Insurance Arrangement Oversights by Exporters and Importers and Freight Forwarder Practices
Interlink編集部Insurance Arrangement Omissions by Exporters and Importers and Freight Forwarder Practices
Insurance arrangement omissions by exporters and importers refer to situations in international transport where it is assumed that marine cargo insurance has "been arranged by someone," but in reality, no insurance has been arranged or the insurance arranged does not meet the necessary conditions.
Exporters may assume that the buyer will arrange the insurance, while importers may assume that the seller has arranged it.
As a result, after a cargo incident occurs, problems emerge such as the absence of an insurance policy, inadequate insurance terms, insufficient insured amounts, the insurance period not covering the incident segment, or confusion over who holds the right to claim insurance proceeds.
Omission of cargo insurance arrangements is not merely an administrative oversight.
After an incident, issues concerning cargo damage, payment collection, insurance claim rights, responsibility between seller and buyer, recourse against the carrier, and the freight forwarder’s accountability may all arise simultaneously.
Even if the freight forwarder or NVOCC is not the policyholder of the marine cargo insurance contract, post-incident they may be questioned by cargo stakeholders asking, "Was insurance not arranged?," "Who should have confirmed this?," or "Is the freight forwarder not responsible?"
It is important to note that risk transfer and cost responsibility under Incoterms are separate matters from the actual existence of effective marine cargo insurance and the ability to claim insurance proceeds.
Scope Covered by This Article
| Item | Content Covered in This Article | Content to Confirm in Separate Articles or Contracts |
|---|---|---|
| Omission of Insurance Arrangement | Organization of cases where marine cargo insurance is either not arranged or does not meet the necessary conditions. | Underwriting decisions by insurance companies and individual coverage approvals should be confirmed based on formal insurance conditions. |
| Incoterms | Clarification of the relationship between insurance arrangements and Incoterms such as CIF, CFR, FOB, EXW, CPT, CIP, DAP, DDP, etc. | Legal interpretation of sales terms and contract disputes should be confirmed according to the sales contract and governing law. |
| Risks on Exporter Side | Organization of cargo damage and non-collection of payment risks when shipping based on purchaser-arranged insurance. | Settlement risks related to D/P, D/A, L/C, and others are covered in dedicated articles. |
| Risks on Importer Side | Organization of issues such as shortage of insurance certificates, insufficient coverage, and inability to claim when relying on seller-arranged insurance under terms like CIF. | Import country insurance regulations and local insurance systems should be confirmed individually. |
| Insurance Certificates and Claims Rights | Organization of details related to the insured party, insurance claim rights, delivery of insurance certificates, and endorsements. | Legal judgments regarding rights assignment and insurable interest should be consulted with specialists. |
| Contingency Insurance | Clarification of the role of contingency insurance as back-up insurance in cases where the counterparty’s insurance fails to function. | Activation conditions, overlapping insurance, limits, and deductibles should be confirmed with individual formal Clauses. |
| Blanket Scheduled Insurance | Organization of cases where cargo is excluded or omitted from declaration despite having a blanket contract. | Target cargo, declaration methods, and special approvals under blanket contracts should be confirmed on a contract-by-contract basis. |
| Special Cargo | Organization of insurance precautions for used goods, exhibition items, refrigerated/frozen cargo, dangerous goods, high-value items, etc. | Underwriting conditions and special Clauses for individual cargo should be checked with the insurance company. |
| Freight Forwarder Involvement | Covers insurance arrangement requests, confirmation notifications, accident reporting, document collection, and responsibility organization. | Final duty to explain or indemnity liability should be judged based on contractual position and specific actions. |
Main Causes of Failure to Arrange Insurance
- Not fully understanding trade terms such as CIF, CFR, FOB, EXW, etc.
- Not confirming between seller and buyer who is responsible for arranging cargo insurance.
- Assuming coverage is automatically included in a blanket planned insurance policy.
- Misunderstanding that special cargo can be insured under standard conditions without adjustments.
- Failing to review the insurance policy or certificate before an accident occurs.
- Relying solely on verbal assurances that the other party arranged insurance.
- Not verifying the insured amount, insurance period, transport segment, or covered cargo.
- Not checking local insurance, coverage restrictions, or import country regulations.
- Insurance requests being overlooked due to personnel changes or inadequate handovers.
- Not confirming who holds the right to make an insurance claim.
- Failing to notify the insurer or insurance agent within the required deadline.
- Not revising insurance arrangements following changes in trade terms.
Failures in arranging insurance are often discovered only after an incident occurs, at which point damage assessment, evidence preservation, payment settlement, negotiations with counterparties, and notification to third parties must all proceed simultaneously.
