Paper 2 General Insurance Quiz 30

The Employees’ Compensation Assistance Scheme (ECAS) is designed to provide a safety net when compulsory employees’ compensation insurance is absent or ineffective. It is funded partly by a levy on insurance premiums. This scheme acts as a fallback mechanism to ensure that employees who suffer work-related injuries or diseases can still receive compensation, even if their employer has failed to secure the mandatory insurance coverage as required by the Employees’ Compensation Ordinance. Therefore, its primary purpose is to bridge the gap created by the ineffectiveness or non-existence of the compulsory 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 that later led to a claim. D&O policies typically exclude coverage for circumstances known or that ought to have been known at the policy inception date. This exclusion aims to prevent individuals from obtaining insurance coverage for known risks they have already chosen to undertake. Option B is incorrect because while dishonesty is an exclusion, the scenario doesn’t explicitly state dishonesty, and the primary exclusion here is prior knowledge. Option C is incorrect as contractual liability exclusions are separate from the concept of prior knowledge. Option D is incorrect because while pollution is a standard exclusion, it’s not the relevant exclusion for the given scenario.

The question tests the understanding of the ‘claims-made’ basis for Directors and Officers (D&O) liability insurance, as outlined in the provided syllabus. A claims-made policy covers claims that are made against the insured *during* the policy period, regardless of when the wrongful act occurred. This means that for continuous coverage, the insured must maintain continuous claims-made policies. If a company ceases trading or is dissolved, the directors may still be liable for past actions. Therefore, to ensure ongoing protection for directors after they leave the company or if the company’s status changes, it is crucial to consider maintaining coverage for a period after these events. This is often achieved through ‘tail’ coverage or ensuring the policy has retroactive provisions that cover prior acts. Option A correctly identifies the need for continued coverage post-employment or company dissolution due to the claims-made nature of D&O policies. Option B is incorrect because while a flat premium is common, it doesn’t address the core issue of coverage continuity. Option C is incorrect as the policy is claims-made, not claims-occurring, meaning the timing of the claim notification is paramount. Option D is incorrect because while exclusions exist, the primary concern for continuity is the claims-made trigger, not the specific exclusions themselves.

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 it describes a specific type of fishing vessel, but the broader category in (a) is more encompassing for trading vessels. Option (d) is incorrect because it refers to vessels registered in Mainland China or Macau that are issued specific certificates, which is a separate category of exemption or special consideration, not a general requirement for all vessels trading to Hong Kong.

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 void the policy from the date of the breach. However, insurers in Hong Kong have voluntarily agreed, through the Hong Kong Federation of Insurers’ Code of Conduct, to only deny a claim due to a warranty breach if there is a causal link between the breach and the loss, or if the breach was fraudulent. This undertaking modifies the strict legal interpretation of warranty breaches in practice for personal insurance business.

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 statement that an insurer is not obligated to remind the insured about renewal is accurate.

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 usually fall to the assured, distinguishing it from the engagement of non-marine loss adjusters who are typically appointed and paid by the insurer.

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, irrespective of whether specific questions are asked. Therefore, facts that impact an underwriter’s assessment of insurability or the terms of the policy are considered material.

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 rather invalidates a specific claim. 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 after the unnotified change, even if the policy itself remains in force for other purposes. This aligns with the definition of a condition precedent to liability, as it affects the insurer’s obligation to pay a particular claim rather than the contract’s existence.

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.

Moral hazard refers to the increased likelihood of a loss occurring because an individual is insured. It’s often linked to the ‘human element’ of risk, encompassing attitudes and behaviours. While dishonesty (including fraud) is a direct manifestation, carelessness, unreasonableness (like stubborn inflexibility), and negative social behaviour (such as vandalism) also contribute to adverse moral hazard. These behaviours can increase the probability or severity of a claim, even if not driven by outright fraud. Therefore, all listed behaviours are considered aspects of moral hazard.

