Contingency insurance

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.

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