Insurance Arrangement Responsibilities by Incoterms and Common Situations Prone to Omissions
When a possible omission in arranging cargo insurance is suspected, first verify the sales terms.
However, Incoterms organize cost allocation, delivery, and risk transfer between seller and buyer, and do not determine the actual scope of cargo insurance coverage or insurance claim rights.
| Condition | Typical Insurance Arrangement Responsibility | Common Omission Situations | Points to Confirm | Freight Forwarder Practical Notes |
|---|---|---|---|---|
| CIF | Usually organized on the premise that the seller arranges cargo insurance on behalf of the buyer. | Insurance may have only minimal coverage, insurance documents may not be provided, or claim procedures may be unclear. | Insurance policy, insurance terms, sum insured, insured party, claim rights, and delivery of documents | Advise to verify the actual insurance policy and avoid assuming "adequate insurance exists because it is CIF". |
| CFR | The seller pays freight, but cargo insurance is generally arranged by the buyer. | Buyers may confuse this with CIF and mistakenly assume the seller has arranged insurance. | Presence of buyer's insurance, insurance commencement point, insurance period, and insurance terms | Confirm that insurance is not automatically included under CFR terms. |
| FOB | The buyer usually arranges transport and cargo insurance from the ship onward. | Buyers may not arrange insurance while exporters ship assuming buyer’s insurance is in place. | Buyer’s insurance, insurance starting point, pre-shipment segment, and shipment status on B/L | Encourage exporters to confirm they are not assuming “the buyer will insure”. |
| EXW | The buyer generally arranges transportation and insurance from pickup at the exporter’s premises onward. | Risks of omission exist for domestic collection, export customs clearance, pre-shipment storage, or up to vessel loading. | Insurance commencement point, domestic transport within the exporter’s country, export customs clearance, and pre-shipment storage | Check that there are no uninsured segments from the exporter’s premises through to vessel loading. |
| CPT | The seller arranges transportation to the named place, but cargo insurance is typically arranged by the buyer. | May be confused with CIP, causing mistaken assumption that the seller arranged insurance. | Buyer’s insurance, risk transfer point, transport segments, and final destination | Advise separating confirmation of freight cost responsibility and insurance arrangement. |
| CIP | The seller arranges both transportation and cargo insurance. | The insurance sum, conditions, or insured segments may differ from contractual expectations. | Insurance policy, sum insured, applicable terms, insured party, and transportation segments | Verify the actual insured details, not just the Incoterm label. |
| DAP・DDP | The seller arranges transport to the destination and may also arrange insurance. | Omissions may occur after arrival at the destination, including storage, customs clearance delivery, delay in delivery, or post-unloading segments. | Termination of insurance, final destination, coverage during storage, and post-delivery handling | If storage or delivery delays exist at destination, check for insurance extension or storage insurance. |
Regardless of who is presumed to arrange cargo insurance under Incoterms, actual coverage depends on the insurance policy, applicable clauses, insured party, sum insured, insurance period, and cause of loss.
Omissions in Insurance Arrangement on the Exporter Side
On the exporter side, shipments under FOB or CFR terms may proceed on the assumption that the buyer will arrange marine cargo insurance.
However, if the buyer has not actually arranged marine cargo insurance, the buyer may refuse to pay the purchase price after an accident citing cargo damage.
In such cases, the exporter faces a compounded risk of having already shipped the cargo, incurring cargo damage during transit, and being unable to recover the payment from the buyer.
This risk is particularly significant in D/P or D/A transactions, where the buyer might fail to collect the documents, fail to take delivery of the cargo, or delay payment after collection.
Even if no marine cargo insurance exists, cargo damage and failure to recover the purchase price should be considered as separate issues.
Omissions in Insurance Arrangement on the Importer Side
On the importer side, it is sometimes assumed that there is no problem since the seller has arranged marine cargo insurance in CIF or CIP transactions.
However, unless the actual insurance terms, insured amounts, insurance certificates, insured party, and rights to claim insurance benefits are confirmed, sufficient damage recovery may not be possible after an incident.
There are cases where the seller claimed to have arranged insurance, but after an incident, the insurance policy or certificate is not provided.
Even if insurance exists, the coverage terms may be limited, the insured amount insufficient, the transport segments incomplete, special cargo not covered, or the cause of the incident excluded by deductible conditions.
What is important on the importer side is not merely confirming "there should be insurance because it is CIF," but verifying that after an incident, the company or related parties can actually exercise the right to claim insurance benefits.
