Paper 2 General Insurance Quiz 63

The scenario describes a situation where an insured person sustained an injury that prevented them from performing their usual duties for a period. The insurer paid a benefit for temporary total disability for eight days and temporary partial disability for five days. The insured believed they should receive temporary total disability benefits for the entire 13 days. 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 of their 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 based on the degree of disablement, and the insurer’s assessment was deemed appropriate given the policy definitions and the insured’s recovery trajectory.

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 damage. The Complaints Panel acknowledged this prejudice but ultimately ruled in favour of the insured due to the simplicity of the circumstances and the availability of alternative verification methods. However, the second case demonstrates a stricter interpretation. The insured failed to report the accident within the stipulated 30 days, and the Complaints Panel found this delay prejudiced the insurer’s investigation. The insured’s argument about a previous claim settlement was dismissed as irrelevant. The key distinction lies in the degree of prejudice and the interpretation of ‘as soon as reasonably possible’ in relation to the insurer’s ability to conduct a proper investigation. The provided text emphasizes that delay in reporting can be detrimental to the insurer’s interests, and whether a breach nullifies the claim depends on the contractual intention and the extent of prejudice. In the second case, the prejudice was deemed significant enough to uphold the insurer’s rejection.

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, aged 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 a depreciation rate for an eight-year-old vehicle, was deemed reasonable by the Complaints Panel, especially since the policy explicitly excluded liability for depreciation. This aligns with the principle of indemnity by ensuring the insurer covers the cost of restoring the vehicle to its pre-accident condition, while the insured contributes to the enhanced value provided by new components.

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 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 (complete loss of NCD for any claim, or a fixed reduction regardless of prior entitlement) or not the primary mechanism for a single claim with high NCD entitlement.

This question tests the understanding of the ‘fit and proper’ requirement for insurance brokers, which is a fundamental aspect of their licensing and ongoing supervision. The Insurance Authority (IA) mandates that all insurance brokers must be fit and proper to operate. This assessment goes beyond mere technical qualifications and encompasses aspects like integrity, financial soundness, and adherence to regulatory standards. While professional indemnity insurance and maintaining proper books are crucial operational requirements, they are components that contribute to demonstrating fitness and properness, rather than being the overarching principle itself. Similarly, adherence to codes of conduct is a manifestation of being fit and proper, but not the core requirement.

The scenario describes a situation where an insured individual sustained an injury and received a settlement for temporary disability benefits. The core of the dispute lies in the classification of the disability. The Complaints Panel determined that for the initial eight days, the insured qualified for Temporary Total Disability (TTD) benefits. However, for the subsequent five days, her condition only met the definition of Temporary Partial Disability (TPD). Personal accident policies typically offer different benefit amounts for TTD and TPD, with TTD usually being higher. The insurer’s offer reflected this distinction by paying TTD for eight days and TPD for five days. The insured’s contention that the entire period should be compensated at the TTD rate is incorrect because her medical condition, as assessed by the Complaints Panel, did not consistently meet the criteria for TTD throughout the entire 13-day period. The panel’s reasoning, based on the nature of the injury, its severity, and the insured’s ability to perform some of her office duties after eight days, supports the insurer’s differential payment approach. Therefore, the insurer’s offer was deemed appropriate as it correctly applied the policy’s benefit structure based on the assessed level of disability.

Fidelity Guarantee Insurance indemnifies employers against financial losses resulting from dishonest acts by their employees. The question describes a scenario where an employee’s actions led to a financial shortfall due to unauthorized transactions. This directly aligns with the core purpose of fidelity guarantee insurance, which is to cover losses arising from employee fraud or dishonesty. Options B, C, and D describe different types of insurance or concepts that do not directly address losses caused by employee dishonesty. Professional Indemnity covers negligence in providing professional services, Public Liability covers injury or damage to third parties, and General Liability is a broad term that doesn’t specifically target employee dishonesty.

In the context of insurance contracts, a ‘representation’ is a statement of fact made by the proposer before the contract is concluded. The principle of utmost good faith (uberrimae fidei) requires that such representations, particularly those concerning material facts, must be substantially true. If a representation is found to be untrue, and it relates to a material fact that influences the insurer’s decision to accept the risk or the terms offered, the insurer may have grounds to void the contract. The requirement is for substantial truth, meaning minor inaccuracies that do not affect the insurer’s assessment of the risk are generally acceptable. However, absolute truth is not always mandated unless explicitly stated or implied by the nature of the representation. Representations do not need to be in writing unless specified by law or the insurer’s requirements, and their truthfulness is crucial for the validity of the contract.

