Paper 2 General Insurance Quiz 59

The ‘Schedule’ within a scheduled policy form is the section that specifically details all information pertinent to the individual risk being insured. This includes crucial data such as the policy number, the insured’s particulars, the sums insured or limits of liability, effective dates, a description of the insured subject matter, the premium paid, and any special terms, warranties, exclusions, or endorsements that modify the standard policy wording. The Recital Clause introduces the contract, referencing parties and the proposal form, while the Operative Clause outlines the circumstances of cover and perils. General Exceptions apply universally across the entire policy, not just to specific sections.

The question tests the understanding of how premiums are determined in Personal Accident (PA) insurance, specifically referencing the provided text. The text explicitly states that while individual features like age might have underwriting consequences, the standard premium calculation is primarily based on the insured’s occupation, which is classified according to accident risk. Other factors like gender are mentioned as not affecting the premium if other conditions are equal. Therefore, occupation is the most significant factor for standard premium calculation in PA policies.

The question tests the understanding of exclusions in pleasure craft insurance, specifically concerning the ship’s boat. According to the provided text, a ship’s boat is excluded from coverage if it is not permanently marked with the parent boat’s name. This implies that if the ship’s boat is properly marked, it would be covered under the policy. Therefore, the scenario where the ship’s boat is properly marked would lead to a claim being accepted, assuming other policy conditions are met.

The question tests the understanding of exclusions in pleasure craft insurance, specifically concerning the ship’s boat. According to the provided text, a ship’s boat is excluded from coverage if it is not permanently marked with the parent boat’s name. This implies that if the ship’s boat is properly marked, it would be covered under the policy, making the statement about its exclusion conditional on the marking. Therefore, the statement that the ship’s boat is excluded is not universally true for all pleasure craft policies; it depends on the marking of the boat.

An insurance broker acts as an agent for the proposer, meaning their actions and disclosures are legally attributed to the proposer. The principle of utmost good faith requires full and honest disclosure of all material facts. If a broker, acting on behalf of the proposer, withholds or misrepresents such facts, it constitutes a breach of this duty. This breach is imputed to the proposer, potentially voiding the policy from its inception, as the broker’s knowledge and actions are legally considered the proposer’s own in this context. Therefore, the broker’s failure to disclose material information is a direct breach of utmost good faith by the proposer.

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. It is the insurer’s confirmation of their commitment.

A voluntary excess, also known as a ‘self-insured retention’ or ‘excess’, 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 for policyholders to reduce their premium payments. By accepting a higher excess, the insured effectively takes on more of the initial risk, which in turn lowers the insurer’s exposure and allows them to offer a reduced premium. This concept is particularly common in motor insurance, where drivers might opt for a higher excess in exchange for a lower annual premium, especially if they are considered higher risk, such as young drivers.

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 purpose of Employees’ Compensation insurance is to cover the employer’s legal obligations to employees for work-related injuries or fatalities, irrespective of fault.

The question tests the understanding of the core principle of ‘All Risks’ insurance, which is that it covers all losses or damages unless specifically excluded. The insurer bears the burden of proving that an exclusion applies. Option (a) accurately reflects this principle. Option (b) is incorrect because ‘All Risks’ does not cover losses that are inherently uninsurable like wear and tear. Option (c) is incorrect as the insurer must prove an exclusion, not the insured. Option (d) is incorrect because while the scope is wide, it is not unlimited and specific exclusions do exist.

This question tests the understanding of the duty of utmost good faith in insurance contracts, specifically concerning the disclosure of material facts. A material fact is defined as any circumstance that would influence a prudent insurer’s decision regarding premium calculation or risk acceptance. The duty to disclose these facts is a fundamental principle of insurance law, requiring the proposer to reveal all relevant information, regardless of whether specific questions are asked. Therefore, facts that impact an underwriter’s assessment of insurability or the terms of the policy are considered material.

The question tests the understanding of the ‘pro rata average’ condition in insurance policies, specifically how under-insurance affects claim payouts. The scenario describes a situation where the sum insured for contents is less than the actual value of the contents at the time of loss. The pro rata average condition stipulates that the claim payment will be reduced proportionally to the extent of under-insurance. In this case, the sum insured ($500,000) represents 80% of the actual value ($625,000). Therefore, the claim for a loss of $100,000 will be paid at 80% of that amount, resulting in a payout of $80,000. The other options represent incorrect calculations or misinterpretations of the average clause.

