Paper 2 General Insurance Quiz 20

Average adjusters are specialists in marine insurance, particularly in the complex area of General Average (GA) claims. Their expertise is crucial because GA claims involve intricate calculations, international maritime law, potentially hundreds of interested parties (like cargo owners), and can take years to resolve. While Lloyd’s Agents and Loss Adjusters are also involved in claims, their roles differ. Lloyd’s Agents often act as survey agents for marine underwriters, and Loss Adjusters are more commonly used in non-marine general insurance claims handled by the insurer’s own staff. Arbitration clauses, while a method of dispute resolution, are distinct from the specialized role of an average adjuster in calculating and apportioning claims.

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 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.

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 mean the insurer is not liable for any claims arising from that unreported change, directly aligning with the definition of a condition precedent to liability. Option B describes a condition precedent to the contract, which must be met for the contract to even begin. Option C describes a condition subsequent, which, if it occurs, can terminate an existing contract. Option D is a misrepresentation, which is a type of statement, not a timing-based condition.

The scenario describes a situation where an insurer might impose specific conditions on a policy due to the nature of the risk. In this case, the insurer is willing to cover the jewelry but only if it’s kept in a secure location or if their consent is obtained for its use elsewhere. This is a form of underwriting control to manage the risk associated with high-value items. Such limitations are known as specific exclusions, tailored to the unique circumstances of the insured item or activity, as opposed to general exclusions that apply to all policies of a certain type, or market exclusions which are industry-wide agreements. Fraud and public policy are legal grounds for voiding a contract, not underwriting adjustments for specific risks.

The scenario describes a situation where the insured delayed notifying the insurer about a claim. The policy requires notification ‘as soon as possible.’ While the insured took the watch for repair immediately, the claim was lodged two weeks after the repair was completed. This delay in lodging the claim, after the repair was finished, likely constitutes a breach of the ‘as soon as possible’ notification clause. The insurer might argue that this delay prevented them from properly investigating the loss or assessing the damage before repairs were undertaken, potentially impacting their ability to verify the claim’s validity or the necessity of the repairs. Therefore, the insurer could potentially decline the claim based on this procedural breach, even if the loss itself was covered.

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 just self-imposed but can also be mandated by industry bodies or legislation, serving as both a benchmark for intentions and a measure of performance. Therefore, a comprehensive declaration would encompass all these aspects to varying degrees, but the question asks for a primary commitment that underpins the entire declaration.

A Scheduled Policy Form is a common structure for insurance policies that includes a policy schedule. This schedule details specific information about the policy, such as the insured’s name, the property covered, the sum insured, and the period of insurance. The Signature Clause, also known as the Attestation Clause, is a crucial part of this form where the insurer formally signifies their agreement to the terms and conditions outlined in the policy contract. It represents the insurer’s commitment and makes the policy legally binding.

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.

This question tests the understanding of the Insurance Claims Complaints Bureau (ICCB) in Hong Kong, a key dispute resolution mechanism for insurance policyholders. The ICCB scheme is designed to provide an accessible and cost-effective avenue for resolving complaints against insurers. It is crucial to understand its scope, operational principles, and limitations. Specifically, the ICCB handles complaints related to both general and long-term insurance, not just personal lines. The service is free for complainants, ensuring accessibility. While the ICCB makes recommendations, its decisions are not legally binding on the insurer, and either party can reject the outcome, effectively acting as an appeal mechanism against the ICCB’s recommendation. The monetary limit for claims handled by the ICCB is a specific regulatory detail that candidates must be aware of to correctly assess the applicability of the scheme.

Institute Cargo Clauses (A) provides the broadest coverage, operating on an ‘all risks’ basis, meaning it covers all losses unless specifically excluded. Institute Cargo Clauses (B) and (C) are more restrictive, covering only specified perils. Therefore, a shipment insured under Clause (A) would be protected against a wider array of potential damages compared to shipments under Clauses (B) or (C), assuming the loss is not an explicitly excluded peril.

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 primary basis for premium calculation in this context.

This question assesses the understanding of the multifaceted impact of poor customer service on an insurance company’s operations and reputation. The “take it or leave it” approach, while seemingly a direct cost-saving measure, leads to a cascade of negative consequences. Loss of business is a direct result of customers seeking better service elsewhere. Insurance intermediaries, crucial for business generation, will withdraw their support if they cannot rely on the insurer’s service quality, impacting their own ability to produce business. The industry’s overall prestige suffers as negative experiences spread, potentially leading to increased government scrutiny and intervention to protect consumers, as Hong Kong aims to maintain its standing as a financial services hub. Therefore, all these outcomes are direct and significant repercussions of subpar customer service.

