Paper 2 General Insurance Quiz 44

This question tests the understanding of how an excess works in motor insurance. An excess is the amount the policyholder must pay towards a claim before the insurer covers the rest. In this scenario, the damage is HK$12,000 and the voluntary excess is HK$2,000. Therefore, the insured is responsible for the first HK$2,000 of the claim, and the insurer will pay the remaining HK$10,000. The question asks how much the insurer will pay, which is the total claim minus the excess.

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, which falls directly under the scope of dishonest acts covered by fidelity insurance. Options B, C, and D describe situations that are typically excluded or not the primary focus of fidelity guarantee insurance: general errors and omissions (which are not necessarily dishonest), losses due to external theft (which would be covered by other policies like money insurance), and losses from natural disasters (which are covered by property insurance).

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the standards of good insurance practice for personal insurance policies sold to individual policyholders residing in Hong Kong. It covers a broad spectrum of practices, including underwriting, claims handling, product understanding, customer rights, and advising/selling practices. While the Insurance Companies Ordinance (ICO) sets out foundational requirements for insurers’ authorization and financial stability, 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 expected professional behaviour and customer care standards directly related to the insurer-policyholder relationship in personal insurance.

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 is distinct from a condition precedent to liability, which relates to the validity of a specific claim after the contract is already in effect, or a condition subsequent, which is a term to be complied with during the policy’s currency.

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 the agreed-upon timeframe. This aligns with the definition provided in the syllabus, distinguishing it from insurance policies that typically cover a broader range of risks and are not primarily guarantees of performance in this manner.

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 often used in motor insurance to facilitate vehicle registration and serves as proof of legally required insurance. While it provides unconditional cover, it typically includes cancellation provisions and is intended for a short duration, to be replaced by a formal policy. The question tests the understanding of the primary function and nature of a cover note as a binding, albeit temporary, confirmation of insurance.

The scenario describes a situation where an insured person sustained an injury that prevented them from performing their usual duties for a period. The insurer paid a benefit for temporary total disability for eight days and temporary partial disability for five days. The insured believed they should receive temporary total disability benefits for the entire 13 days. The Complaints Panel’s decision was based on the nature and severity of the injury, the insured’s occupation (self-employed director with mainly office duties), and the absence of complications. The panel determined that after eight days, the insured was capable of performing some duties, thus qualifying for temporary partial disability rather than temporary total disability for the remaining five days. This aligns with the principle that personal accident policies often differentiate benefit amounts based on the degree of disability, and the insurer’s assessment was deemed appropriate given the policy definitions and the insured’s condition.

The question tests the understanding of which vessels are subject to registration in Hong Kong under the relevant legislation. Option (a) correctly identifies vessels regularly employed in trading to or from Hong Kong, unless already registered elsewhere. Option (b) is incorrect because pleasure craft are specifically mentioned as being subject to registration. Option (c) is incorrect as it describes a category of vessels that are generally required to be registered. Option (d) is incorrect because it describes a specific type of vessel (sea fishing) that is also subject to registration requirements.

The scenario describes a shop owner losing cash from her bag after closing her shop. The money insurance policy explicitly states that cover is for losses occurring ‘during normal business hours’ and ‘while being conveyed by messenger’. The loss occurred outside business hours, and while the cash was being conveyed, the timing violated a key condition of the policy. Therefore, the claim would be rejected because the loss did not occur within the specified business hours, which is a critical limitation of the money insurance policy as outlined in the provided text. The policy is designed to cover business-related money during operational periods, not personal losses outside of these times.

The scenario describes a situation where an insured individual, after an injury, is initially deemed totally disabled. However, the insurer later reclassifies the disability as partial based on a medical examiner’s report suggesting an improved range of motion. The key issue is the conflicting medical opinions regarding the insured’s ability to perform any work. The Complaints Panel, in this context, 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 principle that attending physicians are generally in a better position to assess a patient’s ongoing condition and functional capacity. Therefore, the insured should continue to receive Temporary Total Disability benefits as per their doctors’ assessment, overriding the insurer’s reclassification based on a partial improvement in trunk movement.

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. This compensation typically includes the loss of gross profit and continuing expenses. While the physical damage to buildings and contents is covered by a standard fire policy, business interruption insurance addresses the consequential financial losses that arise from the inability to trade. It does not cover direct third-party liabilities, which are handled by other types of insurance.

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 if the repair was prompt, could be a breach of the policy’s notification clause, which is a condition precedent to the insurer’s liability. The insurer is responsible for proving that an exclusion applies if they wish to deny a claim based on it, but the insured must also comply with express contract terms, including claims procedures. Therefore, the insurer may have grounds to reject the claim due to the delayed notification, as it falls under the category of invalid claims due to non-compliance with policy provisions affecting claims.

