How Does Sales Contract Affect Marine Transit Insurance?

The term of sale contract in marine transit insurance generally revolves around the loss and compensation. The terms state what shall affect and who shall be entitled to compensation. Two parties are involved in the sale contract. One is a buyer, and the other is the seller. The sales contract can affect the marine transit insurance on several factors when the two parties enter under a contract.

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How Sales Contract Can Affect Marine Transit Insurance?

The seller enters the selling contract with the buyer. Both parties enter the contract on the basis of FOB (Free on Board). It means that the buyer shall be responsible for arranging marine policy for the goods. As a result, the buyer shall be entitled to receive compensation from the insurer if a loss or damages are caused to the goods.

However, if a contract is based on CIF (Cost, Insurance, and Freight), the seller shall be duty-bound to purchase the insurance policy. Under such circumstances, the seller shall be entitled to receive compensation for the loss or damage caused to the goods. This sale contract can affect marine transit insurance.

Let us understand how the sale contract can affect the marine transit insurance policy.

The sales contract can affect marine transit insurance on the following basis.

  1. Free on Board

    FOB or Free on Board states that the seller's duty of safeguarding goods will be over once he loaded the goods on the vessel. The buyer shall be responsible after the on boarding. He shall make sure that the goods are insured.

  2. Free on Rail

    The Free on Rail or ROR contract states that the buyer shall be responsible to purchase the insurance policy for the goods. Therefore, the buyer shall receive compensation in case of a loss or damage caused to the ship.

  3. Cost and Freight

    Cost and Freight or C & F states that the buyer shall be responsible to purchase the insurance for the goods once it is loaded on the ship by the sellers. However, it is at the discretion of the buyer to buy the insurance policy whenever he wants.

  4. Cost, Insurance, and Freight

    The Cost, Insurance, and Freight or CIF states that the seller shall be responsible to ensure the safety of the goods. He shall purchase the insurance for the goods loaded on the vessel. Later, he may transfer the insurance premium cost he incurred to the buyer.

Case Study

Let us discuss a case study in order to understand the sales contract can affect marine transit insurance.

  • ABC Enterprises is a leading textile company. The company exports garments from India to Africa. Most of the transaction of goods takes place via waterways. The ABC enterprise enters into a contract on a FOB (Free on Board) basis. It means that the buyer is responsible for the insurance of the goods.
  • In March 2022, ABC Enterprises exported clothes to Africa. The company enters into a sales agreement on a FOB basis. Therefore, the buyer shall be responsible for the safety of the goods.
  • Due to heavy rainfall, the thunder damages the consignment. Moreover, the goods reached one day late to the destination.
  • The buyer approached the insurance company and the company appointed a surveyor. The surveyor evaluated the loss and damage caused to the consignment. He inspected the goods and made a detailed report about the loss of the consignment. Later, the insurance company settled the claim.
Learn more about Marine Insurance

Conclusion

The sales contract may affect the marine insurance policy. If the parties enter into an agreement on the CIF basis, the seller shall bear the cost of the premium. He shall ensure the marine insurance for the consignment. However, he may send the bill of the premium to the buyer or may add it to the sales contract.

Written By: PolicyBazaar - Updated: 28 April 2023

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