Canadian Accredited Insurance Broker (CAIB) Three Practice Exam

What occurs if a vessel transporting insured cargo encounters engine problems and must unload?

1. The cargo is automatically insured

2. The policy would cover the damages during unloading

3. The loss is not covered due to termination of the contract of carriage

4. Insurance can be claimed if the cargo was damaged on land

The correct answer is: The loss is not covered due to termination of the contract of carriage

When a vessel transporting insured cargo experiences engine problems and needs to unload, the scenario typically results in the termination of the contract of carriage. This means that the obligations for the safe transport of the cargo by the carrier are no longer in effect, which has implications for coverage under the cargo insurance policy. In maritime law, a contract of carriage is a binding agreement between the shipper and the carrier, detailing the responsibilities involved in transporting the cargo. If a vessel encounters significant issues like engine failure, it may lead to unloading for safety or operational reasons. Once the unloading occurs due to such problems, the carrier may not be liable for any damages that happen during the unloading process, because the contract is viewed as having been terminated. This scenario emphasizes the importance of understanding how insurance policies operate in relation to the terms of the contract of carriage. The remaining choices focus on aspects of insurance coverage that typically do not apply once the contract is terminated. Thus, the termination of the contract significantly influences whether coverage exists, making the assertion that the loss is not covered due to termination accurate and relevant in this context.