A Scheduled Policy Form is a common structure where the policy details, such as the insured’s name, the property covered, the sum insured, and the premium, are listed in a schedule attached to the policy document. This schedule forms an integral part of the contract. The Signature Clause, also known as the Attestation Clause, is a specific section within this scheduled policy form where the insurer formally signifies their agreement and undertaking to the terms outlined in the policy. While a Simple Contract can be verbal or inferred from conduct, and Specific Exclusions are tailored to individual risks, and a Step-Back System relates to no-claim discounts, the Signature Clause is directly associated with the formalization of the insurer’s commitment within a scheduled policy.

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 about 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 while insurers are expected to know the normal dangers of occupations for certain insurances (like Employees’ Compensation), they are not expected to know the specific, unusual storage practices of a particular business that dramatically alter the risk profile. 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, high-risk activities or materials stored on the premises that significantly increase the risk profile, especially if these are not openly visible or part of the standard business operations.

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, 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 unable to identify the exact cause. Under a ‘Specified Perils’ policy, this would likely result in a denied claim because the claimant cannot prove the loss was caused by a named peril. However, under an ‘All Risks’ policy, the claimant only needs to demonstrate that an accidental loss occurred, and the insurer would then need to prove an exclusion applies. Therefore, the ‘All Risks’ policy is more advantageous to the claimant in this specific situation.

The Employees’ Compensation Assistance Scheme (ECAS) is designed to provide a safety net when compulsory employees’ compensation insurance is absent or ineffective. It is funded partly by a levy on insurance premiums. This scheme acts as a fallback mechanism to ensure that employees who suffer work-related injuries or diseases can still receive compensation, even if their employer has failed to secure the legally mandated insurance. Therefore, its primary purpose is to bridge the gap created by the non-existence or ineffectiveness of such insurance.

The Insurance Claims Complaints Bureau (ICCB) is designed to handle disputes related to personal insurance claims. It has a jurisdictional limit of HK$800,000 for the value of the claim. Complaints exceeding this amount, or those arising from commercial, industrial, or third-party insurance, fall outside the ICCB’s purview and must be resolved through other means such as litigation or arbitration. Therefore, a dispute involving a commercial property insurance claim, regardless of its monetary value, would not be handled by the ICCB.

The 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 statutory liability under the ECO. However, employers can also have ‘common law liability’ which is fault-based and arises independently of the ECO, often due to negligence. While ECI policies primarily cover the statutory liability, they can also extend to cover this common law liability. The question asks about the basis of an employer’s liability that is not covered by the ECO. This refers to the employer’s fault-based liability, which is covered under common law principles. Option A is incorrect because the ECO specifically covers injuries arising out of and in the course of employment, regardless of fault. Option C is incorrect as the ECIRS is a residual scheme for high-risk trades and not a general basis for liability. Option D is incorrect because while insurers may have rights of recovery, it doesn’t define the basis of the employer’s liability itself.

A Performance Bond is a financial guarantee, structured as a bond rather than an insurance policy, that ensures a contractor will complete a construction project within the agreed-upon timeframe and according to the contract’s specifications. It protects the project owner from financial losses if the contractor defaults or fails to finish the work. The question tests the understanding of the fundamental nature and purpose of a Performance Bond in the context of construction projects, distinguishing it from other financial instruments or insurance products.

The scenario describes a situation where the insured experienced a loss (damaged watch) and took action to mitigate it by sending it for repair. However, the claim was lodged only after the repair was completed and the watch was collected, which was two weeks after the incident. The provided text emphasizes the importance of timely notification to the insurer as per policy conditions. While the insured acted promptly to get the watch repaired, the delay in notifying the insurer about the incident itself, before or immediately after the repair, could be a breach of the ‘as soon as possible’ notification clause. This delay, even if the repair was done, might affect the insurer’s ability to investigate the cause of the loss or assess the damage independently, potentially impacting the claim’s validity. Therefore, the insurer might consider the claim invalid due to the delayed notification, despite the insured’s prompt action in seeking repairs.

The scenario describes an individual injured while ice-skating. The insurer denied the claim based on a policy exclusion for ‘winter-sports’. The Complaints Panel, in interpreting this exclusion, determined that ‘winter-sports’ generally encompass sports played on snow or ice, regardless of the season or whether they are indoors or outdoors. Therefore, ice-skating, even indoors, falls under this category. The key principle here is the interpretation of policy exclusions and the broad definition applied to terms like ‘winter-sports’ by regulatory bodies when specific definitions are absent in the policy wording. This aligns with the understanding that insurers often interpret such clauses to cover activities that are inherently associated with winter conditions, even if performed in a non-traditional setting or season.

