Paper 2 General Insurance Quiz 64

The scenario describes a situation where a valuable antique vase is insured on an agreed value basis. This means that in the event of a total loss, the insurer will pay the agreed sum insured, irrespective of the vase’s actual market value at the time of the loss. This is a key feature of agreed value policies for items like jewelry and antiques, designed to avoid disputes over valuation in case of a complete loss. For partial losses, however, the principle of strict indemnity typically applies, meaning the payout would be based on the actual loss incurred, not the agreed value. Therefore, the agreed value is payable for a total loss, but strict indemnity applies to partial losses.

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 fraud or dishonesty by insured staff. Options B, C, and D describe different types of insurance or concepts not directly applicable to this specific situation. Professional Indemnity covers negligence in providing professional services, Public Liability covers injury or damage to third parties, and a Performance Bond guarantees the completion of a contract.

The Motor Vehicles Insurance (Third Party Risks) Ordinance mandates compulsory third-party motor insurance in Hong Kong. This ordinance ensures that victims of motor accidents have a legal recourse for damages caused by negligent drivers. The Motor Insurers’ Bureau of Hong Kong (MIB) plays a crucial role in fulfilling the intentions of this compulsory insurance by providing coverage when a valid policy is not in place or is ineffective, thereby safeguarding the public interest. Therefore, understanding the foundational legislation for compulsory motor insurance is key.

Institute Cargo Clauses (ICC) (A) provides the broadest ‘all risks’ coverage for own damage to cargo. ICC (B) covers specified risks, which are more limited than ICC (A), and ICC (C) offers even more restricted coverage for own damage. The scenario describes a cargo shipment that is damaged due to a collision between the carrying vessel and another ship. Under ICC (A), this type of damage, unless specifically excluded (like inherent vice or wilful misconduct), would typically be covered. ICC (B) would cover damage from collision as it is listed as a specified major casualty. However, the question asks about the *most comprehensive* own damage cover for such a scenario. While both (A) and (B) might cover collision damage, (A) is inherently broader by covering ‘all risks’ not specifically excluded, making it the most comprehensive option for own damage. ICC (B) and (C) have specific exclusions for the deliberate or wrongful act of any person, whereas ICC (A) only excludes such acts by the insured or claimant. Therefore, ICC (A) offers the most extensive protection against own damage for cargo.

This question tests the understanding of how insurers manage risk through policy endorsements. When an insurer identifies a specific, elevated risk associated with a particular aspect of a policyholder’s situation, such as a pre-existing back condition in personal accident insurance or a history of driving offenses within a family for motor insurance, they can modify the policy. This modification is typically achieved through an exclusion clause or endorsement that specifically carves out coverage for that identified risk. This allows the insurer to offer coverage for the standard risks while mitigating potential losses from the specific, heightened risk. Options B, C, and D describe different types of exclusions or policy adjustments that are not directly related to the scenario of an insurer modifying coverage for a specific, identified risk within an otherwise standard policy. A general exclusion applies broadly, a market exclusion is a standard exclusion across the industry, and a policy cancellation is the termination of the contract, not a modification of its terms.

In the context of marine insurance claims, the assured (the policyholder) is typically responsible for arranging and initially paying for a surveyor’s report. This report is crucial for independently investigating the cause and extent of a reported loss. While the surveyor’s fee is generally recoverable from the insurer if the claim is valid, the initial appointment and payment rest with the assured. Loss adjusters, on the other hand, are usually appointed and paid by the insurer, acting as independent experts for claims investigation and negotiation, particularly for property and liability losses.

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 type of business the vehicle is used for (e.g., delivery vs. personal use), a ‘tool of trade clause’ might relate to tools carried within the vehicle, and a ‘professional liability clause’ pertains to errors or omissions in professional services, not the operation of the vehicle itself.

The question tests the understanding of the scope of theft insurance, specifically concerning damage to the premises during an attempted theft. The provided text states that theft policies typically include damage caused by thieves to the insured premises during forcible and violent entry or exit. This damage is not subject to a separate sum insured but is covered under the general policy for stock and specified contents. Therefore, if a thief breaks a window to gain entry, the cost of replacing that window would be covered as part of the theft insurance, provided it was a forcible and violent act.

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, and the insured’s occupation. Since the insured was a self-employed director whose work primarily involved office duties, and the injury did not involve fractures, nerve damage, or complications, the panel concluded that the insured should have been able to perform some of their duties after eight days. This means that for the remaining five days, the insured’s condition only met the definition of temporary partial disability, not temporary total disability, as per the policy terms. Therefore, the insurer’s offer, which differentiated between the two types of benefits, was deemed appropriate.