Verification of Insurance Policy and Insurance Claim Rights
| Verification Item | Reason for Verification | Issues if Missing | Main Reference Documents |
|---|---|---|---|
| Insurance Policy / Certificate of Insurance | To confirm that marine cargo insurance has actually been arranged. | There may be no insurance at all or the claimant cannot be identified. | Insurance policy, certificate of insurance, application copy, confirmation from insurer or insurance agent |
| Insured Party | To confirm whose insurable interest is covered by the insurance. | Even if there is a stake in the cargo, the rights on the policy may be unclear. | Insurance policy, sales contract, invoice, Bill of Lading |
| Insurance Claimant | To confirm who can make the insurance claim. | Missing endorsement or transfer documents on the policy may delay the claims process. | Insurance policy, endorsements, assignment documents, L/C terms |
| Insurance Terms | To verify which incidents are covered. | The policy may be more restricted than expected, e.g., not ICC(A) but limiting conditions or excluding special cargo. | Insurance policy, special clauses, endorsement proofs, condition details |
| Sum Insured | To check if the insured amount is adequate relative to the cargo value. | Underinsurance, partial coverage, or a gap with the cargo value can cause issues. | Invoice, sum insured, freight charges, other costs, sales contract |
| Insurance Period / Transport Leg | To confirm whether the incident occurred within the insurance period. | Events before loading, after arrival storage, display, or warehousing may be excluded. | Bill of Lading, Air Waybill, transport schedule, warehouse records, insurance period clause |
| Approval for Special Cargo | To check if the cargo is subject to acceptance restrictions under standard terms. | Used goods, refrigerated cargo, exhibition items, dangerous goods, or high-value goods may be excluded. | Cargo details, insurer approval, special clauses, declaration records |
| Delivery of Policy | To verify that the buyer or financial institution has received the documents necessary for claim submission. | Policy may be lost after an incident or ownership transfer may be incomplete. | Delivery records, L/C documents, receipt confirmation, endorsements |
Contingency Insurance as Back-up Insurance
When the importer cannot adequately verify the insurance coverage arranged by the exporter on the other side, they may arrange Contingency Insurance on their own behalf.
Contingency Insurance is not intended to be used as the primary insurance from the outset in place of the other party’s insurance.
In CIF transactions, the insurance arranged by the seller is usually considered first for handling claims.
Contingency Insurance may be used complementarily when the other party’s insurance does not exist, the coverage conditions are insufficient, the insured amount is inadequate, the claim payment is denied, or the other party does not cooperate with the insurance claim.
| Situation | Practical Explanation | Positioning of Contingency Insurance | Points to Confirm |
|---|---|---|---|
| When the other party’s insurance functions properly | Damage claims are handled by the primary marine cargo insurance as intended. | Acts as back-up insurance, standing by without collecting double indemnity for the same loss. | Policy documents of the other party, insurance terms, claim procedures, and payment prospects |
| When the other party’s insurance does not exist | Insurance was supposed to be arranged by the other party but was actually not obtained. | Consider application for unrecoverable damage risk on own side. | Non-existence of other party’s insurance, sales contract terms, insurable interest, and own loss |
| When the other party’s insurance conditions are insufficient | Insurance exists, but the cause of the incident is excluded or subject to deductible. | Confirm whether it can complement losses unrecoverable from the other party’s insurance. | Reasons for deductible, insurance terms, loss amount, and uncovered portion |
| When the insured amount of the other party’s insurance is insufficient | The insured amount is lower than the cargo value, resulting in partial loss recovery. | Confirm the extent to which the shortfall will be covered. | Cargo value, insured amount, paid claim amount, unrecovered amount, and duplicate insurance |
| When the other party does not cooperate with the insurance claim | Failing to submit policy documents, unreachable contact, or no cooperation with claim procedures. | Consider application as a damage recovery measure on own side. | Communication records, cooperation requests, records of unsubmitted documents, and incident notification |
| When the payment from the other party’s insurance is delayed long-term | Liability or coverage conditions are disputed, and damage recovery does not progress. | Confirm activation conditions and whether prior claim is required under the formal clause. | Claim progress, insurer’s response, unrecovered amount, and conditions for Contingency Insurance |
Contingency Insurance should be understood not as insurance for double recovery but as back-up insurance that compensates for unrecoverable damage risk remaining on one’s own side in transactions relying on the other party’s insurance.
Cases Where Cargo May Not Be Covered Despite Having Blanket Insurance
Even if cargo is covered by a blanket cargo insurance policy, not all cargo and transport operations are necessarily covered automatically.