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 policy because the contract was based on incomplete or inaccurate information, fundamentally undermining the principle of utmost good faith which underpins all insurance contracts. While the broker has professional obligations, the ultimate responsibility for the accuracy of the information provided to the insurer rests with the proposer, and the broker’s actions in this regard directly affect the proposer’s contractual standing.

This question tests the understanding of exclusions in a Professional Indemnity (PI) policy. PI policies are designed to cover financial losses arising from professional negligence. However, they typically exclude liability stemming from dishonest or fraudulent acts by the insured professional. This exclusion is crucial because the policy is meant to cover errors in judgment or competence, not intentional wrongdoing. Options B, C, and D represent situations that might be covered under a PI policy, such as financial loss due to negligent advice, property damage from a professional error, or legal expenses incurred in defending a claim of professional misconduct.

Moral hazard refers to the increased likelihood of a loss occurring due to the insured’s behavior or attitude, often stemming from a reduced incentive to prevent the loss because insurance coverage exists. While dishonesty (like fraud) is a direct manifestation, carelessness, unreasonableness (inflexibility or opinionated views leading to problems), and negative social behavior (like vandalism) are also recognized forms of moral hazard. These aspects represent the ‘human element’ that can influence risk, even if the individual isn’t overtly dishonest. Therefore, all listed behaviors contribute to moral hazard.

This question tests the understanding of how changes in the insured risk can impact the insurance contract. The Insurance Companies Ordinance (Cap. 41) and related common law principles dictate that if the circumstances under which a risk was originally insured alter significantly for the worse, the insurer may have grounds to cancel the policy. This is because the basis upon which the premium was calculated and the risk assessed has fundamentally changed, potentially increasing the likelihood or severity of a claim beyond what was originally contemplated. Option B is incorrect because while an insurer might adjust premiums, the core issue when a risk deteriorates is the potential for policy cancellation or modification, not necessarily an automatic increase. Option C is incorrect as the insurer’s obligation to pay claims is contingent on the risk remaining within the agreed terms; a significant worsening of the risk can invalidate this. Option D is incorrect because while the insured has a duty of disclosure, the question focuses on the insurer’s rights when the risk itself changes, not solely on the insured’s initial disclosure.

This question tests the understanding of the specific definition of ‘loss of one limb’ within the context of personal accident insurance, as illustrated by Case 12. The scenario highlights that a fracture causing functional impairment, but not physical severance or total functional disablement as defined in the policy, would not qualify for the ‘loss of one limb’ benefit. The policy’s definition is crucial, and without specific provisions for partial permanent disability, such a claim would be rejected. Therefore, the insurer’s rejection of the claim for partial disablement of the hand, due to the injury not meeting the policy’s strict definition of ‘loss of one limb’ or ‘total functional disablement’, is consistent with the policy terms.

This question tests the understanding of the legal implications of policy renewals in Hong Kong. Statement (i) is true because the duty of utmost good faith is a continuous obligation that applies at all stages of the insurance contract, including renewal. Statement (ii) is also true as a renewal is generally considered the formation of a new contract, not merely a continuation of the old one, meaning new terms and conditions can be introduced. Statement (iv) is correct because insurers have a duty to inform policyholders if they do not intend to renew a policy, allowing the insured to seek alternative coverage. Statement (iii) is false because while terms can be negotiated, they are not entirely ‘freely’ negotiable as they must still align with the insurer’s underwriting guidelines and the principles of insurance law. Therefore, statements (i), (ii), and (iv) are the accurate assertions regarding general insurance policy renewals.

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.

The scenario describes an individual intentionally engaging in a physical altercation 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 fight. 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 removing the ‘accidental’ nature of the injury as required by personal accident policies.

The principle of indemnity in insurance aims to restore the insured to the financial position they were in before the loss. When replacing old parts with new ones, there’s an inherent betterment, as the new parts are superior to the old, worn-out ones. The insurer is generally entitled to deduct a reasonable amount for this betterment to avoid over-indemnifying the insured. The case highlights that the insurer’s calculation of a 35% betterment contribution for an eight-year-old vehicle, considering the normal depreciation rate of 50%, was deemed reasonable by the Complaints Panel. This aligns with the indemnity principle, as the insured is not expected to profit from the claim. The policy’s exclusion of depreciation further supports the insurer’s position on betterment contribution.

