Paper 2 General Insurance Quiz 60

This question tests the understanding of the distinction between ‘Specified Perils’ and ‘All Risks’ cover in property insurance, as outlined in the IIQE syllabus. ‘Specified Perils’ cover only losses caused by events explicitly listed in the policy, requiring the claimant to prove the cause of loss. ‘All Risks’ cover, conversely, covers all accidental losses unless specifically excluded by the policy, shifting the burden of proof to the insurer to demonstrate an exclusion applies. Therefore, a policy that covers damage from fire, lightning, and explosion, but not from flood or earthquake unless these are also listed, is an example of ‘Specified Perils’ cover. The other options describe ‘All Risks’ cover or a combination that doesn’t accurately reflect the ‘Specified Perils’ definition.

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 performed indoors or outdoors. Therefore, ice-skating, even indoors, falls under this category. The key principle here is the interpretation of policy exclusions, where the insurer’s reasonable interpretation, even if not explicitly defined in the policy, can be upheld if it aligns with common understanding and the intent of the exclusion. The fact that the insured was a passenger on a motorcycle and the accident was caused by another party’s negligence does not override the exclusion for engaging in or being indirectly involved with motorcycling, as per the policy’s wording.

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the standards expected in various aspects of the insurance business. Among these are the fair, efficient, and prompt handling of claims, as well as the criteria used for denying claims. While other regulations might touch upon claims, the Code of Conduct for Insurers is the primary document detailing these specific operational standards for insurers concerning claims management and the rationale behind claim denials.

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 principle that TPD benefits are applicable when an insured can undertake some, but not all, of their usual work due to injury. The Complaints Panel’s decision to uphold the insurer’s classification, despite conflicting medical opinions, highlights the importance of assessing the insured’s functional capacity relative to their occupation, and that attending doctors’ opinions are given significant weight, but not absolute precedence, especially when contradicted by other medical evidence regarding functional capacity.

The question tests the understanding of the ‘all risks’ insurance concept, specifically its application to personal property and the implications of unspecified items. ‘All risks’ insurance covers all losses unless specifically excluded. When unspecified items are included, the principle of average often applies, meaning the payout in case of a partial loss will be proportionate to the ratio of the sum insured to the actual value of all items covered. This prevents underinsurance. The other options describe aspects of insurance that are not directly tied to the application of average to unspecified items in an ‘all risks’ policy.

The scenario highlights the insured’s duty to cooperate with the insurer after a loss. This duty, recognized under common law and often reinforced in policy conditions, requires the insured to provide reasonable assistance and information to the insurer to facilitate the claims assessment and resolution process. Specifically, allowing access to premises and staff for inquiries is a direct manifestation of this cooperative obligation. Failing to do so could be considered a breach of policy conditions, potentially impacting the claim’s validity.

A General Average Act is defined as any extraordinary sacrifice or expenditure voluntarily and reasonably made or incurred in time of peril for the purpose of preserving 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 an extraordinary sacrifice made voluntarily and reasonably in a time of peril to save the entire marine adventure. Therefore, this action 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. 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.

A commercial motor policy designed for vehicles used in construction, such as those involved in digging, often contains specific exclusions. The ‘working operations clause’ is a common exclusion that removes cover when the vehicle is being used for its specialized functions that go beyond standard road transit, like excavation or lifting. This is to manage the significantly higher risks associated with such activities, which are typically covered under different types of insurance, such as engineering or contractor’s plant insurance. The other options are less relevant: a ‘business use clause’ generally relates to the purpose for which the vehicle is used (e.g., delivery vs. personal use), a ‘tool of trade clause’ might relate to equipment attached to the vehicle but not its operational use in construction, and a ‘professional liability clause’ pertains to errors or omissions in professional services, not the physical operation of a vehicle.

The question tests the understanding of policy conditions, specifically the ‘Average’ condition. The Average clause is a penalty for under-insurance. If the sum insured is less than the value of the property at the time of loss, the insurer will only pay a proportion of the loss, calculated based on the ratio of the sum insured to the actual value. In this scenario, the property’s value is HK$500,000, but it is insured for only HK$300,000. The loss is HK$100,000. Applying the Average clause, the insurer will pay (Sum Insured / Value of Property) * Loss = (HK$300,000 / HK$500,000) * HK$100,000 = 0.6 * HK$100,000 = HK$60,000. Therefore, the insured will bear the remaining HK$40,000.