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 and theft. This directly contravenes the insured’s duty to minimize loss, which is a common law obligation and often explicitly stated in policy conditions. The insured’s inaction leads to increased damage, which the insurer may argue is not covered due to the breach of this duty. Admitting liability to a third party without the insurer’s consent and failing to disclose other insurances are also duties of the insured, but the primary breach in this scenario relates to the preservation and protection of the damaged goods to prevent further loss.

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 undertaking, even though technically the policy liability might be discharged.

This question tests the understanding of the scope of ‘all risks’ insurance policies, a common concept in property insurance. While ‘all risks’ policies are designed to be broad, they typically contain exclusions for certain types of losses that are either uninsurable, predictable, or covered by other specialized policies. Wear and tear (deterioration due to normal use) is a gradual process not typically covered by property insurance. War and similar perils (like civil commotion or terrorism) are usually excluded and require separate war risk insurance. Confiscation by authorities is also a common exclusion, often falling under political risk or government action. Therefore, all these items are generally excluded from standard ‘all risks’ policies, making option (d) the correct comprehensive answer.

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 can be proven to have arisen out of and in the course of employment, which is not automatically assumed in a post-work commute.

This question tests the understanding of the Insurance Claims Complaints Bureau (ICCB) in Hong Kong, a key dispute resolution mechanism for insurance policyholders. The ICCB scheme is designed to provide an accessible and cost-effective avenue for resolving complaints against insurers. It is crucial to understand its scope, operational principles, and limitations. Specifically, the ICCB handles complaints related to both general and long-term insurance policies, not just personal lines. The service is free for complainants, ensuring accessibility. While the ICCB aims to facilitate settlements, its decisions are not binding on the insurer if they exceed a certain monetary threshold, and appeals against awards are typically made by the complainant to the Insurance Appeals Tribunal, not by the insurer. The maximum claim amount handled by the ICCB is HK$1,000,000, not HK$800,000. Therefore, only the statement that the complainant is never charged a fee is accurate.

The question tests the understanding of the scope of theft insurance, specifically concerning damage to the premises during an attempted theft. The provided text states that theft policies typically include damage caused by thieves to the insured premises during forcible and violent entry or exit. This damage is not subject to a separate sum insured but is covered under the general policy for stock and specified contents. Therefore, if a thief breaks a window to gain entry, the cost of repairing that window would be covered as part of the theft insurance, provided it was a forcible and violent act.

The question tests the understanding of the scope of theft insurance, specifically regarding damage to the premises during an attempted theft. According to the provided text, theft policies typically include coverage for damage caused by thieves to the insured premises when making forcible and violent entry or exit. This damage is not subject to a separate sum insured but is covered as part of the overall contents coverage. Therefore, a policy covering stock and other specified contents would also cover the damage to the premises caused by the forced entry, even if the stock itself was not stolen.

A Performance Bond is a financial guarantee, structured as a bond rather than an insurance policy, specifically designed to ensure the successful completion of construction projects within the agreed-upon timeframe. It protects the project owner from financial losses if the contractor fails to fulfill their contractual obligations, such as completing the work on schedule or to the specified quality standards. The other options describe different types of insurance or financial instruments: Personal Accident and Sickness Insurance covers injuries and illnesses, Private Car Insurance covers vehicles, and Professional Indemnity Insurance covers negligence in professional services.

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 placed in a better position (betterment). The insurer is entitled to deduct a portion of the repair cost to account for this betterment, reflecting the improved condition of the vehicle. 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, was deemed reasonable by the Complaints Panel given the vehicle’s age and mileage. The policy’s exclusion of depreciation further supports the insurer’s right to claim a betterment contribution. Therefore, the insured is responsible for contributing to the cost of reinstatement to account for the betterment provided by the new parts.

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 an insured individual, after an injury, is deemed by the insurer to be only partially disabled based on an assessment of their trunk movement. However, the insured’s attending doctors believe the condition still prevents them from performing *any* work. The Complaints Panel, in resolving this dispute, placed greater weight on the opinions of the insured’s attending physicians. This aligns with the principle that medical professionals directly involved in a patient’s care are often considered to have a more comprehensive understanding of their condition’s impact on their ability to work, especially when there are conflicting medical opinions. Therefore, the panel’s decision to continue Temporary Total Disability benefits reflects the importance of the attending doctors’ assessment in determining the extent of disablement.

