IIQE Paper 2 General Insurance Examination Quiz 04 Advanced

A fire business interruption policy is designed to compensate an insured business for financial losses incurred due to a disruption of operations following a covered peril, such as fire. This compensation typically extends beyond the direct physical damage to cover consequential losses like loss of profit, increased cost of working, and other expenses that arise because the business cannot operate as usual. Options (a), (b), and (c) describe direct physical damage or third-party liabilities, which are typically covered by other types of insurance policies (e.g., property damage, public liability) rather than business interruption insurance.

This question tests the understanding of exclusions in Directors’ and Officers’ (D&O) liability insurance, specifically concerning actions taken by the insured. The scenario describes a director who, prior to the policy’s inception, was aware of a potential issue but did not disclose it. D&O policies typically exclude coverage for claims arising from circumstances known or that ought to have been known by the insured at the time of policy inception. This is to prevent individuals from obtaining coverage for known risks they have not disclosed. Option A correctly identifies this exclusion. Option B is incorrect because while D&O policies cover wrongful acts, the exclusion for known circumstances overrides this general coverage. Option C is incorrect as the policy generally covers legal expenses for defense, but this is contingent on the claim itself being covered, which it is not in this case due to the prior knowledge. Option D is incorrect because while dishonesty or fraud can be excluded, the primary exclusion applicable here is the knowledge of the circumstance before the policy began.

The question tests the understanding of the core components typically found in a company’s published declaration of customer service standards. These declarations are designed to outline the company’s commitment to its clients and stakeholders. Option (a) correctly identifies the commitment to quality and service as a fundamental element. Option (b) is also a common element, focusing on professional standards. Option (c) highlights efficiency and ethical business practices. Option (d) addresses the crucial aspect of claims handling. Option (e) refers to specific details on business conduct. The provided text emphasizes that these declarations are not merely self-imposed but can also be mandated by industry bodies or legislation, reinforcing their importance as a measure of performance and declared intentions.

The Insurance Claims Complaints Bureau (ICCB) is designed to handle disputes related to personal insurance claims. It has a monetary jurisdiction limit of HK$800,000. Complaints concerning sums exceeding this limit fall outside the ICCB’s purview and must be addressed through other dispute resolution mechanisms such as litigation or arbitration. Therefore, a claim for HK$950,000 would not be eligible for resolution by the ICCB.

A Certificate of Insurance serves as formal confirmation of the existence of compulsory insurance, particularly in motor and pleasure vessel insurance. It is a standalone document, distinct from the main policy, providing evidence of coverage. While a policy document outlines the full terms and conditions, the certificate is a concise confirmation of the compulsory insurance requirement being met. A proposal form is an application for insurance, and a claims statement is a request for payment after a loss. A policy schedule details specific policy information but doesn’t necessarily confirm compulsory insurance in the same way a certificate does.

The question tests the understanding of which vessels are subject to registration in Hong Kong under the relevant legislation. Option (a) correctly identifies vessels regularly employed in trading to or from Hong Kong, unless already registered elsewhere. Option (b) is incorrect because pleasure craft are specifically mentioned as requiring registration. Option (c) is incorrect as fishing vessels regularly operating in Hong Kong waters or using them as a base are also subject to registration. Option (d) is incorrect because vessels registered in Mainland China or Macau that trade with Hong Kong and hold specific certificates are also within the scope of registration requirements, not exempt by default.

The ‘Schedule’ within a scheduled policy form is the section that specifically details all information pertinent to the individual risk being insured. This includes crucial data such as the policy number, the insured’s personal details, the sums insured or limits of liability, the effective dates of coverage, a description of the insured item or risk, the premium paid, and any special terms, warranties, exclusions, or endorsements that modify the standard policy wording. The Recital Clause introduces the contract, the Operative Clause defines the scope of coverage and perils, and General Exceptions apply universally across the policy. Therefore, identifying the policy number falls under the purview of the Schedule.

This question tests the understanding of the ‘claims-made’ basis for liability insurance policies, a concept crucial for understanding how coverage is triggered. Under a claims-made policy, the policy in effect at the time the claim is *reported* or *made* is the one that responds, not necessarily the policy in effect when the incident occurred. This contrasts with ‘occurrence-based’ policies. Therefore, for a claim to be admissible, it must be made during the policy period or within a specified extended reporting period (tail coverage) after the policy has expired, provided the incident itself occurred during the policy period or a prior period covered by the policy. Option (a) describes an occurrence-based trigger. Option (b) is incorrect as claims made before the policy began are irrelevant. Option (c) describes a cash basis settlement, not the trigger for coverage.

