Paper 2 General Insurance Quiz 65

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 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.

A combined liability policy, as described in the context of insurance, is designed to consolidate various types of liability coverage into a single document. This typically includes public liability, products liability, and employees’ compensation liability. While clients may also opt for additional coverages like Directors’ and Officers’ Liability or Professional Liability, the core of a combined liability policy is the integration of these fundamental liability risks. The question tests the understanding of what constitutes the typical components of such a policy, distinguishing it from other types of combined insurance or individual liability coverages.

A cover note is a binding document that provides immediate, albeit temporary, insurance coverage. It serves as documentary evidence that insurance exists, even before the formal policy is issued. While it can have cancellation clauses, its primary function is to confirm coverage from the outset, making it distinct from a policy which is the final, comprehensive contract, or a certificate which primarily serves as proof of compulsory insurance.

The scenario describes a situation where an insurer provides a replacement item for a non-depreciating subject matter that has been damaged. This aligns with the definition of ‘Replacement’ as a method of indemnity where the insured receives a new item to substitute the damaged one, particularly when the original item’s value doesn’t decrease over time. ‘Reinstatement’ involves restoring the damaged property to its pre-loss condition, which is not applicable here as a new item is provided. ‘Salvage’ refers to the residual value of damaged property, and ‘Repatriation Expenses’ cover the cost of returning a deceased person’s remains. Therefore, ‘Replacement’ is the most accurate term for the indemnity provided.

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. Without physical damage covered by the material damage policy, the BI policy will not respond to losses arising from the interruption. Therefore, if the material damage policy is voided due to a breach of policy conditions by the insured, the BI policy would also be invalidated for claims stemming from that event, as the prerequisite for a valid material damage claim would not be met.

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 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 an ‘occurrence’ basis, where coverage is triggered by the event causing the loss happening during the policy period. Therefore, if a director leaves a company, they need to consider how to maintain coverage for potential future claims arising from their past actions. This is often achieved through ‘tail coverage’ or ensuring the policy has a sufficient retroactive date. The scenario highlights the importance of understanding the policy’s basis to ensure continuous protection after employment termination.

The question tests the understanding of the legal significance of a certificate of compulsory insurance, particularly in motor insurance. According to the provided text, a certificate of motor insurance merely confirms the existence of compulsory insurance as prescribed by law and does not detail the policy’s coverage level (e.g., Comprehensive or Act Only). The law mandates the issuance of these certificates, and failure to do so is a criminal offense. Furthermore, the law requires insurers to recover these certificates upon policy cancellation due to their legal importance. Therefore, a certificate of motor insurance is primarily a legal document confirming compliance with compulsory insurance requirements, not a comprehensive summary of the policy’s terms.

The question tests the understanding of specific exclusions in third-party liability cover for commercial vehicles, as distinct from private car policies. The ‘tool of trade’ clause specifically excludes damage caused when a vehicle is used as a tool for its primary function (e.g., a digger being used for digging). While statutory provisions for compulsory insurance might mandate certain third-party cover, the policy’s own exclusions can limit coverage for specific uses. Food poisoning claims are also an exclusion for mobile food vendors, and damage to stock-in-trade or specific equipment on the vehicle is another exclusion. Damage to roads or weighbridges due to the vehicle’s weight or vibration is also excluded. Therefore, the use of a vehicle as a tool of trade, beyond what is statutorily required for compulsory insurance, is a key exclusion.

The scenario describes a situation where an insured person’s ability to perform their usual occupation is partially restored, but not fully. The insurer’s decision to classify the latter part of the recovery period as Temporary Partial Disablement (TPD) is based on the medical assessment that the insured’s range of trunk movement had improved significantly, allowing them to perform some duties. This aligns with the policy’s provision for different benefit amounts for Temporary Total Disablement (TTD) and TPD, where TPD applies when an insured can perform some, but not all, of their usual work. The Complaints Panel’s decision to favour the attending doctors’ opinion over the insurer’s medical consultant highlights the importance of the attending physician’s direct knowledge of the patient’s condition in determining the extent of disability.

