Question

Case 7.1 Incoterms (CIF) A contract of sale was ent between an American company, BAT Inc., of Calu- met City, Ilinois (buyer), and a German scientific equipment manufacturing firm, Tola (seller), for the sale of a mobile MRI machine. Tola (the German corporation) sent the requested MRI machine, in good working condition, to the buyer aboarcd the ship, Superior Carrier. However, when it reached its final destination, it had been damaged and was in need of extensive repair. The buyer and its insurance company believe that the MRI machine was damaged in transit. BAT's insurance comp any, St. Guardian Insurance, covered the cost of the damage, which was $350,000. In turn, the insurance company intends to recover from Tola. However Tola claims that, since the goods were shipped under CIF (New York) term, it is under no obligation for the loss and that its contractual obligation with regard to risk of loss ended when it delivered the machine to the vessel at the port of ship- ment. The buyer's insurance company contends that Incoterms were inapplicable since they were not specifically incorporated into the contract. They also argue that the seller's explicit retention of title modified the risk of loss. Question 1. Do you agree with BAT and Guardian Insurance? Why or why not?

Answer 1

It shall be noted that the case describes of an instance when an insurance company (Guardian Insurance company)  tends to compensate the policy holder (BAT) for the damage to the tune of $350,000 on one hand and on the other hand, it tries to recover an amount from the ultimate seller (Tola).

It shall be noted that insurance company is in the business of insurance - providing compensation in the event of a loss that is caused primarily due to accident.

Being an insurance company, it has no right to make recovery from counterpart to its policy holder. Secondly, after the purchase of the MRI machine, the product is under the jurisdiction of the buyer (BAT) and that the seller has no right over the product. The seller has couriered the product on behalf of the buyer after confirmation that the product was in rightful state at the time of shipment. This does not mean, seller owns the responsibility of the product being delivered in the rightful condition. It is buyer's responsibility to ensure this and it is the buyer that is expected to bear the loss related to any damage that the product may go through in course of transit.