In the context of insurance contracts, a ‘representation’ is a statement of fact made by the proposer before the contract is concluded. The principle of utmost good faith (uberrimae fidei) requires that such representations, particularly those concerning material facts, must be substantially true. If a representation is found to be untrue, and it relates to a material fact that influences the insurer’s decision to accept the risk or the terms offered, the insurer may have grounds to void the contract. The requirement is for substantial truth, meaning minor inaccuracies that do not affect the risk assessment are generally acceptable, but significant falsehoods can invalidate the policy. Options (b), (c), and (d) present absolute or incorrect standards for representations. Representations do not always need to be in writing unless specified by law or the proposal form, and they do not need to be absolutely true, nor can they be untrue without consequence.

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. Without physical damage covered by the material damage policy, the BI policy will not respond to losses arising from the interruption. Therefore, if the material damage policy has an exclusion that prevents a claim for a specific event, the BI policy will also not respond to the resulting business interruption, even if the BI policy itself would otherwise cover the peril.

The Employees’ Compensation Ordinance (ECO) mandates compulsory insurance for employers to cover their liability for employee injuries or deaths arising out of and in the course of employment. While the ECO covers accidents, it does not typically cover liabilities arising from breaches of contract unless those breaches also result in an injury or death covered by the ordinance. Common law liability, or liability independent of the ECO, covers situations where an employer is negligent or breaches statutory safety provisions, leading to employee harm. This type of liability is contestable and the compensation awarded is net of any ECO payouts. Contractual liability, liability to contractors’ employees, and injuries to non-employees are generally excluded from standard EC policies, as are war and nuclear risks.

In the context of insurance contracts, a ‘representation’ is a statement of fact made by the proposer to the insurer before the contract is concluded. These representations are crucial for the insurer to assess the risk. The principle of utmost good faith (uberrimae fidei) dictates that all material facts must be disclosed. If a representation is found to be untrue, and it relates to a material fact, it can allow the insurer to void the contract. The law generally requires that such representations be substantially true; absolute truth is not always mandated, but a significant deviation from the truth on a material matter can invalidate the policy. Options (b), (c), and (d) present incorrect standards or conditions for representations. Representations do not always need to be in writing unless specified by law or the proposal form, absolute truth is a higher standard than usually required, and untrue representations on material facts can indeed affect the contract.

The core principle of an indemnity policy is to restore the insured to their pre-loss financial position. When new parts are used to repair an older vehicle, these new parts inherently offer a superior lifespan and condition compared to the original, aged parts. This improvement in the vehicle’s condition beyond its pre-accident state is termed ‘betterment’. The insurer is not obligated to provide a benefit that exceeds the original state. Therefore, a contribution from the insured towards the cost of new parts is justified to account for this betterment, ensuring the insured does not gain an advantage. The scenario highlights that the insurer’s calculation of a 35% betterment contribution for an eight-year-old vehicle, considering the normal depreciation rate of 50% for such a vehicle, was deemed reasonable by the Complaints Panel. This aligns with the principle of indemnity, as the insured is expected to contribute to the cost of the upgrade in quality provided by the new parts.

An insurance broker acts as an agent for the proposer, meaning they are legally identified with the proposer. 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, as the broker’s actions are considered the proposer’s actions in the eyes of the law. Therefore, the broker’s failure to disclose material information is a direct breach of the proposer’s duty to the insurer.

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 expect for a general store. This directly impacts the underwriter’s assessment of insurability and premium calculation, making it a material fact. The other options describe situations that are either common knowledge (typhoons in Hong Kong), improvements to risk (sprinkler systems), or facts the insurer is expected to know or discover through their own processes, and therefore do not need to be proactively disclosed by the proposer.

The scenario describes a situation where the insured experienced a loss (damaged watch) and took action to mitigate it by sending it for repair. However, the claim was lodged only after the repair was completed and the watch was collected, which was two weeks after the incident. The provided text emphasizes the importance of timely notification to the insurer as per policy conditions. While the insured acted promptly to get the watch repaired, the delay in notifying the insurer about the incident itself, before or immediately after the repair, could be a breach of the ‘as soon as possible’ notification clause. This delay, even if the repair was done, might affect the insurer’s ability to investigate the cause of the loss or verify the damage, potentially impacting the claim’s validity. Therefore, the insurer might consider the claim invalid due to the late notification of the incident, despite the prompt repair.