Paper 2 General Insurance Quiz 39

This question tests the understanding of the ‘claims-made’ basis for liability insurance, a crucial concept in the IIQE syllabus. A claims-made policy covers claims that are both made against the insured and reported to the insurer during the policy period, or an extended reporting period. Option (a) describes ‘occurrence-based’ coverage, where the event causing the claim must have occurred during the policy period, regardless of when the claim is made. Option (b) is incorrect as claims made before the policy began are not covered. Option (c) is also incorrect because the policy covers claims made during the period, not necessarily settled, although settlement timing can be relevant in some contexts, the primary trigger is the claim being made.

The Employees’ Compensation Ordinance (Cap. 283) 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) is compulsory to cover this liability. 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, which is a fundamental condition for coverage under the EC Ordinance and thus under an EC policy. While common law liability (liability independent of the EC Ordinance) also covers injuries arising out of and in the course of employment, it is based on fault and is contestable. However, the core reason for the rejection in the scenario is the failure to meet the ‘arising out of and in the course of employment’ criterion, which is the bedrock of EC coverage, regardless of whether it’s under the Ordinance or common law. Therefore, the insurer correctly rejected the claim as the policy’s intent is to cover liability incurred in the capacity of an employer for work-related injuries, and this specific injury did not meet that threshold.

The scenario describes an individual injured while ice-skating. The insurer denied the claim based on a ‘winter-sports’ exclusion. The Complaints Panel, in interpreting this exclusion, considered that ‘winter-sports’ generally refers to sports on snow or ice. Ice-skating, regardless of whether it’s indoors or outdoors, falls under this broad interpretation. Therefore, the exclusion for participating in winter sports would apply, leading to the rejection of the claim. This aligns with the principle that policy exclusions are interpreted based on common understanding and the nature of the activity, even if not explicitly defined in the policy, especially when the activity clearly fits the spirit of the exclusion.

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.

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 from an insurance perspective, as per the principles discussed in Case 9.

The scenario describes a situation where valuable items like jewelry are insured on an ‘agreed value’ basis. This means that in the event of a total loss, the insurer will pay the sum insured (the agreed value) regardless of the actual market value of the items at the time of the loss. This is a key feature of agreed value policies for high-value, unique, or antique items where market value can fluctuate significantly or be difficult to ascertain. For partial losses, the principle of strict indemnity typically applies, meaning the insurer will pay the actual loss incurred, up to the agreed value. Option B is incorrect because while ‘all risks’ cover is mentioned, the core concept being tested is the ‘agreed value’ basis for total loss settlement. Option C is incorrect as arbitration is a dispute resolution method, not a valuation basis. Option D is incorrect because ‘betterment contribution’ relates to improvements made during repairs, which is a separate concept from the initial valuation of insured items.

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 implications, the standard premium calculation is primarily based on the insured’s occupation, which is classified according to accident risk. Therefore, occupation is the fundamental basis for premium calculation in this context, not the sum insured, the insured’s gender, or the inclusion of sickness benefits.

This 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 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. Option B is incorrect because while common knowledge of typhoons in Hong Kong is not a material fact to be disclosed for extra perils insurance, the presence of unusual, high-risk items is not common knowledge. Option C is incorrect because an insurer’s knowledge of normal business dangers does not extend to unusual, undisclosed hazards like storing hazardous chemicals. Option D is incorrect because while an insurer might be deemed to know the normal processes of a business, they are not expected to know about undisclosed, abnormal risks introduced by the insured.

The question tests the understanding of the ‘pro rata average’ condition in insurance policies, specifically how under-insurance affects claim payouts. The scenario describes a situation where the sum insured for contents is less than the actual value of the contents at the time of loss. The pro rata average condition stipulates that the claim payment will be reduced proportionally to the extent of under-insurance. In this case, the sum insured ($500,000) represents 80% of the actual value ($625,000). Therefore, the claim for a $100,000 loss would be paid at 80% of that amount, resulting in a payout of $80,000, assuming no policy excess applies. This principle ensures that the insured bears a portion of the loss when they have not adequately insured their property.

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 is trying to establish coverage. If the policy is ‘Specified Perils’, the claimant must demonstrate the loss was caused by a peril listed in the policy. If it’s ‘All Risks’, the claimant only needs to show an accidental loss occurred, and the insurer would need to prove an exclusion applies. Therefore, the claimant’s ability to prove the cause of loss is directly tied to the type of cover.

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, requiring the proposer to reveal all relevant information, irrespective of whether specific questions are asked. Therefore, facts that influence an underwriter’s judgment on premium or acceptance are considered material.

