Cefor – Marine Insurance
Education, Copenhagen 22-23 April
2014
Morten Schou Kierulff
KROMANN REUMERT  CVR.NR. 62606711  REG.ADR.: SUNDKROGSGADE 5  DK-2100 KØBENHAVN Ø
PROGRAMME
 Introduction – delivery terms / the passing of risk
 Applicable domestic law (Sale of Goods Act / CISG)
 Incoterms
 Right / obligation to insure
 Choice of delivery terms and insurance
INTRODUCTION
 In connection with sale and purchase of goods where
the goods are to be sent from the seller to the buyer it
is important (not least to the insurer) to clarify who
bears the risk of the goods during transport
 The one who bears the risk must bear the loss suffered
if the goods are lost or damaged during the transport
and this is due to an accidental/fortuitous incident
 If the goods are lost or damaged during the transport
under circumstances which are coverable under a
cargo insurance, then the party who bears the risk of
the goods at the time when the loss or damage
occurred is entitled to the insurance indemnity
INTRODUCTION
 When does the risk pass from the seller to the buyer?
 Applicable domestic law (in Denmark the Sale of
Goods Act / CISG)
 Incoterms
 Remember! Incoterms only apply if agreed between
the parties
DOMESTIC LAW – DANISH SALE OF GOODS ACT
 In Denmark, the Sale of Goods Act will apply (unless
the parties have agreed otherwise) to:
 Sale and purchase of goods in Denmark
 Sale of goods from Denmark to countries that are
not parties to CISG
 Other sale and purchase situation where the parties
have agreed that Danish law shall apply (and CISG
is not relevant)
DOMESTIC LAW – DANISH SALE OF GOODS ACT
 When does the risk pass from the seller to the buyer?
 If there is no reference to Incoterms (or any other
agreement between the parties about when the risk
passes from the seller to the buyer), then the seller
bears the risk of accidental loss or damage to the
goods until delivery has taken place
 Delivery takes place at the seller’s place of
business (when the buyer collects the goods)
 If the goods are to be sent by the seller to the
buyer, delivery takes place when the goods are
handed over to the first carrier (or pass the
ship’s railing)
DOMESTIC LAW – DANISH SALE OF GOODS ACT
 The Sale of Goods Act also contains provisions on
when the risk passes if the parties have used certain
delivery clauses:
 Free onboard (FOB) (named port of shipment): Risk
passes when the goods pass the ship’s railing
 Freight free (cost and freight, C&F) (named
destination): Risk passes when the goods are
handed over to the first carrier or when the goods
pass the ship’s railing
 CIF (cost, insurance, freight) (named destination):
Risk passes when the goods pass the ship’s railing
 Delivered / free (franco) (named destination): Risk
passes when the goods arrive at the named
destination
DOMESTIC LAW – CISG
 CISG (Convention on Contracts for the International
Sale of Goods) is part of Danish law
 CISG will apply (unless the parties have agreed
otherwise) when the sale and purchase is between
parties that are domiciled in countries that have
adopted CISG
 The rules in CISG re. when the risk passes from the
seller to the buyer are largely the same as the rules in
the Sale of Goods Act
INCOTERMS – BACKGROUND
 A set of internationally acknowledged and standardised
trade clauses
 Published by the International Chamber of Commerce
(ICC)
 Incoterms 2010 replaced Incoterms 2000 as per 1
January 2011
 Incoterms regulates a number of issues between the
seller and the buyer relating to the sending of the
goods, including when the risk of the goods pass from
the seller to the buyer
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INCOTERMS – BACKGROUND
 The objective is a uniform interpretation of sales and
delivery clauses regardless of choice of law (i.e. to
avoid interpretation doubts between countries)
 When an Incoterms clause has been agreed then the
question of when the risk passes from the seller to the
buyer is regulated by the Incoterms clause instead of
the domestic law that would otherwise have applied (in
Denmark the Sale of Goods Act / CISG)
 Remember! Not all issues relating to the sale and
purchase are regulated by the Incoterms clause –
certain issues will still be regulated by the applicable
domestic law (in Denmark the Sale of Goods Act /
CISG)
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WHAT IS REGULATED BY INCOTERMS?
 Incoterms regulates certain rights and duties of the
buyer and the seller in connection with transport in
dispatch purchases:
 When does the risk pass from seller to buyer?
 When is delivery made?
 Who arranges transport and insurance?
 Who arranges for export / import permits?
 Who pays certain costs?
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WHAT IS NOT REGULATED BY INCOTERMS
 Incoterms do not regulate questions relating to
 Price
 Payment (when/how/against security/against
documents)
 Transfer of title
 Demands in relation to means or method of
transportation
 Force majeure
 Breach / bankruptcy
 Rights and duties towards third parties
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HOW ARE INCOTERMS AGREED?
 In order for Incoterms to apply this must be agreed
between the parties
 This is a question of contract law / law of
agreements and this varies from country to country
 Therefore (also for this reason) it is important that
the parties agree on jurisdiction and choice of law
HOW ARE INCOTERMS AGREED?
