TA924rev: Insurance certificate and the System Database
At the Global Banking Commission Annual Meeting 20 April 2022, the ICC approved Opinion TA924rev: Insurance details in the System Database. This week the final version of the Opinion was circulated to National Committees. (Reviews of the newly approved Opinions are available in lcviews premium).
ICC Opinion TA924rev includes some interesting elements and dilemmas for what reason it seems relevant to take a deep dive into this newly approved Opinion. In the footnote at the end of this blog post, there is more insight into the actual insurance practice.
First some context.
The issue is an LC with the following requirement:
“Insurance policy/certificate for 110% CIF value payable to the order of xxxx under Marine Institute Cargo Clause (A), Institute War Clauses (Cargo), Institute Strikes Clause (Cargo) and the stipulation that all claims are payable in place/country irrespective of percentage.“
The presented insurance certificate included the following pre-printed statement directly underneath the line for the required counter-signature:
“If there is a difference between the details on this printed certificate and the details contained in the System Database, the information in the System Database shall be deemed correct.”
The core question asked is if this clause makes the document discrepant.
However, before going into the Analysis, there is a part from the Query that is interesting:
“The term “System Database” is not explained any further in the presented insurance certificate. The nominated bank refused the presented insurance certificate. It was further explained that the indication to the “System Database” does not qualify the document as an insurance certificate at all because the document cannot fulfil its purpose as proof of insurance for the following reason ‘The content of the document is subject to a kind of general reservation by the clause, so that the document is devalued in its entirety and loses its character as an insurance certificate.’
We are of the opinion that nowadays most of the documents, including insurance certificates, are generated in a system database and then printed.
The UCP 600 sub-article 14 (a) states that a nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to con-stitute a complying presentation.
Based on the content of this sub-article, such reference to a system database must be disregarded by banks for the purpose of determining compliance of the document.”
The first part clearly is the arguments from the nominated bank (who refused the presentation). It uses rather strong language such as “the indication to the “System Database” does not qualify the document as an insurance certificate” and “the document is devalued in its entirety and loses its character as an insurance certificate”. After a first read, these statements gets stuck; and intuitively the right approach seems not to approve the document. However, these are the views of the nominated bank, and may not reflect the actual facts. Therefore, when considering this, the right approach is to pursue an objective reading – and analysis of the relevant rules and practice.
In any case, the conclusion of the Opinion is that it is not for the ICC to determine if a document is devalued by its content. Likewise, the reference to a “System Data-base” is to be disregarded and considered part of the general terms and conditions of the insurance certificate. According ISBP 745 paragraph K22 banks do not examine such data. Therefore, the insurance document is compliant.
In the Analysis there are three basic arguments for deeming the document as compliant:
UCP 600 article 14 (a): The document examination must be made on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation. I.e., the banks should not consider data in an external source.
ISBP paragraph A35 (d): For the purposes of authentication, banks will not access websites where authentication may be verified or obtained. The principle in this query is considered similar.
ISBP 745 paragraph K22: Banks do not examine general terms and conditions in an insurance document. The pre-printed statement on the presented insurance certificate is considered as a general term and therefore will not be examined.
Both in the comments provided before and at the meeting by the National Committees various concerns were expressed.
Below are some of the core concerns (bearing in mind that the majority of National Committees are in support of the conclusion - 32 National Committees agreed with conclusion. 4 with added comments). 1 National Committee partially agreed. 5 National Committees disagreed):
* The clause makes the document discrepant based on UCP 600 article 14 (d) as it suggests that the terms stated are (potentially and likely) in conflict with the actual insurance coverage.
ICCs comment is that article 14 (d) assumes that there are (at least) two pieces of data that can be compared. Since, one part of the data is in the system database, such comparison is not possible. For that reason, article 14 (d) is not in scope.
* The insurance document (containing this clause) does not fulfil its function.
