A French trader buys a cargo of tropical timber CIF Le Havre. On arrival, part of it is wet. The seller replies that the risk passed on board; the buyer wonders whether to claim against the seller, the carrier or the insurer.
Passing of risk and claims against the carrier
Incoterms govern the relationship between seller and buyer. Under FOB, CFR and CIF, risk passes to the buyer when the goods are on board the vessel at the port of shipment. Damage occurring during the voyage is therefore, as between seller and buyer, for the buyer’s account: the buyer must pay the price.
A claim against the carrier follows a different logic. It belongs to the party with standing under the contract of carriage: the lawful holder of the bill of lading, or the consignee named in a sea waybill. Under CIF and CFR, the seller concludes the contract of carriage; the buyer sues as holder of the bill of lading transferred to it. Under FOB, the buyer concludes the contract of carriage itself.
CIF insurance
Under CIF, the seller takes out insurance for the buyer’s benefit. Incoterms 2020 set a minimum: the Institute Cargo Clauses (C), for 110% of the value provided in the contract. This minimum cover only protects against major events; wetting damage or breakage may not be covered. A buyer wanting “all risks” cover, such as the Institute Cargo Clauses (A), must negotiate it (it is, by contrast, the minimum under CIP).
The right order of steps
The buyer must first give written notice of loss on delivery, or within three days for non-apparent damage (Article R. 5422-24 of the French Transport Code), then notify the claim to the insurer, and preserve the claim against the carrier within the one-year time limit (Article L. 5422-18 of the Transport Code). An insurer that pays the claim is subrogated to the insured’s rights against the carrier (Article L. 172-29 of the French Insurance Code).
What the firm checks first
- The Incoterm and the version used.
- The transport document and how it was transferred.
- The insurance policy and its cover.
- The notices of loss given on delivery.
- The time limits: one year against the carrier and two years against the insurer.
For the firm’s services, see Liability of the sea carrier and Marine insurance.
Further reading
- Cargo insurance: claiming under the policy after cargo damage
- Sea waybill or bill of lading: who can sue the carrier?
- Documentary credit: the bank rejects the bill of lading (claused, on deck, late)
Where the port of loading or discharge is in China, the Incoterm also decides which party Chinese law will treat as shipper. See Trade with China: your governing-law clause no longer holds before a Chinese court.
This analysis is part of the firm’s work in maritime law.
Frequently asked questions
Under CIF, can the buyer refuse to pay for goods damaged at sea?
In principle, no: the risk passed on board. The buyer’s recourse lies against the carrier or the insurer.
What insurance must the seller take out under CIF?
At least the Institute Cargo Clauses (C), for 110% of the value (Incoterms 2020).
Who sues the carrier under FOB?
The buyer, who concludes the contract of carriage, or the lawful holder of the bill of lading.