 The choice of Incoterms clause should be stated in the
sale and purchase agreement
 Question! Is it enough to refer to an Incoterms clause
in the general terms and conditions of either the seller
or the buyer?
 Is it enough to refer to an Incoterms clause in an order
confirmation?
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HOW ARE INCOTERMS AGREED?
 An Incoterms clause only works if a place or port is
designated (preferably as precisely as possible so there
is no doubt)
 It should also be stated that reference is made to
Incoterms 2010
 ”EXW Copenhagen, Incoterms 2010”
 ”FOB Rotterdam, Incoterms 2010”
 An Incoterms clause should not be used for means of
transport that the clause is not designed for
 “FOB Kastrup Airport”
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INCOTERMS - OVERVIEW
 There are 11 clauses, divided into 4 groups
 E-clause
 F-clauses
 C-clauses
 D-clauses
 Some clauses can only be used for transport by sea
whereas others can be used for any means of transport
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INCOTERMS - OVERVIEW
Group E
Place where
transport begins
Group F
Main transport not
paid
EXW
Ex Works (...named place)
FCA
FAS
Free Carrier (...named place)
Free Alongside Ship (...designated port of
shipment)
FOB
Group C
Main transport
paid
Free On Board (...designated port of shipment)
Cost and Freight (..designated arrival port)
CFR
CIF
Cost, Insurance and Freight (...designated
arrival port)
CPT
Carriage Paid To (...designated destination)
CIP
Group D
Destination
Carriage and Insurance Paid to (....designated
destination)
Delivered At Place (…designated arrival port or
destination)
Delivered at Terminal (…designated arrival
port)
DAP
DAT
DDP
Delivered Duty Paid (...designated destination)
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INCOTERMS - OVERVIEW (F-CLAUSES)
FCA Free Carrier
(designate place of
delivery)
Shipping
agreement
Insurance
Delivery
Transfer of
risk
Allocation of
costs
FAS Free
Alongside Ship
(marine clause)
(designate port of
shipment)
Buyer's duty (seller As FCA
has no duty unless
buyer so requests or
customary)
Costs to be paid by
buyer.
Neither seller's, nor
buyer's duty (but
seller must, at
request, furnish
information to be
used by buyer in
taking out
insurance)
Seller must deliver
to the carrier
designated by buyer
(loaded)
Seller's risk until
delivery
Seller pays until
delivery
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As FCA
FOB Free on Board (marine
clause)
(designate port of shipment)
As FCA
As FCA
Seller must deliver Seller must deliver on board
alongside ship in
ship in arrival port
port of shipment
As FCA
As FCA
As FCA
As FCA
INCOTERMS - OVERVIEW (C-CLAUSES)
CFR Cost &
Freight
(marine
clause)
(designate
arrival port)
Shipping
agreement
Insurance
Delivery
Transfer of
risk
Seller's duty
Neither
seller's, nor
buyer's duty
(but seller
must, at
request,
furnish
information to
be used by
buyer in taking
out insurance)
Seller must
deliver on
board ship in
port of
shipment
Seller's risk
until delivery
Allocation of Seller pays
until arrival
costs
port
CIF Cost,
Insurance &
Freight
(marine
clause)
CPT Carriage
Paid To
CIP Carriage and
Insurance Paid To
(designate
destination)
(designate
destination)
As CFR
As CFR
As CFR
Seller must
take out
insurance at
minimum
terms to
cover
buyer's risk
As CFR
As CIF
As CFR
Seller must
deliver to the
first carrier
As CPT
As CFR
As CFR
As CFR
Seller pays
until arrival
port
(including
insurance)
Seller pays until
destination
Seller pays until
destination
(including insurance)
(designate
arrival port)
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INCOTERMS - OVERVIEW (D-CLAUSES)
Shipping
agreement
Insurance
Delivery
Transfer of
risk
Allocation of
costs
DAP Delivered at
Place
DAT Delivered at
Terminal
(designate
destination)
(designate terminal in
port or place of arrival)
Seller's duty (but
only until
destination)
Neither seller's, nor
buyer's duty (but
seller must, at
request, furnish
information to be
used by buyer in
taking out
insurance)
As DAP (but only until
terminal)
As DAP
As DAP
As DAP
Seller must deliver
at destination (not
unloaded from
vehicle)
Seller must deliver at
terminal (unloaded
from vehicle)
As DAP
Seller's risk until
delivery
Seller pays until
destination
(including costs for
customs, duties,
export fees)
As DAP
As DAP
As DAP (but including
costs for unloading)
As DAP (but including
import costs)
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DDP Delivered Duty Paid
(designate destination)
OBLIGATION TO INSURE
 Only the CIF and CIP clauses oblige the seller to take
out cargo insurance
 However, the seller is always obliged to provide the
buyer with necessary information so that the buyer
can take out insurance himself
OBLIGATION TO INSURE
 Under the CIF and CIP clauses the seller is obliged to
take out a cargo insurance which covers the buyer’s
risk during transport (in CIF-sales, however only for
the sea-transport)
 The requirements for such insurance are described in
Incoterms 2010 in detail and include:
 Insurance on minimum terms – usually ICC (c) /
BDB (but the buyer can demand that the seller
takes out additional insurance coverage if the buyer
will pay for it (all risk / war / strike))
 Insurance in same currency as the sale- and
purchase agreement and minimum 110 % of
invoice value
 In CIF-sales coverage only from port of shipment to
port of delivery (no post-carriage cover)
OBLIGATION TO INSURE
 …continued:
 In CIP-sales coverage for the entire period from the
goods are handed over to the first carrier until the
last carrier has delivered the goods to the buyer at
the named place of delivery
 The insurance is taken out by the seller but the
buyer is the insured party (third-party insurance).