This question tests the understanding of how an excess works in motor insurance. An excess is the amount the policyholder must pay towards a claim before the insurer covers the rest. In this scenario, the damage is HK$12,000 and the excess is HK$2,000. Therefore, the insurer will pay the amount exceeding the excess, which is HK$12,000 – HK$2,000 = HK$10,000. The question is designed to ensure the candidate understands that the excess is deducted from the total claim amount, not added to it or applied in some other way.

The question tests the understanding of which vessels are subject to registration in Hong Kong under the relevant legislation. Option (a) correctly identifies vessels regularly employed in trading to or from Hong Kong, unless already registered elsewhere. Option (b) is incorrect because pleasure craft are specifically mentioned as requiring registration. Option (c) is incorrect as fishing vessels regularly operating in Hong Kong waters or using them as a base are also subject to registration. Option (d) is incorrect because vessels registered in Mainland China or Macau that trade with Hong Kong and hold specific certificates are also within the scope of registration requirements, not exempt by default.

Domestic helper insurance is designed to cover the employer’s legal liabilities and provide benefits to the domestic helper. Repatriation expenses are a key component, covering the cost of returning the helper or their remains to their home country in specific circumstances like physical incapability to continue employment or death. While medical expenses, personal accident benefits, and public liability are also standard covers, repatriation is specifically tied to the cessation of employment due to severe physical issues or fatality, making it a distinct benefit related to the helper’s status and location.

The core principle of an indemnity policy is to restore the insured to their pre-loss financial position. When new parts replace old, worn-out parts, the insured is often in a better position financially due to the improved condition and lifespan of the new components. This improvement is termed ‘betterment’. The insurer is entitled to deduct a contribution from the insured to account for this betterment, ensuring the insured does not profit from the claim. The case highlights that while the policy excluded depreciation, the concept of betterment contribution is still applicable to maintain the indemnity principle. The 35% betterment contribution was deemed reasonable by the Complaints Panel given the vehicle’s age and mileage, reflecting the improved value of the new parts compared to the depreciated original parts.

In the context of insurance contracts, a ‘representation’ is a statement of fact made by the proposer before the contract is concluded. According to established insurance law principles, particularly those derived from the Marine Insurance Act 1906 (which heavily influences Hong Kong insurance law), representations must be substantially true. This means that while minor inaccuracies might not invalidate the contract, any misrepresentation of a material fact that influences the insurer’s decision to accept the risk or the terms offered can lead to the contract being voidable at the insurer’s option. The requirement for substantial truth is a cornerstone of the principle of utmost good faith (uberrimae fidei) in insurance.

In the context of marine insurance claims, the assured (the policyholder) is typically responsible for arranging and initially paying for a surveyor’s report. This report serves as an independent assessment of the cause and extent of the loss. While the surveyor’s fee is generally recoverable from the insurer if the claim is valid, the initial appointment and payment rest with the assured. Loss adjusters, on the other hand, are usually appointed and paid by the insurer to investigate and negotiate claims, particularly for non-marine losses.

This question tests the understanding of ‘System of Check’ in fidelity guarantee insurance, which is crucial for internal discipline and control within an employer’s operations. The correct answer highlights the proactive measures an employer takes to prevent losses from employee dishonesty. Option B is incorrect because while reporting is part of a system, it’s not the primary focus of the ‘System of Check’ itself, which is about preventative controls. Option C is incorrect as it describes a reactive measure (investigation) rather than a preventative control system. Option D is incorrect because while background checks are a component, the ‘System of Check’ encompasses a broader range of ongoing internal controls.

