Insurance certificate under DAP, Incoterms 2010

[spinos]

Dears,

Under trade terms DAP, Incoterms, 2010, should the insurance certificate be for 110% DAP value, showing risk coverage ICC A?

[picant]

Hi Pal,

IMHO, delivery of goods in DAP, it is at a Place of destination , the seller may insure the goods till the place of delivery as if something occurs, it will be under its risk.
The 110% cover of CIF value is for the buyer as the insurance protects him for a 10% as anticipated profit too
So the seller will protect himself for 100% of the goods value only, as no insurance company will pay more than the goods value.
ICC A states the risks covered and I think it is applicable too.
Other comments appreciated(hoping to have been clear-no native speaker??-
Ciao

[abrar]

To add to picant's comments, UCP requires only that the minimum insurance coverage should be for 110% of CIP/CIF value; there is no maximum.

Focusing on the division of risks only, and not on the division of costs, DAP obligates the seller to deliver to buyer, so, as picant indicates it is up the seller to insure goods to DAP such destination. Any loss prior to delivery at DAP point is at the seller's risk. Therefore, the buyer would not ususally be concerned whether the goods have been insured or not, as assuming that one of the documents called for would be a delivery receipt signed by the buyer, the buyer may simply refuse to take delivery, or sign off on the receipt note if goods are found to be damaged.

[phill doran]

Hello all
I came across this old post by default – I have trolled the site to see if it has been answered anywhere else – without success, so I hope I am not repeating something someone else has already tackled.

C-prefixed terms are older than the ICC and Incoterms. Trade invented the C-prefixes sometime before or during the 1800’s when seafreight was the only option.

In a C-prefix, the SELLER (note the name) is off risk in the country of supply – so delivery takes place in the country of origin, although the costs extend to the country of destination. These two points, in seafreight, became the loading on-board (this was delivery and the end of the contract) and the paying of freight (to ship’s arrival at the destination port, which became the end of the seller’s costs). If the ship sinks, that’s the buyer’s loss, not the seller’s.

But, in order to achieve this contract of sale, the SELLER (again, note the name) had to pay the freight to the shipping line and in so doing became the SHIPPER (different name, different contract).
As the shipper, that party is at risk until the vessel safely arrives at the destination port – meaning that if the ship went into distress and costs were incurred in saving the vessel, the SHIPPER could face the cost of this action if the consignee walked away from the liability (which they are quite at liberty to do as they are not in the contract with the carrier unless they choose to be – whereas the shipper is most definitely the carrier’s contract partner all the time)

Now, this is NOT what the SELLER wanted. The seller wanted to be off risk on loading but they now find (as shipper) they are at risk until arrival.
So, in order to maintain this low-risk profile, the seller needed to be sure that the BUYER (as consignee) would NOT walk away from any such liability. One way was to make sure the buyer paid for the shipping event i.e. to make sure the buyer paid for evidence that the ship had sailed, freight prepaid – hence the importance of the ‘shipped on board, freight prepaid’ bill of lading and the documentary credit (with a shipment date and not an arrival date).
The second way to mitigate this risk was to make sure that the buyer definitely had insurance cover – not for partial loss or damages or anything like that – the seller has no interest in that sort of cover – but rather cover for the vessel going into distress. And in order to best make sure this type of cover (referred to as ‘minimum’ cover) was in place, the seller would force the buyer to have it as part of the sale – hence CIF: the seller has NO RISK so has no need of insurance, but as SHIPPER they do have risks if the consignee has no cover and so the seller procures insurance cover for the buyer.

The main concern of the seller is that a General Average may be declared. “Average” means ‘loss’ and so a ‘general’ average is a loss all parties involved in the voyage will suffer, generally. There is no direct loss of the merchant’s cargo – their cargo is in fact quite safe. But, costs have been incurred to save the vessel – others have incurred losses or made sacrifices and all those who benefited must contribute on a pro-rata basis to the cost that the others incurred.
The basis for calculating contributions is to take the cost of the goods saved by the GA action using the customs “CIF” value (from which arises the sales term CIF) of the goods and up-lift this by 10%. This became law through the British MIA of 1907 (or 08?). Anyway: that is why you have the 10% up-lift – it is the minimum value for a GA calculation.

As the ICC have developed their private system over the years, they simply renamed this condition CIP and made it possible to use the term in any form of transport. But remember that the ICC is not promoting CIF for sea and CIP for everything else: rather, they are promoting their product CIP for everything (and why not). There is no such condition as a General Average in air or road for example – so CIP is meaningless in those forms and that why you have the option of CPT– but CIP can (and should ) be used in seafreight where, of course, the seller (as shipper) still has the need to be sure the consignee is covered.

Anyway, I hope this helps in some way.
Cheers

phill doran

[SANUSILAMIN]

Dear sirs

I have a misunderstanding in this case , Could I ask the beneficiary to present insurance certificate as a requirement Docs in LC under DAP or not ?
thank in advance for advice.
regards

[picant]

Hi Pal,

yes, as goods will be paid by l/c, even if not delivered, so it is necessary to have insurance document
to claim reimbursement of the damage.

In open account transaction, insurance may not be presented.
Other comments appreciated
Ciao