The buyer can demand that an insurance certificate
is issued and handed over to the buyer at the same
time as the goods are sent or when the purchase
price is paid
RIGHT TO INSURE
 If the sale is not on CIP or CIF-terms then the party
who bears the risk of the goods during transport has
the insurable interest (forsikringsrådigheden) and
therefore also the option to insure his risk
 Running insurance contracts (general / pauschal
policies) usually stipulate that the insurance covers
shipments where the policy holder has the insurable
interest
 When the seller or the buyer does not have a running
insurance contract then it should be carefully
considered who bears the risk of the goods during the
transport, including pre-carriage and post-carriage
 What about the pre-carriage in a FOB or CFR-sale?
 What about the post-carriage in a CIF-sale?
CHOICE OF DELIVERY CLAUSE AND INSURANCE
 The means of transport
 Delivery clauses which are meant for sea transport
(FAS, FOB, CFR and CIF) should not be used when
other means of transport are included in the
intended transport
 If more than one sea transport is included then the
place of delivery will normally be the first ship
(regardless of whether this is a feeder ship)
 What happens if there are no sea transports
included but FAS, FOB, CFR and CIF has been
agreed anyway?
CHOICE OF DELIVERY CLAUSE AND INSURANCE
 The designated place or terminal
 The parties should be careful in the description of
the place or the terminal which is stated after the
delivery clause
 This is particularly important when there are
several transport legs
CHOICE OF DELIVERY CLAUSE AND INSURANCE
 Proof of where the damage has occurred
 When the parties have used a delivery clause where
delivery and passing of risk happens during the
transport from the seller to the buyer (combined /
successive transport) it can be difficult to prove
where damage has occurred (and therefore who
bears the risk) if the damage is not found until the
goods arrive at the final destination
 In such situations it is important that each carrier
signs separate receipt for the goods so he can
comment on any visible damage
CHOICE OF DELIVERY CLAUSE AND INSURANCE
 …continued
 Often it will be advisable for the seller in such
combined / successive transports to simply choose
another delivery clause where delivery and passing
of risk happens when the goods are handed over to
the first carrier (FCA, CPT or CIP)
 Alternatively the seller can simply choose DAT, DAP
or DDP where the seller then has the risk during the
entire transport
 In container transport where the seller has loaded
and sealed the container the delivery clause should
be chosen so delivery and passing of risk happens
no later than the time when the goods are stuffed
in the container
CHOICE OF DELIVERY CLAUSE AND INSURANCE
 Economic risks
 When the parties have used a delivery clause where
delivery and passing of risk happens during the
transport from the seller to the buyer this can put
the seller in a difficult position if damage is found at
that time
 The buyer can then normally cancel the agreement
or demand a discount or other compensation as a
condition to accept the goods
CHOICE OF DELIVERY CLAUSE AND INSURANCE
 …continued
 On the other hand, if the goods are sold on credit
then it can be an advantage for the seller to have
the insurable interest because then the seller can
ensure that proper insurance is taken out with a
proper insurance company
 If the goods are sold on credit and the buyer has
not taken out insurance then the buyer will often
not have any incentive to pay the purchase price
even though he is legally obliged to
CHOICE OF DELIVERY CLAUSE AND INSURANCE
 Insurance
 It may be an advantage for a party to choose a
delivery clause which means that he has the
insurable interest himself. That allows this party to
ensure that the goods are insured on proper terms
and with a proper insurance company
 The buyer should be particularly aware of the
insurance in situations where the buyer has the risk
but not the insurable interest (CIF or CIP). In this
situation the seller chooses the insurance but in the
buyer’s interest.
 Here it might be an advantage to agree in the sale
and purchase agreement any requirements for the
insurance and/or the company (note that some
countries have restrictive legislation for this)
CHOICE OF DELIVERY CLAUSE AND INSURANCE
 Transport agreement
 If a party is able to arrange and contract the
transport himself and thereby ensure proper
transport or discount it might be an advantage to
choose a delivery clause whereby such party has to
arrange the transport
 This could also reduce the risk of damage
 If a seller has sold on CIF-terms then (to save
costs) the seller might choose to contract the
transport as cheaply as possible which could
increase the risk of damage or other problems
 QUESTIONS?