Paper 2 General Insurance Quiz 31

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 insurer must prove an exclusion, not the insured.

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.

A General Average Act is defined as any extraordinary sacrifice or expenditure voluntarily and reasonably made or incurred in time of peril for the purpose of preserving the property imperilled in the common adventure. In this scenario, the decision to jettison a portion of the cargo to lighten the vessel and prevent it from sinking during a storm is a classic example of an extraordinary sacrifice made voluntarily and reasonably in a time of peril to save the entire maritime adventure. Therefore, this action constitutes a General Average Act.

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 could lead to the insurer reducing the claim amount or even denying it, as the further damage was a result of the insured’s inaction rather than the original insured peril. 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 issue presented in this specific scenario.

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 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 how premiums are calculated in general insurance, specifically focusing on the concept of risk discrimination. Risk classification assigns risks to broad categories with pre-determined average rates. Risk discrimination, however, involves adjusting these rates based on the specific characteristics of an individual risk within that category. The example of two private warehouses in the same building illustrates this: one in the basement (higher risk, potentially higher premium) and one on the second floor (lower risk, potentially average premium). This adjustment based on distinguishing features is the essence of risk discrimination, not simply applying a standard rate or using a fixed premium base. The mention of “politically correct” is a distractor, as the term “discrimination” in underwriting has a technical meaning unrelated to social bias.

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.

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 assessment of insurability or the terms of the policy are considered material.

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 (3.1.3 (a) Notification to the insurer) emphasizes that instructions are always given regarding the manner in which notice of a possible claim should be given, and Case 15 specifically states that notification is required ‘as soon as possible’. Lodging the claim two weeks after the incident, even though the repair was done, likely constitutes a delay in notification, potentially impacting the claim’s validity according to the policy’s conditions. The insurer would need to assess if this delay prejudiced their ability to investigate the loss or if it breached an express term of the policy regarding timely notification. Therefore, the most appropriate action for the insurer to consider is whether the delay in reporting the claim, despite the prompt repair, constitutes a breach of policy conditions.

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 insurances, even if presented in one policy document. The question tests the understanding of what constitutes a combined liability policy and its potential inclusions beyond the core coverages, emphasizing the tailored nature of such policies for individual client requirements.

Average adjusters are specialists in marine insurance, particularly in General Average (GA) claims. Their expertise is crucial due to the complexity of GA, which involves international maritime law, potentially hundreds of interested parties (like cargo owners), and lengthy investigation periods. 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 insurers’ own staff may handle claims directly. Arbitration clauses, while a dispute resolution mechanism, are distinct from the specialized expertise of an average adjuster.

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 fraud or dishonesty by employees. The other options are incorrect because: Money Insurance typically covers loss of money due to external causes like theft or transit accidents, not employee dishonesty. Public Liability Insurance covers an organization’s legal liability for injury or property damage to third parties. Burglary Insurance covers loss of property due to forced entry, which is not the cause described.

This question tests the understanding of ‘System of Check’ in fidelity guarantee insurance, which is crucial for internal discipline and control within an employer’s operations. The correct answer highlights the proactive measures an employer takes to prevent losses by implementing robust internal controls and oversight of employees entrusted with financial responsibilities. Option B is incorrect because while audits are part of a system of check, they are typically a retrospective review rather than the primary mechanism for ongoing control. Option C is incorrect as external audits are important but the ‘System of Check’ primarily refers to the employer’s internal mechanisms. Option D is incorrect because while employee background checks are a component, they are a pre-employment measure and not the entirety of the ongoing system of internal controls.

This question tests the understanding of the fundamental principles of general average in marine insurance. General average is a principle where all parties to a maritime adventure share losses arising from a voluntary sacrifice or extraordinary expenditure made to preserve the entire venture from peril. Statement (i) is incorrect because the act causing the loss does not necessarily have to be deliberate; it can also be an extraordinary occurrence. Statement (ii) is correct as the sacrifice or expenditure must have been successful in averting a greater loss for the whole adventure. Statement (iii) is correct because the principle of general average dictates that the loss is shared proportionally among all contributing interests, including the ship, cargo, and freight. Statement (iv) is incorrect because the owners of the goods sacrificed are compensated for their loss, and their contribution is calculated based on the value of the saved property, not excluded.

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 insured, irrespective of the vase’s actual market value at the time of the loss. This is a key feature of agreed value policies for items like jewelry and antiques, designed to avoid disputes over valuation in case of a complete loss. For partial losses, however, the principle of strict indemnity typically applies, meaning the payout would be based on the actual loss incurred, not the agreed value. Therefore, the agreed value is payable for a total loss, but strict indemnity applies to partial losses.

