Paper 2 General Insurance Quiz 07

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 the loss, there must be evidence of forced entry or exit. Options B, C, and D describe other insurance concepts or conditions that are not directly related to the requirement for a theft claim involving physical entry.

The question tests the understanding of the different levels of motor insurance cover available in Hong Kong, specifically focusing on the distinction between Third Party Only, Third Party, Fire & Theft, and Comprehensive cover. Comprehensive cover is the broadest, encompassing Third Party liability, and also covering the insured’s vehicle against fire and theft, as well as ‘all risks’ of damage or loss. The scenario describes a situation where a vehicle is stolen and subsequently damaged by fire. To cover both the theft and the subsequent fire damage to the insured’s vehicle, the policy must include coverage for both events. Third Party Only cover only addresses liability to others. Third Party, Fire & Theft cover includes liability to others and damage to the insured’s vehicle due to fire or theft. Comprehensive cover includes all of the above and extends to ‘all risks’ for the insured’s vehicle. Therefore, to be fully covered for the described events, the policy must include at least the elements of Third Party, Fire & Theft, and ideally Comprehensive cover for the ‘all risks’ aspect of the damage. The question asks what is *required* to cover the loss. While Comprehensive cover would certainly cover it, the minimum required to cover both theft and fire damage to the insured’s vehicle, in addition to third-party liability, is Third Party, Fire & Theft. However, the question is phrased to imply the broadest possible coverage for the described events. The scenario explicitly mentions damage to the insured’s vehicle due to fire and theft. Comprehensive cover is defined as including Third Party, Fire & Theft, plus ‘all risks’ insurance on the insured vehicle. Therefore, Comprehensive cover is the most appropriate answer as it explicitly covers both fire and theft of the insured’s vehicle, along with the mandatory third-party liability.

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the expected standards of good insurance practice for personal insurance policies sold to individual policyholders residing in Hong Kong. It covers a broad spectrum of practices, including underwriting, claims handling, product understanding, customer rights, and advising/selling practices. While the Insurance Companies Ordinance (ICO) sets out foundational requirements for insurers’ authorization and financial stability, and the Code of Practice for the Administration of Insurance Agents details intermediary conduct, the Code of Conduct for Insurers is the primary document that outlines the industry’s self-regulatory standards for direct interactions with policyholders concerning the quality of service and ethical practices in personal insurance.

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 not marked correctly leads to its exclusion from the policy’s coverage.

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 onus is on the insurer to demonstrate an exclusion, not on the insured to prove the loss is covered.

The scenario describes a situation where a valuable antique vase is insured on an agreed value basis. This means that in the event of a total loss, the insurer will pay the agreed sum, irrespective of the vase’s actual market value at the time of the loss. However, for partial losses, the principle of strict indemnity applies, meaning the payout will be based on the actual loss incurred, not the agreed value. This is a key characteristic of agreed value policies for certain high-value items, designed to simplify claims for total loss and provide certainty to the insured.

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 under the general policy for stock and specified contents. Option (a) accurately reflects this, stating that damage from forcible entry or exit is covered. Option (b) is incorrect because while theft by staff is excluded, the question is about damage to the premises during theft, not the theft itself by staff. Option (c) is incorrect as fire damage is explicitly excluded from theft policies. Option (d) is incorrect because while warranties are common, the question is about what is included in the cover, not conditions for it.

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 intentional acts by the insured. Option (d) is incorrect because the onus is on the insurer to demonstrate an exclusion, not on the insured to prove coverage.

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 cover for this specific policy, leading to the rejection of the claim. The policy’s wording is crucial here, limiting coverage to a specific timeframe to manage risk and premium.

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 fraudulent intent would not typically be used to deny a claim under this undertaking, even though technically, the breach itself can void the policy.

The scenario describes a situation where an insured person sustained an injury and received a certain number of days of temporary total disability benefit and temporary partial disability benefit. The insured was dissatisfied, believing they should have received temporary total disability benefit for the entire duration. The Complaints Panel’s decision, as outlined in the provided text, was that the insurer’s offer was appropriate because the insured’s condition during the latter part of her sick leave only met the definition of Temporary Partial Disability, not Temporary Total Disability, based on the nature and severity of the injury, and the fact that she was a self-employed director whose work primarily involved office duties. This implies that the policy differentiates between these two types of disablement and their corresponding benefit amounts, and the insurer correctly applied these distinctions.

