Unless specified in the policy conditions, a marine cargo policy is freely assignable to any person who has an insurable interest in the property at risk by endorsement on the reverse of a cargo policy. The policy may be assigned either at the time the interest passes or before. However, it cannot be assigned after the interest has passed as there is no insurable interest. Usually, an agreement or sales contract with Incoterms is made to identify when the insurance policy's interest passes.

The following real-life example illustrates how an "improper" method of taking out cargo insurance can affect a claim.

In order to fulfil the bank's LC requirement, Company B (the buyer) requests Company A (the seller) to take out a marine cargo insurance with Company B as the policyholder under Incoterms CIF port. Under such circumstances, there is no need to assign the cargo policy, but Company B has no insurable interest during the journey under CIF.

When a claim arises, as the policyholder is Company B, it does not have an insurable interest at the time of taking out the marine cargo policy. The insurance company will challenge the application and it may affect the consideration of the claim.

With the above example, the proper method of taking out cargo insurance so as to fulfil the bank's LC requirements is that the seller should present the sales invoice upon cargo insurance application and declare to the insurance company their insurable interest. Although the buyer will still be the policyholder in order to fulfil the bank's LC requirements, Company A is protected by their declaration of insurable interest to the insurer. As a result, Company A is not required to endorse/assign the policy.

To ensure a marine cargo policy can be properly assigned so as to enjoy better protection, customers are advised to familiarise themselves with the rules of Incoterms so they can avoid improper insurance situations. Please visit https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-2020/ for common definitions.

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