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 refers to sports played on snow or ice, and therefore, ice-skating, regardless of whether it’s indoors or outdoors, falls under this category. This aligns with the principle that policy exclusions are interpreted broadly to encompass activities that fit the general description, even if not explicitly listed, especially when the term itself is not precisely defined in the policy. The key is the nature of the activity (on ice) rather than the season or location.

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 voluntarily agreed, through the Hong Kong Federation of Insurers’ Code of Conduct, to only refuse a claim due to a warranty breach if there is a causal link between the breach and the loss, or if the breach is fraudulent. This means that a minor breach, unrelated to the loss, would not typically lead to a claim denial under this voluntary undertaking, even though technically, the policy might allow it.

This question tests the understanding of the legal and contractual aspects of insurance policy renewals in Hong Kong. Statement (i) is true because the principle of utmost good faith is a continuous duty throughout the life of an insurance contract, and it is particularly important at renewal when new information may need to be disclosed. Statement (ii) is also true; a renewal is generally considered the creation of a new contract, even if the terms are identical to the previous one, as it establishes a new period of coverage. Statement (iv) is correct as insurers have a duty to inform policyholders if they do not intend to renew a policy, allowing the insured to seek alternative coverage. Statement (iii) is incorrect because while terms can be negotiated, they are not entirely ‘freely’ negotiable in the sense that the insurer still operates within the bounds of their underwriting guidelines and regulatory requirements. Therefore, statements (i), (ii), and (iv) are the accurate assertions regarding general insurance policy renewals.

A ‘Condition Precedent to the Contract’ is a stipulation that must be fulfilled for the insurance agreement to become effective. Failure to meet this condition means the contract never legally commences. In contrast, a ‘Condition Precedent to Liability’ relates to events or actions that must occur or be performed after the contract is in force for a specific claim to be payable. A ‘Condition Subsequent to the Contract’ is a term that, if breached during the policy period, can affect the ongoing coverage or the insurer’s obligations, but the contract itself is already active. ‘Consequential Loss’ refers to indirect financial losses resulting from an insured event, which are typically excluded from property damage policies unless specifically covered under a business interruption policy.

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 related to workplace safety. This common law liability is also typically covered by an ECI policy, but the compensation awarded under common law is net of any amounts already paid or payable under the ECO. The question tests the understanding that while the ECO provides a statutory framework for compensation, employers’ liability can extend beyond this to common law principles, and ECI policies are structured to encompass both.

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

This question tests the understanding of the distinction between ‘Specified Perils’ and ‘All Risks’ cover in property insurance. ‘Specified Perils’ cover only losses caused by events explicitly listed in the policy, requiring the claimant to prove the cause of loss. ‘All Risks’ cover, conversely, covers all accidental losses unless specifically excluded by the policy, shifting the burden of proof to the insurer to demonstrate an exclusion applies. The scenario describes a situation where a loss occurred, and the insurer is attempting to deny coverage by claiming it wasn’t a specified peril. Under ‘All Risks’ cover, the claimant would only need to prove an accidental loss occurred, and the insurer would need to prove an exclusion applied. Therefore, the insurer’s argument is more aligned with the burden of proof in a ‘Specified Perils’ policy.

The question tests the understanding of which vessels are subject to registration in Hong Kong under the relevant legislation. Option (a) correctly identifies vessels employed in sea fishing that regularly operate within Hong Kong waters or use them as a base, as these are specifically included in the scope of vessels requiring registration. Option (b) is incorrect because vessels registered outside Hong Kong and trading to or from Hong Kong are generally exempt from local registration requirements unless specified otherwise. Option (c) is incorrect as pleasure vessels are typically covered by different regulatory frameworks and not necessarily the same registration requirements as commercial vessels. Option (d) is incorrect because while vessels from Mainland China or Macau trading to Hong Kong might require specific documentation, the general rule for vessels registered in these territories and trading to Hong Kong, especially if they hold a valid certificate from their home authority, does not automatically mandate Hong Kong registration under the described scenario.

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 scenario where a motorcycle’s valuable accessories are stolen would not be covered by the standard policy.

