In the trade contract terms FOB and CFR, the insurable interest transfers from the exporter to the importer at the time the goods pass over the ship's rail. It is very important that the exporter provides the details of the shipment to the importer promptly, so that the insurance can be arranged on time.
In practice, it is not uncommon that the importer arranges for insurance after the vessel has left the port of origin in the FOB and CFR terms. While it is the responsibility of the importer to arrange the insurance, the exporter may suffer loss if the goods are damaged before the insurable interest is transferred. As such, the exporter may insure the goods from the warehouse to the loading on board the vessel to overcome the contingency, without letting the importer know.
If the goods are exported on the open account basis where no letter of credit (L/C) is involved, there is a risk that the importer may reject the shipment if the goods are damaged on arrival. Contingency insurance may minimize the exporter's loss in such a circumstance. It is possible for the exporter to insure the goods from warehouse to warehouse. However, if the importer insures the goods too and claims the damage, the exporter cannot file for claims as he/she no longer has the insurable interest, and the exporter may not be able to provide the supporting insurance claim documents used by the importer to substantiate losses.
