Paper 2 General Insurance Quiz 36

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 specifically invalidates a particular claim. The scenario describes a situation where the insured fails to notify the insurer of a change in profession, which is a common example of a condition subsequent to the contract. However, the question asks about the consequence of failing to notify the insurer about a change in profession *if* the policy explicitly states that such a failure leads to the forfeiture of rights for any claim arising from that change. This forfeiture of rights for a specific claim, rather than voiding the entire contract, aligns with the definition of a condition precedent to liability. Therefore, the failure to notify, under these specific policy terms, acts as a condition precedent to the insurer’s liability for any claim related to the un-notified profession change.

The Code of Conduct for Insurers in Hong Kong is designed to promote good insurance practice and protect policyholders. It addresses various aspects of an insurer’s operations to ensure fair treatment and transparency. Specifically, the Code covers the insurer’s responsibilities towards customers, including their rights and interests, and also sets standards for underwriting and claims handling processes. While an insurer’s public image as a corporate citizen is important, the Code’s primary focus is on the direct conduct of insurance business and the protection of policyholders’ rights and interests within that context. Therefore, the industry’s public image as a good corporate citizen, while a desirable outcome, is not a direct area explicitly outlined as a covered topic within the Code itself, unlike the other listed areas.

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.

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.

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.

Institute Cargo Clauses (ICC) (A) provides the broadest ‘all risks’ coverage for the insured cargo. ICC (B) covers specified risks, including major casualties like fire, stranding, sinking, and collision, along with other perils such as earthquake, volcanic eruption, lightning, discharge of cargo at a port of distress, jettison, washing overboard, and water damage. ICC (C) offers the most limited coverage, primarily for General Average sacrifice, jettison, and specific major casualties like fire, stranding, sinking, and collision, as well as discharge of cargo at a port of distress. The question asks about the coverage for damage arising from the cargo’s inherent nature, such as spoilage. This is explicitly excluded under the ‘inherent vice’ exclusion, which applies to all three ICC clauses (A, B, and C). Therefore, none of the ICC clauses would cover loss due to inherent vice.

A cover note is a binding document that provides immediate, albeit temporary, insurance coverage. It serves as documentary evidence that insurance exists, even before the formal policy is issued. While it can have cancellation clauses, its primary function is to confirm coverage from the outset, making it distinct from a policy which is the final, comprehensive contract, or a certificate of insurance which primarily serves as proof of compulsory insurance or a summary of cover under a master policy.

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 because the basis of the contract, which relies on truthful disclosure of material facts, has been violated. Therefore, the broker’s actions directly impact the validity of the insurance contract from the proposer’s perspective.

Institute Cargo Clauses (ICC) (A) provides the broadest coverage for own damage on an ‘All Risks’ basis. This means it covers a wider range of perils compared to ICC (B) and ICC (C), which are based on specified risks. While ICC (B) covers major casualties and certain other perils, and ICC (C) is even more limited, ICC (A) is the most comprehensive for own damage. The scenario describes a situation where cargo is damaged due to a peril not explicitly listed in ICC (B) or (C), making ICC (A) the most appropriate and likely cover. The question tests the understanding of the tiered coverage levels within the Institute Cargo Clauses for own damage.

The scenario describes a situation where the insured delayed notifying the insurer about a claim. The policy likely contains a condition requiring prompt notification. While the insured took the watch for repair immediately, the claim submission to the insurer occurred two weeks after the repair was completed. This delay in reporting the incident to the insurer, even after the repair, could be a breach of the policy’s notification clause, which is a contractual term affecting claims. The insurer might argue that this delay prejudiced their ability to investigate the loss or assess the damage properly. Therefore, the claim could be challenged based on the insured’s failure to comply with the notification requirements as stipulated in the policy, which is a key aspect of claims handling under general insurance principles.

This question tests the understanding of how changes in the insured risk can impact the policy. The Insurance Companies Ordinance (Cap. 41) and general insurance principles dictate that if the circumstances under which a risk was insured alter for the worse, the insurer may have grounds to cancel the policy, provided they follow the correct procedures. This is because the original assessment of risk and premium may no longer be adequate. Option B is incorrect because while a change in market conditions can influence underwriting, it doesn’t directly grant the insurer the right to cancel based on a worsened risk for the insured. Option C is incorrect as the insurer’s marketing philosophy is a business decision, not a basis for policy cancellation due to a change in the insured’s risk. Option D is incorrect because while an underwriter might seek expert advice, the need for it doesn’t automatically lead to cancellation; it’s part of the assessment process.

