Paper 2 General Insurance Quiz 47

The scenario describes a shop owner whose wallet containing cash went missing after her shop closed. The money insurance policy specified that cover was for losses occurring during normal business hours while being conveyed by a messenger. Since the loss happened outside of business hours, it falls outside the defined scope of cover for this specific policy. Money policies often restrict coverage to business hours to differentiate between business funds and personal funds, and to manage the increased risk associated with non-business hours. Therefore, the rejection of the claim is consistent with the policy’s limitations.

Average adjusters are specialized professionals in marine insurance, particularly for General Average (GA) claims. Their expertise is crucial due to the complexity of GA, which involves international maritime law, potentially hundreds of interested parties (like cargo owners), and lengthy investigation periods that can span years. While Lloyd’s Agents and Loss Adjusters are also involved in claims, average adjusters are specifically retained for the intricate calculations and legal considerations inherent in GA, and sometimes for complex hull or cargo losses. The scenario describes a situation where a marine insurance claim requires specialized handling beyond that typically provided by an insurer’s internal staff or a general loss adjuster, pointing directly to the role of an average adjuster.

This question assesses the understanding of the positive impacts of excellent customer service in the insurance industry, specifically focusing on its role in business continuity and growth. Customer loyalty, driven by positive experiences, leads to higher renewal rates, which are less costly than acquiring new business. Furthermore, satisfied customers become advocates, generating new business through recommendations and word-of-mouth, thereby increasing customer ‘productivity’ and ultimately contributing to profitability by reducing complaint handling costs and freeing up resources for productive work. The other options, while potentially related to business success, do not directly capture the multifaceted positive outcomes of superior customer service as comprehensively as the correct answer.

This question tests the understanding of the ‘System of Check’ in fidelity guarantee insurance, which is crucial for internal discipline and control within an employer’s operations. The system of check refers to the internal controls an employer implements to prevent or detect fraudulent activities by their employees. Option (a) accurately describes this by focusing on the employer’s internal mechanisms for oversight and accountability. Option (b) is incorrect because while insurance policies do have terms and conditions, the ‘system of check’ specifically refers to the employer’s internal controls, not the policy’s contractual clauses. Option (c) is incorrect as it describes the underwriting process itself, which is about assessing risk, rather than the internal controls for guaranteed staff. Option (d) is incorrect because while audits are a form of check, the ‘system of check’ is a broader concept encompassing all internal controls, not just external audits.

This question tests the understanding of the ‘claims-made’ basis for liability insurance policies, a concept crucial for understanding how coverage is triggered. Under a claims-made policy, the insurance coverage is triggered by the date the claim is first made against the insured, not necessarily when the incident causing the claim occurred. This contrasts with ‘occurrence-based’ policies where coverage is triggered by the date of the incident. Therefore, for a claim to be admissible under a claims-made policy, it must be made during the policy period or within a specified ‘tail’ period after the policy’s expiration, provided the incident occurred during the policy period or an earlier claims-made policy period. Option (a) describes an occurrence-based trigger. Option (b) is incorrect as claims made before the policy began are not covered. Option (c) describes a payment trigger, not a coverage trigger for claims-made policies.

The ‘step-back’ system for No Claim Discount (NCD) in private car insurance, as described in the Hong Kong insurance context, means that a single claim does not completely eliminate the accumulated discount. Instead, it reduces the discount to a lower tier. Specifically, for entitlements of 50% or 60% NCD, a single claim will result in a renewal discount of 20% or 30% respectively. This is designed to reward sustained claim-free periods while still penalizing claims, but not as severely as a complete loss of discount. 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 private cars.

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. When a ship’s engine fails and the vessel is adrift in a storm, the captain decides to jettison a portion of the cargo to lighten the ship and regain steerage, thereby saving the vessel and the remaining cargo. This act of jettisoning cargo is a voluntary and reasonable sacrifice made in a time of peril to preserve the entire marine adventure. Therefore, it constitutes a General Average Act, and the loss incurred by the owner of the jettisoned cargo is a General Average Loss.

This question tests the understanding of the relationship between material damage insurance and business interruption (BI) insurance, specifically the ‘material damage proviso’ in BI policies. This proviso stipulates that a claim under a BI policy is contingent upon a valid claim being payable under the associated material damage policy for the same insured peril. Without physical damage covered by the material damage policy, the BI policy will not respond to losses arising from the interruption. Therefore, if the material damage policy is voided due to a breach of policy conditions by the insured, the BI policy would also not be triggered, even if the business suffered losses due to the interruption.

