Paper 2 General Insurance Quiz 54

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the standards expected in personal insurance policies for Hong Kong residents. It covers a broad spectrum of practices, including underwriting, claims handling, product knowledge, and customer rights. While the Insurance Companies Ordinance (ICO) sets out foundational 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 outlining the expected ethical and operational standards for insurers themselves in their dealings with individual policyholders concerning personal insurance products.

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 often in a better financial position due to the improved condition and lifespan of the new components. This enhancement is termed ‘betterment’. The insurer is entitled to recover a contribution from the insured for this betterment, as the insured would otherwise benefit from an improvement beyond mere restoration. 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 due to the lack of a universal calculation method, was deemed reasonable by the Complaints Panel given the vehicle’s age and the improved condition of new parts. The policy’s exclusion of depreciation further supports the insurer’s claim for betterment, as it acknowledges that the insured should not be compensated for the natural wear and tear of the old parts, and conversely, should contribute to the enhanced value provided by new ones.

A cover note is a temporary document that provides immediate evidence of insurance coverage, binding the insurer even before the final policy is issued. Its primary function is to assure the insured that protection is in place, often used in situations like motor insurance where proof is needed for registration. While it offers unconditional cover, it typically includes cancellation provisions and is intended for a short duration, to be superseded by a formal policy. A policy, on the other hand, is the final, formal contract that incorporates all agreed terms and replaces any prior cover notes. A certificate of insurance, in its more common understanding, serves as proof of compulsory insurance, particularly for motor vehicles, and is a separate, permanent document, distinct from the policy itself, though a temporary motor certificate might be embedded within a cover note.

The question tests the understanding of the ‘Forcible and Violent Entry’ condition in theft insurance. This condition is a standard requirement for a valid claim under commercial theft policies, meaning that for a theft to be covered, there must be evidence of forced or violent entry into or exit from the premises. The other options represent different insurance concepts: ‘Franchise’ relates to the deductible amount that must be exceeded for a claim to be paid, ‘Fraud’ concerns dishonest acts by the insured, and ‘Fundamental Risks’ refers to catastrophic potential losses that are often excluded.

Following a loss, an insured has a duty to cooperate with the insurer. This duty extends to providing reasonable assistance with subrogation efforts. Subrogation is the insurer’s right to step into the shoes of the insured to recover damages from a third party responsible for the loss, after the insurer has indemnified the insured. By actively assisting with these efforts, the insured helps the insurer mitigate its losses, which is a core aspect of the post-loss cooperation duty. Admitting liability to a third party without the insurer’s consent would prejudice the insurer’s rights, and failing to disclose other insurances relates to the duty of contribution. While preserving damaged property is also a duty, assisting with subrogation is a direct form of cooperation that aids the insurer in recovering funds.

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 breach of the notification condition.

A combined liability policy typically consolidates coverage for public liability, products liability, and employees’ compensation liability into a single document. While clients may request additional coverages like Directors’ and Officers’ Liability or Professional Liability, these are often added as endorsements or separate sections within the broader policy framework, rather than being the core components of a standard combined liability offering. The primary intent of a combined liability policy is to streamline the management of these three fundamental liability exposures for a client.

A Certificate of Insurance serves as a formal confirmation of the existence of compulsory insurance, particularly in contexts like motor vehicle insurance. It is a standalone document, distinct from the main policy, that verifies the mandatory coverage is in place. While it confirms coverage, it is not the primary document for detailing all policy terms and conditions, nor is it a guarantee of the insurer’s financial solvency. Its primary function is to provide evidence of compliance with compulsory insurance requirements.

The “tool of trade” clause in commercial vehicle third-party insurance specifically excludes coverage for damage caused when the vehicle is used as a tool of its trade, such as a mechanical digger operating as such. This exclusion is in place unless statutory provisions mandate otherwise, as seen in compulsory insurance requirements. Therefore, a scenario where a specialized vehicle is used for its primary function, distinct from mere transportation, would fall under this exclusion.

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, distinct from the policy itself, and is a separate, permanent document, unlike the temporary nature of a cover note.

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

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, thus supporting the insurer’s decision. The key principle here is the ‘pre-existing condition’ clause, which typically excludes coverage for illnesses or conditions that manifested signs or symptoms before the policy’s commencement date. Even though the exact onset date was difficult to ascertain, the evidence (tumor size and prior symptoms) indicated the condition likely existed before the policy was in force, aligning with the policy’s exclusion. Therefore, the insurer’s rejection was deemed reasonable based on the available information and the policy terms.

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 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. However, for partial losses, the principle of strict indemnity applies, meaning the payout will be based on the actual loss incurred, not the agreed value. This is a key characteristic of agreed value policies for high-value, unique items where market value can fluctuate significantly or be difficult to ascertain.

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 role 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.

This question tests the understanding of how travel insurance premiums are determined. While geographical area, duration, and the number of people insured are primary factors, the concept of an ‘annual policy’ is a specific pricing structure designed for frequent travelers. This structure offers a single premium for a defined period, typically a year, covering multiple trips. The other options represent individual trip factors or benefits, not the overarching premium basis for frequent travelers.

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 insurer is justified in rejecting the claim based on the policy’s temporal limitation.