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 the specific limitations of motor insurance policies for motorcycles, particularly concerning theft claims. According to the provided text, for motorcycles, theft claims are only admissible if the entire machine is stolen. This means that if only accessories are stolen, the insurer will not cover the loss. Therefore, a scenario where a motorcycle’s valuable accessories are stolen would not be covered under the standard ‘Own Damage/Accidental Damage’ section of a motorcycle insurance policy.

The scenario describes an individual who intentionally intervenes in a violent situation 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 fray. 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 fight, even with the intention of helping, the insured exposed himself to a predictable risk of harm, thus negating the ‘accidental’ nature of the injury as required by personal accident policies.

The scenario describes a situation where an insured person, a businessman who travels frequently, sustains a back injury. Initially, the insurer paid Temporary Total Disability (TTD) benefits. However, based on a medical examiner’s report indicating improved trunk movement, the insurer reclassified the benefit to Temporary Partial Disability (TPD), arguing the insured could perform some duties. The Complaints Panel, weighing the opinions of the insured’s attending doctors against the insurer’s consultant, ultimately sided with the attending doctors, ruling that the insured should continue receiving TTD benefits. This decision highlights the critical importance of the definition of ‘disablement’ in a personal accident policy. TTD benefits are typically payable when an insured is unable to perform *any* of their usual occupation duties. TPD benefits are for situations where the insured can perform *some* but not all of their usual duties. The panel’s decision implies that the insured’s attending doctors’ assessment of his inability to perform *any* work until a specific date was given more weight than the insurer’s interpretation of his improved physical range of motion, suggesting that the functional impact on his ability to work was the primary consideration.

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 policyholder’s situation, such as a pre-existing back condition in personal accident insurance or a history of driving offenses within a family for motor insurance, they can issue a special endorsement. This endorsement, often termed an exclusion clause or a specific limitation, carves out coverage for that particular risk, while the rest of the policy remains in force. This is a common underwriting practice to ensure the policy accurately reflects the assessed risk and premium. Option B is incorrect because a general exclusion applies to all policyholders, not a specific risk within a single policy. Option C is incorrect as a market exclusion is a standard exclusion applied by most insurers in the market for fundamental risks. Option D is incorrect because while fraud can invalidate a policy, it’s a legal principle rather than a specific underwriting tool to manage identified risks prior to policy inception or renewal.

The scenario describes a situation where an insurance broker is offering a portion of their commission to a potential client. This practice, known as rebating, is explicitly addressed in the provided text. While sometimes seen as a harmless gesture, it becomes a serious issue when used as an improper inducement to secure business. The question tests the understanding of this distinction and the ethical implications of such an offer, particularly in the context of Hong Kong’s regulatory framework for insurance intermediaries, which aims to prevent unfair competition and protect client interests. The other options represent different ethical or regulatory concerns that are not directly applicable to the specific action described.

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. If a claim exceeds this amount, or if the dispute arises from commercial, industrial, or third-party insurance, the ICCB is not the appropriate venue. In such cases, alternative dispute resolution methods like litigation or arbitration would be necessary. Therefore, a claim exceeding HK$800,000 falls outside the ICCB’s purview.

This question tests the understanding of the legal and contractual aspects of insurance policy renewals in Hong Kong. Statement (i) is true because the principle of utmost good faith is a continuous duty throughout the life of an insurance contract, and it is particularly important at renewal when new information may need to be disclosed. Statement (ii) is also true; a renewal is generally considered the creation of a new contract, even if the terms are identical to the previous one, as it establishes a new period of coverage. Statement (iv) is correct as 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 incorrect because while terms can be negotiated, they are not entirely ‘freely’ negotiable in the sense that the insurer sets the terms and conditions based on their underwriting policies and risk assessment, and the insured accepts or rejects them. The insurer is not obligated to negotiate every term. Therefore, statements (i), (ii), and (iv) are the accurate assertions regarding general insurance policy renewals.

