Trade Terms
CIF vs CIP:
what the insurance actually covers
The minimum cover under CIF does not pay for cargo dropped off a crane. Why "we're insured" is not enough.
"We're insured" is not enough
The biggest lesson from the strap accident was that with insurance, what it covers and how far it runs matters more than whether you have it. Only two Incoterms rules oblige the seller to insure — CIF and CIP — and they require different levels of cover.
| Rule | Mode | Minimum cover the seller must buy |
|---|---|---|
| CIF | Sea and inland waterway only | ICC (C) — the narrowest cover |
| CIP | Any mode | ICC (A) — all risks (since the 2020 revision) |
Up to Incoterms 2010, both required ICC (C). The 2020 revision raised only CIP to ICC (A); CIF kept C, reflecting practice in bulk commodity trades. Both require cover of at least 110% of the contract price, in the contract currency.
How A, B and C differ
Clauses B and C list the perils they cover one by one; clause A covers everything except the listed exclusions. Focusing on loading and handling, the picture looks like this:
| Event | A | B | C |
|---|---|---|---|
| Fire or explosion; vessel stranded, sunk or capsized; collision | ✓ | ✓ | ✓ |
| Overturning or derailment of land conveyance | ✓ | ✓ | ✓ |
| Jettison, general average sacrifice | ✓ | ✓ | ✓ |
| Earthquake or lightning; washing overboard; seawater entry | ✓ | ✓ | ✗ |
| Total loss of a package dropped while loading onto or unloading from a vessel | ✓ | ✓ (total loss only) | ✗ |
| Partial damage from a drop during handling | ✓ | ✗ | ✗ |
| Theft, rough handling and other accidental loss | ✓ | ✗ | ✗ |
Clause A is not unlimited either: insufficient packing, inherent vice, delay and ordinary leakage or wear remain excluded.
If it falls off the crane — clause by clause
The textbook heavy-cargo accident is a load falling off a crane. Put it against the table and the gaps are obvious.
- ICC (C) — a drop during loading or unloading is not a listed peril, so it is not covered. Under CIF with no cover specified in the contract, a seller who buys C has met its obligation.
- ICC (B) — covers only the total loss of a package dropped while loading onto or unloading from a vessel. Partial damage isn't covered, and a drop while unloading from a truck rather than a vessel doesn't fall under this peril.
- ICC (A) — covered unless an exclusion applies. To properly cover something like my strap accident — a drop while unloading from a truck at destination — you effectively need A.
Then there is duration. Incoterms only require CIF cover to the named port of destination. The truck leg from that port to an inland site, including unloading there, may be uncovered unless the contract or policy extends it.
What a CIF buyer should insist on
Under CIF the risk passes to the buyer at the port of shipment, but the seller chooses the insurance. The seller has every reason to buy the cheaper C, and when something goes wrong it is the buyer who has to claim. That is why many CIF contracts and letters of credit specify A or B explicitly.
- Write the cover into the contract — for example, "CIF, ICC (A), 110%".
- Decide whether to extend cover to the final destination (the site).
- Have the policy or certificate issued in a form the buyer can claim under.
- For containers or multimodal moves, use CIP instead of CIF — its default is A.
- For single high-value items such as equipment, carrier liability limits are low (see the FOB and CIF article), so insurance may be your only real route to recovery.
References
· Apex Insurance Brokers, Institute Cargo Clauses C — perils ICC (C) omits compared with B, including packages dropped during loading; CIF minimum cover
· Margarida Lima Rego (NOVA School of Law), Insurance Requirements in Incoterms® 2020 — implications of raising only CIP to ICC (A) in Incoterms 2020
· Wikipedia, Incoterms — CIF keeps ICC (C), CIP moves to ICC (A)
Trade terms and site risk — series
· DDP and unloading accidents
· DDP to the Middle East: who holds the import licence?
· EXW vs FCA: dropped while loading at the factory
· FOB and CIF: dropped while loading on board
· CIF vs CIP: what the insurance actually covers (this article)