The scenario describes a situation where an insured party, after experiencing a fire loss, fails to take reasonable steps to protect the damaged property from further deterioration, such as preventing water damage to electrical components. This directly contravenes the insured’s duty to minimize loss, which is a common law obligation and often explicitly stated in policy conditions. Failing to take such reasonable care can lead to the insurer reducing the claim amount or even denying it, as the additional damage could have been prevented. Admitting liability to a third party without the insurer’s consent, failing to disclose other insurances, or not providing reasonable proof of loss are also duties, but the core issue in the scenario is the failure to mitigate further damage to the insured property.

This question tests the understanding of the legal implications of policy renewals in Hong Kong. Statement (i) is correct because the duty of utmost good faith, which is fundamental to insurance contracts, is a continuous obligation and is particularly important at renewal when new information may be presented or circumstances may have changed. Statement (ii) is also correct as a renewal is generally considered the creation of a new contract, even if the terms are similar to the previous policy, because it establishes a new period of coverage. Statement (iv) is true because 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 always freely negotiable; insurers may offer renewal on the same terms or with specific changes based on risk assessment and market conditions, and the insured has the option to accept or decline.

The Insurance Claims Complaints Bureau (ICCB) is designed to handle disputes related to personal insurance claims. It has a jurisdictional limit of HK$800,000 for the value of the claim. Complaints exceeding this amount, or those arising from commercial, industrial, or third-party insurance, fall outside the ICCB’s purview and must be resolved through other means such as litigation or arbitration. Therefore, a dispute involving a commercial property insurance claim, regardless of its monetary value, would not be handled by the ICCB.

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 event. If the material damage policy does not cover the physical loss or damage, or if it’s invalid, the BI policy will not respond. Option B is incorrect because while BI policies cover loss of profit, the primary condition for a claim is the underlying material damage. Option C is incorrect as the ‘time factor’ is a loading for premium calculation, not a condition for claim admissibility. Option D is incorrect because the definition of ‘gross profit’ is crucial for the BI policy’s operation, but the fundamental trigger for a claim is the material damage event.

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, even if not explicitly asked. Therefore, facts that impact an underwriter’s assessment of insurability or the terms of the policy are considered material.

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 the higher 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 primarily office duties), and the absence of complications. The panel determined that after eight days, the insured’s condition only met the criteria for temporary partial disability, not temporary total disability, as defined by the policy. This aligns with the principle that personal accident policies often differentiate benefit amounts based on the degree of disablement, and the insurer’s offer was deemed appropriate given the policy’s definitions and the specific circumstances of the injury and recovery.

An insurance broker acts as an agent for the proposer, meaning they are legally identified with the proposer. Consequently, any misrepresentation or withholding of material facts by the broker is considered a breach of the duty of utmost good faith, which is imputed to the proposer. This breach can render the insurance contract voidable from its inception, as the insurer relied on the information provided (or not provided) to assess the risk. Option B is incorrect because while a broker has duties to the insurer, their primary legal identification is with the proposer. Option C is incorrect as the broker’s duty of utmost good faith is to the proposer, not directly to the public at large in this context. Option D is incorrect because while a broker must act with integrity, the specific legal consequence of their actions in misrepresenting material facts is a breach of utmost good faith imputed to the proposer, not a direct breach of contract by the broker themselves in relation to the insurer, although it impacts the contract.

The Employees’ Compensation Ordinance (ECO) mandates that employers must provide compensation for injuries or deaths sustained by employees arising out of and in the course of employment. While the ECO provides a statutory framework for compensation, employers can also be liable under common law for negligence. Common law liability for employers is typically based on proving the employer’s fault, such as a breach of duty of care, which leads to an employee’s injury or death. This liability is separate from, and in addition to, the benefits provided under the ECO. The question asks about liability that arises independently of the ECO, which directly refers to common law liability. Option B is incorrect because while the ECO covers injuries arising out of and in the course of employment, common law liability can extend to situations where the employer’s negligence is the direct cause, even if the ‘course of employment’ aspect is debated or proven differently. Option C is incorrect as contractual liability is typically excluded from standard Employees’ Compensation policies. Option D is incorrect because while the ECO has specific provisions, common law liability is a broader concept of tortious liability that exists independently of the Ordinance.

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 the employer’s liability under the Ordinance uncertain without further context.

This question tests the understanding of the specific definition of ‘loss of one limb’ as commonly applied in personal accident insurance, which is a component of travel insurance. The scenario highlights that a fracture causing functional impairment, but not physical severance or total functional disablement, does not meet the strict policy definition. The explanation clarifies that while the insured experienced inconvenience and partial loss of function, the policy’s precise wording for ‘loss of one limb’ requires either physical severance above the wrist or ankle, or complete loss of use (total functional disablement). Since neither of these conditions was met, and the policy did not offer proportional compensation for partial disability, the insurer’s rejection of the claim was upheld.