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 a change in profession. Failure to do so, as stipulated, would mean the insurer is not liable for any claims arising after the unnotified 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 not a recognized classification of contract terms in this context.

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 as part of a valid claim, the initial appointment and payment usually fall to the assured. This contrasts with non-marine loss adjusters, who are more commonly appointed and paid by the insurer.

The question tests the understanding of an insurer’s obligation regarding policy renewals. According to general insurance principles, an insurer is not legally obligated 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 a distinct process from non-renewal.

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 potentially large number of parties involved (e.g., numerous cargo owners), and the often lengthy investigation and apportionment processes that can span years. While Lloyd’s Agents and Loss Adjusters are also involved in claims handling, average adjusters are specifically retained for the unique complexities of GA, and sometimes for complicated hull and cargo losses, distinguishing them from the more general roles of the others.

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 impact the insurer’s ability to investigate the cause of the loss or assess the damage independently, potentially affecting the claim’s validity. Therefore, the insurer might consider the claim invalid due to the delayed notification of the incident, despite the prompt repair.

The provided text emphasizes that customer service is no longer optional but a critical expectation. A “take it or leave it” approach, as described, is detrimental. The negative consequences of poor customer service are outlined as loss of business, loss of intermediary support, damage to market prestige, and potential government intervention. Conversely, positive outcomes include customer loyalty, increased customer “productivity” through recommendations, and enhanced profitability due to fewer costly complaints. Therefore, the core message is that excellent customer service is a strategic imperative for insurers, directly impacting their sustainability and reputation.

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 ordinance mandates insurance to cover these liabilities. Therefore, the core principle is the employer’s legal responsibility to compensate for work-related injuries, irrespective of fault, which is covered by compulsory insurance.

This question tests the understanding of the distinction between ‘Specified Perils’ and ‘All Risks’ cover in property insurance. ‘Specified Perils’ cover only losses caused by events explicitly listed in the policy, meaning the claimant must prove the loss was due to one of these named perils. ‘All Risks’ cover, conversely, covers all accidental losses unless specifically excluded, shifting the burden of proof to the insurer to demonstrate an exclusion applies. The scenario describes a situation where a loss occurred, and the claimant needs to demonstrate the cause was a specific event mentioned in the policy, which aligns with the definition of ‘Specified Perils’ cover.

This question tests the understanding of how travel insurance premiums are determined. While geographical area, duration, and the number of people insured are primary factors, the concept of ‘annual policies’ is a specific pricing structure designed for frequent travelers. This structure offers a single premium for a defined period, often a year, covering multiple trips, which is distinct from per-trip pricing based on the other factors. Therefore, the existence of annual policies is a feature that influences premium calculation by providing an alternative pricing model for a specific customer segment.

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 ‘accident,’ which implies an unforeseen and unintentional event. By actively participating in a dangerous situation, the insured’s actions led to a predictable outcome of being injured, thus removing the event from the realm of ‘accident’ as defined for insurance purposes. The insurer’s rejection was based on the injury not being accidental, which aligns with the panel’s finding that the insured’s foreseeability of harm negated the accidental nature of the event.

The scenario describes a situation where an insured party, after experiencing a fire loss, fails to take reasonable steps to protect the damaged property from further deterioration, such as preventing water damage to electrical components. This directly contravenes the insured’s duty to minimize loss, which is a common law obligation and often explicitly stated in policy conditions. Failing to take such reasonable care can lead to the insurer reducing the claim amount or even rejecting it, as the further damage could have been prevented. Admitting liability to a third party without the insurer’s consent, failing to provide proof of loss, or not disclosing other insurances are also duties of the insured, but they are not the primary breach in this specific scenario.

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 at or above the wrist or total functional disablement, does not meet the policy’s strict definition for this benefit. Therefore, the insurer’s rejection of the claim for partial disablement is upheld because the insured’s condition did not align with the policy’s precise wording for ‘loss of one limb’ or ‘total functional disablement’.