This question tests the understanding of exclusions in a Professional Indemnity (PI) policy. PI policies are designed to cover financial losses arising from professional negligence. However, they typically exclude liability stemming from dishonest or fraudulent acts by the insured professional. This is because the policy is meant to cover errors in judgment or execution, not intentional wrongdoing. While other options might be covered under different types of insurance or have specific endorsements, dishonesty is a fundamental exclusion in PI insurance as it represents a breach of professional ethics and is not an insurable risk in the context of professional indemnity.

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 in the underwriting process, distinguishing it from a policy or a certificate of insurance.

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.

Case 9 illustrates that for a personal accident claim to be valid, the injury must be considered ‘accidental’. The insured’s deliberate action of intervening in a fight, even with the intention of rescuing friends, led to a foreseeable outcome of being attacked. The Complaints Panel determined that the injury was a natural consequence of his own actions, not an unforeseen event, thus disqualifying it as an accident under the policy terms. This highlights the importance of the ‘accidental means’ and ‘accidental results’ distinction in personal accident insurance, where the cause of the injury must be accidental, not just the result.

The Employees’ Compensation Assistance Scheme (ECAS) is designed to provide a safety net when an employer’s compulsory employees’ compensation insurance is absent or ineffective. It is funded partly by a levy on insurance premiums. Therefore, if an employer fails to secure the mandatory insurance, the ECAS steps in to ensure employees receive compensation for work-related injuries or diseases, fulfilling the spirit of the Employees’ Compensation Ordinance.

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, by definition, run parallel to other excesses 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$7,000. The explanation of the options should clarify that the standard policy excess is not applicable here as it’s a compulsory underwriting excess, and that excesses are additive when they are of different types (voluntary and compulsory underwriting).

The scenario describes a situation where an insurer has consistently accepted late premium payments without objection. This pattern of behavior, if demonstrated clearly and consistently, can lead to the insurer being considered to have waived its right to strictly enforce the contractual term requiring punctual premium payment. The doctrine of waiver applies when an insurer, through its actions or representations, indicates it will not insist on a specific contractual condition. Estoppel, on the other hand, requires the insured to show they reasonably relied on this conduct to their detriment. Therefore, the insurer’s past acceptance of late payments without protest suggests a waiver of the punctuality requirement for future payments.

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 not conditional on the submission of a satisfactory proposal form later. While it offers unconditional cover, it typically includes cancellation provisions and is intended for a short duration, often replaced by a formal policy. Its primary function is to provide the insured with documentary proof of existing insurance, which can be crucial for various purposes, such as vehicle registration or satisfying lender requirements.

The scenario describes a situation where an insured person, a businessman who travels frequently, sustains a back injury. Initially, he receives Temporary Total Disability (TTD) benefits. However, the insurer later reclassifies his condition to Temporary Partial Disability (TPD) based on a medical examiner’s opinion that his range of trunk movement had improved, suggesting he could perform some duties. The insured’s attending doctors, however, maintained that he was unable to perform any work. The Complaints Panel, in this instance, gave more weight to the attending doctors’ opinions, ruling that the insured should continue to receive TTD benefits. This highlights the critical importance of the medical assessment in determining the appropriate benefit classification. TTD benefits are typically paid when an insured is completely unable to perform their usual occupation, while TPD benefits are for situations where the insured can perform some, but not all, of their usual duties. The conflict in medical opinions and the panel’s decision underscore the nuanced nature of this determination, often relying on the expertise of those directly treating the patient.

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 of prior symptoms and the tumor’s likely growth period supported the insurer’s stance.

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 excess is in addition to any other excesses that might apply to the policy, such as a young driver excess or a specific excess for certain types of claims. Therefore, if a policyholder agrees to a voluntary excess of HK$5,000 and a claim occurs that is covered by the policy, the first HK$5,000 of the loss would be borne by the insured, and the insurer would cover the amount exceeding this voluntary excess, subject to other policy terms and conditions.

In Hong Kong, when a general insurance policy is up for renewal, it is generally considered the creation of a new contract. This means that the terms and conditions can be renegotiated between the insurer and the insured. The duty of utmost good faith is a continuous obligation throughout the life of the contract, but it doesn’t ‘revive’ in the sense of being a new obligation at renewal; rather, it remains in effect. While an insurer should inform the insured if they do not intend to renew, this is a matter of good practice and regulatory expectation rather than a strict legal requirement that invalidates the renewal process if not met. Therefore, the statements that the renewal constitutes a new contract and that terms are freely negotiable are true. The statement about the duty of utmost good faith reviving is not accurate in its phrasing, as it’s a continuous duty. The statement about the insurer needing to inform the insured if they don’t intend to renew is a good practice, but not a universally mandated legal requirement that makes the renewal process itself invalid if not followed.

