Insurable interest and the allocation of risk in international sales contract : a focus on certain incoterms

Abstract

An integral part for the development of countries is international trade. It establishes relationships between countries and provides a fertile environment for economic growth and sustainability. The value of the traded goods is, in general, substantial. When goods are bought and sold internationally, various factors comes to light, including but not limited to the packaging of the goods, methods of payment, customs and excise as well as the method of transportation. However, international trade is a risky business. For protection against the risks faced in international trade, the buyer and the seller would normally obtain insurance. Not only must an insurance contract comply with the general requirements of a valid contract, it should also comply with the essentials of an insurance contract. These include the transference of the risk, the payment of a premium, indemnification, period of insurance and the existence of an insurable interest. The existence of insurable interest on the part of the insured is crucial if he wishes to claim from the insurer. Insurable interest as a requirement has in recent years attracted much criticism. However, according to case law, it remains a requirement as such. A satisfactory definition of insurable interest has not been established in South African law. In this study, insurable interest was considered in relation to incoterms. The incoterms that formed the focus of this research, are "delivery duty paid", "carriage and insurance paid to" as well as "free carrier". Various issues were investigated but the main concern of the study was the following question: When does the insurer escape liability for damage or loss due to a lack of insurable interest of the insured with reference to certain incoterms in an international sales contract of goods transported by sea?