Depending on the cargo types covered, transport sections, insured amounts, declaration methods, excluded cargo, prior notification obligations, and special approval conditions, the expected cargo insurance may not function as intended.
| Items to Check | Typical Cases of Coverage Gaps | Points to Confirm | Main Reference Materials |
|---|---|---|---|
| Covered Cargo | When shipping cargo not included in the contract's handled product categories | Product categories covered and excluded under the blanket contract | Blanket contract, product lists, declaration documents |
| Used Goods | Assuming used goods are automatically covered under the same terms as new goods | Used goods endorsement, survey conditions, and valuation methods | Cargo details, photos, valuation documents, approval letters |
| Refrigerated or Frozen Cargo | Assuming coverage for temperature variations or refrigeration machinery failure under standard terms | Temperature conditions, machinery failure provisions, data logger requirements | Special clauses, temperature instructions, underwriting approvals |
| Exhibition Goods | Assuming automatic coverage not only for outbound transport but also during exhibition and return transport | Coverage during exhibition, round-trip transport, storage, and re-export | Exhibition schedules, transport plans, special clauses |
| Hazardous Goods | If hazardous cargo declarations or prior approvals have not been completed | Hazard classification, packaging, transport methods, and approvals | MSDS, hazardous goods declarations, approval records |
| High-Value Items | When limits per shipment, per package, or per location are exceeded | Aggregation limits, security conditions, and transport methods | Value statements, transport plans, approval letters |
| Transport Sections | When pre-shipment inland transport or post-arrival storage is not included in the declared sections | Insurance start point, termination of insurance, and final destination | B/L, delivery plans, Insurance Period Clause |
| Missed Declarations | When sales or shipment declarations to the blanket insurance are not made | Declaration method, deadlines, and responsible staff | Declaration ledger, insurance request forms, premium calculation documents |
| Route Changes | If routes involve unusual transshipment points or long-term storage | Route change notifications, storage locations, and insurer approval | Transport instructions, schedules, approval emails |
Situations Where Freight Forwarders Are Often Involved
- When asked whether the cargo is insured
- When the seller is supposed to have arranged insurance but the policy cannot be located
- When it is unclear who should notify the insurance company in the event of an incident
- When damage is discovered before cargo pickup
- When it is assumed that claims can be made against the carrier or freight forwarder if there is no insurance
- When it is not decided who will collect the insurance policy, B/L, invoice, photos, and survey report
- When it is not confirmed whether the cargo is covered under a comprehensive scheduled insurance
- When parties have differing understandings about whether the freight forwarder was requested to arrange insurance
In such situations, if a freight forwarder asserts the existence of insurance, the scope of coverage, or the likelihood of payment, it could lead to disputes over accountability later.
What freight forwarders should do is not to guarantee the insurance details, but to clearly instruct the parties to confirm the presence or absence of insurance arrangements, the policy, terms, insured amount, insured party, claims rights, and the designated party to notify in case of an incident.
Example 1: When the Buyer Fails to Arrange Insurance under an FOB Transaction
Assume a Japanese exporter sells machinery to an overseas buyer under FOB terms and ships the goods on the premise that the buyer will arrange marine cargo insurance from the loading on board.
An accident occurs aboard the vessel during transit, causing significant damage to the cargo.
After the accident, it is confirmed that the buyer had not arranged marine cargo insurance and refuses to pay the purchase price citing the cargo damage as the reason.
In such a case, the first step is to review the risk transfer under the FOB terms, the payment conditions of the sale contract, ownership of the cargo, and any documentation where the buyer promised to arrange insurance.
The carrier’s liability for cargo damage and the buyer’s refusal to pay should be examined separately.
If the exporter arranged Contingency Insurance covering scenarios where the counterparty fails to insure, the applicable conditions, insurable interest, and unrecovered losses should be confirmed.
Even when insurance arrangement is the buyer’s responsibility, there may be a risk that the exporter cannot collect the payment.
Specific Example 2: When No Insurance Policy Exists in a CIF Transaction
Suppose the importer purchases food under CIF terms, and the seller explains that "marine cargo insurance has been arranged."
During transportation, the cargo is water-damaged, but even after the accident, when the importer requests the insurance policy from the seller, neither the policy nor the insurance certificate is presented.
In this case, it is necessary to verify the sales contract, invoice, the CIF terms wording, the handling of the insurance premium amount, and communications with the seller to determine whether insurance actually exists or if the policy presentation is simply delayed.
If the importer has arranged Contingency Insurance, it should be confirmed what proof is required to establish the non-existence or unavailability of the counterparty’s insurance for claims purposes.
Simultaneously, notifications to the shipping line or carrier regarding the incident, cargo photos, survey reports, and damage valuation documents should be preserved.
The term CIF alone cannot prove that a valid insurance policy, adequate coverage conditions, and an insurance claim right actually exist.
Case Example 3: When the Used Goods Are Excluded from a Blanket Planned Insurance
Assume an exporter has enrolled in a blanket planned insurance, believing that all export cargo will automatically be covered, and ships used machinery.