The Employees’ Compensation Ordinance (ECO) mandates that employers must provide compensation to employees for injuries or diseases arising out of and in the course of employment. While the ECO provides a statutory framework for compensation, employers can also be liable under common law for negligence. Common law liability for employers typically arises from a breach of their duty of care to provide a safe working environment. This liability is independent of the ECO and can result in claims for damages that may exceed the benefits provided by the ECO. The question tests the understanding that an employer’s liability can stem from both statutory requirements (ECO) and common law principles, particularly negligence, and that these are distinct but related areas of responsibility. The scenario highlights a situation where an insurer rejected a claim under the EC Policy because the injury did not meet the ‘arising out of and in the course of employment’ criterion for the statutory scheme. However, this rejection does not preclude the employer from being liable under common law if negligence can be proven. Therefore, the employer’s liability independent of the EC Ordinance, often referred to as common law liability, remains a potential area of responsibility.

This question tests the understanding of how changes in the insured risk can impact an insurance policy, specifically when the circumstances have worsened. According to insurance principles, if the original circumstances under which a risk was insured alter for the worse, the insurer may have grounds to cancel the policy. This is because the risk profile has changed, potentially increasing the likelihood or severity of a claim beyond what was originally contemplated and priced for. Option B is incorrect because while a change in circumstances might lead to a premium adjustment, cancellation is a more direct consequence of a significant negative alteration. Option C is incorrect as the insurer’s obligation is generally tied to the terms of the policy, and a worsening risk doesn’t automatically void the policy without action from the insurer. Option D is incorrect because while the insured might be informed of changes, the primary implication of a worsened risk for the insurer is the potential for policy alteration or cancellation, not necessarily an immediate obligation to offer new terms.

The question tests the understanding of the ‘claims-made’ basis for Directors and Officers (D&O) liability insurance, as outlined in the provided syllabus. A claims-made policy covers claims that are made against the insured during the policy period, regardless of when the wrongful act occurred. This contrasts with an ‘occurrence’ basis, where the policy in effect at the time of the incident would respond. Therefore, for a director leaving a company, maintaining cover for potential future claims arising from their past actions is crucial. This is typically achieved through an extended reporting period (ERP) or ‘tail cover’, which allows claims to be reported after the policy has expired, provided the ERP is purchased when the policy is cancelled or not renewed. Option A correctly identifies the need for continued cover after leaving the company due to the claims-made nature of D&O policies. Option B is incorrect because while D&O insurance covers wrongful acts, the primary concern for a departing director is the reporting period, not just the act itself. Option C is incorrect as the policy basis (claims-made) dictates the need for post-departure coverage, not the specific type of wrongful act. Option D is incorrect because while a company ceasing to trade is a relevant consideration for policy continuation, the core issue for an individual director leaving is the claims-made trigger and the need for extended reporting.

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 extended timelines for settlement, which can span years. 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 where insurer’s own staff may not handle claims directly. Arbitration clauses, while a method of dispute resolution, primarily address the quantum of a claim and are not typically the domain of average adjusters’ core specialization.

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 addressed through other dispute resolution mechanisms like 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 scenario highlights the importance of the insured’s duty to notify the insurer of a potential claim. While the insured reported the damage within 20 days, the key issue is whether this constitutes ‘as soon as reasonably possible,’ especially after the repair had already been completed. The Complaints Panel acknowledged that the repair prejudiced the insurer’s ability to investigate. However, they gave the insured the benefit of the doubt due to the simplicity of the circumstances, the availability of repair documentation, and the absence of a poor claims history. This suggests that while timely notification is crucial, the interpretation of ‘as soon as reasonably possible’ can be influenced by the specific facts of the case, the nature of the loss, and the insured’s actions. The insurer’s rejection based solely on the timing, without demonstrating significant prejudice that could not be mitigated, was overturned by the Panel’s consideration of these factors. The question tests the understanding of the ‘as soon as reasonably possible’ clause and the concept of prejudice in insurance claims notification.

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.