A ‘condition precedent to the contract’ is a term that must be fulfilled for the insurance agreement to become effective. Without this condition being met, the contract is not in force, and therefore, no coverage is provided. In contrast, a ‘condition precedent to liability’ relates to events or actions that must occur or be performed after a loss has happened for a specific claim to be valid and payable. A ‘condition subsequent to the contract’ is a term that, if breached during the policy period, can affect the ongoing coverage or lead to a claim being invalidated, but the contract itself was already in force. ‘Consequential loss’ refers to indirect financial losses resulting from an insured event, which are typically excluded from property insurance unless specifically covered under a business interruption policy.

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 agreed value is payable for a total loss, but strict indemnity applies to partial losses.

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 agreed with the insurer, citing the policy exclusion for illnesses presenting signs and symptoms prior to the policy commencement date. The panel reasoned that a tumor of the size found would likely take longer than 10 days to develop, thus indicating the condition likely existed before the policy began. 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 Insurance Companies Ordinance (ICO) establishes a framework for the financial stability and operational integrity of insurance companies in Hong Kong. Key provisions include authorization requirements, minimum capital levels, and solvency margin rules, all designed to safeguard policyholders’ interests and maintain market confidence. The “fit and proper” criteria for directors and controllers further reinforce this objective by ensuring that those in charge of insurance entities possess the necessary integrity and competence. Adequate reinsurance is also mandated to manage risk exposure and ensure the insurer’s ability to meet its obligations. These measures collectively contribute to the economic and social viability of the insurance sector, directly impacting customer service and protection.

The Employees’ Compensation Ordinance in Hong Kong establishes a strict liability for employers regarding injuries or death sustained by employees arising out of and in the course of their employment. This means the employer is liable regardless of fault. The scenario describes an employee injured in a traffic accident while commuting home after a client meeting. For the injury to be covered under the EC policy, it must be demonstrably linked to the employment. While the meeting was work-related, the accident occurred during the commute home, which is generally considered outside the direct scope of employment unless specific circumstances, such as the employer providing transport or the commute being an integral part of the job duties, are present. Therefore, the key factor is whether the accident arose out of and in the course of employment, which is not definitively established by the information provided, making it a potential point of contention for coverage.

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 may interpret such clauses to cover activities that are commonly associated with the excluded category, even if not explicitly listed.

The scenario describes a situation where an insured person’s ability to perform their usual occupation is partially restored, but not fully. The insurer’s decision to classify the latter part of the recovery period as Temporary Partial Disablement (TPD) is based on the medical assessment that the insured could perform some duties. This aligns with the policy’s provision for different benefit amounts for Temporary Total Disablement (TTD) and TPD, where TPD applies when the insured can undertake some, but not all, of their usual work. The Complaints Panel’s decision in Case 2, which favored the insured’s attending doctors’ opinion regarding the inability to perform *any* work, highlights the importance of medical evidence in determining the classification of disablement. However, in this specific scenario, the medical examiner’s observation about the insured’s improved range of movement and the insurer’s subsequent reclassification to TPD for the period from May 15th onwards, based on the ability to perform duties, is a key factor. The question tests the understanding of the distinction between TTD and TPD and how medical assessments influence benefit entitlement.

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 if the policy is cancelled, highlighting their critical legal role. Therefore, while it confirms compulsory cover, it does not provide a summary of the policy’s specific terms or benefits.

The scenario highlights a common challenge in insurance claims: determining the onset of a pre-existing condition. The insurer rejected the claim based on the size of the tumor, suggesting it couldn’t have developed within 10 days of policy inception. The insured argued the prior consultation was for hemorrhoids and she had recovered. The Complaints Panel, considering the tumor’s size and the policy’s exclusion for conditions presenting signs or symptoms before the policy commencement, supported the insurer’s decision. This aligns with the principle that if a condition’s symptoms or development predates the policy, even if not definitively diagnosed, the insurer may be justified in rejecting a claim related to that condition. The difficulty in pinpointing the exact onset date is a key issue in such cases, but the evidence (tumor size) can lead to a reasonable inference about the timeline of the illness.

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, by definition, are always in parallel with other excesses 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$7,000. The explanation clarifies that standard policy excesses are a separate category of compulsory excess and would be applied in addition to the voluntary and underwriting excesses if applicable, but in this specific scenario, only voluntary and underwriting excesses are mentioned as being applied. The key is that standard policy excesses are a type of compulsory excess and are applied in parallel with other excesses.