01 December 2007

FOB and Cargo Insurance under LC

Question from Indian trader:
Insurance is a must why? To whom it is necessary? But sometimes the seller may feel that for FOB shipments,their responsibility stops on shipping the goods: This is not so,business should be a continuous process with another trader: If there is any negligence on the part of the buyer.It is prime responsibility of the seller to insure the goods: he can inform this and get the small amount from the buyer.
I don't quite get what you want to say. But I believe that you are saying the seller should take up cargo insurance if there is a negligent occurs on the part of the buyer.
First and foremost, in actual fact, transfer of risk from seller to buyer starts before the goods pass the ship's rail and on board the vessel or before the delivery point. If the buyer fails to arrange the vessel on the date and time as agreed, where seller is unable to load the goods, the risk passes to the buyer.
Secondly, buyer is also to bear the risk from the point of delivery onwards. On both situations above, buyer is said to have an "insurable interest" to the goods. Therefore, it is necessary for the buyer to procure cargo insurance even though it is not obligatory.
The question is, can the seller procure the cargo insurance for the benefit of the buyer on both situations above? Or can the seller take up cargo insurance for the benefit of the buyer under FOB?
Of course yes. The seller can also take up cargo insurance for the benefit of the buyer PROVIDED that the local law in both countries permit it. Both parties may agree on this arrangement and it must be precisely and expressly stated in the sales contract. This also applies to contracting a vessel. This however, does not change the important features of FOB term. It cannot be termed as "FOB+I" or any other weird terms just to signify that seller is to procure the cargo insurance. Under this situation, seller is not under obligation, but merely offering an ADDITIONAL SERVICE to the buyer. The accountability and responsibility to procure cargo insurance under FOB, still lies on the buyer.

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