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 in accidents that arise out of and in the course of their employment, regardless of whether the employer was at fault. The ordinance mandates insurance to cover these liabilities. Therefore, the core purpose of Employees’ Compensation insurance is to cover the employer’s legal obligations to their employees for work-related injuries or fatalities, irrespective of fault.

The scenario describes an individual injured while ice-skating. The insurer declined the claim based on an exclusion for ‘winter-sports’. The Complaints Panel, in interpreting this exclusion, reasoned that ‘winter-sports’ generally encompass sports played on snow or ice, regardless of the season or whether they are indoors or outdoors. Therefore, ice-skating, even indoors, falls under this category. The key takeaway is that the interpretation of policy exclusions, particularly for terms like ‘winter-sports’, is based on a broad understanding of the activity’s nature rather than strict seasonal or environmental conditions. This aligns with the principle that policy exclusions are interpreted to cover the inherent risks associated with the activity described, even if the specific circumstances don’t perfectly match a literal, narrow definition.

Institute Cargo Clauses (ICC) (A) provides the broadest ‘all risks’ coverage for own damage to cargo. ICC (B) covers specified risks, and ICC (C) covers even fewer specified risks. The question describes a scenario where cargo is damaged due to a fire that originated from a faulty electrical system within the cargo itself, not due to external perils like collision or stranding. Under ICC (A), this would be covered as it’s an ‘all risks’ policy. ICC (B) and (C) would not cover this unless fire was specifically listed as a covered peril in their respective clauses, which it is not for internal faults. The exclusion for ‘inherent vice’ applies to damage arising from the cargo’s own quality, not a mechanical failure of its components. Therefore, ICC (A) is the most appropriate cover for this situation.

A cover note is a temporary document that provides immediate proof of insurance coverage, binding the insurer from the outset. It is not conditional on the submission of a full proposal form later. While it serves as evidence of insurance, particularly for legally mandated insurance like motor insurance where it often includes a temporary certificate of insurance, its primary function is to offer immediate, albeit temporary, protection. The policy, on the other hand, is the final, formal document that represents the complete contract of insurance and replaces any prior cover notes. A certificate of insurance, in its more common understanding, serves as proof of compulsory insurance, distinct from the policy itself, and is a separate, permanent document, unlike the temporary nature of a cover note.

The scenario describes a situation where an insurance agent offers a portion of their commission to a potential client, who is an employee of a company seeking insurance. This practice is known as rebating. Rebating, especially when it involves offering a portion of the commission to an employee of the insured without the insured’s explicit written consent, is considered unethical and potentially illegal. It undermines the principle of fair compensation for services rendered and can be seen as a form of inducement or bribery to secure business. The Code of Practice for the Administration of Insurance Agents and the Minimum Requirements of the Model Agency Agreement in Hong Kong explicitly prohibit such practices to maintain the integrity of the insurance market and prevent unfair competition. Therefore, offering a rebate to an employee of the insured without proper authorization is a violation of these regulations.

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 ought to have been known by the insured at the time of policy inception. This is to prevent individuals from obtaining insurance 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 subject to the policy’s exclusions, and the known circumstance exclusion applies here. Option D is incorrect because while dishonesty or fraud can be excluded, the primary exclusion in this scenario is the prior knowledge of the circumstance.

An insurance broker acts as an agent for the proposer, meaning they are legally identified with the client. This agency relationship imposes a duty of utmost good faith. If a broker withholds or misrepresents material facts, this breach of good faith is imputed to the proposer. This can lead to the insurer voiding the contract because the basis of the contract (the proposal form and associated disclosures) was fundamentally flawed due to the broker’s actions. Therefore, the insurer’s recourse is to treat the contract as if it never existed from the beginning.

This question tests the understanding of exclusions in engineering insurance, specifically Boiler Explosion Insurance. The provided text states that risks normally insurable by other policies, such as fire and extra perils, are excluded from Boiler Explosion Insurance. This is to prevent duplication of coverage and ensure that each policy covers distinct risks. Therefore, a fire that occurs during a boiler explosion would typically be covered by a separate fire insurance policy, not the boiler explosion policy.

