What went wrong?
CIF with minimum insurance and a damaged high-value cargo
A high-value machine travels CIF from Taiwan to Poland with minimum cover. It arrives damaged by rough handling — and the insurer says no.
Reviewed by: pending — expert review by TermVisa's editor (retired VP, international transport) in progress · Last updated
The deal
CIF Gdańsk Incoterms® 2020
- Seller
- Optical-inspection equipment maker, Taichung, Taiwan
- Buyer
- Electronics manufacturer, Gdańsk, Poland
- Transport
- Sea — crated machine in a container, Kaohsiung → Gdańsk, transshipped
The seller, Optiqon (fictional), a maker of optical inspection systems in Taichung, Taiwan, sells a high-value machine to the buyer, an electronics manufacturer in Gdańsk, Poland, under CIF Gdańsk Incoterms® 2020, paid by documentary credit. The contract says nothing about the level of insurance. The seller buys a certificate with minimum cover for 110% of the invoice value. The crated machine travels in a container from Kaohsiung, transshipped at an intermediate port.
What happened
On arrival, the shock indicators on the crate have tripped and the machine's optics are misaligned beyond repair on site. The surveyor points to rough handling, most likely during transshipment. There was no fire, sinking, collision or other major casualty.
The insurer declines: minimum cover is limited to a list of major perils, and handling damage is not among them. A carrier claim is hard to prove and, even if it succeeds, is capped well below the machine's value.
The bank had already paid the seller against compliant documents. The buyer accuses the seller of buying 'useless' insurance; the seller replies that it did exactly what the contract required. The relationship sours and the buyer funds the repair.
Why it went wrong
- Under CIF the default insurance obligation is minimum cover. 'Insurance included' does not mean 'all risks'.
- The buyer carried the risk from loading but never checked the cover it was relying on.
- A containerised shipment was sold on a sea-only rule designed around loading on board.
✓ Lesson learned
For valuable or fragile goods, write the level of cover into the contract (for example broad 'all risks'-type clauses), or use CIP, whose 2020 default is broad cover. Buyers relying on seller-bought insurance should read the certificate before paying.
- Agreed term could have been: CIP Gdańsk (buyer's plant) Incoterms® 2020, with the insurance clauses named.
- Make the documentary credit call for the insurance level you actually need.
- The buyer can top up with its own cover; the seller can add shock indicators, better crating and 'no transshipment' bookings where available.