Contingency Insurance

Contingency Insurance in International Trade

Meaning of Contingency Insurance, according to the Dictionary of International Trade (Global Negotiator): Insurance coverage taken out by a party to an international transaction to insure against insurance coverage taken by the counterparty. The contingent insurer pays its beneficiary and attempts to collect from primary insurer. For example, a pre-paying buyer purchasing on an Incoterms requiring the seller to insure, such as CIP or CIF, may purchase contingency insurance from his or her local insurer. Should there be a covered loss, the buyer's insurer would advance payment to the buyer, and assume the buyer's rights against the seller's insurer. Conversely, sellers can purchase contingency insurance from their insurers for export when buyers arrange the primary insurance cover. Should a buyer not pay because of failure of his or her insurer to honour a claim for a covered loss, the seller would claim on the contingency insurance. The contingency insurer would advance payment to the seller, and would bear the loss should the buyer's insurer never pay. Contingency insurance does not replace primary insurance. It works only when the counterparty provides primary cover and the primary carrier fails to pay a covered loss.