Paper 2 General Insurance Quiz 38

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 the insurer to cover a theft, there must be evidence of forced or violent entry into the premises. The other options represent different insurance concepts: ‘Franchise’ relates to the deductible amount that the insured must bear before the insurer pays, ‘Fraud’ concerns dishonest acts by the insured, and ‘Fundamental Risks’ refers to catastrophic potential losses typically excluded from standard policies. Therefore, only the forcible and violent entry condition is directly linked to the validity of a theft claim under such policies.

The question tests the understanding of what constitutes a material fact that an applicant must disclose to an insurer. According to insurance principles, a material fact is one that would influence a prudent underwriter’s decision to accept the risk or the terms offered. Storing highly flammable materials like volatile chemicals in a general store, where such items are not typically expected, significantly increases the fire risk beyond what a prudent underwriter would anticipate for a standard general store. This directly aligns with the definition of a material fact that renders a risk greater than would otherwise be supposed. Options B, C, and D describe situations that are either common knowledge (typhoons in Hong Kong), improvements to risk (sprinkler systems), or facts the insurer is expected to know (dangers of occupations), all of which are generally considered non-disclosable or non-material facts.

A cover note serves as a temporary insurance document that binds the insurer, providing immediate evidence of coverage. While it is not conditional on a later proposal form, it often includes cancellation provisions. A policy, on the other hand, is the final, formal document that represents the completed underwriting process and replaces any prior cover notes. A certificate of insurance, particularly in the context of compulsory insurance like motor, acts as proof of that coverage to relevant authorities and is a separate, permanent document, unlike a cover note which is temporary. Therefore, a cover note’s primary function is to provide immediate, albeit temporary, evidence of insurance, binding the insurer.

The Employees’ Compensation Ordinance (ECO) mandates that employers must provide compensation to employees for injuries or death arising out of and in the course of employment. While the ECO provides a statutory framework for compensation, employers can also be held liable under common law for negligence or breach of statutory duty related to workplace safety. Employees’ Compensation Insurance (ECI) policies typically cover both liabilities. The question highlights a scenario where an insurer rejected a claim because the injury did not arise out of and in the course of employment, implying the injury was not work-related as defined by the ECO. However, the employer’s liability could still exist under common law if the employer’s negligence caused the injury, even if it didn’t strictly meet the ‘arising out of and in the course of employment’ criteria for ECO coverage. Therefore, the employer’s liability independent of the EC Ordinance, often referred to as common law liability, would still be relevant and potentially covered by the ECI policy, provided the policy terms and conditions are met for such coverage.

The Employees’ Compensation Ordinance (ECO) mandates that employers must provide compensation to employees for injuries or death 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 or breach of statutory duty related to workplace safety. Employees’ Compensation Insurance (ECI) policies typically cover both liabilities. The question describes a scenario where an employer’s claim was rejected because the injury did not arise out of and in the course of employment, implying it falls outside the ECO’s scope. However, the employer might still have liability under common law if negligence can be proven, and this would be covered by the ‘liability independent of the EC Ordinance’ portion of the ECI policy. Therefore, the insurer’s rejection based solely on the injury not meeting the ECO’s ‘arising out of and in the course of employment’ criteria is incomplete, as it overlooks potential common law liability.

This question tests the understanding of the specific exclusions in a Product Liability policy. Option (a) is correct because liability arising from the design, plan, formula, or specification of the goods is a common exclusion. For instance, if a product fails due to an inherent flaw in its design, such as a weight-bearing capacity being underestimated, the resulting damage is typically not covered. Option (b) is incorrect as while liability for property damage is generally covered, the exclusion relates to the *cause* of the damage (design flaw), not the damage itself. Option (c) is incorrect because while liability for repair or replacement of goods is excluded, the scenario describes a failure due to a manufacturing defect leading to consequential damage (car fire), which is distinct from the cost of replacing the defective item itself. Option (d) is incorrect because liability for advice or information is a separate exclusion, and the scenario focuses on a product defect, not faulty guidance.

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 execution, 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, provided these arise from covered perils.

The scenario describes a situation where an insured individual, after an injury, is initially receiving Temporary Total Disability (TTD) benefits. However, the insurer proposes to switch to Temporary Partial Disability (TPD) benefits based on a medical examiner’s opinion that the insured’s range of motion had improved, suggesting they could perform some duties. The key conflict arises from differing medical opinions regarding the insured’s ability to perform *any* work. The Complaints Panel, in this context, would prioritize the opinions of the insured’s attending doctors who have direct and ongoing knowledge of the patient’s condition over the insurer’s medical consultant’s assessment, especially when determining the extent of disability and entitlement to benefits. This aligns with the principle that the attending physician’s assessment is generally given more weight in such disputes, particularly when it pertains to the insured’s ability to perform their usual occupation.

