Paper 2 General Insurance Quiz 45

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 leading to partial functional impairment of a hand, without physical severance at or above the wrist or total functional disablement, does not meet the policy’s strict definition for this benefit. The explanation emphasizes that the insurer’s decision was upheld because the insured’s condition did not align with the precise wording of the policy, which required either physical severance or total functional disablement, and did not offer proportional compensation for partial losses.

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, determined that ‘winter-sports’ generally encompass activities 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, particularly when definitions are not explicitly provided. The panel’s reasoning highlights that the nature of the sport (on ice) is the determining factor, not the timing or location of its practice. This aligns with the understanding that exclusions are often interpreted broadly to cover the intended risks.

The question tests the understanding of how changes in the original circumstances of a risk can impact an insurance policy. According to underwriting principles, if the circumstances under which a risk was insured alter for the worse, it can lead to a situation where the insurer may need to adjust terms, increase premiums, or even cancel the policy. This is because the initial risk assessment is no longer valid. Option (a) correctly identifies this principle, stating that such a change necessitates a review and potential adjustment of the policy terms. Option (b) is incorrect because while a change for the better might lead to a premium reduction, a change for the worse typically leads to an increase or other adjustments, not necessarily a cancellation without review. Option (c) is incorrect as the insurer’s obligation to continue coverage under unchanged, adverse conditions is not absolute and is subject to policy terms and regulatory frameworks. Option (d) is incorrect because while the insured might be informed of changes, the primary action from the insurer’s perspective is to reassess and potentially alter the policy, not simply to wait for the insured to request a change.

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 an employer’s liability that is not directly stipulated by the ECO. This refers to the employer’s duty of care in tort, primarily negligence, which is a cornerstone of common law. Therefore, liability independent of the ECO, stemming from fault-based principles like negligence, is the correct answer.

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 coverage. Therefore, its primary purpose is to bridge the gap created by the ineffectiveness or non-existence of the compulsory insurance.

A voluntary excess, also known as a ‘self-insured retention’ or ‘excess requested by the insured’, is an amount that the policyholder agrees to bear themselves in the event of a claim. This is typically offered by insurers as a way to reduce the premium. The insured chooses a higher excess amount in exchange for a lower premium. This voluntary excess is in addition to any compulsory excess that might apply to the policy, such as a young driver excess or a specific excess for certain types of claims. Therefore, if a policy has both a voluntary excess and a young driver excess, both would apply to a claim made by a young driver.

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 lodged 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 awarded the claim, citing the simplicity of the circumstances, the availability of repair documentation, and the layman’s perception of ‘as soon as reasonably possible’ for a 20-day notification period, especially in the absence of a poor claims history. This suggests that while a breach of the notification condition occurred, the panel exercised discretion due to the specific facts and the lack of demonstrable prejudice that could not be overcome by other evidence. The second case, however, clearly shows a breach of a specific 30-day notification period, and the panel found that the delay prejudiced the insurer’s investigation, leading to the claim’s rejection. The key difference lies in the panel’s assessment of prejudice and the interpretation of ‘as soon as reasonably possible’ in the context of the specific policy terms and the insured’s actions. The question tests the understanding that a delay in notification, even if within a seemingly short period, can be a valid ground for claim rejection if it prejudices the insurer’s ability to investigate, as demonstrated in the second case.

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.

This question tests the understanding of how changes in the insured risk can impact an insurance policy, specifically focusing on the underwriter’s perspective. When the original circumstances under which a risk was insured alter for the worse, it signifies an increase in the probability or severity of a loss. This necessitates a review of the policy terms and premium. The underwriter’s primary responsibility is to accurately assess and price risk. An adverse change in circumstances means the initial assessment is no longer valid, potentially exposing the insurer to greater losses than anticipated. Therefore, the underwriter must re-evaluate the risk to ensure the premium adequately reflects the new level of exposure. Options B, C, and D describe actions that are either irrelevant to the immediate impact of an altered risk or are consequences of a failure to manage such changes, rather than the direct underwriter’s response.

