Paper 2 General Insurance Quiz 05

A warranty in insurance is an absolute undertaking by the insured to the insurer. A breach of this undertaking, regardless of its impact on the claim, can automatically discharge the insurer’s liability from the date of the breach. However, insurers in Hong Kong have provided an undertaking to the Hong Kong Federation of Insurers that they will only refuse a claim due to a breach of warranty if there is a causal connection between the breach and the loss, or if the breach is fraudulent. This means that a breach without a causal link or fraud would not typically lead to a claim refusal under this undertaking.

The question tests the understanding of an insurer’s obligation regarding policy renewals. According to general insurance principles and common practice, an insurer is not legally obligated to remind the policyholder about an approaching renewal date. If the policyholder fails to take action, the policy will simply lapse at the end of its term. While it is often in the insurer’s interest to send reminders to retain business, this is a commercial practice, not a legal requirement. Therefore, the insurer is not required to remind the insured of the renewal date.

The question tests the understanding of an insurer’s obligation regarding policy renewals. According to general insurance principles, an insurer is not legally mandated to remind the policyholder about an approaching renewal date. If the policyholder fails to take action, the policy simply lapses at the end of its term. Cancellation, on the other hand, implies a premature termination of coverage, which is distinct from a policy lapsing due to non-renewal. Therefore, the insurer is not obligated to provide a reminder for renewal.

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 within a specified period.

The Motor Vehicles Insurance (Third Party Risks) Ordinance mandates compulsory third-party motor insurance in Hong Kong. This ordinance ensures that victims of motor accidents have a legal recourse for damages caused by negligent drivers. While the Motor Insurers’ Bureau of Hong Kong (MIB) plays a crucial role in fulfilling the intentions of this compulsory insurance when direct insurance is unavailable or ineffective, it is the Ordinance itself that establishes the fundamental requirement for all motor insurance policies to cover third-party risks.

The question tests the understanding of the specific limitations of motor insurance policies for motorcycles, particularly concerning theft claims. According to the provided text, for motorcycles, theft claims are only admissible if the entire machine is stolen. This means that if only accessories are stolen, the insurer will not cover the loss under the ‘Own Damage/Accidental Damage’ section. Therefore, a scenario where a motorcycle’s valuable accessories are stolen would not be covered by the standard policy.

The scenario describes a situation where an insured person’s ability to perform their usual occupation is partially restored, but not fully. The insurer’s decision to classify the latter part of the recovery period as Temporary Partial Disablement (TPD) is based on the medical assessment that the insured’s range of trunk movement had improved significantly, allowing them to perform some duties. This aligns with the principle that TPD benefits are applicable when an insured can undertake some, but not all, of their usual work due to injury. The Complaints Panel’s decision to uphold the insurer’s classification, despite conflicting medical opinions, highlights the importance of assessing the insured’s functional capacity relative to their occupation, and that attending doctors’ opinions are given significant weight, but not absolute precedence, especially when contradicted by other medical evidence regarding functional capacity.

The question tests the understanding of exclusions in pleasure craft insurance, specifically concerning the ship’s boat. According to the provided text, a ship’s boat is excluded from coverage if it is not permanently marked with the parent boat’s name. This implies that if the ship’s boat is properly marked, it would be covered under the policy. Therefore, the scenario where the ship’s boat is properly marked would lead to a claim being accepted for damage to it.

The question tests the understanding of an insurer’s obligation regarding policy renewals. According to general insurance principles, an insurer is not legally mandated to remind the policyholder about an approaching renewal date. If the policyholder fails to take action, the policy simply lapses at the end of its term. Cancellation, on the other hand, implies a premature termination of coverage, which is distinct from a policy lapsing due to non-renewal. Therefore, the insurer is not obligated to provide a reminder for renewal.

The Insurance Claims Complaints Bureau (ICCB) is designed to handle disputes related to personal insurance claims. It has a jurisdictional limit of HK$800,000 for the value of the claim. Complaints exceeding this amount, or those involving commercial, industrial, or third-party insurance, fall outside the ICCB’s purview and must be resolved through other means such as litigation or arbitration. Therefore, a dispute concerning a commercial property insurance claim, regardless of its monetary value, would not be handled by the ICCB.

