Insurable interest

From Supply Chain Management Encyclopedia

Revision as of 09:39, 24 September 2012

Russian: Страхуемый интерес

Insurable interest, in the context of international logistics, is understood as an interest in the preservation of a thing, recognized by law. So, they can have an insurable interest only when they would stand to benefit financial by the continuance of the object insured otherwise financial loss would result. A person/entity has an insurable interest in a marine venture when he/it stands to benefit from the safe arrival of the goods or be prejudiced by their loss. Unlike other insurance, however, this interest needs not to exist at the time a policy is written. Most cargo policies are written on an open basis (open-end policy ^[1]) that will cover all future shipments of an insured when it is his responsibility to provide cargo insurance. Although the most common form of insurable interest is ownership, the point at which title passes from seller to buyer can be complex. In order to determine insurable interest, it is necessary to look at the terms of sale or Incoterms governing the contract. From the point of view of the parties involved in an international marketing transaction – the seller and the buyer – a deciding factor in the question of who needs transportation insurance, and then to insure, is insurable interest. Generally speaking, insurable interest depends upon whether a company will benefit from the safe arrival of the carrier and its cargo or whether the firm will be injured by its loss, damage, or detention. This covers a wide range of situations in that not only do the owners of the carrier and cargo have such an interest, but so may certain no owners.^[2] For instance, in some situations the seller can have an insurable interest as a nonowner even though the buyer already has become the legal owner of the goods.

The main objective of every insurance contract is to give financial security and protection to the insured from any future uncertainties. Insured must never ever try to misuse this safe financial cover. The principle of insurable interest, along with other basic general insurance principles^[3], - principle of uberrimae fidei (utmost good faith), principle of indemnity, principle of contribution, principle of subrogation, principle of loss minimization, and principle of causa proxima (nearest cause), - is the most important for the marine transportation. The principle of insurable interest states that the person getting insured must have insurable interest in the object of insurance. A person has an insurable interest when the physical existence of the insured object gives him some gain but its non-existence will give him a loss. In simple words, the insured person must suffer some financial loss by the damage of the insured object. For example :- The owner of a cargo has insurable interest in the cargo because he is getting income from selling it under the contract terms and conditions. But, if the cargo is sold (the corresponding contract is executed), he will not have an insurable interest left in that cargo sold. From above example, we can conclude that, ownership plays a very crucial role in evaluating insurable interest. Every person involved into international trade (and into marine transportation, especially) has an insurable interest, the seller as well as the buyer. A merchant has insurable interest in his business of trading. Similarly, a bank-creditor has insurable interest in his debtor.

References

1. ↑ http://www.allbusiness.com/glossaries/open-end-policy/4951442-1.html#axzz20Idhp1Q5 - accessed 07/10/2012
2. ↑ Sales Contract and International Logistics | http://www.contabilizat.ro/file/cursuri_de_perfectionare/management_si_marketing/international_business/cap6.pdf
3. ↑ Principles of Insurance - 7 Basic General Insurance Principles - http://kalyan-city.blogspot.com/2011/03/principles-of-insurance-7-basic-general.html