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 the insurer to cover a loss due to theft, there must be evidence of forced entry or exit from the premises. Without this evidence, the claim may be invalidated. The other options represent different insurance concepts: ‘Franchise’ relates to the deductible amount that the insured must bear before the insurer pays, ‘Fraud’ concerns dishonest acts by the insured, and ‘Fundamental Risks’ are those with potentially catastrophic loss potential that are often excluded.

Moral hazard refers to the increased likelihood of a loss occurring because an individual is insured. It’s often linked to the ‘human element’ of risk, encompassing attitudes and behaviours. While dishonesty and fraud are extreme forms, carelessness, unreasonableness (like inflexibility or opinionated views), and negative social behaviour (such as vandalism) also contribute to moral hazard. The question asks to identify a behaviour that, while not outright dishonest, can still lead to increased risk and potential claims, fitting the description of moral hazard. Option (a) describes a situation where an insured party, despite being honest, might cause significant issues due to their rigid and unyielding approach to risk management or claims, which aligns with the ‘unreasonableness’ aspect of moral hazard. Option (b) describes a proactive and responsible approach to risk management, which mitigates moral hazard. Option (c) describes a situation where an insured party is actively trying to reduce risk, which is the opposite of moral hazard. Option (d) describes a situation where an insured party is being transparent and cooperative, which also counteracts moral hazard.

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 within an extended reporting period if specified. Option (a) describes ‘occurrence-based’ coverage, where the incident must occur 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 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 did report the damage within 20 days, the key issue is whether this constituted ‘as soon as reasonably possible’ given that the repair had already been completed. The Complaints Panel acknowledged that the repair before notification prejudiced the insurer’s ability to investigate. However, they gave the insured the benefit of the doubt due to the simplicity of the circumstances and the verification of damage through the repair slip and inspection. This implies that the panel considered the notification timely enough in this specific context, focusing on the genuineness of the claim and the availability of alternative verification methods, rather than strictly adhering to a pre-repair notification requirement as an absolute condition precedent. The other options are incorrect because they either misinterpret the panel’s decision or focus on aspects not central to the ruling. Option B is incorrect as the panel did not strictly enforce the ‘as soon as reasonably possible’ clause in a way that would automatically void the claim without considering prejudice. Option C is incorrect because the panel did not find the insured’s argument about the prior claim settlement to be a valid precedent for this case. Option D is incorrect as the panel did not find the insured’s actions to be a material breach that unequivocally invalidated the claim, but rather a point of contention that was resolved in favour of the insured.

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. If the material damage policy does not cover the event causing the interruption, or if it’s invalid, the BI claim will not be admitted. Therefore, the absence of a valid material damage cover for the physical loss directly invalidates the business interruption claim.

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.

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, a contribution from the insured towards the cost of these new parts is generally considered appropriate to prevent the insured from profiting from the loss. The scenario highlights that the insurer’s application of a 35% betterment contribution, based on the vehicle’s age and mileage, was deemed reasonable by the Complaints Panel, especially since the policy explicitly excluded depreciation, making the insurer’s calculation a form of betterment adjustment.

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 rather invalidates a specific claim. The scenario describes a policy requiring the insured to report a change in profession. Failure to do so, as stipulated, would mean the insurer is not liable for any claims arising from that changed profession, even if the policy itself remains in force for other purposes. This aligns with the definition of a condition precedent to liability, as it specifically affects the insurer’s obligation to pay a claim, not the existence of the contract itself. A condition precedent to the contract would prevent the contract from commencing in the first place. A condition subsequent to the contract would typically void or alter the contract after a certain event occurs, but the primary impact here is on claim validity.

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 complete proposal form later. While it offers unconditional cover, it typically includes cancellation provisions and is intended for a short duration, to be 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.

This question tests the understanding of how an excess works in motor insurance, specifically in the context of property damage to the insured’s own vehicle. The scenario describes a loss of HK$12,000. An excess of HK$2,000 means the insured is responsible for the first HK$2,000 of the claim. Therefore, the insurer will pay the remaining amount, which is HK$12,000 – HK$2,000 = HK$10,000. The explanation clarifies that the excess is applied to the property damage section of a comprehensive policy and illustrates the calculation.