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 policy, such as a pre-existing back condition in personal accident insurance or a high-risk driver in motor insurance, they can choose to exclude coverage for that specific risk rather than declining the entire policy. This is achieved through a ‘specially worded exclusion’ or an endorsement that carves out the problematic element. Option (a) accurately describes this practice of tailoring coverage by excluding specific risks while allowing the rest of the policy to remain in force. Option (b) is incorrect because while insurers can limit coverage, the term ‘endorsement’ typically refers to adding or modifying coverage, not solely excluding it. Option (c) is incorrect as ‘market exclusions’ are generally standard exclusions applied across the industry for fundamental risks, not specific to individual policyholder circumstances. Option (d) is incorrect because ‘public policy’ exclusions are based on legal principles that render certain contracts or clauses unenforceable due to their contravention of societal norms or laws, which is a broader legal concept than a specific risk exclusion.

This question assesses the understanding of the positive outcomes of excellent customer service in the insurance industry, specifically focusing on customer loyalty and its impact on business continuity. The provided text highlights that customers who are treated well are more likely to remain with an insurer, especially in a business like general insurance which typically involves policy renewals. This continuity is crucial as renewals are less costly than acquiring new business. The other options, while potentially related to good business practices, do not directly capture the core benefit of customer loyalty as described in the context of retention and reduced acquisition costs.

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 while being conveyed by a messenger. Since the loss happened outside business hours, it falls outside the defined scope of cover for this specific policy, leading to the rejection of the claim. The policy’s wording is crucial here, restricting coverage to a specific timeframe to manage risk and premium.

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

The question tests the understanding of the specific exclusions in motorcycle insurance policies concerning theft claims. According to the provided text, for motorcycle insurance, theft claims are only admissible if the entire motorcycle is stolen. This means that if only accessories are stolen, the claim would not be covered under the ‘Own Damage/Accidental Damage’ section. Therefore, a scenario where only accessories are stolen would result in the claim being rejected.

Under the Motor Vehicles Insurance (Third Party Risks) Ordinance, compulsory third-party insurance for vehicles is mandated. While the basic policy for commercial vehicles typically covers third-party death or bodily injury up to HK$100 million and third-party property damage up to HK$1 million, the latter can be increased for an additional premium. The question tests the understanding of the minimum statutory liability limits for third-party property damage, which is HK$1 million, and that this limit can be enhanced through an additional premium, reflecting market practice and the need for adequate coverage for commercial operations.

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 General Average (GA) acts and their consequences. A GA act involves a voluntary and reasonable sacrifice or expenditure to preserve the common adventure. When a sacrifice is made, such as jettisoning cargo, the owner of the sacrificed goods is entitled to a contribution from other parties whose property was saved. This contribution is known as a General Average Contribution. The scenario describes a situation where a portion of the cargo was intentionally discarded to prevent the entire vessel and its remaining cargo from sinking. This act of jettisoning cargo is a classic example of a GA sacrifice. The owner of the jettisoned goods would then have a claim for a GA contribution from the owners of the saved cargo and the vessel, provided the GA act successfully averted a greater loss for all parties involved.

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.

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 serves as an independent assessment of the cause and extent of the loss. While the surveyor’s fee is generally recoverable from the insurer as part of a valid claim, the initial appointment and payment rest with the assured. Loss adjusters, on the other hand, are usually appointed and paid by the insurer.

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 (including fraud) is a direct manifestation, carelessness, unreasonableness (like inflexibility or opinionated views leading to problems), and negative social behaviour (such as vandalism) are also considered forms of moral hazard. These behaviours, even if not outright fraudulent, can significantly increase the probability or severity of a claim, thereby representing a poor moral hazard from an insurer’s perspective. Therefore, all listed behaviours can contribute to moral hazard.

The question probes the understanding of prohibited practices in the insurance intermediary sector, specifically concerning rebating. Rebating, in this context, refers to offering inducements or benefits to policyholders or potential clients that are not part of the standard policy terms or approved commission structures. This practice is considered unethical and potentially illegal because it distorts the true cost of insurance, undermines fair competition, and can be a form of bribery or corruption. The Insurance Companies Ordinance (Cap. 41) and related codes of practice, such as the Code of Practice for the Administration of Insurance Agents, explicitly prohibit such inducements. Offering a portion of the commission to an employee of the insured without the insured’s explicit written consent falls directly under this prohibition, as it is an unauthorized benefit intended to secure or retain business, thereby compromising the integrity of the insurance transaction and the intermediary’s professional conduct.