During transport, the machinery toppled and was damaged. After the incident, it was discovered that used goods are generally excluded from the blanket policy and require prior approval and special conditions.
In this case, verify which cargo falls under the blanket contract, which is excluded, the declaration records, prior notification to the insurer, and communications with the insurance agent.
Also confirm whether the freight forwarder recognized the cargo as used goods, whether they were asked to arrange insurance, or whether they explained that it would be covered by the regular insurance.
The carrier’s liability for the cargo damage and the responsibility for explaining any omission in the insurance arrangement should be addressed separately.
The existence of blanket planned insurance does not guarantee that every individual cargo is actually covered.
Cases That Often Cause Problems in Practice
| Case | Main Issues | Documents for Verification | Key Points for Judgment | Initial Response |
|---|---|---|---|---|
| CIF but insurance certificate is not submitted | Non-existence of insurance, certificate delivery, claim rights | Sales contract, invoice, communication with seller | Whether insurance actually exists | Make written inquiries to the seller and insurance-related parties. |
| CFR where buyer has not arranged insurance | Buyer's failure to arrange, transfer of risk | Sales contract, buyer’s instructions, insurance confirmation | Who was supposed to arrange the insurance | Separate accident notification from payment issues in the sales contract. |
| No payment collected in FOB transaction | Cargo damage, payment risk, contingency | B/L, payment terms, buyer notification | Whether cargo damage and unpaid payment can be distinguished | Organize insurance, carrier liability, and payment issues separately. |
| Omission of declaration under open cover insurance | Declaration obligation, covered cargo, insurance premium | Declaration ledger, shipment records, contract terms | Whether conditions for insurance coverage under contract were met | Immediately confirm with the insurance company or insurance agent. |
| Used goods excluded from open cover insurance | Approval of special cargo, obligation to explain | Cargo details, quotation, approval records | Who recognized the cargo as used goods | Verify insurance arrangement requests and the explanation provided. |
| No temperature conditions attached to frozen cargo | Insufficient insurance conditions, special clauses | Insurance certificate, temperature records, cargo details | Whether necessary coverage was requested | Check the cause of the accident and the reasons for any exclusions. |
| Counterparty has insurance but refuses to cooperate in claim | Claims rights, certificate submission, contingency | Certificate, cooperation requests, communication records | Whether own company can make the claim | Also promptly notify the contingency side. |
| Freight forwarder is perceived to have arranged insurance | Scope of work, duty to explain, whether engaged | Quotation, order form, emails, invoices | Whether insurance arrangement was formally engaged | Organize contracts and communications in chronological order. |
Standard Five Classifications of Freight Forwarder Involvement
The five classifications in this article are not established categories under laws or industry-wide standards. Rather, they serve as an analytical framework used in this series to organize the scope of freight forwarder involvement.
| Standard Five Classifications | Main Involvement Related to Insurance Arrangement Omissions | Key Focus of Responsibility Assessment | Primary Verification Documents |
|---|---|---|---|
| Simple Intermediary | Acts as a liaison among the shipper, insurer, insurance agent, and buyer or seller. | Whether there was any assurance beyond mere mediation regarding the existence, terms, or payment of insurance | Quotations, emails, guidance documents, records of intermediary communications |
| Cargo Transportation Service Provider | May provide insurance guidance or arrange insurance along with transport services. | Whether insurance arrangement was contracted as a service and whether necessary information was properly communicated | Carriage contracts, insurance placement requests, cargo details, declaration records |
| NVOCC / House B/L Issuer | Issues House B/Ls and acts as the contracting party for international transport. | Whether any explanations confused transport liability with insurance arrangement responsibility | House B/L, quotation terms, booking documents, insurance requests |
| Door-to-Door Single Contractor | Undertakes transport, customs clearance, storage, and final delivery as an integrated contract, which may also include insurance arrangement. | Whether insurance arrangement was included in the comprehensive contract, and confirmation of insured segments and special conditions | Comprehensive quotations, specifications, contracts, insurance policies |
| Agent/Coordinator for Specific Operations | Individually coordinates insurance quotation acquisition, insurance placement requests, policy receipt, accident notifications, or surveys. | Scope of delegation, confirmation duties, content of communications, declaration deadlines, and final decision-makers | Delegation records, insurance placement requests, confirmation emails, approval documents |
Contracting Carrier and Actual Carrier denote legal or contractual statuses and are not alternative classifications that replace the standard five classifications used in this article.
Individual tasks such as acquiring insurance quotations, sending policies, accident notifications, or document collection do not constitute a sixth classification by themselves.