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

This question tests the understanding of the ‘fit and proper’ requirement for insurance brokers, which is a fundamental aspect of their licensing and ongoing supervision. The Insurance Authority (IA) mandates that all insurance brokers must be fit and proper to operate. This assessment goes beyond mere technical qualifications and encompasses integrity, financial soundness, and adherence to regulatory standards. While professional indemnity insurance and maintaining proper books are crucial operational requirements, they are components that contribute to demonstrating fitness and properness, rather than being the overarching criterion itself. Similarly, adherence to a code of conduct is a manifestation of being fit and proper, but not the primary definition of it.

The question tests the understanding of the legal significance of a certificate of compulsory insurance, particularly in motor insurance. Section 2.2.4 (iv) of the provided text explicitly states that these certificates are issued solely because the law requires them and that failure to issue one is a criminal offense. It further emphasizes the legal importance of the certificate, making it essential for the insurer to recover it upon policy cancellation. Therefore, the primary purpose and legal mandate for issuing such a certificate is to fulfill a statutory requirement, not to detail the specific terms of coverage like ‘Comprehensive’ or ‘Act Only’, which are typically found in the policy document itself, not the certificate.

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 assess the damage independently, potentially impacting 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 states that Personal Accident (PA) policies in Hong Kong are generally ‘Accidents Only’ policies. This means they are designed to cover benefits arising from accidental bodily injury or death. Sickness benefits, particularly for temporary disablement, might be included, but death from sickness is explicitly excluded as it falls under life insurance. Therefore, a policy that covers medical expenses arising from sickness would not be classified as a PA policy.

This question tests the understanding of how insurers manage risk through policy endorsements. When an insurer identifies a specific, elevated risk associated with a particular aspect of a policy, such as a pre-existing back condition in personal accident insurance or a high-risk driver in motor insurance, they can choose to exclude coverage for that specific risk rather than declining the entire policy. This is achieved through a ‘specially worded exclusion’ or an endorsement that carves out the problematic element. The other options describe different concepts: a market exclusion is a standard exclusion applied across many policies in the market (e.g., war risks), fraud is a general legal principle that invalidates a contract, and public policy refers to legal principles that render certain contracts unenforceable if they violate societal norms.

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 failed to disclose it. D&O policies typically exclude coverage for claims arising from circumstances known or that ought to have been known at the policy inception. This is to prevent individuals from obtaining insurance coverage for known risks they have already chosen not to address. 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 defending claims, but this is contingent on the claim itself being covered, which it is not in this case due to the known circumstance exclusion. Option D is incorrect because while dishonesty can be an exclusion, the primary reason for denial in this scenario is the prior knowledge of the circumstance, which is a distinct exclusion.

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 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 or alter the contract. Option D is a mischaracterization of contract terms.

The scenario describes a situation where an insured person sustained an injury and received a certain number of days of benefit. The key issue is the distinction between Temporary Total Disablement (TTD) and Temporary Partial Disablement (TPD). TTD typically implies an inability to perform any of the insured’s regular duties, while TPD suggests a reduced capacity, allowing for some work. The Complaints Panel’s decision was based on the nature of the injury and the insured’s occupation. Since the insured was a self-employed director whose work primarily involved office duties, and the injury (contusion to the sacrum) did not involve fractures or nerve damage, the panel concluded that after eight days, the insured should have been able to perform some of her duties. This means the remaining five days of sick leave qualified for TPD benefits, not TTD, as the insured was not completely unable to perform any work. Therefore, the insurer’s offer of eight days of TTD and five days of TPD was deemed appropriate according to the policy’s definitions and the circumstances of the injury.

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.

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 policies, not just personal insurance. 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 choose not to accept the recommendation and pursue other legal avenues, including appealing to the courts. The maximum claim amount handled by the ICCB is HK$1,000,000, not HK$800,000. Therefore, only the statements that the complainant is never charged a fee and that either party can appeal against an award are correct.

The scenario describes a situation where an insurer has consistently accepted late premium payments without objection. This pattern of behavior, if it leads the insured to reasonably believe that punctuality is no longer a strict requirement, can lead to the insurer being prevented from enforcing the strict contractual term of timely payment in the future. This legal principle is known as waiver, where the insurer, through its conduct, relinquishes its right to enforce a specific contractual provision. Estoppel also applies if the insured reasonably relied on this conduct to their detriment. Therefore, the insurer’s past acceptance of late payments without protest is the most accurate description of the situation that could lead to a waiver of the punctuality requirement.

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 amounts 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 the ICCB’s services.

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 a mischaracterization of contract terms.