A Performance Bond is a financial guarantee, structured as a bond rather than an insurance policy, designed to ensure that a contractor fulfills their contractual obligations, specifically the completion of construction work within an agreed-upon timeframe. This contrasts with insurance policies that typically indemnify against loss or damage. While both involve financial commitments, the fundamental purpose and structure differ significantly. A Performance Bond is a surety product, guaranteeing performance, whereas an insurance policy is a risk transfer mechanism.

The scenario describes a situation where an insurer denied 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 cancer tumor, diagnosed shortly after policy inception, could not have developed in such a short period. The Complaints Panel, considering the tumor size and the policy’s exclusion for conditions presenting signs or symptoms before the policy commencement, upheld the insurer’s decision. This aligns with the principle that insurance policies typically exclude coverage for illnesses that were already present or showing symptoms before the policy’s effective date, even if not formally diagnosed. The difficulty in pinpointing the exact onset date of a condition is a common challenge in applying pre-existing condition clauses, as highlighted in the provided text.

The ‘Schedule’ within a scheduled policy form is the section that specifically details all information pertinent to the individual risk being insured. This includes crucial data such as the policy number, the insured’s particulars, the sums insured or limits of liability, the effective dates of coverage, a description of the insured subject matter, the premium paid, and any special terms, warranties, exclusions, or endorsements that modify the standard policy wording. The Recital Clause introduces the contract, the Operative Clause defines the scope of coverage and perils, and General Exceptions apply universally across the policy. Therefore, identifying the specific details of the insured’s vehicle and its coverage limits would be found in the Schedule.

The question tests the understanding of an insurer’s obligation regarding policy renewals. According to general insurance principles, an insurer is not legally obligated 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 statement that an insurer does not have to remind the insured about renewal is accurate.

The “step-back system” for No Claim Discount (NCD) in private car insurance, as described in the IIQE syllabus, dictates how a claim affects the accumulated discount. For drivers with an entitlement of four or more claim-free years (equivalent to 50% or 60% NCD), a single claim in the policy period will result in a reduction of the NCD to 20% or 30% respectively upon renewal. This means the discount is not entirely lost but is significantly reduced, requiring subsequent claim-free years to rebuild to the previous level. Options B, C, and D describe scenarios that are either incorrect (complete loss of NCD for any claim, or a fixed reduction regardless of prior entitlement) or not the standard practice for private cars under the step-back system.

A ‘condition precedent to the contract’ is a term that must be fulfilled for the insurance agreement to become effective. If this condition is not met, the contract never truly begins. In contrast, a ‘condition precedent to liability’ relates to a specific claim; its breach might invalidate that particular claim but doesn’t necessarily void the entire contract from inception. A ‘condition subsequent to the contract’ is an ongoing obligation during the policy period, the breach of which can have consequences but doesn’t prevent the contract from starting. ‘Consequential loss’ refers to indirect financial losses, which are typically excluded from property insurance unless specifically covered under a business interruption policy.

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 legal compliance or vehicle registration is required. While it offers unconditional cover, it typically includes cancellation provisions and is intended for a short duration, to be superseded by a formal policy. The other options describe different aspects of insurance documentation: a policy is the final, comprehensive contract; a certificate of insurance primarily serves as proof of compulsory insurance or a summary of cover under a master policy; and supplementary information, while important for the underwriting process, does not itself constitute temporary cover.

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 based on the temporal limitation of the cover. The other options are incorrect because the policy does not exclude losses due to theft in general, nor does it specify that the money must be for purchasing goods, nor does it mandate that the loss must be reported to the police for a valid claim, although reporting is good practice.

The “step-back system” for No Claim Discount (NCD) in private car insurance, as described in the IIQE syllabus, dictates how a claim affects the accumulated discount. For private cars with an entitlement of four or more years (equivalent to 50% or 60% NCD), a single claim in the policy year will result in a reduction of the NCD to 20% or 30% respectively upon renewal. This means the discount is not entirely lost but is significantly reduced, requiring subsequent claim-free years to rebuild to the previous level. Options B, C, and D describe scenarios that are either incorrect or do not fully represent the “step-back” mechanism for higher NCD entitlements.