Commerce department international trade

1.1 Loss of or damage to the subject-matter insured attributable to:

1.1.1 fire or explosion,

1.1.2 vessel or craft being stranded, grounded, sunk or capsized,

1.1.3 overturning or derailment of land conveyance,

1.1.4 collision or contact of vessel craft or conveyance with any external object other than water,

1.1.5 discharge of cargo at a port of distress,

1.2 Loss of or damage to the subject-matter insured caused by:

1.2.1 general average sacrifice,

1.2.2 jettison.

They examine the insurance document to check that the lost or damaged goods were correctly described. If the description and the goods are materially different, the insurer may refuse to pay. In one famous case, an exporter bought leather flying jackets from the British government. The jackets were twenty years old, but they had never been used. The exporter described the goods as "new men's clothing in bales." When the goods were stolen, the insurer refused to pay because of material misdescription. The court agreed: the description was inaccurate.³¹ In general, the insured must disclose any fact "which would influence the judgment of a prudent insurer in fixing the premium or accepting the risk."³²

In summary, always remember the cardinal principal of insurance:

A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party.³⁴



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³¹ Anglo-African Merchants v. Bay ley (1970) 1 QB 311, 319-320.

³² Schmiuhoff, p. 503.

³³ Greenock SS. Co. v. Maritime Insurance Co. (1903) 1 KB. 367.

³⁴ Marine Insurance Act. (UK) 1907, § 17.



CASE STUDY

TAKE OVER
Pacific Exports is a new company founded in Verbena to export textiles. The company anticipates sales of about $500,000 during its first year of operations, with most orders between $1,000 and $30,000. Since Verbena is an island, consignments of goods always travel by ship. The company wants advice on the best kind of insurance for its CIF contracts. What would you recommend among the choices below? In each case be ready to give your reasons.

1. □Tailor-made policies □Floating policy □Open cover

...Because there is no need for a full insurance policy to be negotiated for each order.

2. □Valued policy □Unvalued policy

...Because this allows claims for the loss of expected profit if the goods are destroyed or damaged.

3. □Voyage policy □Time policy □Time and voyage policy

4. □Cargo Clause A (All risks) □Cargo Clause B □Cargo Clause C

Debatable. Because for the exporter, Cargo Clause C is cheapest. Furthermore, nothing more is required under CIF contracts. However, the buyer may be very unhappy if the texttiles are lost and the insurance arranged by the exporter fails to offer the expected compensation. The exporter and the buyer should discuss this issue.

5. Institute War Clauses □YES □NO □depends on __

Depends on route and political situation.

6. Institute Strikes Clauses □YES □NO □depends on __

Depends on social and political situation. Normally cover against strikes is recommended.

6. TERMS OF TRADE: INCOTERMS

Although the purpose of ICC Incoterms is to standardize terms of trade worldwide, many business people do not know what these terms mean or the nature of their rights and duties under an Incoterm contract.

The ICC publication, Incoterms 1990, gives full and clear information about the rights and duties of buyer and exporter in Incoterm contracts. Ignorance of these terms can be expensive.

World trade depends to an increasing extent of standardization: international weights and measures are metric: many contracts are priced in U.S. dollars; letter of credit follow standard rules. Misunderstandings can be expensive: anything that makes them likely less likely is welcome.

One source of international confusion are delivery conditions. We have already looked at a number of problems and seen how national laws vary in their preferred solutions. To clarify the situation, the International Chamber of Commerce (ICC) issued as early as 1936 standardized terms- the so-called International Commercial Terms or Incoterms. Over the years, the ICC has updated the Incoterms as the nature of commerce has changed- increased use of aircraft, the introduction of containers, electronic document transfer and so on.- all have required new or revised terms. The latest issue of Incpterms is the 2010 revision.

• 
  Where along the transportation route delivery takes place;
  
• 
  What means of transport is used; and
  
• 
  What costs the exporter might pay after the point of delivery.
  

The 13 terms are grouped in four categories: E-terms, F-terms, C-terms and D-terms. The E-term deals with deliveries at the exporter’s factory. The F-terms all concern delivery within the exporter’s country. The C-terms involve delivery in the exporter’s country, with extra costs for the exporter after delivery. D-terms take care of delivery outside the exporter’s country. A table gives us an overview:

EXW is one of the E-terms in the Incoterms. It stands for Ex-work, a method of delivery, where the exporter is free from charge when exporter notifies buyer of availability of goods at exporter’s premises (factory or warehouse). Then the exporter is not responsible for transport or any other costs.