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Problems on Percentage of |
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Problems on Percentage of |
If the documentary credit specifies that the "insured amount" is "110% of the CIF value", the decision of the ICC's Group of Experts (the Experts) is that the "insured amount" must be accurate up to two places after the decimal (Answer to Query 5 on page 9 of the DCI Spring 1995 issue).
My soundings indicate that the "110% of CIF value" instruction is actually being printed as a "standard clause" in most L/C application forms, whereas the applicants have no such intention or requirement in mind when they sign. What they really need are timely shipments of merchantable goods so that they can make handsome profits. The bankers just follow the old formats of their predecessors, others are drafted by lawyers who do not expect them to be followed so dogmatically.
In my view, any such instruction should be treated as the specific requirement or intention of the parties; I believe it also falls within the "unless otherwise stipulated" condition in UCP 500 sub- article 34 (f) (ii). However this instruction is not strictly applied in the market place. The Experts' decision should have followed the trade customs and practice. That is what the UCP is supposed to be all about.
In fact, the Experts' decision has changed the credit from a payment mechanism into a non- payment mechanism. It also reduces the predictability of the terms and conditions in the credit and encourages L/C substitutes.
There is also a difference between "sum insured" and "insured value". The former, the "maximum liability" of the insurer, does not necessarily represent the "total payment amount" against a total loss, because of franchise, excess, exemption or other reasons. The later, "insured value", is the amount specified and agreed by the parties to be the "total payment amount" in a total loss. However, these two terms are frequently used interchangeably.
A "two decimal" discrepancy in "Sum insured" usually does not have any material effect on the claims but in "insured value" it may not be the case.
Hence, the Experts' decision on "insured amount" should be applicable only to "insured value" and not to "sum insured". The ICC Banking Commission should clarify the meaning of "minimum amount" in sub-article 34 (f) (ii) as related to these two insurance terms.
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