ICCs comment is that since the presented document is an insurance certificate, and it is assumed that it otherwise complies with UCP 600 article 28, it is not correct to say that it does not fulfil the function as an insurance certificate.
Reference is also made to insurance certificates based on an open policy. In such cases, the open policy is not examined by the banks; and there could (also here) potentially be “conflicts” between the certificate and the policy. In other words, the clause mentioned in the query is not materially different from an insurance certificate making reference to an open policy *)
Note that an open policy is a “frame agreement” i.e., will stipulate the details of what is covered by the insurance (e.g., in terms of geography, maximum value of a single shipment or commodity). The banks do not check if the issued certificate, is within the terms of the open policy. For example, if the destination country is included in the open policy, or if the exceeds the allowed maximum value.
* The clause puts into doubt whether or not the content of the insurance certificate reflects the correct information. This creates an internal discrepancy in the document.
ICCs comment is to reference article 14 (a), where the main principle is that documents are being examined on their face. Therefore, a reference in the insurance certificate to data in a System Database (as is the case here) must be disregarded by banks for the purposes of determining compliance of the document.
In other words, there were concerns expressed during the meeting; all of which were relevant. All of which however seems to stem from the fact that it is in many ways an “uncomfortable” clause. As mentioned, when considering this, the right approach is to pursue an objective reading – and analysis of the relevant rules and practice.
Or in other words, any refusal must be based on a provision in the UCP 600; and/or take the outset in documented practice, such as ISBP 745.
As already mentioned, UCP 600 article 14(a) as well as ISBP paragraph A35 (d) and ISBP 745 paragraph K22 supports the ICC position.
Then what would be the provisions supporting the opposite view? From the comments received there are two main provisions raised:
One is UCP 600 article 14(d); suggesting that there is a conflict. As was argued by the ICC, that would require at least two pieces of data to compare. Here, you have only the data in the presented paper certificate.
The other is the “function rule”. This actually is reflected in UCP 600 article 14(f):
“If a credit requires presentation of a document other than a transport document, insurance document or commercial invoice, without stipulating by whom the document is to be issued or its data content, banks will accept the document as presented if its content appears to fulfil the function of the required document and otherwise complies with sub-article 14 (d).”
However, as can be seen article 14(f) excludes transport documents, insurance documents as well as the invoice. For that reason, “fulfil the function” when it comes to insurance documents means that the presented insurance document must fulfil UCP 600 article 28 as well as ISBP section K. There is nothing in the query to suggest that this is not the case.
In other words, no matter how you twist or turn it, it is hard to find a provision in the UCP 600 that would suggest that the document should be refused based on the clause in question.
In many ways this is the perfect query as it captures some of the dilemmas between the “hard coded practice rules” and the evolving practice in issuing documents. The analysis also takes you to some interesting corners of UCP 600 and ISBP 745 that makes us all a bit wiser.
So, thank you for that, and thanks again to the ICC for taking care of the LC.
Kind regards
Kim
*) Although outside the scope of the query:
After consulting insurance experts, it can be reported that today most policyholders themselves issue their insurance certificates via an on-line solution offered by the insurance company where the transport insurance is established – as is the case for the query at hand.
Such on-line solutions are usually set up so that the insurance certificates issued are within the framework of the established transport insurance (i.e., the insurance policy). However, there is usually also a free-text field in the on-line solution where "Special Conditions" can be added.
To ensure that the policyholder does not include terms / conditions that go beyond what is agreed in the insurance policy in the free-text field, the insurance policy usually contains a clause that the policyholder must indemnify the insurance company if the insurance certificate include terms that go beyond the established insurance policy. So, as such the reasoning and rationale for the clause makes sense. However, it is uncommon that such a clause (disclaimer) is part of the insurance certificate.
Comparing this to any other insurance certificate (regardless how it is issued), it would still be so that the insurance certificate must be within the agreed terms in the insurance policy, and this is not actually checked by the insurance company, as it is still the policyholder that issues the insurance certificate.