The question tests the understanding of the specific limitations of motor insurance policies for motorcycles, particularly concerning theft claims. According to the provided text, for motorcycles, theft claims are only admissible if the entire machine is stolen. This means that if only accessories are stolen, the insurer will not cover the loss. Therefore, a policyholder whose motorcycle’s valuable accessories were stolen would not be able to claim under the ‘Own Damage/Accidental Damage’ section for that specific loss.

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 role 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.

The “step-back system” for No Claim Discount (NCD) in private car insurance, as described in the IIQE syllabus, dictates how a claim affects the accumulated discount. For private cars with an entitlement of four or more years (equivalent to 50% or 60% NCD), a single claim in the policy year will result in a reduction of the NCD to 20% or 30% respectively upon renewal. This means the discount is not entirely lost but is significantly reduced, requiring subsequent claim-free years to rebuild to the previous level. Options B, C, and D describe scenarios that are either incorrect or do not fully represent the “step-back” mechanism for higher NCD entitlements.

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 an ‘annual policy’ is a specific pricing structure designed for frequent travelers. This structure offers a single premium for a defined period, typically a year, covering multiple trips. The other options represent components that influence premium calculation but are not the overarching pricing model for frequent travelers.

A General Average Act involves a voluntary and reasonable sacrifice or expenditure made during a peril to preserve the common adventure. Throwing cargo overboard to lighten a ship during a storm is a classic example of a General Average Sacrifice. The owner of the sacrificed cargo is then entitled to a contribution from the other parties whose property was saved. This contribution is known as a General Average Contribution. The question describes a situation where a portion of the cargo was jettisoned to save the remaining cargo and the vessel, which directly aligns with the definition of a General Average Sacrifice and the subsequent entitlement to a contribution.

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 lines. The service is free for complainants, ensuring accessibility. While the ICCB aims to facilitate resolution, its awards are not binding on the insurer in the same way a court judgment would be, and insurers are not obligated to accept an award. However, the complainant can choose to accept the award, which then becomes binding on the insurer. The maximum claim amount handled by the ICCB is subject to periodic review and adjustment by the regulators, and the figure of HK$800,000 is a relevant threshold for certain types of disputes. The ability for either party to appeal against an award is not a feature of the ICCB process; rather, the complainant can accept or reject an award, and the insurer is bound if the complainant accepts. Therefore, only the statement that the complainant is never charged a fee for this service is accurate regarding the ICCB’s operational framework.

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.

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 and fraud are extreme forms, carelessness, unreasonableness (like inflexibility or opinionated views), and negative social behaviour (such as vandalism) also contribute to moral hazard. The question asks to identify a behaviour that, while not inherently dishonest, can still lead to adverse outcomes due to the insured’s conduct. Unreasonableness, characterized by inflexibility and strong opinions, can lead to poor risk management decisions or resistance to safety recommendations, thereby increasing the probability of a claim, which aligns with the concept of moral hazard.

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 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. Therefore, a scenario where a thief damages a shop’s door to gain entry and subsequently steals goods would be covered for both the stolen goods and the damage to the door, provided the entry was forcible and violent.

The scenario describes an insurance broker offering a portion of their commission to a potential client to secure business. This practice, known as rebating, is explicitly addressed in the provided text as a grave matter if it serves as an improper inducement. While rebating might seem like a harmless gesture in some contexts, its use to attract clients by offering a ‘cheaper’ premium falls under the category of misconduct, as it can distort fair competition and potentially lead to clients making decisions based on incentives rather than suitability. Therefore, the broker’s action is considered a breach of ethical conduct and potentially a violation of regulations designed to prevent such inducements.

This question tests the understanding of exclusions in a Professional Indemnity (PI) policy. PI policies are designed to cover financial losses arising from negligent acts or omissions in professional services. However, they typically exclude liability stemming from dishonest or fraudulent conduct by the insured professional. This exclusion is crucial because insurance is meant to cover unforeseen accidents and errors, not intentional wrongdoing. While other options might be excluded in certain PI policies (e.g., pollution, contractual liability), dishonesty is a fundamental exclusion related to the nature of professional misconduct.