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, which foreseeably led to his injury, meant the injury was not an unforeseen or unintentional event. The Complaints Panel viewed his injury as a natural consequence of his own actions, thus removing it from the definition of an accident. This aligns with the principle that an injury resulting from a deliberate act, even if the specific outcome wasn’t intended, is not considered accidental in the context of insurance.

The question tests the understanding of ‘Public Policy’ in the context of insurance law, specifically how it can render certain agreements void. Agreements that restrict an individual’s freedom of marriage or attempt to oust the jurisdiction of the courts are classic examples of being contrary to public policy. The scenario describes a situation where an individual is injured while attempting an illegal act (breaking into a flat). In such cases, the injured party’s claim would be based on their own illegal conduct, which is against public policy, thus preventing a valid tortious claim against the property owner. Therefore, the principle of public policy is the most relevant legal concept here.

The scenario describes a situation where an insured person sustained an injury that prevented them from performing their usual duties for a period. The insurer paid a benefit for temporary total disability for eight days and temporary partial disability for five days. The insured believed they should receive temporary total disability benefits for the entire 13 days. 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 of their 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 based on the degree of disablement, and the insurer’s assessment was deemed appropriate given the policy definitions and the insured’s condition.

This question tests the understanding of what constitutes a material fact that an insurance proposer must disclose. According to insurance principles, a fact is material if it would influence the judgment of a prudent underwriter in deciding whether to accept the risk and on what terms. 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 impacts the underwriter’s decision-making process regarding insurability and premium calculation, making it a material fact. Options B, C, and D describe situations that are either common knowledge (typhoons in Hong Kong), beneficial to the insurer (sprinkler systems), or facts the insurer is expected to know or discover through their own due diligence, and therefore do not need to be proactively disclosed by the proposer.

This question tests the understanding of the ‘fit and proper’ requirement for insurance brokers, which is a fundamental aspect of their licensing and ongoing supervision. The Insurance Authority (IA) mandates that all insurance brokers must be fit and proper to operate. This assessment goes beyond mere technical qualifications and encompasses aspects like integrity, financial soundness, and adherence to regulatory standards. While professional indemnity insurance and maintaining proper books are crucial operational requirements, they are components that contribute to demonstrating fitness and properness, rather than being the overarching criterion itself. Similarly, adherence to codes of conduct is a manifestation of being fit and proper, but not the primary definition of the requirement.

The question tests the understanding of the basis of cover for Public Liability (PL) insurance. The provided text explicitly states that PL insurance is usually on a “claims-occurring” basis, meaning that the policy covers incidents that happen during the policy period, regardless of when the claim is actually made. While “claims-made” policies are not unknown, they are not the common practice for PL insurance. Therefore, a policy that covers claims reported during the policy period, even if the incident occurred earlier, would be characteristic of a “claims-made” basis, which is not the standard for PL.

In the context of insurance contracts, a ‘representation’ is a statement of fact made by the proposer before the contract is concluded. The principle of utmost good faith (uberrimae fidei) requires that such representations, particularly those concerning material facts, must be substantially true. If a representation is found to be untrue, and it relates to a material fact that influences the insurer’s decision to accept the risk or the terms offered, the insurer may have grounds to void the contract. The requirement is for substantial truth, meaning minor inaccuracies that do not affect the risk assessment are generally acceptable, but significant falsehoods can invalidate the policy. Options (b), (c), and (d) present absolute or incorrect standards for representations. Representations do not always need to be in writing unless specified by law or the insurer’s requirements (making (b) incorrect). While absolute truth is ideal, the legal standard often focuses on substantial truth (making (c) too stringent). Representations can indeed affect the contract if they are material and untrue, contradicting (d).

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 with the insurer 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 potential claim, even after the loss occurred, could be a breach of the ‘as soon as possible’ notification requirement. This delay, even if the repair was immediate, might impact the insurer’s ability to investigate the cause of the loss or verify the damage before repairs were undertaken. Therefore, the claim might be considered invalid due to a potential breach of the notification clause, which is a crucial policy provision affecting claims.

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 scenario describes an individual intentionally engaging in a physical 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 attacked, thus removing the ‘accidental’ nature of the injury as required by personal accident policies.

This question assesses the understanding of the positive outcomes of excellent customer service in the insurance industry, as outlined in the provided text. The text explicitly states that happy customers not only remain loyal but also become a ‘productive source of extra business’ through recommendations and word-of-mouth advertising. This directly translates to increased business generation via referrals. Options B, C, and D, while potentially related to good business practices, are not the primary positive outcomes directly linked to customer satisfaction and loyalty as described in the material. Increased profitability is a consequence of reduced complaints and retained business, but customer productivity through referrals is a distinct positive impact.

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 having no differential impact on premiums, all else being equal. Therefore, occupation is the most significant factor for standard premium calculation.