The question tests the understanding of the specific exclusions in motorcycle insurance policies, particularly concerning theft claims. Unlike private car policies, motorcycle insurance typically only covers the entire machine being stolen. Loss of accessories alone, even if stolen from the motorcycle, is generally not covered under the theft section of an ‘Own Damage/Accidental Damage’ policy for motorcycles. This is a key distinction highlighted in the provided text.

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 most significant factor for standard premium calculation in PA policies.

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 merely self-imposed but can also be mandated by industry bodies or legislation, reinforcing their importance as a measure of performance and declared intentions.

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. The Motor Insurers’ Bureau of Hong Kong (MIB) plays a crucial role in fulfilling the intentions of this compulsory insurance by providing coverage when a valid policy is not in place or is ineffective, thereby safeguarding the public interest as intended by the ordinance. Therefore, the MIB’s existence and function are directly tied to the enforcement and spirit of the Motor Vehicles Insurance (Third Party Risks) Ordinance.

The scenario describes an individual injured while ice-skating. The insurer denied the claim based on a ‘winter-sports’ exclusion. The Complaints Panel, in interpreting this exclusion, considered that ‘winter-sports’ generally refers to sports on snow or ice. Ice-skating, regardless of whether it’s indoors or outdoors, falls under this broad interpretation. Therefore, the insurer’s decision to reject the claim for benefits related to ice-skating, due to the policy’s exclusion of winter sports, was upheld. This highlights that the interpretation of policy exclusions, particularly for activities like sports, can be broad and may not be limited to the literal season or location of the sport.

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, engaged in a fraudulent act that was known to them. D&O policies typically exclude coverage for claims arising from dishonesty or fraud of the insured individual. Furthermore, a common exclusion relates to circumstances known or ought to have been known at policy inception. Option A correctly identifies that the policy would likely exclude coverage due to the director’s prior fraudulent actions and the knowledge of these circumstances before the policy began. Option B is incorrect because while pollution is a standard exclusion, it’s not the primary reason for denial in this specific scenario. Option C is incorrect as the policy generally covers legal expenses for defending claims, even those involving allegations of dishonesty, but the underlying fraudulent act itself is not covered. Option D is incorrect because while contractual liability is excluded, the core issue here is the director’s fraudulent conduct, not a breach of 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, often termed ‘betterment,’ places the insured in a financially advantageous position post-repair. Therefore, a contribution from the insured towards the cost of these new parts is justifiable to prevent the insured from profiting from the loss. The scenario highlights that the insurer applied a 35% betterment contribution, which was deemed reasonable given the vehicle’s age and mileage, and importantly, the policy’s exclusion of depreciation costs meant the insurer was not obligated to cover the full cost of new parts without considering this betterment.

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 considered the formation of a new contract, even if the terms are similar to the previous one. Statement (iv) is correct because insurers have a legal obligation to inform the policyholder if they do not intend to renew the policy, allowing the insured to seek alternative coverage. Statement (iii) is generally false; while terms can be negotiated, insurers often offer renewals on the same or similar terms, and the insured may not have the same bargaining power as during the initial policy inception. Therefore, statements (i), (ii), and (iv) are the accurate assertions regarding general insurance policy renewals.

This question tests the understanding of the distinction between ‘Specified Perils’ and ‘All Risks’ cover in property insurance, as outlined in the IIQE syllabus. ‘Specified Perils’ cover only losses caused by events explicitly listed in the policy, requiring the claimant to prove the cause of loss. ‘All Risks’ cover, conversely, covers all accidental losses unless specifically excluded by the policy, shifting the burden of proof to the insurer to demonstrate an exclusion applies. Therefore, the key difference lies in the onus of proof and the scope of covered events.

The scenario describes a situation where an insurance agent offers a significant portion of their commission back to a corporate client’s employees as an incentive to purchase insurance. This practice, known as rebating, is explicitly prohibited by the Code of Practice for the Administration of Insurance Agents and the minimum requirements of the Model Agency Agreement. Rebating undermines the integrity of the insurance market by distorting pricing and creating an unfair advantage. It can be considered a form of bribery or corruption because it offers an inducement to individuals that is not part of the legitimate compensation structure for the insurance product itself, potentially influencing purchasing decisions based on personal gain rather than the merits of the policy. The prohibition is in place to ensure that commissions reflect the actual services provided by the intermediary and to maintain a fair and transparent market.

