Paper 2 General Insurance Quiz 12

Institute Cargo Clauses (A) provides the broadest coverage, operating on an ‘all risks’ basis. This means it covers all losses unless specifically excluded. Clauses (B) and (C) are more restrictive, covering only specified perils. Therefore, a shipment insured under Clause (A) would be covered for damage caused by a sudden, unexpected mechanical failure of the refrigeration unit during transit, as this is not typically an excluded peril. Clause (B) would likely cover this if it were caused by a specific peril listed within its terms, and Clause (C) would only cover it if it fell under a very narrow set of specified perils, which mechanical breakdown usually is not. The question tests the understanding of the hierarchical coverage levels of the Institute Cargo Clauses.

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. The Motor Insurers’ Bureau of Hong Kong (MIB) plays a crucial role in fulfilling the intentions of this compulsory insurance by providing coverage when a valid policy is not in place or is ineffective, thereby safeguarding the public interest.

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 scenario describes a situation where an insured person sustained an injury that prevented them from performing their usual duties for a period. The insurer paid a benefit for temporary total disability for eight days and temporary partial disability for five days. The insured believed they should receive temporary total disability benefits for the entire thirteen days. The Complaints Panel’s decision was based on the nature and severity of the injury, the insured’s occupation (self-employed director with mainly office duties), and the absence of complications. The panel determined that after eight days, the insured was capable of performing some of their duties, thus qualifying for temporary partial disability rather than temporary total disability for the remaining five days. This aligns with the principle that personal accident policies often differentiate benefit amounts based on the degree of disablement, and the insurer’s assessment was deemed appropriate given the policy definitions and the insured’s condition.

The question tests the understanding of the specific limitations of motor insurance policies for motorcycles, particularly concerning theft claims. While private car policies typically cover the loss of accessories due to theft, motorcycle policies, as per market practice, generally only cover the entire machine being stolen. Therefore, a claim for stolen accessories alone would not be admissible under the ‘Own Damage/Accidental Damage’ section of a standard motorcycle policy.

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, as stipulated, would invalidate a claim related to an incident occurring after the un-notified change, but the policy itself would remain in force. This aligns with the definition of a condition precedent to liability, as it affects the insurer’s obligation to pay for a specific loss, not the contract’s existence.

A cover note is a temporary document that provides immediate evidence of insurance coverage, binding the insurer even before the final policy is issued. It is not conditional on the submission of a satisfactory proposal form later. While it offers unconditional cover, it typically includes cancellation provisions and is intended for a short duration, often replaced by a formal policy. Its primary function is to provide the insured with documentary proof of existing insurance, which can be crucial for various purposes, such as vehicle registration or satisfying lender requirements.

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 clarify that the policy’s precise wording dictates coverage, and partial functional loss, without meeting the defined threshold for total loss of use or physical severance, is typically not compensated under this specific benefit unless the policy explicitly includes provisions for partial permanent disability.

The question tests the understanding of the scope of theft insurance, specifically concerning damage to the premises during an attempted theft. According to the provided text, theft policies typically cover damage caused by thieves to the insured premises during forcible and violent entry or exit. This damage is not subject to a separate sum insured but is covered as part of the overall policy for stock and specified contents. Therefore, while the premises themselves might sustain damage, the primary focus of the theft policy’s coverage for this damage is linked to the act of theft and the property insured against theft.

The Code of Conduct for Insurers in Hong Kong is designed to promote good insurance practice and protect policyholders. It covers a broad spectrum of insurer conduct, including their interactions with customers and their operational responsibilities. Specifically, the Code addresses how insurers should handle underwriting and claims processes, ensuring fairness and efficiency. It also explicitly details the rights and obligations of customers, empowering them with knowledge about their dealings with insurers. Furthermore, the Code emphasizes the importance of safeguarding customers’ rights and interests in all aspects of the insurance relationship. While a good corporate image is desirable, the Code’s primary focus is on the direct conduct of insurance business and the protection of policyholders, rather than the broader public relations aspect of corporate citizenship.