The Code of Conduct for Insurers in Hong Kong is designed to promote good insurance practice and protect policyholders. It covers a broad spectrum of insurer conduct, including their interactions with customers and their operational responsibilities. Specifically, it addresses how insurers should handle underwriting and claims processes to ensure fairness and efficiency. It also explicitly details the rights and obligations of customers, ensuring they are informed and treated equitably. Furthermore, the Code emphasizes the importance of safeguarding customers’ overall interests, which encompasses their rights and well-being throughout the insurance lifecycle. While an insurer’s role as a good corporate citizen is important, the Code’s primary focus is on the direct conduct of insurance business and customer protection, rather than broader corporate social responsibility initiatives.

The scenario highlights the importance of timely notification of potential claims. While the insured believed 20 days was reasonable, the insurer’s ability to investigate was prejudiced by the repair being completed before notification. The Complaints Panel acknowledged this prejudice but considered the insured’s layman’s perspective and lack of prior claims history. However, the core principle tested here is the insurer’s right to investigate. When an insured fails to notify an insurer of a loss in a manner that significantly hinders the insurer’s ability to assess the claim’s validity and extent, the insurer may be justified in declining the claim, especially if the policy condition regarding notification is considered a condition precedent to liability. The fact that the repair was completed before the insurer could investigate is a critical factor that prejudiced their position, making the insurer’s decision to decline the claim justifiable under the policy terms, even if the Complaints Panel ultimately gave the benefit of the doubt in this specific instance.

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 is in addition to any compulsory excess that might apply to the policy, such as a young driver excess.

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 as described.

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 without a causal link or fraud would not typically lead to a claim refusal under this undertaking, even though technically the warranty is breached.

This question tests the understanding of exclusions in a Professional Indemnity (PI) policy, specifically concerning financial losses arising from dishonest acts. PI policies are designed to cover negligence or errors in professional advice or services. However, they explicitly exclude liability stemming from dishonesty, fraud, or criminal behavior by the insured. Therefore, if a financial loss to a third party is directly caused by the insured’s fraudulent misrepresentation, the PI policy would not provide coverage for that specific loss, as it falls under the dishonesty exclusion.

This question tests the understanding of the specific definition of ‘loss of one limb’ as typically applied in personal accident insurance, which is a common component of travel insurance. The scenario highlights that a fracture and subsequent partial functional impairment of a hand, while causing inconvenience, does not meet the strict definition of ‘physical severance at or above the wrist’ or ‘total functional disablement’ as commonly stipulated in such policies. The case emphasizes that without specific policy provisions for partial permanent disability compensation, claims based on such conditions would likely be rejected if they do not meet the defined criteria for total loss.

A commercial motor policy designed for vehicles used in construction, such as those involved in digging, often contains specific exclusions. The ‘working operations clause’ is a common exclusion that removes cover when the vehicle is being used for its specialized functions that go beyond standard road transit, like excavation or lifting. This is to manage the significantly higher risks associated with such activities, which are typically covered under different types of insurance, such as engineering or contractors’ all risks policies. The other options are less relevant: a ‘business use clause’ generally relates to the purpose for which the vehicle is used (e.g., commercial vs. private), a ‘tool of trade clause’ might relate to equipment attached to the vehicle but not its primary operational use, and a ‘professional liability clause’ pertains to errors or omissions in professional services, not the operation of machinery.

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 because these risks are typically covered under a separate fire insurance policy. Therefore, a claim for damage caused by a fire originating from a boiler explosion would likely be handled by the fire policy, not the boiler explosion policy.

The question tests the understanding of the insured’s duty to minimize loss after a claim event, as stipulated by common law and often reinforced in policy conditions. The scenario describes a fire damaging a commercial property. The insured’s immediate action of boarding up windows and securing the premises is a proactive step to prevent further damage from weather or vandalism, thereby fulfilling the duty to mitigate further losses. Option B is incorrect because while reporting the loss is a duty, it doesn’t directly address minimizing further damage. Option C is incorrect as admitting liability to a third party without the insurer’s consent can prejudice the insurer’s rights. Option D is incorrect because disposing of damaged property without the insurer’s permission can violate policy terms and potentially affect the claim settlement.

The scenario describes an individual who intentionally intervenes in a violent altercation to rescue friends. The Complaints Panel determined that the insured’s injury was not accidental because it was a foreseeable consequence of his deliberate actions in joining the fight. The key principle here is that for a personal accident claim, the injury must be the result of an unforeseen and unintentional event. By actively participating in a dangerous situation, the insured’s actions led to a predictable outcome of being injured, thus removing the event from the definition of an ‘accident’ as required for the claim.