Judgment Checklist for Freight Forwarder Operations
| Checkpoint | Party to Confirm With | Items to Confirm | Actions if Issues Arise |
|---|---|---|---|
| At Quotation / Contract Acceptance | Cargo Owner, Exporter, Importer | Whether cargo insurance is to be arranged by the freight forwarder or by the cargo owner | Clearly specify in the quotation terms or request details whether insurance arrangement is included. |
| When Confirming Trade Terms | Cargo Owner, Trading Company, Export/Import Personnel | Trade terms such as CIF, CFR, FOB, EXW and who is responsible for arranging insurance | Advise to verify the actual party arranging insurance rather than relying solely on the trade term name. |
| When Verifying Insurance Policy | Cargo Owner, Insurance Company, Insurance Agent | Policy, Certificate, terms, amount, insured party, insurance period, and claim rights | If the policy cannot be confirmed, do not conclude that insurance coverage has been secured. |
| When Checking Special Cargo | Cargo Owner, Insurance Company, Insurance Agent | Conditions for used goods, exhibition items, refrigerated/frozen cargo, dangerous goods, and high-value cargo | Confirm the need for special clauses, prior approval, or additional conditions. |
| When Confirming Blanket Insurance | Cargo Owner, Insurance Company, Insurance Agent | Covered cargo, declaration method, declaration deadlines, excluded cargo, and coverage limits | Verify whether individual shipments are covered under the blanket contract. |
| In Case of an Incident | Cargo Owner, Insurance Company, Insurance Agent, Surveyor | Existence of insurance, claim contact point, incident notification, evidence preservation, and survey | Avoid assuming payment; prioritize photos and notifying third parties. |
| Upon Discovery of Omitted Arrangement | Cargo Owner, Seller, Buyer, Insurance Company, Maritime Lawyer | Insurance promises, insurance requests, payment settlements, counterparty liability, and unrecovered damages | Delineate cargo damage, payment recovery, trade liabilities, and freight forwarder responsibility. |
| When Confirming Contingency | Importer, Insurance Company, Insurance Agent | Counterparty insurance, unrecovered damages, backup insurance conditions, and notification deadlines | Treat as insurance to cover unrecovered risks, not as double recovery. |
| When Organizing Liability | Cargo Owner, Seller, Buyer, Freight Forwarder, Maritime Lawyer | Obligation to arrange insurance, duty to explain, carrier liability, settlement risk, and subrogation | Separate insurance matters, compensation liability, and trade payment issues. |
Safe Guidance in Freight Forwarder Practice
- Confirm who is arranging the cargo insurance.
- Verify that the insurance policy or certificate of insurance has been issued.
- Check that the insurance conditions and insured amount are appropriate for the cargo and transport.
- Confirm the insured party and the beneficiary of the insurance claim rights.
- Ensure the insurance period covers the actual transport segment.
- Check whether prior approval or special clauses are required for special cargo.
- Clarify who will contact the insurance company or insurance agent in case of an incident.
- Confirm if there is backup insurance in case the counterparty’s insurance does not operate effectively.
- Secure photographs, damage reports, inspection certificates, and notifications from the carrier.
As a freight forwarder, the basic approach is not to assert that "insurance is applicable," but rather to guide by stating, "Please verify the presence of insurance arrangements, policies, conditions, insured parties, claim rights, and incident notification contacts."
Flowchart for Determining Omission of Insurance Arrangement
- Confirm the date of the incident, location of the incident, condition of the cargo, and the person who discovered the incident.
- Verify whether the sales terms are CIF, CFR, FOB, EXW, CPT, CIP, DAP, or DDP.
- Confirm who was scheduled to arrange the cargo insurance under the sales contract.
- Check if a formal insurance placement request was made to the freight forwarder or insurance agent.
- Verify the existence of insurance policy, certificate of insurance, application form, or insurance placement request document.
- Identify the insurance company, insurance agent, policy number, and the designated accident notification contact.
- Confirm the insured party, beneficiary, endorsements, and the status of policy delivery.
- Check the insurance terms, insured sum, deductibles, limits, and insurance period.
- Confirm whether the damaged cargo is included in the scheduled blanket insurance coverage and related declarations.
- Verify if prior approval or special clauses were required for special cargo.
- If counterparty insurance exists, confirm the claim procedures, payment viability, and any unrecovered amounts.
- If the counterparty insurance does not apply, check for Contingency Insurance or other backup insurance.
- Separate and organize cargo damage, unpaid sales proceeds, commercial loss, and claims against the freight forwarder.
- Notify the carrier, warehouse operators, and other third parties of the incident and reserve rights regarding liability.
- Compile insurance policies, sales contracts, transport documents, incident records, and communication logs, then consult the insurance company, specialized agents, or maritime attorneys.