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 making a decision that leads to a financial loss for the company. D&O policies typically exclude coverage for claims arising from dishonesty or fraud of the insured director. While the policy might cover defense costs for allegations of dishonesty, it will not indemnify for losses directly caused by proven dishonest acts. Option B is incorrect because while breach of professional duty is excluded, this scenario focuses on a potentially dishonest act rather than a mere professional error. Option C is incorrect as contractual liability is a separate exclusion and not directly relevant to the director’s personal gain from a decision. Option D is incorrect because while known circumstances are excluded, the scenario implies a decision made during the policy period, not necessarily a pre-existing known issue that was concealed.

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 a theft to be covered, there must be evidence of forced or violent entry into or exit from the premises. The other options represent different insurance concepts: ‘Franchise’ relates to the deductible amount that must be exceeded for a claim to be paid, ‘Fraud’ concerns dishonest acts by the insured, and ‘Fundamental Risks’ are those with potentially catastrophic loss potential that are often excluded.

The question tests the understanding of the legal significance of a certificate of compulsory insurance, particularly in motor insurance. According to the provided text, these certificates are issued solely due to legal requirements and confirm the existence of compulsory insurance. The text explicitly states that a motor insurance certificate does not necessarily indicate the policy’s coverage level (e.g., Comprehensive or Act Only) but merely fulfills the statutory obligation. Therefore, a certificate of motor insurance serves as proof of compliance with compulsory insurance laws, not as a detailed summary of the policy’s scope.

This question tests the understanding of the duty of utmost good faith in insurance contracts, specifically concerning the disclosure of material facts. A material fact is defined as any circumstance that would influence a prudent insurer’s decision regarding premium calculation or risk acceptance. The duty to disclose these facts is a fundamental principle of insurance law, requiring the proposer to reveal all relevant information, regardless of whether specific questions are asked. Therefore, facts that impact an underwriter’s judgment on premium or acceptance are considered material.

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 the premium if other conditions are equal. Therefore, occupation is the most significant factor for standard premium calculation in PA policies.

The question tests the understanding of the insured’s duty to minimize loss after a claim event. While cooperating with the insurer and providing proof of loss are crucial duties, the primary obligation in the immediate aftermath of a loss, as per common law and policy conditions, is to take reasonable steps to prevent further damage or escalation of the loss. This includes actions like protecting damaged property from further harm, which directly aligns with the duty to minimize loss. Admitting liability to a third party without the insurer’s consent would actually jeopardize the insurer’s rights, and while fraud is always unacceptable, the scenario focuses on the immediate post-loss actions to mitigate damage.

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 typically 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, which includes non-material losses like lost profits.

Directors’ and Officers’ (D&O) liability insurance is designed to protect company directors and officers from claims arising from their management decisions and actions. While it covers a broad range of potential liabilities, certain types of claims are specifically excluded to maintain the integrity and purpose of the policy. Claims arising from the insured director or officer gaining personal profit or advantage to which they were not entitled are a common exclusion. This is because D&O insurance is intended to cover liabilities arising from bona fide, albeit potentially erroneous, business decisions, not from deliberate self-enrichment or unethical conduct. Other exclusions typically include dishonesty, fraud, pollution, and contractual liabilities, but the question specifically asks about personal gain.

The question tests the understanding of policy conditions, specifically the ‘average’ clause. The average clause is a penalty for under-insurance. If the sum insured is less than the value of the property at the time of loss, the insurer will only pay a proportion of the loss, calculated based on the ratio of the sum insured to the actual value. In this scenario, the property is valued at HK$1,000,000, but only insured for HK$500,000. The loss is HK$200,000. Applying the average clause, the payout would be (Sum Insured / Value of Property) * Loss = (HK$500,000 / HK$1,000,000) * HK$200,000 = HK$100,000. The remaining HK$100,000 is the uninsured portion due to under-insurance.

A voluntary excess, also known as a ‘self-insured retention’ or ‘excess requested by the insured’, is an amount that the policyholder agrees to bear themselves in the event of a claim. This is typically offered by insurers as a way to reduce the premium. The insured chooses a higher excess amount in exchange for a lower premium. This is in addition to any compulsory excess that might apply to the policy, such as a young driver excess.

