Cash covered LC and insurance

sean · Post by **sean** » Sun Jul 04, 2010 5:50 pm

Hi
We are an issuing bank. Applicant has provided full cash cover to issue the LC. Incoterm is FOB which means buyer arranges insurance. Is it necessary for the bank to demand proof of insurance? We don't deal in goods only in documents. As bankers are we obliged to advise the beneficiary to insure their goods? Do other issuing banks bother or seek proof from applicant that they have insured their goods?
Thanks in advance.

nayanrshah · Post by **nayanrshah** » Sun Jul 04, 2010 9:44 pm

Any lost due to non insurance would be at the cost of Applicant in the case of cash covered LC.Applicant is a customer of issuing bank and it is duty of issuing bank to educate applicant for insurance cover.There is no reason for not to insure goods by applicant as insurance cost only nearly one percent.

picant · Post by **picant** » Mon Jul 05, 2010 12:01 am

Hi Pal,

first of all we have to understand in which Country you operate, second that you have issued an l/c , fully covered by cash deposit.
I think that you have no right to charge issue commissions to your applicant.
Insurance Issue, for your bank not necessary as you have already the money to pay compllying documents, for your applicant it will be necessary to have insurance cover under FOB Basis, but many applicants have open insurance policy for such circumstance. Try to insert in l/c terms "INSURANCE BUYERS CARE" and wait for applicants comment before despatch by SWIFT the l/c.

Let me know

Ciao

sean · Post by **sean** » Mon Jul 05, 2010 12:30 am

Dear Picant,
We are an issuing bank in South Africa. We have not extended a credit line to the applicant but instead have his cash as a pledge should we need to pay benef. We normally insert clause to say that insurance will be tended to by the applicant. However we assume that he does take out the insurance under FOB incoterm. Is it our duty to ensure that he takes out the insurance or is it his responsibility? We already have the cash as security so why should we bother whether he insures the goods or not? However I do feel that it would be courteous of us as bankers to remind him to insure. Many thanks.

iLC · Post by **iLC** » Mon Jul 05, 2010 8:38 am

in my opinion you should always ask for insurance. i understand that you have 100% cash coverage and thefore has no credit risk while issuing the LC. but there may be unforeseenable situation when you may need to deal with goods. you correctly said that bank deals with documents. this means you are looking for complying presentation. and so is the applicant. imagine of a scenrio where you missed a discrepancy and applicant found it and refused to pay. you will be in crack then.

dinesh2476 · Post by **dinesh2476** » Fri Apr 27, 2018 6:05 pm

Dear Experts,

It is general not about the LCs confirmed under cash collateral.

Why issuing bank worries about insurance for FOB and CFR why not FAS(possibilities that issuing bank consigned to the order of under transport documents)

Thanks & Regards
Dinesh Kumar