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, even if not explicitly asked. Therefore, facts that impact an underwriter’s assessment of insurability or the terms of the policy are considered material.

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the expected standards of good insurance practice for personal insurances. This includes guidelines on underwriting, claims handling, product understanding, and customer rights. While the Insurance Companies Ordinance (ICO) sets out regulatory requirements for insurers’ financial stability and governance, and the Code of Practice for the Administration of Insurance Agents details intermediary conduct, the HKFI Code is the primary document outlining ethical and professional standards for insurers themselves in their dealings with individual policyholders regarding the sale and management of personal insurance products.

The scenario describes a situation where an insurer rejected a hospitalization claim due to a pre-existing condition. The insured had consulted for rectal bleeding 15 months before applying for insurance, and the insurer believed the colon tumor could not have developed within 10 days of policy inception. The Complaints Panel, considering the tumor size, agreed that it likely took time to grow, and since the policy excluded illnesses presenting signs or symptoms prior to commencement, the insurer’s decision was upheld. This aligns with the principle that insurance policies typically exclude coverage for conditions that were already present or manifesting before the policy’s effective date, even if not formally diagnosed. The difficulty in ascertaining the exact onset date is a common challenge in applying such exclusions, but the evidence (tumor size and prior symptoms) supported the insurer’s stance.

The Employees’ Compensation Ordinance in Hong Kong establishes a strict liability framework for employers. This means that an employer is legally obligated to compensate an employee for injuries or death sustained in accidents that arise out of and in the course of their employment, regardless of whether the employer was at fault. The ordinance mandates insurance to cover these liabilities. Therefore, the core principle of this compulsory insurance is to provide compensation based on the occurrence of a work-related accident, not on proving the employer’s negligence.

The ‘step-back system’ for No Claim Discount (NCD) in private car insurance, as described in the IIQE syllabus, dictates how a discount is adjusted after a claim. For drivers with an entitlement of four or more claim-free years (resulting in a 50% or 60% NCD), a single claim in the policy period will reduce their NCD to 20% or 30% respectively upon renewal. This means they do not lose their entire accumulated discount but rather revert to a lower tier. The other options describe scenarios that would lead to a complete loss of NCD or are not directly related to the ‘step-back’ mechanism for higher NCD tiers.

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 that, if breached, affects the insurer’s obligation to pay a claim arising from that change, rather than terminating the policy from its inception or due to a subsequent event that nullifies the contract entirely. Therefore, this type of condition is classified as a condition precedent to liability.

This question tests the understanding of how an excess works in motor insurance. An excess is the amount the policyholder must pay towards a claim before the insurer covers the rest. In this scenario, the damage is HK$12,000 and the voluntary excess is HK$2,000. Therefore, the insured is responsible for the first HK$2,000 of the claim, and the insurer will pay the remaining HK$10,000. The question asks how much the insurer will pay, which is the total claim minus the excess.

A cover note is a temporary document that provides immediate proof of insurance coverage, binding the insurer from the outset. It is not conditional on the submission of a full proposal form later. While it serves as evidence of insurance, particularly for legally mandated insurance like motor insurance where it often includes a temporary certificate of insurance, its primary function is to offer immediate, albeit temporary, protection. The policy, on the other hand, is the final, formal document that represents the complete contract of insurance and typically replaces any previously issued cover notes. A certificate of insurance, in its more common understanding, serves as proof of compulsory insurance and is a separate, permanent document, distinct from the temporary nature of a cover note.

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 in the first case reported the claim within 20 days, the repair had already been completed, hindering the insurer’s ability to investigate the cause and extent of the damage. The Complaints Panel acknowledged this prejudice. However, they ultimately ruled in favour of the insured, considering the layman’s perspective on ‘reasonably possible’ and the lack of a poor claims history. This suggests that while prejudice is a factor, the interpretation of ‘reasonably possible’ and the overall circumstances can influence the outcome, especially when the insurer can still verify the damage through other means like repair slips and inspection of parts. The second case, however, clearly demonstrates a breach of a specific time limit (30 days) where the insured’s belief about when the time limit started was deemed unreasonable, and the insurer’s position was prejudiced, leading to the claim rejection. The key distinction lies in the insurer’s ability to investigate and the clarity of the policy’s notification terms. The question tests the understanding of how the insurer’s ability to investigate, the insured’s interpretation of notification periods, and the concept of prejudice are weighed in claim assessment, particularly when repairs precede notification.