Marine Cargo Insurance Documents: Certificate, Policy, Open Cover

Marine cargo insurance produces several documents and they are not interchangeable. Which one you hold matters most at the point a bank is deciding whether to pay under a letter of credit, and that is the worst moment to discover you have the wrong one.

Open cover, also called an open policy

A standing contract between you and the insurer covering all shipments falling within agreed terms, for a period, up to agreed limits per shipment and per location. It is how any business with regular volume buys cargo insurance.

• You declare shipments against it, either individually or by periodic bordereau.
• Cover attaches automatically to every qualifying shipment, which means a shipment you forget to declare is still covered. This is the main commercial benefit and it is a large one.
• Rates are agreed in advance, so you are not negotiating per consignment.

The document itself is a contract between you and your insurer. It is not something you hand to a buyer or a bank.

Certificate of insurance

Issued under an open cover, for a single named shipment. It sets out the goods, the voyage, the sum insured, the conditions and the claims agent at destination.

This is the working document of international trade. It is transferable by endorsement, so a seller can insure the shipment and pass the benefit of the cover to the buyer or to a bank by signing it over, which is exactly what a CIF or CIP sale requires. See how much cargo insurance to buy.

Insurance policy

A standalone contract for one shipment or one voyage, with no open cover behind it. Used by occasional shippers, for one-off high value consignments, and where an underwriter wants to price a specific risk rather than take it under a standing agreement.

Cover note, and why it fails

A cover note is confirmation from a broker that insurance has been arranged. It is not issued by the insurer.

This is the trap. Under UCP 600 Article 28, banks will not accept a cover note under a letter of credit. The rule is explicit, and it is one of the more common documentary discrepancies. An insurance document must be issued and signed by an insurance company, an underwriter, or their agent or proxy. A certificate or a declaration under an open cover is acceptable. A broker's cover note is not, however reputable the broker.

What else UCP 600 requires

If you are presenting under a letter of credit, the insurance document must also satisfy:

1. Currency: the same currency as the credit.
2. Amount: at least 110 percent of the CIF or CIP value of the goods. Where that value cannot be determined from the documents, it is calculated on the amount demanded or the invoice value, whichever is greater.
3. Date: the insurance document must not be dated later than the date of shipment, unless it shows on its face that cover is effective from a date not later than shipment. A certificate issued the day after the vessel sailed is a discrepancy.
4. Risks: it must cover at least the risks between the place of taking in charge and the place of discharge or destination stated in the credit.
5. Originals: where the document indicates it has been issued in more than one original, all originals must be presented.

That third point causes the most rejections, and it is entirely avoidable: arrange the insurance before the goods move, not after the bill of lading arrives. For the related documentary problem see letters of credit and document discrepancies.

The claims agent matters more than people notice

A certificate names a claims settling agent at destination. When cargo arrives damaged, that is who surveys it and who the consignee deals with, often in a different country and time zone from the insurer.

Before you place cover, ask who the agent is in your main destination markets and how quickly they attend. A cheap policy with no effective representation at the discharge port is not cheap, because a survey that takes two weeks to arrange is a survey conducted after the cargo has been moved, unpacked and possibly disposed of. Read how to file a cargo claim.

Practical points

1. If you ship regularly, get an open cover. It is cheaper, and it covers the shipment you forgot to declare.
2. Issue certificates before shipment, dated on or before the shipment date.
3. Never present a cover note under a letter of credit.
4. Check the sum insured is at least 110 percent and in the credit currency.
5. Confirm the destination claims agent before you need one.

General guidance, not insurance or banking advice. Documentary requirements are set by the credit and by the UCP version it incorporates.