Can an overseas seller buy insurance in India?

This question often comes up during discussions — ‘Can an overseas seller selling on CIF terms to an Indian buyer,buy marine cargo insurance in India from an Indian insurer?’

Now,why will a seller from a foreign country choose to buy cargo insurance in India? Simple – On the coaxing of the Indian buyer since cargo insurance abroad would be much more expensive than in India and will add to the CIF price. At the same time, both the buyer and seller may not like to amend the Incoterms from CIF to any other term where the responsibility for insurance does not rest with the seller. If the overseas seller has no Indian interest or ownership and if not the subsidiary of an Indian entity, an Indian insurer, by regulation cannot issue a policy to the seller.

This was the crux of a case before the NCDRC ( where judgement was pronounced recently), although the presentation of facts, the legal arguments and the judgement arrived at, was in a sort of roundabout manner without touching the basic issue which has been stated in earlier paragraphs. The case referred to is UETC India Ltd vs United India Insurance Co Ltd. Facts of the case are as under:

UETC Singapore (the holding company of UETC India) had entered into contracts for supplying timber logs from Yangon in Myanmar to Tuticorin in India. Separate contracts were made with four different Indian timber traders and the terms of sale were CIF, where the responsibility to arrange cargo insurance rested with UETC Singapore. Further, the terms of sale mentioned that payment was to be made only after the cargo was duly delivered in India. It is stated in the arguments that the Indian buyers had not paid for the shipments. UETC India was nowhere in the picture, it may be noted. One Mr. Biju Abraham, representing himself as the Indian agent of UETC Singapore, approached United India Insurance for insuring these shipments. Terms were negotiated and a deposit premium of INR 25,000 was paid for policies to be issued to UETC Singapore when the shipment details were made available. Subsequently, very strangely, six policies were issued in the names of the four Indian buyers. ( Why this was done has not been stated clearly by both sides and on which I have a conjecture which I will discus towards the end).

Unfortunately, the vessel MV Edna Maria ran aground, became a constructive total loss and hence had to be abandoned, with little hope of recovering the cargo of timber. Immediately afterwards, all the Indian buyers assigned their policies in favour of UETC India (Yes, UETC India) who lodged a claim for a little over INR 20 million with United India Insurance Co Ltd. The claim was repudiated and hence this appeal before the NCDRC. The arguments put forth during the hearing by the counsel of United India :

(1) There was no privity of contract and UETC India had no right to lodge the claims (2) The terms of sale was CIF and insurable interest would have passed to the Indian buyers only after they had taken delivery and paid for the shipments. (3) Since the grounding took place before delivery, the buyers had not made any payment and hence had not incurred any financial loss. (4) Since the buyers did not have insurable interest they cannot assign their non-existent interest in favour of UETC India.(5) There was pure and simple misrepresentation made by Mr.Biju Abraham. ( No malafide intent was ascribed to it)

Counsel representing UETC India put forth the following arguments:

(1) He relied on Section 23 of the Marine Insurance Act, 1963 to state that ‘ a contract of marine insurance is deemed to be concluded, when the proposal of the assured is accepted by the insurer’, whether the policy is issued or not. (2) Further he quoted Section 52 of the Marine Insurance Act to say a marine policy may be transferred by assignment unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.” Accordingly, the policies were assigned by the insured-consignees in favour of UETC India. (3) UETC India had beneficial interest in the cargo as it had been abandoned and the policy assigned in their favour making them a ‘consumer’.

The NCDRC after listening to both sides ruled that United India Insurance was justified in repudiating the claim because in a CIF contract, the insurable interest remains with the seller till the cargo reaches the destination and in this case as the cargo did not reach Tuticorin, the insurable interest and loss was that of the seller. Possibly, the fact that the buyers had not paid for the cargo weighed on the minds of the NCDRC while providing this justification to their ruling. Yes, monetary loss was that of the seller but that does not alter the position of the CIF Incoterm under which the risk transfer happens to buyer at FOB point, even though the seller is obliged to arrange insurance for the ocean voyage. The terms of payment do not have relevance to risk transfer as per Incoterms. Am I saying the judgement was wrong? No, the buyers had not suffered any monetary loss due to the casualty so they were not entitled to compensation from the insurer. So where is the issue?

The problem is the process followed without understanding the regulatory implications. My conjecture ( purely my personal opinion) is that all the parties concerned — the seller, buyers, agent of the seller Mr.Biju Abraham & the insurer were at fault. What might have happened — Seller would have quoted an ‘X’ CIF price on which insurance cost would have been deemed to be high by the buyers, given the premium rates in Singapore where the seller was based. They might have asked seller to reduce insurance costs & seller in turn ( unmindful of regulations) must have asked his agent to explore possibility of insuring in India. Biju Abraham would have approached the insurer with the proposal duly stating UETC Singapore to be the assured.( Remember, United India took the plea that Biju mis-represented but did not say the intention was malafide). Out of ignorance, an official of the insurer must have collected the deposit premium. Subsequently when details were submitted for issuing policies, maybe higher officials pointed out that it would not be possible to issue a cargo policy in the name of an overseas seller. Cargo must have moved from Yangon, so what was the way out? Issue policies in the names of the Indian importers and hope for the best. Alas, there was a big loss, and now UETC Singapore must have realised that since the buyers had not paid for the cargo, claim amount must be made payable to them. Another realisation must have dawned, on an import into India, claim cannot be paid in foreign currency to an overseas seller ( save for specific exceptions in the GIM Rules). So how can UETC Singapore get the claim? Only option, a wrong one — get the buyers to assign their policies in favour of the UETC subsidiary in India viz. UETC India and get them to lodge the claim on the insurer.

Right way would have been for UETC Singapore to buy the policies in Singapore in their name and later assign them in favour of the buyers. In a bid to save on insurance premium they ignored or were unaware of the regulations and had to pay a heavy price. Anyway ignorance of law is not an excuse —ignorantia juris non excusat.

Love to hear your views.