Documents Critical as Evidence
| Document Type | Main Documents | Purpose of Confirmation | Practical Notes |
|---|---|---|---|
| Sales Terms | Sales Contract, Order Form, Quotation, Proforma Invoice | Confirm Incoterms and the party responsible for insurance arrangement. | Check not only the term names but also any additional agreements. |
| Payment Terms | D/P, D/A, L/C terms, Payment Records | Separate cargo damage issues from non-payment of funds. | Confirm document pickup dates and payment deadlines. |
| Insurance Policy | Insurance Policy, Insurance Certificate, Endorsements | Confirm existence of insurance, insured party, terms, and claim rights. | Verify policy number and issuing entity. |
| Insurance Placement Request | Insurance Application, Insurance Request Form, Quotation Request, Approval Email | Confirm who requested what and who accepted the task. | If only verbal request, search for communication records. |
| Blanket or Scheduled Insurance | Blanket Agreement, Declaration Ledger, Monthly Declarations, List of Insured Cargo | Confirm if individual shipments are included in the contract. | Check excluded cargo and declaration deadlines. |
| Contingency Insurance | Policy, Applicable Conditions, Incident Notification, Counterparty Insurance Documents | Confirm activation conditions of back-up insurance. | Clarify overlaps with counterparty insurance and unrecovered amounts. |
| Transportation Documents | B/L, Waybill, AWB, Booking, Delivery Records | Confirm transportation segments and accident occurrence segment. | Cross-check with insurance period. |
| Cargo Value | Invoice, Packing List, Valuation Report | Confirm sum insured and amount of loss. | Check treatment of freight, insurance premiums, and other charges. |
| Accident Documents | Accident Photos, Cargo Photos, Survey Report, Inspection Report | Confirm cause and scope of damage. | Preserve evidence before cargo disposal. |
| Third-Party Notices | Accident Notifications to Carrier, Shipping Line, Airline, Warehouse Operator | Preserve rights for compensation claims and subrogation. | Manage notification deadlines by each counterparty. |
| Communication Records | Emails between Consignor, Seller, Buyer, Freight Forwarder, Insurance Agent | Confirm understanding, instructions, and explanations regarding insurance placement. | Organize chronologically. |
Common Misunderstandings
| Misunderstanding | Actual Consideration | Points to Confirm |
|---|---|---|
| Insurance is perfect if the terms are CIF. | Even under CIF terms, insurance conditions, coverage amount, policy, and claim rights need to be confirmed. | Insurance policy, conditions, insured party, claim rights, and policy delivery |
| All cargo is covered due to blanket scheduled insurance. | Cargo covered may be excluded depending on the goods, transport segments, declaration obligations, and excluded cargo. | Blanket contract, declaration method, excluded cargo, and special approvals |
| The freight forwarder will confirm the insurance. | If not requested to arrange insurance, the forwarder may not guarantee the existence of insurance. | Insurance request, quotation terms, scope of work, and guidance details |
| If the other party says they insured the cargo, there is no need to verify the policy. | After an incident, policies may not be issued, conditions may be inadequate, or claims may be denied. | Insurance policy, certificate, issuer, and policy number |
| If there is Contingency Insurance, there is no need to check the other party's insurance. | Contingency Insurance complements coverage only if the other party's insurance fails to function. | Other party’s insurance, unrecovered damages, and Contingency Insurance conditions |
| If no insurance is arranged, a claim can always be filed against the freight forwarder. | Insurance arrangement obligations, explanation duties, and liability for transport incidents must be confirmed separately. | Contract, insurance request, cause of incident, and liability limitations |
| If terms are FOB, the exporter has no risk from cargo incidents. | If the buyer does not pay, the exporter still faces uncollected receivable risk. | Payment terms, buyer’s insurance, payment, and Contingency Insurance |
| If a company name is on the insurance policy, that company can always claim. | Insurable interest, endorsements, policy assignments, and claim rights need confirmation. | Insured party, claimant, endorsements, and sales contract |
| Special cargo is fine under regular blanket insurance. | Used goods, temperature-controlled cargo, dangerous goods, and high-value items may require approvals or special conditions. | Cargo details, special clauses, approvals, and coverage limits |
| Being charged an insurance premium means the insurance is in effect. | It is necessary to verify placement requests, underwriting approval, policy issuance, and covered cargo. | Application form, approval records, policy, and premium details |
| Full compensation can be recovered from both the other party’s insurance and Contingency Insurance. | This is not a system to receive double insurance payments for the same damage. | Duplicate insurance, paid claims, and unrecovered damage |
| Insurance can be arranged retroactively after an incident. | Retroactive coverage is generally difficult once the incident is recognized as having occurred. | Insurance request date, incident date, recognition timing, and underwriting approval |
Situations Where Maritime Lawyers and Specialists Should Be Utilized
- When marine cargo insurance does not exist or no insurance certificate is presented
- When the seller or buyer disputes the obligation to arrange insurance
- When the buyer refuses to pay the purchase price citing cargo damage
- When the insurable interest or insurance claim rights are unclear
- When the counterparty does not cooperate with insurance claims or submission of certificates
- When the applicability of Contingency Insurance or duplicated insurance is at issue
- When the scope of blanket insurance or failure to declare is contested
- When the cargo owner makes a high-value damage claim against the freight forwarder or NVOCC
- When carrier liability, sales contract, and insurance arrangement responsibilities overlap
- When accident notification deadlines, insurance claim deadlines, or statutory limitation periods are approaching
Practical Points
- Marine cargo insurance arrangement omissions are often discovered only after an incident occurs.