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.

The scenario highlights the importance of the insured’s duty to notify the insurer of a potential claim as soon as reasonably possible. While the insured did report the damage within 20 days, the key issue is whether this constituted ‘as soon as reasonably possible’ given that the repairs were already completed. The Complaints Panel acknowledged that the repair prior to notification prejudiced the insurer’s ability to investigate the cause and extent of the damage. Although the panel ultimately gave the insured the benefit of the doubt due to the simplicity of the circumstances and the availability of repair documentation, the underlying principle is that a delay that hinders the insurer’s investigation can be grounds for claim rejection. The question tests the understanding of this principle and the potential consequences of delayed notification, even if the delay is not excessively long, especially when it impacts the insurer’s ability to assess the claim’s validity. The other options are less accurate because they either misinterpret the panel’s reasoning or focus on aspects that were secondary to the core issue of prejudiced investigation.

A Performance Bond is a financial guarantee, structured as a bond rather than an insurance policy, designed to ensure that a contractor fulfills their contractual obligations, specifically the completion of construction work within an agreed-upon timeframe. This aligns with the definition provided, emphasizing its role in guaranteeing project completion.

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 individual trip factors or general policy features, not the specific pricing model for frequent travelers.

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 a private car 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 on renewal to 20% or 30% respectively. This means the discount does not reset to zero but moves back a few steps. Options B, C, and D describe scenarios that are either incorrect or do not fully represent the ‘step-back’ mechanism for higher NCD entitlements.

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. Specifically, it addresses the insurer’s responsibilities in underwriting and claims handling, ensuring fair treatment and efficient processing. It also explicitly details the rights and obligations of customers, empowering them with knowledge about their policies and the insurer’s duties. Furthermore, the Code emphasizes the importance of safeguarding customers’ rights and interests in all dealings. While a good corporate citizen image is desirable, the Code’s primary focus is on the direct relationship and conduct between the insurer and its customers, and the operational integrity of insurance practices, rather than the broader public image as a corporate entity.

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 Employees’ Compensation Ordinance (ECO) mandates that employers must provide compensation to employees for injuries or death arising out of and in the course of employment. Employees’ Compensation Insurance (ECI) policies are designed to cover an employer’s liability under this ordinance. However, employers can also have liability independent of the ECO, often referred to as common law liability, which arises from negligence or breach of statutory duty concerning industrial safety. This common law liability is also covered by ECI policies. The question asks about the basis of premium calculation for ECI. The provided text states that the premium is usually a rate per cent or per mille applied to the annual payroll, and that the initial premium is provisional, subject to adjustment based on final payroll figures. Therefore, the annual payroll is the fundamental basis for calculating the premium.

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. While other options relate to insurance, they do not specifically address the foundational legal requirement for third-party coverage in motor vehicle use.

The scenario highlights the insured’s obligation to cooperate with the insurer after a loss. This duty, recognized under common law and often reinforced in policy wordings, requires the insured to provide reasonable assistance and information to the insurer to facilitate the claims assessment and settlement process. Specifically, allowing access to premises and staff for investigations is a key aspect of this cooperation. Failing to do so could be considered a breach of the policy conditions, potentially impacting the claim’s validity. While minimizing loss and providing proof of claim are also duties, the immediate action of denying access directly impedes the insurer’s ability to investigate, making cooperation the most pertinent duty in this context.

This question tests the understanding of waiver in the context of insurance premium payments. Waiver occurs when an insurer, through its conduct or explicit statement, indicates it will not strictly enforce a contractual term, such as the punctuality of premium payments. If an insurer consistently accepts late premium payments without objection, this behavior can be interpreted as a waiver of the strict due date requirement for future payments. This means the insurer may be prevented from denying coverage solely because a premium was paid slightly late, provided the insured reasonably relied on this past acceptance. Estoppel, on the other hand, requires the insured to demonstrate reasonable reliance on the insurer’s conduct or representation, leading to a detrimental change in their position if the insurer were to revert to strict enforcement. The scenario describes a pattern of accepting late payments, which directly aligns with the concept of waiver.

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 did not disclose it. D&O policies typically exclude coverage for claims arising from circumstances known or that ought to have been known by the insured at the time of policy inception. This is to prevent individuals from obtaining insurance coverage for known risks or past misconduct. 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 subject to the policy’s exclusions, and the known circumstance exclusion applies here. Option D is incorrect because while dishonesty or fraud can be excluded, the primary exclusion in this scenario is the prior knowledge of the circumstance.

