Paper 2 General Insurance Quiz 41

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 General Average (GA) acts and their consequences. A GA act involves a voluntary and reasonable sacrifice or expenditure to preserve the common adventure. When a sacrifice is made, such as jettisoning cargo, the owner of the sacrificed goods is entitled to a contribution from other parties whose property was saved. This contribution is known as a General Average Contribution. The scenario describes a situation where a portion of the cargo was intentionally discarded to lighten the vessel and prevent it from sinking, which is a classic example of a GA sacrifice. Therefore, the owner of the jettisoned cargo has a right to claim a contribution from the saved ship and remaining cargo.

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, as the broker’s actions are considered the proposer’s actions in the eyes of the law. Therefore, the broker’s failure to disclose material information is a direct breach of the proposer’s duty to the insurer.

The question tests the understanding of the scope of theft insurance, specifically regarding 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 as part of the overall contents coverage. Option (a) accurately reflects this, stating that damage to the premises during forcible entry or exit is generally included. Option (b) is incorrect because while theft by staff is excluded, the question is about damage to the premises during the act of theft, not the theft itself by staff. Option (c) is incorrect as fire damage is explicitly excluded from theft policies. Option (d) is incorrect because while warranties are common, the question is about what is included in the cover, not conditions for it.

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 under the ‘Own Damage/Accidental Damage’ section. Therefore, a motorcycle owner whose expensive custom exhaust system is stolen from their parked motorcycle would not be able to claim under their policy for this specific loss.

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, as outlined in the syllabus, stipulates that if the sum insured represents a lower percentage of the total value at risk, the claim payment will be proportionally reduced. In this case, the sum insured ($500,000) is 80% of the actual value ($625,000). Therefore, the claim for a loss of $100,000 will be paid at 80% of that amount, resulting in a payout of $80,000, assuming no policy excess applies. Option A correctly applies this principle.

The question tests the understanding of ‘Agreed Values’ in insurance, specifically for high-value items like jewelry and antiques. Under an agreed value policy, the sum insured is the amount that will be paid in the event of a total loss, irrespective of the item’s actual market value at the time of the loss. This differs from a policy based on indemnity, where the payout would be limited to the actual loss incurred. For partial losses, however, the principle of strict indemnity typically still applies, meaning the payout would be based on the actual loss suffered, not the agreed value. Therefore, the statement that the agreed value is payable for a total loss but strict indemnity applies to partial losses accurately describes this type of cover.

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 if applicable. 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 while settlement is important, the primary trigger for coverage under a claims-made policy is the making and reporting of the claim, not necessarily its settlement within the policy period.

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.

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 differs from insurance which typically indemnifies against loss. The question tests the understanding of the fundamental nature and purpose of a Performance Bond in the context of construction contracts, distinguishing it from other financial instruments or insurance products.

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 scenario describes a situation where an insurer has consistently accepted late premium payments without objection. This consistent acceptance, without any explicit reservation of rights, can be interpreted as the insurer demonstrating a clear intention not to strictly enforce the contractual requirement of timely premium payment. This conduct, if relied upon by the insured, can lead to the insurer being prevented from suddenly enforcing the strict terms regarding punctuality in the future. This principle is known as waiver, where the insurer waives its right to insist on strict performance. For estoppel to apply, the insured must also demonstrate reasonable reliance on this conduct. Therefore, the insurer’s past actions suggest a waiver of the punctuality clause.

This question tests the understanding of exclusions in Directors’ and Officers’ (D&O) liability insurance, specifically concerning actions taken by the insured. The scenario describes a director who, prior to the policy’s inception, was aware of a potential issue that later led to a claim. D&O policies typically exclude coverage for circumstances known or that ought to have been known at the policy inception date. This exclusion aims to prevent individuals from obtaining insurance coverage for known risks they have already encountered or are aware of. Therefore, a claim arising from such a known circumstance would be denied. Option B is incorrect because while dishonesty is an exclusion, the scenario doesn’t explicitly state dishonesty, and the primary exclusion here is the prior knowledge of the circumstance. Option C is incorrect as contractual liability exclusions are separate from known circumstances. Option D is incorrect because while pollution is a standard exclusion, it’s not the relevant exclusion for the described situation.