The core principle of an indemnity policy is to restore the insured to their pre-loss financial position. When new parts are used to repair an older vehicle, these new parts inherently offer a superior lifespan and condition compared to the original, worn-out parts. This improvement, often termed ‘betterment,’ places the insured in a financially advantageous position post-repair. Therefore, the insurer is entitled to a contribution from the insured to offset this betterment, reflecting the enhanced value of the vehicle due to the new components. The scenario highlights that the insurer’s calculation of a 35% betterment contribution for an eight-year-old vehicle, considering the normal depreciation rates, was deemed reasonable by the Complaints Panel. The policy’s exclusion of depreciation further supports the insurer’s right to claim a betterment contribution, as it acknowledges the improved state of the vehicle.

The Motor Vehicles Insurance (Third Party Risks) Ordinance mandates compulsory third-party liability insurance for motor vehicles in Hong Kong. This ordinance ensures that victims of motor accidents have a recourse for compensation for bodily injury or death caused by the negligent use of a motor vehicle. While other options relate to motor insurance, they do not represent the foundational legal requirement for third-party coverage.

A cover note is a temporary document that provides immediate evidence of insurance coverage, binding the insurer even before the final policy is issued. Its primary purpose is to confirm that insurance exists, often serving as proof for legal or registration requirements, such as in motor insurance. While it offers unconditional cover, it typically includes cancellation provisions and is intended for a short duration, to be replaced by a formal policy. The scenario describes a situation where a bank requires proof of fire insurance for a mortgage, and a cover note would serve this purpose by providing immediate documentary evidence of the existence of insurance, fulfilling the bank’s requirement before the full policy is finalized.

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 a specified peril like ‘breakdown of machinery’ (depending on the exact wording), but it’s not as comprehensive as (A). Clause (C) would only cover it if it fell under a very narrow list of perils, such as fire or explosion, which a refrigeration unit failure usually isn’t.

In the context of insurance contracts, a ‘representation’ is a statement of fact made by the proposer before the contract is concluded. According to established insurance law principles, particularly those derived from the Marine Insurance Act 1906 (which heavily influences Hong Kong insurance law), representations must be substantially true. This means that while minor inaccuracies might not invalidate the contract, any misrepresentation of a material fact that influences the insurer’s decision to accept the risk or the terms offered can lead to the contract being voidable at the insurer’s option. The requirement for substantial truth is a cornerstone of the principle of utmost good faith (uberrimae fidei) in insurance.

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. The key factor for coverage under the EC policy is whether the accident “arose out of and in the course of employment.” While the meeting was work-related, the commute home by taxi after the meeting is generally considered outside the direct scope of employment, unless specific circumstances (like employer-provided transport or the commute being an integral part of the job) apply. Therefore, the injury is unlikely to be covered under the statutory liability provision of the EC Ordinance.

A warranty in insurance is an absolute undertaking by the insured to the insurer. A breach of this undertaking, regardless of its impact on the claim, can automatically discharge the insurer’s liability from the date of the breach. However, insurers in Hong Kong have provided an undertaking to the Hong Kong Federation of Insurers that they will only refuse a claim due to a breach of warranty if there is a causal connection between the breach and the loss, or if the breach is fraudulent. This means that a breach that does not cause the loss and is not fraudulent would not typically lead to a claim refusal under this undertaking, even though technically the warranty is breached.

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’s range of trunk movement had improved significantly, allowing them to 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 an insured can perform some, but not all, of their usual work. The Complaints Panel’s decision to favour the attending doctors’ opinion over the insurer’s medical consultant highlights the importance of the treating physician’s assessment in determining the extent of disability, especially when there are conflicting medical views. The key distinction lies in the insured’s capacity to engage in their occupation, which, according to the medical examiner, was partially regained.

A ‘Scheduled Policy Form’ is a common insurance contract structure that includes a policy schedule. This schedule details specific information about the policy, such as the insured party, the subject matter of insurance, the sum insured, and the period of insurance. The ‘Signature Clause’, also known as the Attestation Clause, is a specific part of this scheduled policy form where the insurer formally confirms their commitment and obligations under the contract. Therefore, the Signature Clause is an integral component of a Scheduled Policy Form.

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 marine adventure. This action directly aligns with the definition of a General Average Act, as it involves an extraordinary measure taken to avert a common peril. The other options do not fit the definition: ‘salvage’ refers to saving property from perils of the sea for an award, ‘sue and labour’ involves expenses to preserve insured property from loss, and ‘actual total loss’ describes the complete destruction or irretrievable loss of the insured subject matter.

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 judgment on premium or acceptance are considered material.

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 sidecar is stolen would not be able to claim under the policy for this specific loss, as it does not constitute the theft of the ‘whole machine’.

The scenario describes an individual who, after a period of total inability to work, shows a significant improvement in their physical condition, allowing them to perform some, but not all, of their usual duties. This transition from being completely unable to work to being partially able to work is the defining characteristic of a shift from Temporary Total Disablement (TTD) to Temporary Partial Disablement (TPD). The insurer’s decision to reclassify the benefit from TTD to TPD after May 15th, based on the medical examiner’s report indicating a three-quarters recovery of trunk movement and the ability to perform some duties, aligns with the principles of personal accident insurance where benefit levels are adjusted based on the insured’s capacity to work. The Complaints Panel’s decision to uphold the TTD benefit until July 15th was based on giving more weight to the attending doctors’ opinions, who stated the insured was unable to perform *any* work until that date, despite the insurer’s medical examiner’s assessment of partial recovery. This highlights the importance of medical evidence and the potential for differing interpretations in determining the appropriate benefit classification.