The scenario describes a situation where an insurer rejected a hospitalization claim due to a pre-existing condition. The insured had consulted for rectal bleeding 15 months before applying for insurance, and the insurer believed the colon tumor could not have developed within 10 days of policy inception. The Complaints Panel, considering the tumor size, agreed that it likely took time to grow, and since the policy excluded illnesses presenting signs or symptoms prior to commencement, the insurer’s decision was upheld. This aligns with the principle that insurance policies typically exclude coverage for conditions that were already present or manifesting before the policy’s effective date, even if not formally diagnosed. The difficulty in pinpointing the exact onset date is a common challenge in applying pre-existing condition clauses, but the evidence of prior symptoms and the tumor’s likely growth period supported the insurer’s stance.

Average adjusters are specialists in marine insurance, particularly in the complex area of General Average (GA) claims. Their expertise is crucial due to the intricate legal knowledge required (international and national maritime laws), the large number of parties often involved (e.g., numerous cargo owners), and the lengthy investigation periods typically needed to settle these claims. While they can also assist with complicated hull and cargo losses, their primary specialization lies in GA. Lloyd’s Agents, while involved in surveys for marine underwriters, are distinct from average adjusters. Loss adjusters are more commonly used in non-marine general insurance claims when insurer staff cannot handle them directly. Arbitration clauses are dispute resolution mechanisms, typically focusing on the quantum of a claim rather than liability, and are not the primary domain of average adjusters.

A performance bond is a type of surety bond, not an insurance policy. Its primary function is to guarantee the fulfillment of contractual obligations, specifically the completion of construction work within a stipulated timeframe. Unlike insurance, which typically covers unforeseen events, a performance bond is a financial guarantee against non-performance or default by the contractor. The bond ensures that if the contractor fails to complete the project as agreed, the surety company will step in to cover the costs of completion, either by finding another contractor or by compensating the obligee (the party receiving the bond). This aligns with the definition provided, emphasizing its role as a guarantee for completion rather than a policy covering losses from accidents or sickness.

An insurance broker acts as an agent for the proposer (the client seeking insurance). This agency relationship means the broker is legally bound to disclose all material facts known to them concerning the client and the risk being insured. Withholding or misrepresenting such facts constitutes a breach of the duty of utmost good faith, which is a fundamental principle in insurance contracts. This breach is legally imputed to the proposer, meaning the proposer is held responsible for the broker’s actions in this regard. Therefore, if a broker fails to disclose material information, it is considered a breach of utmost good faith by the proposer.

The scenario describes a shop owner losing cash from her bag after closing her shop. The money insurance policy explicitly states that cover is for losses occurring ‘during normal business hours’ and ‘while being conveyed by messenger’. The loss occurred outside business hours, and while the cash was being conveyed, the timing violated a key condition of the policy. Therefore, the claim would be rejected because the loss did not occur within the specified business hours, which is a critical limitation of the money insurance policy as described. The policy is designed to cover business-related cash movements during operational times, not personal losses outside of these parameters.

The Employees’ Compensation Ordinance in Hong Kong establishes a strict liability framework for employers. This means that an employer is legally obligated to compensate an employee for injuries or death sustained due to an accident arising out of and in the course of employment, regardless of whether the employer was at fault. The scenario describes an employee injured in a traffic accident while commuting home after a work meeting. The key consideration for coverage under the Employees’ Compensation Ordinance is whether the accident ‘arose out of and in the course of employment.’ While the meeting was work-related, the commute home, especially via a taxi, generally falls outside the direct control and scope of the employer’s responsibility for the employee’s actions during that period. Therefore, the injury is unlikely to be covered under the statutory liability provisions of the Ordinance.

This question tests the understanding of how contract terms are classified based on their timing of operation within an insurance contract. A ‘condition precedent to liability’ is a term whose breach does not void the entire contract but specifically invalidates a particular claim. The scenario describes a situation where the insured fails to notify the insurer of a change in profession, which is a common example of a condition that, if breached, affects the insurer’s obligation to pay a specific claim rather than the contract’s existence itself. Option B describes a condition precedent to the contract, which must be met for the contract to begin. Option C describes a condition subsequent, which, if it occurs, can terminate the contract. Option D is too broad and doesn’t accurately reflect the consequence of breaching a notification clause in this context.

The question tests the understanding of the ‘Forcible and Violent Entry’ condition in theft insurance. This condition is a standard requirement for a valid claim under commercial theft policies, meaning that for the insurer to cover a loss due to theft, there must be evidence of forced or violent entry into the premises. The other options represent different insurance concepts: ‘Franchise’ relates to the deductible amount, ‘Fraud’ concerns dishonest acts by the insured, and ‘Fundamental Risks’ refers to catastrophic potential losses often excluded from policies. Therefore, the presence of forcible and violent entry is a prerequisite for a theft claim under such policies.