- Risk transfer under Incoterms and the actual eligibility for insurance claims are separate issues.
- Even with CIF or CIP terms, verify policy documentation, conditions, insured amounts, insured parties, and claim rights.
- For CFR, FOB, EXW, and CPT terms, pay particular attention to the buyer’s side possibly failing to arrange insurance.
- Blanket or scheduled insurance does not automatically cover all cargoes.
- Special conditions should be checked for used goods, exhibition items, refrigerated/frozen cargo, hazardous goods, and high-value cargo.
- Contingency Insurance serves as back-up cover when the other party’s insurance fails to function.
- It is not insurance designed to collect double compensation for the same loss.
- Freight forwarders should not assert the existence of insurance or the payment of claims but should guide confirmation procedures.
- At the quotation stage, clearly specify in writing who is responsible for arranging insurance.
- After an incident, separate considerations of cargo damage, insurance arrangement omissions, payment collection, and freight forwarder liability.
- At the same time as filing an insurance claim, notify and preserve rights for recourse against carriers and other third parties.
- Organize policy documents, sales contracts, insurance requests, and communication records chronologically.
Summary
Failures in insurance arrangements by exporters and importers are common operational risks in international transportation.
On the exporter side, there are cases where shipment occurs under the assumption that the buyer will arrange marine cargo insurance, resulting in both cargo damage and uncollectible payment after an accident.
On the importer side, even though it is assumed that insurance is in place due to CIF or CIP terms, situations may arise after an accident where insurance certificates are not presented, policy terms are inadequate, insured amounts are insufficient, or the right to claim insurance benefits cannot be exercised.
Incoterms organize risk transfer and cost allocation between seller and buyer, but do not determine the existence of insurance, coverage conditions, insured amounts, or rights to claim insurance benefits.
Before shipment, it is necessary to confirm the insurance certificate, coverage terms, insured party, rights to claim insurance benefits, insured amounts, and insurance period.
Even if comprehensive scheduled insurance is in place, prior approval, special clauses, or individual declarations may be required for used goods, exhibition items, refrigerated or frozen cargo, hazardous goods, high-value cargo, transport sections differing from normal procedures, or long-term storage.
Contingency Insurance is backup insurance designed to cover unrecoverable damage risks remaining with your own company when the counterparty's insurance is absent, ineffective, or unable to cover the full loss in transactions relying on the other party’s insurance.
However, it is not intended to receive double indemnities for the same damage from both the counterparty's insurance and Contingency Insurance.
Freight forwarders or NVOCCs should not make definitive statements about the existence or payment possibility of marine cargo insurance. Instead, they should guide to confirm whether insurance is arranged, the insurance certificate, coverage terms, insured amounts, insured party, rights to claim, and accident notification contacts.
Final decisions on insurance payments and liability for compensation are made individually based on the sales contract, Incoterms, insurance certificate, comprehensive scheduled insurance, Contingency Insurance, insurable interest, cause of the accident, cargo damage, settlement terms, and the contractual status of relevant parties.
Prior to shipment or at the sales contract stage, confirm who will arrange marine cargo insurance, who will receive the insurance certificate, who will exercise the right to claim insurance benefits after an accident, whether additional conditions are needed for special cargo, and how to prepare if the counterparty's insurance does not function.
If the status of insurance arrangements, coverage terms, rights to claim insurance benefits, or the necessity of Contingency Insurance is unclear, prepare the sales contract, Incoterms, cargo details, transport sections, and existing insurance contracts, and consult early with an insurance company or an insurance agent specializing in marine cargo insurance.
This article provides general information and does not determine who is obliged to arrange marine cargo insurance for individual export-import transactions, whether insurance contracts are validly concluded, who can exercise insurance claim rights, whether Contingency Insurance applies, whether insurance payments will be made, or whether exporters, importers, sellers, buyers, freight forwarders, or NVOCCs bear legal liability.