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, aspects of their usual work due to injury. The Complaints Panel’s decision to favour the attending doctors’ opinion over the insurer’s medical consultant highlights the importance of the treating physician’s perspective in assessing the insured’s functional capacity and the impact of the injury on their ability to work. The key distinction lies in the insured’s capacity to perform ‘any work’ versus ‘some work’ related to their occupation.

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 question tests the understanding of the core components typically found in a company’s published declaration of intentions and service standards, particularly for insurance intermediaries and policyholders. These declarations are designed to outline the company’s commitment to its clients and stakeholders. Option (a) correctly identifies the key elements that such documents usually contain: a commitment to quality and service, adherence to professional standards, promises of efficiency and ethical conduct, fair and prompt claims handling, and specific details on business practices. The other options are either too narrow, too broad, or misrepresent the typical content of these declarations. For instance, focusing solely on regulatory compliance (b) misses the broader customer-centric promises. Mentioning only claims handling (c) ignores other crucial aspects like service quality and professional standards. Finally, emphasizing only internal audit procedures (d) describes a mechanism for monitoring, not the content of the declaration itself.

The question tests the understanding of the ‘claims-made’ basis for Directors and Officers (D&O) liability insurance, as outlined in the provided syllabus. A ‘claims-made’ policy covers claims that are made against the insured during the policy period, regardless of when the wrongful act occurred. This means that for continuous coverage, a director needs to ensure that if they leave the company, they have a mechanism to maintain coverage for potential future claims arising from their past actions. This is often achieved through ‘tail coverage’ or ensuring the company maintains a ‘prior acts’ endorsement or a claims-made policy for a sufficient period after their departure. Option A correctly identifies the need for continued coverage post-employment due to the claims-made nature of D&O policies. Option B is incorrect because while Public Liability insurance is typically ‘claims-occurring’, D&O is ‘claims-made’. Option C is incorrect as the syllabus states a flat premium is normally charged for D&O, not an adjustable one based on wages or turnover, which is more common for Public Liability. Option D is incorrect because while aggregate deductibles exist, the primary concern for an individual director leaving the company is the claims-made trigger, not the aggregate limit.

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 personal details, the sums insured or limits of liability, the effective dates of coverage, a description of the insured item or risk, 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 occupation would fall under the purview of the Schedule.

The question tests the understanding of the core components typically found in a company’s published declaration of customer service standards. These declarations are designed to outline the company’s commitment to its clients and stakeholders. Option (a) correctly identifies the key elements that such declarations usually encompass, reflecting a commitment to quality, professional standards, efficiency, ethical conduct, and fair claims handling. Options (b), (c), and (d) represent specific aspects that might be included but do not cover the full spectrum of typical declarations as comprehensively as option (a). For instance, while “disclosure requirements” (d) are important obligations for policyholders, they are usually presented as obligations *of* the customer, not as a primary promise *from* the insurer in their service declaration. Similarly, “specific information on business conduct” (c) is a part of the broader commitment to professional standards and ethics, and “claims handling” (b) is a specific service promise, not the overarching theme of the declaration.

The ‘Schedule’ section of a scheduled policy form is specifically designed to contain all information pertinent to the individual risk being insured. This includes details such as the policy number, the insured’s particulars, coverage limits, effective dates, a description of the insured subject matter, the premium paid, and any special terms 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 policy number falls under the purview of the Schedule.

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 in the vehicle’s condition beyond its pre-accident state is termed ‘betterment’. The insurer is generally not obligated to cover the full cost of new parts if they provide a benefit that exceeds the original value or condition. The case highlights that the insurer applied a 35% betterment contribution, which was deemed reasonable given the vehicle’s age and mileage, and the policy’s exclusion of depreciation. Therefore, the insured is responsible for contributing to the cost of the new parts to account for this betterment, aligning with the indemnity principle.