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 entry or exit from the premises. Without this evidence, the claim may be invalidated. The other options represent different insurance concepts: ‘Franchise’ relates to the deductible amount that the insured must bear before the insurer pays, ‘Fraud’ concerns dishonest acts by the insured, and ‘Fundamental Risks’ refer to catastrophic potential losses that are often excluded.

The question tests the understanding of exclusions in a Money Insurance policy, specifically concerning losses due to theft by employees. Money Insurance policies typically exclude losses arising from theft committed by the insured’s staff or with their collusion, as such risks are generally covered under a separate class of insurance known as Fidelity Guarantee Insurance. Therefore, a claim for money stolen by an employee would be rejected under a standard Money Insurance policy.

The scenario describes a situation where an insured person, a businessman who travels frequently, sustained a back injury. Initially, he was paid Temporary Total Disability (TTD) benefits. However, the insurer later reclassified his condition to Temporary Partial Disability (TPD) based on a medical examiner’s report indicating an improvement in his trunk movement. The key issue is the conflicting medical opinions regarding his ability to perform his duties. The Complaints Panel, in this case, gave more weight to the attending doctors’ opinions, who stated he was unable to perform any work until a specific date. This aligns with the principle that TTD benefits are payable when an insured is unable to perform *any* of their usual occupation’s duties, whereas TPD applies when they can perform *some* but not all duties. The panel’s decision to continue TTD benefits suggests they found the insured was still unable to perform his usual occupation’s duties, despite some physical improvement.

The scenario describes a shop owner whose wallet containing cash went missing after her shop closed. The money insurance policy specifically states that cover is for losses occurring during normal business hours. Since the loss happened outside of business hours, it falls outside the policy’s defined scope of coverage. The policy’s intention is to cover business money during operational periods, not personal funds lost during private time. Therefore, the insurer’s rejection of the claim is justified based on the policy’s terms and conditions regarding the timing of the loss.

A General Average Act involves a voluntary and reasonable sacrifice or expenditure made during a peril to preserve the common adventure. Throwing cargo overboard to lighten a ship during a storm is a classic example of a General Average Sacrifice. This sacrifice, while causing a loss to the owner of the sacrificed cargo, is intended to save the remaining cargo and the vessel. The owner of the sacrificed cargo is then entitled to a General Average Contribution from the other parties whose property was saved. The question tests the understanding of what constitutes a General Average Act and its consequence, which is the right to contribution.

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 usually 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 generally appointed and paid by the insurer to investigate and negotiate claims, particularly for non-marine losses.

The Employees’ Compensation Assistance Scheme (ECAS) is designed to provide a safety net when an employer’s compulsory employees’ compensation insurance is absent or ineffective. It is funded partly by a levy on insurance premiums. Therefore, if an employer fails to secure the mandatory insurance, the ECAS steps in to ensure employees receive compensation for work-related injuries or diseases, fulfilling the spirit of the compulsory insurance requirement.

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 voluntary excess is HK$2,000. Therefore, the insured is responsible for the first HK$2,000 of the claim, and the insurer will pay the remaining HK$10,000. The question asks how much the insurer will pay, which is the total claim minus the excess.

A combined liability policy is designed to consolidate various liability coverages into a single document for convenience and potential premium savings. While it typically includes Public Liability, Products Liability, and Employees’ Compensation Liability, it can be extended to include other specific liability covers like Directors’ and Officers’ Liability or Professional Liability, based on the client’s unique needs. The key is that these are distinct coverages bundled together, not a single, indivisible contract. The caution provided in the syllabus highlights the importance of clear policy wording to avoid a breach in one section invalidating the entire policy, emphasizing the separate contractual nature of each included coverage despite the single document.

Fidelity Guarantee Insurance indemnifies employers against financial losses resulting from dishonest acts by their employees. The question describes a scenario where an employee’s actions led to a financial shortfall. The key is to identify the type of insurance that specifically covers employee theft or fraud. Money Insurance covers loss of money due to specific perils like robbery or fire, not employee dishonesty. Public Liability Insurance covers claims made by third parties for injury or property damage. Burglary Insurance covers loss of property due to forced entry. Therefore, Fidelity Guarantee Insurance is the appropriate coverage for losses caused by employee fraud.