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 includes the loss of gross profit and continuing expenses. While the physical damage to buildings or contents is covered by a separate fire insurance policy, the business interruption policy addresses the consequential financial losses that arise from the inability to trade. It does not cover third-party liabilities, which are addressed by other types of insurance.

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 voluntary excess, also known as a ‘self-insured retention’ or ‘excess requested by the insured’, is an amount that the policyholder agrees to bear themselves in the event of a claim. This is typically offered by insurers as a way to reduce the premium payable by the insured. The insured chooses a higher excess amount in exchange for a lower premium. This is in addition to any compulsory excess that might apply to the policy, such as a young driver excess.

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.

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 due to unauthorized transactions. This directly aligns with the core purpose of fidelity guarantee insurance, which is to cover losses arising from employee fraud or dishonesty. The other options are incorrect because: a) Money insurance typically covers loss of money due to external causes like theft or accident, not employee dishonesty. c) Public liability insurance covers an organization’s legal liability for injury or property damage to third parties. d) Business interruption insurance covers loss of income due to a covered peril disrupting business operations.

The question tests the understanding of policy conditions, specifically the ‘Average’ condition. The Average clause is a penalty for under-insurance. If the sum insured is less than the value of the property at the time of loss, the insurer will only pay a proportion of the loss, calculated based on the ratio of the sum insured to the actual value. In this scenario, the property’s value is HK$500,000, but it is insured for only HK$300,000. The loss is HK$100,000. Applying the Average clause, the insurer will pay (Sum Insured / Value of Property) * Loss = (HK$300,000 / HK$500,000) * HK$100,000 = 0.6 * HK$100,000 = HK$60,000. Therefore, the insured will bear the remaining HK$40,000.

The question tests the understanding of the insured’s duty to minimize loss after a claim event, as stipulated by common law and often reinforced in policy conditions. The scenario describes a fire damaging a commercial property. The insured’s immediate action of attempting to salvage undamaged goods and protect them from further damage (like water damage from firefighting efforts) directly aligns with the duty to mitigate further losses. Admitting liability to a third party, failing to provide proof of loss, or disposing of damaged property without consent are all actions that could potentially increase the insurer’s liability or prejudice their rights, thus violating the insured’s duties.

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 policy’s provision for different benefit amounts for Temporary Total Disablement (TTD) and TPD, where TPD applies when an insured can perform some, but not all, of their usual work. The Complaints Panel’s decision to favour the attending doctors’ opinion over the insurer’s medical consultant highlights the importance of the treating physician’s assessment in determining the extent of disability, especially when there are conflicting medical views. The key distinction lies in the insured’s capacity to engage in their occupation, which, according to the medical examiner, had partially returned.

This question tests the understanding of the ‘claims-made’ basis for liability insurance, a crucial concept in the IIQE syllabus. A claims-made policy covers claims that are both made against the insured and reported to the insurer during the policy period, or an extended reporting period if applicable. Option (a) describes ‘occurrence-based’ coverage, where the event causing the claim must have occurred during the policy period, regardless of when the claim is made. Option (b) is incorrect as claims made before the policy began are not covered. Option (c) is also incorrect because while settlement is important, the trigger for coverage under a claims-made policy is the making and reporting of the claim, not necessarily its settlement within the policy period.

This question tests the understanding of the proposer’s duty to disclose material facts under Hong Kong insurance law, specifically focusing on what constitutes a material fact that must be disclosed. A fact is considered material if it would influence the judgment of a prudent underwriter in deciding whether to accept the risk and on what terms. Storing highly flammable materials like chemicals on the insured premises, especially when the business itself doesn’t inherently involve such materials, significantly increases the fire risk beyond what a prudent underwriter would typically anticipate for a general store. This directly impacts the underwriter’s assessment of insurability and premium calculation, making it a material fact. Options B, C, and D describe situations that are generally not considered material facts that must be proactively disclosed. Common knowledge of typhoons in Hong Kong (B) is an example of information the insurer is expected to know. The presence of an automatic sprinkler system (C) is a fact that *decreases* the risk, and insurers are generally not concerned with information that improves the risk profile. An undiscovered medical condition (D) is a fact the proposer cannot reasonably be expected to know, and therefore, its non-disclosure is typically excused.