This question tests the understanding of how an excess works in motor insurance, specifically the difference between a voluntary and a compulsory excess, and how they interact. A voluntary excess is chosen by the policyholder to reduce the premium, while a compulsory excess is imposed by the insurer. Standard policy excesses are a type of compulsory excess that applies universally or to specific risk factors without a premium discount. In this scenario, the policyholder chose a voluntary excess of HK$5,000. The insurer then imposed a compulsory underwriting excess of HK$2,000 due to the vehicle’s high performance. Standard policy excesses are always applied in conjunction with any voluntary or underwriting excess and do not qualify for premium discounts. Therefore, the total excess applicable to the claim would be the sum of the voluntary excess and the compulsory underwriting excess, which is HK$5,000 + HK$2,000 = HK$7,000. The explanation for the incorrect options would be: Option B is incorrect because it only considers the voluntary excess and ignores the compulsory underwriting excess. Option C is incorrect because it incorrectly assumes the compulsory underwriting excess replaces the voluntary excess, rather than being additive. Option D is incorrect because it only considers the compulsory underwriting excess and ignores the voluntary excess chosen by the policyholder.

This question tests the understanding of the specific definition of ‘loss of one limb’ within the context of personal accident cover, 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. The key is that the policy explicitly defines ‘loss of use’ as ‘total functional disablement’ and does not offer proportional compensation for partial functional loss. Therefore, the insurer’s rejection of the claim for partial disablement of the hand, despite the inconvenience caused, is consistent with the policy’s terms.

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 lengthy investigation periods typically needed to settle these claims. While they can also assist with complicated hull and cargo losses, their primary specialization lies in GA. Lloyd’s Agents, while involved in surveys for marine underwriters, are distinct from average adjusters. Loss adjusters are more commonly used in non-marine general insurance claims.

A Certificate of Insurance serves as a formal confirmation of the existence of compulsory insurance, particularly in contexts like motor vehicle insurance. It is a standalone document, distinct from the main policy, providing evidence of coverage. While it confirms coverage, it does not typically detail the specific terms and conditions of the underlying policy, nor does it represent a guarantee of future insurability. Its primary function is to satisfy legal requirements for proof of insurance.

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 scenario describes a situation where an insured individual, after an injury, is assessed by medical professionals. 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 now perform some duties. The core of the dispute lies in determining whether the insured was still unable to perform *any* work (TTD) or could perform *some* work (TPD). The Complaints Panel, in this case, gave more weight to the attending doctors’ opinions, who stated the insured was unable to perform *any* work until a specific date. This aligns with the definition of Temporary Total Disablement, where the insured is completely unable to perform their usual occupation. The insurer’s decision to switch to TPD based on partial improvement, without clear evidence that the insured could resume *any* part of their duties, was overruled. Therefore, the insured was entitled to continue receiving TTD benefits.

A fire business interruption policy is designed to compensate an insured business for financial losses incurred due to a disruption of operations following a covered peril, such as fire. These losses typically include the loss of gross profit and continuing expenses. While the physical damage to buildings or contents is covered by a separate fire insurance policy, the business interruption policy addresses the consequential financial impact of that damage. It does not cover legal liabilities to third parties, which would fall under a different type of insurance like Public Liability.

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the standards expected in the insurance industry concerning personal insurance policies for Hong Kong residents. It covers a broad spectrum of practices, including underwriting, claims handling, product knowledge, and customer rights. While the Insurance Companies Ordinance (ICO) sets out foundational regulatory requirements for insurers’ solvency and governance, and the Code of Practice for the Administration of Insurance Agents details intermediary conduct, the Code of Conduct for Insurers is the primary document that outlines the expected ethical and professional standards for insurers themselves in their dealings with policyholders, particularly in personal insurance.

The scenario describes a situation where an insured event (dropping a watch) occurred, and the insured took action to mitigate further loss by getting it repaired. However, the claim was lodged after the repair was completed, two weeks after the incident. According to general insurance principles and common policy conditions, prompt notification of a potential claim is crucial. While the insured did take the watch for repair, the delay in formally notifying the insurer about the incident and the subsequent claim, after the repair was already done, could be problematic. The insurer needs to be informed of a potential claim as soon as reasonably practicable to allow them to investigate the circumstances, assess the damage, and potentially advise on or approve the repair method. Lodging the claim after the repair is completed, without prior notification, might be seen as a breach of the ‘notification to the insurer’ condition, which is a fundamental policy provision affecting claims. This condition often requires the insured to notify the insurer of any event that may give rise to a claim as soon as is reasonably possible, and often before incurring significant expenses like repairs, unless it’s an emergency situation where immediate action is unavoidable and notification follows swiftly.