This question tests the understanding of the relationship between material damage insurance and business interruption (BI) insurance, specifically the ‘material damage proviso’ in BI policies. This proviso stipulates that a claim under a BI policy is contingent upon a valid claim being payable under the associated material damage policy for the same insured peril. If the material damage policy does not cover the event causing the interruption, or if it’s invalid, the BI claim will not be admitted. Therefore, the absence of a valid material damage cover for the physical loss directly invalidates the business interruption claim.

Domestic helper insurance is designed to cover the employer’s legal liabilities and provide benefits to the domestic helper. Repatriation expenses are a key component, covering the cost of returning the helper or their remains to their home country in cases of physical incapacity or death. While medical expenses, personal accident benefits, and public liability are also standard inclusions, the specific scenario focuses on the employer’s responsibility in the event of the helper’s inability to continue employment due to physical reasons, which directly relates to repatriation costs.

This question assesses the understanding of an insurance broker’s obligations regarding client funds, specifically the requirement to maintain separate client accounts. The Insurance Authority mandates this practice to safeguard client monies from the broker’s own operational funds, thereby preventing commingling and ensuring that client assets are protected. Failure to do so can lead to severe regulatory consequences. Option B is incorrect because while proper record-keeping is essential, it does not negate the specific requirement for separate client accounts. Option C is incorrect as the primary purpose is client protection, not necessarily to facilitate easier audits, although it does aid in that process. Option D is incorrect because while professional indemnity insurance is a minimum requirement, it does not address the handling of client premiums directly.

This question tests the understanding of the core principle of ‘All Risks’ insurance, which is that it covers all losses unless specifically excluded. The insurer bears the burden of proving that an exclusion applies. Option (b) is incorrect because while exclusions exist, the fundamental principle is broad coverage. Option (c) is incorrect as ‘all risks’ does not imply coverage for inherent defects or gradual deterioration, which are typically excluded. Option (d) is incorrect because the insurer’s responsibility is to prove an exclusion, not the insured’s to prove coverage.

A fire business interruption policy is designed to compensate an insured business for financial losses incurred due to a disruption of operations caused by a covered peril, such as fire. This compensation typically extends beyond the direct physical damage to cover consequential losses like loss of profit and ongoing expenses that continue even when the business is not operating. Options (a), (b), and (c) describe direct physical damage or third-party liabilities, which are generally covered by other types of insurance policies (e.g., property insurance for buildings and contents, or third-party liability insurance). Therefore, the primary purpose of business interruption insurance is to address the financial impact of the disruption itself, including lost earnings.

Institute Cargo Clauses (ICC) (A) provides the broadest ‘all risks’ coverage for own damage to cargo. ICC (B) covers specified risks, including major casualties like fire, stranding, sinking, and collision, along with other perils like earthquake, volcanic eruption, lightning, discharge of cargo at a port of distress, jettison, washing overboard, and total loss of packages during loading/unloading. ICC (C) is more limited, covering only General Average sacrifice, jettison, and specific major casualties (fire, stranding, sinking, collision) and discharge at a port of distress. The question describes a scenario where cargo is damaged due to a collision between the carrying vessel and another ship. Under ICC (A), this would be covered as an ‘all risks’ peril. Under ICC (B), collision is a specifically listed peril. However, ICC (C) does not explicitly list collision as a covered peril for own damage, only mentioning it in the context of major casualties which are covered under ICC (B). Therefore, ICC (C) would not cover own damage resulting from a collision.

This question tests the understanding of how contract terms are classified based on their timing of operation within an insurance policy. A ‘condition precedent to liability’ is a term whose breach does not void the entire contract but specifically invalidates a particular claim. The scenario describes a situation where the insured fails to notify the insurer of a change in profession, which is a common example of a condition that, if breached, affects the insurer’s obligation to pay a specific claim rather than the contract’s existence. Option B describes a condition precedent to the contract, which must be met for the contract to begin. Option C describes a condition subsequent, which, if it occurs, can terminate the contract. Option D describes a representation, which is a statement of fact that must be substantially true if material.