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 two weeks after the repair was completed. 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 claim itself, after the repair was done, could be a breach of the ‘as soon as possible’ notification clause. This delay, even if the repair was immediate, means the insurer was not informed of the potential claim in a timely manner, potentially hindering their ability to investigate the loss or the repair process. Therefore, the claim might be considered invalid due to the failure to comply with the notification requirements.

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 in the 10 days following policy inception. The Complaints Panel, considering the tumor size, agreed that it likely took longer than 10 days to develop. Since the policy excluded illnesses presenting signs or symptoms prior to its commencement, and the evidence suggested the condition predated the policy, the insurer’s decision was upheld. This aligns with the principle that insurance policies typically do not cover conditions that were already present or showing symptoms before the policy’s effective date, even if not formally diagnosed.

The question tests the understanding of the specific exclusions in motorcycle insurance policies, particularly concerning theft claims. The provided text explicitly states that for motorcycle insurance, theft claims are only admissible if the entire machine is stolen. This means that the loss of accessories alone, even if stolen from the motorcycle, is not covered under the standard ‘Own Damage/Accidental Damage’ section. Therefore, a scenario where only accessories are stolen would not be covered by the policy.

The question tests the understanding of the ‘claims-made’ basis for Directors and Officers (D&O) liability insurance. Under a claims-made policy, coverage is triggered by a claim being made against the insured during the policy period, regardless of when the wrongful act occurred. This contrasts with ‘claims-occurring’ policies, where the incident causing the claim must have happened during the policy period. Therefore, for an individual director to maintain coverage after leaving a company, they must ensure that any potential claims arising from their tenure are reported to the insurer while the policy is still in force or that appropriate ‘tail coverage’ or ‘extended reporting period’ is secured. The scenario highlights the importance of understanding this basis of cover for personal protection after employment termination.

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) by the broker when making their underwriting decision. Therefore, the broker’s actions directly impact the validity of the contract from the proposer’s perspective.

Institute Cargo Clauses (ICC) (A) provides the broadest coverage for own damage on an ‘All Risks’ basis. This means it covers all perils except those specifically excluded. ICC (B) and ICC (C) offer coverage on a ‘specified risks’ basis, meaning only the listed perils are covered. Therefore, if a loss occurs due to a peril not explicitly listed in ICC (B) or ICC (C), it would not be covered under those clauses, whereas it would likely be covered under ICC (A) unless it falls under a specific exclusion. The scenario describes a loss that is not a ‘specified major casualty’ or one of the other perils listed for ICC (B) and (C), making ICC (A) the most appropriate choice for comprehensive own damage protection.

This question tests the understanding of ‘System of Check’ in fidelity guarantee insurance, which is crucial for internal discipline and control within an employer’s operations. The correct answer highlights the proactive measures an employer takes to prevent losses by implementing robust internal controls and oversight of employees entrusted with financial responsibilities. Option B is incorrect because while auditing is part of a system of check, it’s a retrospective review rather than the ongoing preventative measures implied by the term. Option C is incorrect as it focuses on external regulatory compliance, which is a separate concept from the employer’s internal control system. Option D is incorrect because it describes a reactive measure (investigation after a loss) rather than the preventative and disciplinary framework of a system of check.

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 insurance.

The question probes the understanding of prohibited practices in the insurance intermediary sector, specifically concerning rebating. Rebating, in essence, is the offering of inducements or benefits to a policyholder that are not explicitly stated in the policy contract. This practice is considered unethical and potentially illegal because it distorts the true cost of insurance and can lead to unfair competition. The Code of Practice for the Administration of Insurance Agents, along with regulations governing agency agreements, explicitly prohibits the offering of commissions or other valuable considerations to employees or associates of the insured without the insured’s explicit written consent. This is to prevent situations where such benefits might influence purchasing decisions or create conflicts of interest, thereby undermining the integrity of the insurance transaction and the principle of fair reward for intermediaries.

This question assesses the understanding of the positive impacts of excellent customer service beyond just avoiding negative outcomes. Customer loyalty is a direct benefit, as satisfied customers are more likely to renew their policies. Increased profitability stems from reduced complaint handling costs and greater efficiency. Customer ‘productivity’ refers to the generation of new business through referrals and word-of-mouth. While market prestige is a positive outcome, it is a broader consequence of consistent good service rather than a direct, immediate positive impact in the same vein as loyalty or increased profitability. The question asks for a direct positive outcome, making customer loyalty the most fitting answer.