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 question tests the understanding of ‘Public Policy’ as a legal concept in Hong Kong insurance law, specifically how it can render certain agreements or actions void. The scenario describes an individual attempting to circumvent legal processes by agreeing to a private arbitration clause that explicitly prevents access to the courts. Such clauses are generally considered contrary to public policy because they attempt to oust the jurisdiction of the courts, which is a fundamental principle of the legal system. Therefore, this agreement would likely be deemed unenforceable.

The scenario describes a shop owner losing cash from her bag after closing her shop. The money insurance policy specifically 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 cover for this particular policy, leading to the rejection of the claim. The policy’s wording is crucial here, limiting coverage to specific times and circumstances.

The question tests the understanding of how premiums are determined in Personal Accident (PA) insurance, specifically referencing the provided text. The text explicitly states that while individual features like age might have underwriting consequences, the standard premium calculation is primarily based on the insured’s occupation, which is classified according to accident risk. Other factors like gender are mentioned as not affecting premiums if other conditions are equal. Therefore, occupation is the most significant factor for standard premium calculation in PA policies.

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 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, acting as independent experts to investigate and negotiate claims, particularly for property and liability losses.

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 of such declarations, reflecting the company’s dedication to meeting and exceeding customer expectations. Options (b), (c), and (d) are also important aspects of a company’s operational ethos and customer interaction, but the overarching commitment to quality and service is the foundational principle that encompasses these other elements. The provided text emphasizes that these declarations are a measure of performance and declared intentions, with quality and service being the primary drivers.

The question tests the understanding of the specific limitations of motorcycle insurance concerning theft claims. According to the provided text, motorcycle insurance policies typically only cover theft claims if the entire machine is stolen. Loss of accessories alone is not covered under the ‘Own Damage/Accidental Damage’ section for motorcycles. Therefore, a scenario where only a part of the motorcycle is stolen would not be admissible under the standard theft coverage.

This question tests the understanding of the specific definition of ‘loss of one limb’ as commonly applied in personal accident insurance, particularly within the context of travel insurance. The scenario highlights that a fracture causing functional impairment, but not physical severance or total functional disablement as defined by the policy, does not qualify for the ‘loss of one limb’ benefit. The explanation should emphasize that insurance policies have precise definitions for covered events, and partial functional loss, without meeting the explicit criteria for total loss or severance, is typically not compensated under such a benefit, especially if the policy does not include provisions for proportional disability.

This question tests the understanding of how an excess works in motor insurance, specifically the difference between a voluntary and a compulsory excess, and how they interact. A voluntary excess is chosen by the policyholder to reduce the premium, while a compulsory excess is imposed by the insurer. Standard policy excesses are a type of compulsory excess that applies universally or to specific risk factors without a premium discount. In this scenario, the policyholder chose a voluntary excess of HK$5,000. The insurer then imposed a compulsory underwriting excess of HK$2,000 due to the vehicle’s high performance. Standard policy excesses are applied in addition to any voluntary or underwriting excesses and do not qualify for premium discounts. Therefore, the total excess applicable to the claim would be the sum of the voluntary excess and the standard policy excess, which is HK$5,000 + HK$3,000 = HK$8,000. The explanation correctly identifies that the standard policy excess is applied in parallel with other excesses and does not reduce the premium, leading to the combined total.

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 develop, and since the policy excludes illnesses presenting signs or symptoms prior to commencement, the insurer’s decision was upheld. This aligns with the principle that insurance policies typically do not cover conditions that were already present or showing symptoms before the policy was in effect, even if not formally diagnosed.

The scenario highlights a key principle in insurance claims notification: the insured’s obligation to inform the insurer of a potential claim as soon as reasonably possible. While the insured reported the damage within 20 days, the crucial point is that the repair was completed before the insurer was notified. This action significantly prejudiced the insurer’s ability to investigate the cause and extent of the damage, as the original state of the damaged item was altered. The Complaints Panel’s decision to award the claim was based on the perceived simplicity of the circumstances, the layman’s interpretation of ‘reasonably possible,’ and the absence of a poor claims history, essentially giving the benefit of the doubt. However, the underlying principle is that a delay or action that hinders the insurer’s investigation, even if the notification period itself isn’t explicitly breached, can be grounds for claim rejection if it prejudices the insurer’s position. The question tests the understanding of this prejudice and the insurer’s right to investigate, which is a fundamental aspect of policy conditions related to claims notification, as outlined in general insurance principles and potentially specific clauses within the policy contract governed by Hong Kong insurance law.