A combined liability policy is designed to consolidate various liability coverages into a single document for convenience and potential premium savings. While it typically includes Public Liability, Products Liability, and Employees’ Compensation Liability, it can be extended to include other specific liability covers like Directors’ and Officers’ Liability or Professional Liability, based on the client’s unique needs. The key is that these are distinct coverages bundled together, not a single, indivisible contract. The caution provided in the syllabus highlights the importance of clear policy wording to avoid a breach in one section invalidating the entire policy, emphasizing the separate contractual nature of each included coverage despite the single document.

The question tests the understanding of specific exclusions in third-party liability cover for commercial vehicles, as distinct from private car policies. The ‘tool of trade’ clause specifically excludes damage caused when a vehicle is used as a functional tool, such as a mechanical digger performing its digging function. This exclusion is not present in standard private car third-party cover. Food poisoning claims related to mobile food vending and damage to stock-in-trade are also specific exclusions for certain commercial vehicle uses. Damage to roads or weighbridges due to the vehicle’s weight or vibration is a general exclusion applicable to many motor policies, but the ‘tool of trade’ exclusion is a key differentiator for commercial vehicles.

A General Average Act is defined as an extraordinary sacrifice or expenditure voluntarily and reasonably made or incurred in time of peril to preserve the property imperilled in the common adventure. In this scenario, the decision to jettison a portion of the cargo to lighten the vessel and prevent it from sinking during a storm is a classic example of a voluntary and reasonable sacrifice made to save the entire maritime adventure. This action directly aligns with the definition of a General Average Act, as it involves an extraordinary sacrifice for the common safety of the ship and all its cargo. The other options do not fit the definition: ‘salvage’ refers to saving property from peril for an award, ‘sue and labour’ involves expenses to preserve or minimize loss to the insured property, and ‘actual total loss’ describes the complete destruction or irretrievable loss of the insured subject matter.

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, as outlined in the Insurance Ordinance (Cap. 41) and common law principles of utmost good faith. The other options describe situations that are either common knowledge (typhoons in Hong Kong), improvements to risk (sprinkler systems), or facts the insurer is expected to know or discover through their own due diligence, and therefore do not require proactive disclosure by the applicant.

The scenario describes a situation where an insured person sustained an injury and received a certain number of days of temporary total disability benefit and temporary partial disability benefit. The insured was dissatisfied, believing they should have received temporary total disability benefit for the entire duration. 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 for temporary total and temporary partial disablement, and the classification depends on the insured’s ability to perform their usual occupation.

This question tests the understanding of how insurers manage risk through policy endorsements. When an insurer identifies a specific, elevated risk associated with a particular aspect of a policy, such as a pre-existing back condition in personal accident insurance or a high-risk driver in motor insurance, they can choose to exclude coverage for that specific risk. This is achieved through a ‘specially worded exclusion’ or an endorsement that carves out the problematic element from the general coverage. This allows the insurer to offer coverage for the standard risks while mitigating losses from the identified higher risk. Options B, C, and D describe different types of exclusions or policy adjustments that are not directly related to the scenario of an underwriter selectively removing coverage for a specific, identified risk within an otherwise standard policy. A market exclusion (B) is a general exclusion common across the industry, not tailored to an individual’s specific risk profile. A public policy exclusion (C) relates to legal or societal principles, not underwriting decisions based on individual risk assessment. A general exclusion (D) is a broad exclusion applicable to all policyholders, not a targeted exclusion for a specific risk element within a policy.

This question tests the understanding of the ‘claims-made’ basis for liability insurance, a crucial concept for IIQE candidates. 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 while settlement is important, the 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 core principle of an indemnity policy is to restore the insured to their pre-loss financial position. When new parts replace old, worn-out parts, the insured is placed in a better position (betterment). The insurer is entitled to deduct a portion of the repair cost to account for this betterment, reflecting the improved condition of the vehicle. The case highlights that the insurer’s calculation of a 35% betterment contribution for an eight-year-old vehicle, while potentially debatable in its exact percentage, was deemed reasonable by the Complaints Panel given the vehicle’s age and mileage. The policy’s exclusion of depreciation further supports the insurer’s right to claim a betterment contribution. Therefore, the insured is responsible for contributing to the cost of reinstatement to account for the betterment provided by the new parts.