The scenario describes a situation where an insurer is determining the premium for a motor insurance policy. The insurer needs to consider various factors that influence the likelihood and potential cost of a claim. The ‘Road Traffic Act 1930’ is a foundational piece of legislation that mandated compulsory motor insurance in the UK, establishing the legal framework for such policies. While other options relate to insurance concepts, they are not directly the legislative basis for determining premium calculation factors in this context. ‘Public Policy’ is a broad legal principle, ‘Risk Classification’ is a method of grouping risks, and ‘Salvage (Non-Marine)’ refers to the residual value of damaged property, none of which are the primary drivers for setting premium rates based on vehicle usage and engine capacity.

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 are protected by requiring all vehicle owners to have at least this minimum level of coverage. The Motor Insurers’ Bureau of Hong Kong (MIB) plays a crucial role in fulfilling the intentions of this compulsory insurance when private insurance is unavailable or ineffective, reinforcing the importance of the ordinance.

The question tests the understanding of the legal significance of a certificate of compulsory insurance, particularly in motor insurance. According to the provided text, a certificate of motor insurance merely confirms the existence of compulsory insurance as prescribed by law and does not detail the policy’s coverage level (e.g., Comprehensive or Act Only). The law mandates the issuance of these certificates, and failure to do so is a criminal offense. Furthermore, the law requires insurers to recover these documents upon policy cancellation due to their legal importance. Therefore, a certificate of motor insurance is primarily a legal document confirming compliance with compulsory insurance requirements, not a summary of policy terms.

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.

This question tests the understanding of the specific definition of ‘loss of one limb’ within the context of personal accident insurance, as illustrated by Case 12. The scenario highlights that a fracture causing functional impairment, but not physical severance at or above the wrist or total functional disablement, does not meet the policy’s strict definition for this benefit. The explanation clarifies that the Complaints Panel upheld the insurer’s decision because the insured’s condition, while inconvenient, did not align with the policy’s precise wording for ‘loss of one limb’ or ‘total functional disablement’. It also notes the absence of provisions for proportional compensation for partial permanent disability in the policy, reinforcing why the claim was rejected.

A condition precedent to the contract is a term that must be fulfilled for the insurance contract to become effective. Without this condition being met, the insurer has no obligation to provide cover. For instance, if a policy states that the insured must undergo a medical examination before the contract commences, and this examination is not completed, the contract is not in force. This contrasts with a condition precedent to liability, which relates to the validity of a specific claim after the contract is already in effect, and a condition subsequent, which is a term to be complied with during the policy’s currency.

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 settlements, its decisions are not binding on the insurer if they exceed a certain monetary threshold, and policyholders can still pursue legal action. The maximum claim amount that the ICCB can adjudicate upon is HK$800,000, a critical detail for understanding its jurisdiction. The ability to appeal an award is generally limited to the insurer, not the complainant, as the complainant can choose to accept or reject the award without prejudice to their right to pursue legal action.

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 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 insurer’s rejection was based on the injury not being accidental, which aligns with the panel’s finding.

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 aspects like 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 principle itself. Similarly, adherence to codes of conduct is a manifestation of being fit and proper, but not the core requirement.

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 proof to demonstrate that an exclusion applies. Option (b) is incorrect because while exclusions exist, the fundamental principle is broad coverage. Option (c) misrepresents the burden of proof, suggesting the insured must prove coverage. Option (d) is incorrect as ‘All Risks’ does not imply coverage for every conceivable event, but rather a wide scope subject to defined exclusions.

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 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 coverage for known risks they have not disclosed. 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 defense, but this is contingent on the claim itself being covered, which it is not in this case due to the prior knowledge. Option D is incorrect because while dishonesty or fraud can be excluded, the primary exclusion applicable here is the knowledge of the circumstance before the policy began.

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 proof to demonstrate 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.

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.

This question tests the understanding of the ‘System of Check’ in fidelity guarantee insurance. This system is crucial for an employer to maintain internal discipline and control over employees who are guaranteed against dishonesty. It involves implementing robust internal procedures and oversight mechanisms to prevent or detect fraudulent activities. Option (a) accurately describes this by focusing on the employer’s internal controls and staff supervision. Option (b) is incorrect because while financial audits are part of good practice, the ‘System of Check’ specifically refers to the employer’s internal controls over guaranteed staff, not just external audits. Option (c) is too narrow, as the system encompasses more than just background checks; it’s an ongoing process. Option (d) is incorrect because while insurance policies are contracts, the ‘System of Check’ is an operational and procedural element within the employer’s organization, not a clause within the policy itself.

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.