff and the seller jointly breach the contract and make the letter of credit expired as an important payment method of international trade, resulting in the termination of the contract of sale, and the risk of goods pferred to the plaintiff is terminated.

The risk of the goods shall still be borne by the seller.

The plaintiff violates the utmost good faith principle of insurance and fails to fulfill the obligation of truthfully disclosure, and the defendant has the right to terminate the contract.

In case of danger, the plaintiff has no insurable interest, and the defendant has the right to refuse to compensate the plaintiff's claim according to the relevant laws.

In the judgment, the judge held that the plaintiff had insured the documents according to the foreign shipping notice and the goods trade contract. The defendant accepted the insurance and issued an insurance policy after receiving the shipping notice. The actual situation of the shipment was in conformity with the shipping notice. The shipping notice did not affect the insurance premium rate determined before the establishment of the marine insurance contract, or determine whether to agree to underwrite.

As for the invalidity of the contract of carriage of goods by sea claimed by the defendant, the plaintiff will not insure the validity of the insurance contract after the letter of credit expires.

Therefore, the defendant does not support the defense that the plaintiff fails to fulfill the obligation of truthfully informing the insurance contract.

As to whether the plaintiff has insurable interest, the judge thinks that the insurable interest refers to the legal recognized interests of the insured, and whether there is an insurance interest, which is very important for the conclusion and performance of the insurance contract.

Disputes arising from international maritime trade contracts involving international maritime cargo contracts must be judged on the basis of the relevant international sales contracts law or international practice. In international trade, the ownership and risk of goods may be separated.

Under the condition of CFR price, the ownership and risk of goods are separated when the goods pass over the ship's side. If the exchange of documents and bills of lading is exchanged smoothly, the ownership and risk of the goods will be reunited.

In this case, because of the loss of goods, the subject matter of the contract of sale no longer exists and the goods can not be delivered practically.

Similarly, as a document of title, the bill of lading also loses its original ownership voucher and the function of requiring the carrier to deliver the goods. At this time, the international sale and purchase contract is automatically terminated and the buyer is not liable for the loss of the goods.

Accordingly, the judge decided that after the plaintiff and the defendant concluded the contract of carriage of goods by sea with the defendant, the plaintiff did not take the risk of the goods when he lost the goods because of the problem of the terms of payment in the international sales contract and the loss of the goods before the contract was changed.

Therefore, it is decided that the contract of carriage of goods by sea is invalid.

Author's viewpoint

As to whether the plaintiff violated the principle of utmost good faith, the judge was very clear and accurate in definition.

The author has several different views on whether the plaintiff has insurable interest.

Although this case appears to be a dispute over maritime pportation insurance contracts, it actually involves more international trade contracts, letters of credit terms and effective identification of trade operation documents.

First, for the understanding of trade term CFR, according to INCOTERMS, the seller must deliver the goods to the ship at the port of shipment, within the agreed date or within the time limit, during which the seller must bear all risks of loss or damage to the goods until the goods pass the ship's side at the port of shipment.

The buyer must receive the goods at the time of delivery by the seller in accordance with the above provisions and accept the goods from the carrier at the designated port of destination.

And the buyer must bear all risks of loss of or damage to the goods after passing the ship's side at the port of shipment.

Therefore, it can be determined that if we confirm that the trade contract between the two parties is authentic and effective, the seller will deliver the contract goods to the port of shipment and pass over the ship's side, though the bill of lading at that time has not yet been delivered to the buyer, and it is also considered that the ownership and risk of the goods are completely divorced from the seller.

Secondly, the letter of credit settlement in international trade is mostly based on irrevocable letter of credit. Once the letter of credit is opened, it is independent of the trade contract. According to the uniform customs and Practice for Documentary Credits (that is, UCP500 is now revised to UCP600), the irrevocable letter of credit can neither be amended nor revoked without the consent of the issuing bank, the confirming bank, if any, and the beneficiary.

That is to say, a letter of credit can not be revoked without the consent of the beneficiary.

Even if there is a case in the case, the bill of lading does not match, the documents provide more than the expiration date, and the letter of credit expires, which will not affect the execution of the letter of credit.

As long as the beneficiary has fulfilled the obligation of delivery in accordance with the letter of credit, or is not caused by the intentional or fraudulent conduct of the beneficiary, all discrepancies cannot be the reason for the cancellation of the letter of credit, and the applicant must perform the obligation of payment.

Of course, the losses caused by the discrepancy of the documents to the applicant can be settled through negotiation.

In this case, although the goods have been lost in the ship's maritime affairs, it can not be concluded that the bill of lading, as the title document, has lost the function of requiring the carrier to deliver the goods because the subject matter of the sales contract has ceased to exist, and the international sales contract is automatically terminated, because the terms of payment of the letter of credit are payable on demand (or acceptance).

Therefore, the seller does not take any risk of the loss of the goods. The case is from the trade background, and the defendant insurance company shall pay the insured's loss according to the insurance contract.