How to Determine the Effective Date in an Insurance Document? Published in "L/C Update" Vol.16 No.2 February 2000 Issue.

In Query No. R 290 entitled “Insurance document bearing a date of issuance later than the date of loading on board” on page 48 of “More Queries and Responses on UCP 500, Opinions of the ICC Banking Commission 1997”, ICC Publication No. 596, an insurance document shows on its face a sailing/dispatch date of April 4, 1997 and is issued on April 23, 1997, which is later than the shipped on board date of April 4, 1997. The “Conclusion” in the Query states that:

“The inclusion of details of the journey for which the cover has been effected is a common feature of insurance documents. The inclusion of a “sailing date” does not provide adequate evidence that the insurance was effective as of that date, and therefore the document should be rejected”.

It is not strange that certain bankers are not clear with the insurance practice, particularly on the time an insurance document becomes effective.

Firstly we need to clarify that the issuing date of an insurance document has nothing to do with its effectiveness. It merely indicates the date when the insurance document is issued and nothing more. The effective date of an insurance document is governed by the "Transit Clause" under the "Duration" section of:

Clause No. 8.1 in Institute Cargo Clauses (A), (B) or (C);
Clause No. 5.1 in the Institute Cargo Clauses (Air), Institute War Clauses (Cargo) & Institute Strikes Clauses (Cargo);
Clause No. 3.1 in Institute War Clauses (Air Cargo) & Institute Strikes Clauses (Air Cargo); and
Clause No. 4 in Institute War Clauses (sending by Post).

The "Transit Clause" is worded as follows:

“This insurance attaches (becomes effective) from the time the goods (subject-matter insured) leaves the warehouse, or place of storage at the place named herein (premises) for (the purpose of) the commencement (beginning) of the transit (transport or carriage), continues during the ordinary (regular) course (procedure or route) of transit and terminates (becomes ineffective) either...or...".

Please note that the words in bracket shown above are added for better understanding and are not part of the original text.

From the wording of the “Transit Clause”, we can see that the insurance document is in fact effective as from the time the first leg of carriage (the “pre-carriage” at place/point of delivery/receipt in Incoterms 2000) commences, for example when the truck carrying the goods stowed in a container starts its journey at the place of receipt. That means the insurance document is effective from a time which is even earlier than the shipped on board date.

Therefore, if an insurance document can provide on its face the linkage to the goods described in the related B/L, without any inconsistency, the goods would be automatically held covered by the insurance document and it also satisfies the requirement that “it appears from the insurance document that the cover is effective at the latest from the date of loading on board or dispatch or taking in charge of the goods” as stipulated in UCP 500 Article 34 (e) despite that the insurance document is issued later than the shipped on board date and there is no effective date of the insurance document stated on its face.

Other data and information that may establish the linkage with the related B/L are container numbers, shipping marks and numbers, vessel name, voyage number, sailing date, port of loading, port of discharge, the L/C No. and the like.

It is not practical, and also not advisable, for the insurer to indicate the effective date in the insurance document due to following reasons:

1. The effective date is governed by the time of commencement of the first leg of carriage as stipulated in the “Transit Clause”, which the shipper, the carrier or the insurer cannot control or pre-assign.
2. Some cargoes cannot be loaded on a rainy day and the insurer cannot ascertain in advance which day is not a rainy day.
3. There are other variables that may effect the time of commencement of the first leg of carriage, for example, engine breakdown, strikes, storms, and other Act of God perils.
4. Otherwise there would be no flexibility in cargo handling, which is important in multimodal transport to achieve the objective of moving cargoes safely, speedily and cost effectively from one inland point to another.
5. If the cargoes are to be transported one day earlier than the specified effective date on the insurance document, the freight forwarder and the shipper may run the risk of transporting the cargoes without effective insurance coverage.

However, to avoid wrongful dishonour of this nature, I suggest the insurer to add in the insurance document, by a pre-printed message or stamp, the following statement:

“This insurance document becomes effective automatically from the time of commencement of the first leg of carriage (pre-carriage at the place/point of delivery/receipt in Incoterms 2000) of the goods held covered herein and such effective date is not affected by the issuing date of this document that may be later than the shipped on board date” or words of similar effect.

 

 

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