Institute Cargo Clauses (A) provides the broadest coverage, operating on an ‘all risks’ basis. This means it covers all losses unless specifically excluded. Clauses (B) and (C) are more restrictive, covering only specified perils. Therefore, a shipment insured under Clause (A) would be covered for damage caused by a sudden, unexpected mechanical failure of the refrigeration unit during transit, as this is not typically an excluded peril. Clause (B) would likely cover this if it were listed as a specified peril, and Clause (C) would only cover it if it fell under a very narrow set of defined events, such as fire or explosion.

This question tests the understanding of waiver in the context of insurance premium payments. Waiver occurs when an insurer, through its actions or representations, 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 conduct can be interpreted as a waiver of the strict due date. This means the insurer may be prevented from later denying coverage solely because a premium was paid late, especially if the insured reasonably relied on this past acceptance. Estoppel, while related, requires the insured to demonstrate reasonable reliance on the insurer’s conduct, which is a higher burden of proof than simply showing a pattern of waived punctuality.

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) refers to professional standards, which is also a common inclusion. Option (c) highlights efficiency and ethical business practices, another key aspect. Option (d) focuses on claims handling, a critical service promise. The provided text emphasizes that these declarations are not just self-imposed but can also be mandated by industry bodies or statutes, reinforcing their importance in demonstrating declared intentions and measuring performance. The question probes the candidate’s knowledge of what constitutes a comprehensive customer service declaration in the insurance industry, as outlined in the syllabus.

A Certificate of Insurance serves as a formal confirmation of the existence of compulsory insurance. It is a standalone document, distinct from the main policy, and is commonly issued for motor vehicle and pleasure craft insurance. This certificate is crucial for demonstrating compliance with legal requirements for mandatory insurance 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. 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, but the compensation awarded is net of any amounts already paid or payable under the ECO. The question tests the understanding that ECI policies cover both statutory liability under the ECO and common law liability, with the latter being distinct and potentially requiring separate assessment of damages.

The scenario describes a situation where a valuable antique vase is insured on an agreed value basis. This means that in the event of a total loss, the insurer will pay the agreed sum insured, irrespective of the vase’s actual market value at the time of the loss. This is a key feature of agreed value policies for items like jewelry and antiques, designed to avoid disputes over valuation in case of a complete loss. For partial losses, however, the principle of strict indemnity typically applies, meaning the payout would be based on the actual loss incurred, 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 reflects the nature of this type of insurance cover.

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 just self-imposed but can also be mandated by industry bodies or legislation, reflecting a growing trend towards transparency and accountability in the insurance sector.

This question tests the understanding of the ‘accident’ definition in personal accident claims, specifically when an injury arises from an individual’s own deliberate actions. Case 9 illustrates that if an insured’s actions create a foreseeable risk of injury, and that injury occurs as a direct consequence, it may not be considered accidental. The insured’s deliberate intervention in a fight, despite the intention to rescue friends, led to injuries that the Complaints Panel deemed a natural consequence of his actions, not an accident. Therefore, the insurer was justified in rejecting the claim based on the injury not being accidental.

Institute Cargo Clauses (A) provides the broadest coverage, insuring against all risks of physical loss or damage to the insured subject matter, except for those specifically excluded. This is often referred to as ‘all risks’ coverage. Clauses (B) and (C) offer more limited protection, covering only a specified list of perils. Therefore, a shipment insured under Clause (A) would be protected against damage caused by a sudden and unexpected mechanical breakdown of the refrigeration unit during transit, assuming no exclusion applies.

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 that, if breached, does not void the entire contract but rather prevents a specific claim from being paid. The scenario describes a policy requiring the insured to report changes in their profession. Failure to do so, as stipulated, would mean the insurer is not liable for any claims arising after the unnotified change, directly aligning with the definition of a condition precedent to liability. Option B describes a condition precedent to the contract, which must be met for the contract to even begin. Option C describes a condition subsequent, which, if it occurs, can terminate an existing contract. Option D is a mischaracterization, as representations, while important, do not operate in the same way as conditions precedent to liability regarding claim validity.

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, regardless of the number of individual trips taken within that year, making it distinct from per-trip pricing. The other options represent factors that influence premium calculations but are not the specific pricing model described.

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.

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.