The question tests the understanding of the scope of theft insurance, specifically concerning damage to the premises during an attempted theft. The provided text states that theft policies typically include 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 under the general policy for stock and specified contents. Therefore, while the primary focus is on the stolen goods, the policy also extends to cover the damage to the premises incurred during the act of theft, provided it involves forcible and violent entry or exit.

This question tests the understanding of exclusions in engineering insurance, specifically Boiler Explosion Insurance. The provided text states that risks normally insurable by other policies, such as fire and extra perils, are excluded from Boiler Explosion Insurance. This is to prevent duplication of coverage and ensure that each policy covers distinct risks. Therefore, a fire that occurs during a boiler explosion would typically be covered by a separate fire insurance policy, not the boiler explosion policy.

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 incurred voluntarily to save the entire venture from peril. Statement (i) is incorrect because the act causing the sacrifice must be voluntary, but not necessarily deliberate in the sense of malicious intent; it’s about a conscious decision to sacrifice for the common good. Statement (ii) is correct; for a sacrifice to be considered in general average, it must have been made to avert a common danger and achieve its intended purpose of saving the adventure. Statement (iii) is correct; the core principle of general average is that the loss is shared proportionally by all interests (ship, cargo, freight) that benefited from the sacrifice. Statement (iv) is incorrect because the owners of the goods sacrificed are compensated for their loss through the general average adjustment, meaning their goods are not excluded from the sharing of the loss; rather, they are compensated for their sacrifice.

This question assesses the understanding of the positive impacts of excellent customer service beyond merely avoiding negative outcomes. While all options represent potential benefits, customer loyalty is directly linked to the retention of business, particularly in insurance where renewals are crucial. Happy customers are more likely to continue their policies, which is less costly than acquiring new business. Customer productivity and increased profitability are also positive outcomes, but customer loyalty is the foundational element that drives these. The ‘take it or leave it’ approach, as mentioned in the syllabus, directly undermines customer loyalty, highlighting its importance.

The question probes the understanding of rebating in the context of insurance intermediary practices, specifically how it can be construed as bribery or corruption. Rebating, in essence, involves offering a portion of the commission or premium back to the policyholder or a related party as an inducement to purchase insurance. This practice distorts the true cost of insurance and undermines the principle of fair compensation for services rendered by intermediaries. When such benefits are provided without proper disclosure or to individuals associated with the insured entity (like employees), it can create conflicts of interest and potentially lead to unethical practices. The prohibition against rebating to employees of the insured without the insured’s written consent, as stipulated in the Model Agency Agreement and the Code of Practice for the Administration of Insurance Agents, aims to prevent such abuses. Offering such benefits can be seen as an indirect payment or inducement, which, depending on the circumstances and intent, could be interpreted as a form of bribery or corruption, especially if it influences business decisions or creates an unfair advantage. Therefore, the core issue is that rebating can compromise the integrity of the insurance transaction and the intermediary’s professional conduct.

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 applies to claims, ‘Fraud’ concerns dishonest acts by the insured, and ‘Fundamental Risks’ are those with potentially catastrophic loss potential that are often excluded.

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 policy typically covers loss of money due to theft or other specified perils, not necessarily employee dishonesty; a Burglary Insurance policy covers loss of property due to forced entry; and a Public Liability Insurance policy covers an organization’s legal liability for injury or property damage to third parties.

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 PA policy would not typically cover medical expenses incurred due to a sickness like influenza, as this is the domain of medical insurance.

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 individual, after an injury, is initially receiving Temporary Total Disability (TTD) benefits. However, the insurer proposes to switch to Temporary Partial Disability (TPD) benefits based on a medical examiner’s opinion that the insured’s range of motion had improved, suggesting they could perform some duties. The key conflict arises from differing medical opinions regarding the insured’s ability to perform *any* work. The Complaints Panel, in this context, prioritized the attending doctors’ assessments over the insurer’s medical consultant. This aligns with the principle that attending physicians, having direct and ongoing knowledge of the patient’s condition, are generally considered more authoritative in determining the extent of disability and its impact on the insured’s ability to work. The panel’s decision to continue TTD benefits reflects a belief that the insured was still unable to perform *any* work, despite some physical improvement, until the specified date. This highlights the importance of the definition of ‘any occupation’ versus ‘own occupation’ in policy wording and the weight given to medical evidence in dispute resolution.