The question tests the understanding of the legal significance of a certificate of compulsory insurance, particularly in motor insurance. According to the provided text, a certificate of motor insurance merely confirms the existence of compulsory insurance as prescribed by law and does not detail the policy’s coverage level (e.g., Comprehensive or Act Only). The law mandates the issuance of these certificates, and failure to do so is a criminal offense. Furthermore, the law requires insurers to recover these documents if the policy is cancelled, highlighting their critical legal role. Therefore, the primary legal function of such a certificate is to serve as proof of compliance with compulsory insurance requirements, rather than to delineate the specific terms of the policy.

The Employees’ Compensation Assistance Scheme (ECAS) is designed to provide a safety net when an employer’s compulsory employees’ compensation insurance is absent or ineffective. It is funded partly by a levy on insurance premiums. Therefore, if an employer fails to secure the mandatory insurance, the ECAS steps in to ensure employees receive compensation for work-related injuries or diseases, fulfilling the spirit of the Employees’ Compensation Ordinance.

In marine insurance claims, the assured (the policyholder) is typically responsible for arranging and initially paying for a surveyor’s report. This report is crucial for independently investigating the cause and extent of a reported 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 property and liability losses.

The scenario describes an individual who intentionally intervenes in a violent situation to rescue friends. The Complaints Panel determined that the insured’s injury was not accidental because it was a foreseeable consequence of his deliberate actions in joining the fray. The key principle here is that for a personal accident claim, the injury must be the result of an unforeseen and unintentional event. By actively participating in a dangerous situation, the insured’s actions led to a predictable outcome of being attacked, thus negating the ‘accidental’ nature of the injury as required by personal accident policies. The insurer’s rejection was upheld because the injury was a natural and foreseeable result of the insured’s own conduct, not a pure accident.

Institute Cargo Clauses (A) provides the broadest coverage, insuring against all risks of physical loss or damage to the insured subject matter, except for those specifically excluded. This is often referred to as ‘all risks’ coverage. Clauses (B) and (C) offer more limited protection, covering only a specified list of perils. Therefore, a shipment insured under Clause (A) would be covered for damage caused by a sudden, unexpected event like a ship’s engine malfunction leading to a delay and subsequent spoilage, provided it’s not an excluded peril.

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. If a claim exceeds this amount, or if the dispute arises from commercial, industrial, or third-party insurance, the ICCB is not the appropriate venue. In such cases, alternative dispute resolution methods like litigation or arbitration would be necessary. Therefore, a claim exceeding HK$800,000 falls outside the ICCB’s purview.

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 that, if breached, does not void the entire contract but rather prevents a specific claim from being paid. The scenario describes a policy requiring the insured to report changes in their profession. Failure to do so, while not invalidating the policy itself, would mean the insurer is not liable for any claims arising from the un-notified profession. This aligns with the definition of a condition precedent to liability, as it affects the insurer’s obligation to pay a claim, not the existence of the contract itself. A condition precedent to the contract would prevent the contract from coming into existence in the first place. A condition subsequent to the contract would typically be an event that, if it occurs, terminates the contract. Therefore, the notification requirement, when linked to claim validity, fits the description of a condition precedent to liability.

The Insurance Claims Complaints Bureau (ICCB) is designed to handle disputes related to personal insurance claims. It has a jurisdictional limit of HK$800,000 for the value of the claim. Complaints exceeding this amount, or those arising from commercial, industrial, or third-party insurance, fall outside the ICCB’s purview and must be resolved through other means such as litigation or arbitration. Therefore, a dispute involving a commercial property insurance claim, regardless of its monetary value, would not be handled by the ICCB.

The question tests the understanding of the scope of theft insurance, specifically regarding damage to the premises during an attempted theft. According to the provided text, theft policies typically include coverage for damage caused by thieves to the insured premises when making forcible and violent entry or exit. This damage is not subject to a separate sum insured but is covered as part of the overall contents coverage. Therefore, a scenario where a thief damages a shop’s door to gain entry and subsequently steals goods would be covered for both the stolen goods and the damage to the door, provided the entry was forcible and violent.

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 while being conveyed by a messenger. Since the loss happened outside of business hours, it falls outside the defined scope of coverage for this specific policy, leading to the rejection of the claim. The policy’s wording is crucial here, limiting the coverage period to ‘normal business hours’.