Paper 2 General Insurance Quiz 66

The question tests the understanding of exclusions in pleasure craft insurance, specifically regarding the ship’s boat. According to the provided text, a ship’s boat is excluded from coverage if it is not permanently marked with the parent boat’s name. This implies that if the ship’s boat *is* permanently marked, it would be covered under the policy’s specified perils. Therefore, the scenario where the ship’s boat is properly marked would lead to its inclusion in the coverage.

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 voluntary excess is in addition to any compulsory excess that might apply to the policy, such as a young driver excess or a deductible for specific types of claims. Therefore, if a policy has both a voluntary excess and a young driver excess, both would apply to a claim made by a young driver.

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 of the injury (no fracture, nerve injury, or complications) and the insured’s occupation (self-employed director with mainly office duties). The panel concluded that after eight days, the insured should have been able to perform 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 offer was deemed appropriate given the policy definitions and the insured’s recovery trajectory.

This question tests the understanding of how contract terms are classified based on their timing of operation within an insurance contract. A ‘condition precedent to liability’ is a term that, if breached, does not void the entire contract but rather prevents a specific claim from being paid. The scenario describes a situation where the insured fails to notify the insurer of a change in profession, which is a common example of a condition that, if breached, affects the insurer’s liability for a claim, rather than the contract’s existence from the outset. This aligns with the definition of a condition precedent to liability, as opposed to a condition precedent to the contract (which must be met for the contract to begin) or a condition subsequent to the contract (which, if it occurs, can terminate an existing contract).

The question tests the understanding of how under-insurance affects claims under a typical household contents policy. The pro rata average condition, as described in the syllabus, stipulates that if the sum insured is less than the actual value of the property at the time of loss, the insurer will only pay a proportion of the loss. This proportion is calculated by dividing the sum insured by the actual value of the property. Therefore, if the sum insured represents 80% of the value at risk, the claim payment will be limited to 80% of the loss, assuming the loss itself does not exceed the sum insured. This mechanism is designed to encourage policyholders to insure their property adequately.

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. The scenario describes a cargo shipment that is damaged due to a fire originating from faulty electrical wiring within the cargo itself. This type of damage, stemming from the inherent nature or condition of the goods, is typically excluded under all ICC clauses as ‘inherent vice’. However, ICC (A) is the most comprehensive and would cover a wider range of perils, including fire, unless specifically excluded. Since the question implies the fire was not due to wilful misconduct of the assured, inadequate packing, or unseaworthiness known to the assured, and inherent vice is a general exclusion, the most appropriate answer is that ICC (A) would cover this loss because it is an ‘all risks’ policy, and the cause of the fire (faulty wiring) is not explicitly listed as an exclusion within the ‘all risks’ framework, unlike the more restricted ICC (B) and (C) which would likely not cover this specific peril without further endorsement.

The scenario describes a situation where an insured person sustained an injury and received a certain number of days of benefit. The insurer paid for a portion of the leave as temporary total disability (TTD) and the remainder as temporary partial disability (TPD). The insured disagreed, believing the entire period should be compensated as TTD. The Complaints Panel reviewed the case, considering the nature of the injury (contusion without fracture or nerve involvement), the insured’s occupation (self-employed director with primarily office duties), and the absence of complications. The panel concluded that after eight days, the insured should have been able to perform some of her duties, thus qualifying for TPD rather than TTD for the remaining five days. This aligns with the principle that personal accident policies often differentiate benefit amounts for TTD and TPD, and the determination depends on the insured’s ability to perform their usual duties. The insurer’s offer was deemed appropriate based on this distinction.

A Scheduled Policy Form is a common structure for insurance policies that includes a policy schedule. This schedule details specific information about the policy, such as the insured’s name, the property covered, the sum insured, and the period of insurance. The Signature Clause, also known as the Attestation Clause, is a crucial part of this form where the insurer formally confirms their commitment and undertakings under the contract. It signifies the insurer’s agreement to the terms and conditions outlined in the policy. While other clauses are important, the Signature Clause is the specific component that formally binds the insurer to the contract within the Scheduled Policy Form.

The question tests the understanding of the legal significance of a certificate of compulsory insurance, specifically in the context of 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, if a policy is cancelled, the insurer has a legal obligation to recover the certificate due to its critical legal importance. Therefore, the certificate’s primary function is to satisfy legal requirements for compulsory insurance, not to provide a summary of the policy’s terms or coverage.

The scenario describes a situation where an insurance agent offers a portion of their commission back to a corporate client’s employee as an incentive to secure a general insurance policy. This practice is explicitly prohibited under the Code of Practice for the Administration of Insurance Agents and the minimum requirements of the Model Agency Agreement. Rebating, in this context, is considered unethical and potentially illegal as it distorts the true cost of insurance, undermines fair competition, and can be construed as a form of bribery or corruption. The prohibition is in place to ensure that commissions reflect the actual services provided by the intermediary and to maintain the integrity of the insurance market. The key elements are the offering of a commission rebate to an employee of the insured without the insured’s explicit written consent, which directly contravenes regulatory guidelines designed to prevent such practices.

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 a private car with an entitlement of four or more years (equivalent to 50% or 60% NCD), a single claim in the policy year will result in a reduction of the NCD to 20% or 30% respectively upon renewal. This means the discount is not entirely lost but is significantly reduced, requiring subsequent claim-free years to rebuild to the previous level. Options B, C, and D describe scenarios that are either incorrect (total loss of NCD for any claim, or a step-back to zero for any claim) or misrepresent the specific reduction percentages for higher NCD brackets.

The scenario describes a shop owner whose wallet containing cash went missing after her shop closed. The money insurance policy specified that cover was for losses occurring during normal business hours while being conveyed by a messenger. Since the loss happened outside of business hours, it falls outside the defined scope of cover for this specific policy. Money policies often restrict coverage to business hours to differentiate between business funds and personal funds, and to manage the increased risk associated with non-business hours. Therefore, the insurer’s rejection of the claim is justified based on the policy’s terms and conditions regarding the timing of the 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 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 that does not cause the loss and is not fraudulent would not typically lead to a claim refusal under this undertaking, even though technically the warranty is breached.

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.

A ‘Condition Precedent to the Contract’ is a term that must be fulfilled for the insurance agreement to become effective. Failure to meet this condition means the contract never legally begins. In contrast, a ‘Condition Precedent to Liability’ relates to a term whose breach invalidates a specific claim, but the contract itself may still be in force. A ‘Condition Subsequent to the Contract’ is a term that must be adhered to during the policy’s currency, but its breach does not necessarily invalidate the entire contract, only potentially affecting claims or renewals. ‘Consequential Loss’ refers to indirect financial losses resulting from an insured event, which are typically excluded from property insurance unless specifically covered under a business interruption policy.

The question tests the understanding of the ‘pro rata average’ condition in insurance policies, specifically how under-insurance affects claim payouts. The scenario describes a situation where the sum insured for contents is less than the actual value of the contents at the time of loss. The pro rata average condition stipulates that the claim payment will be reduced proportionally to the extent of under-insurance. In this case, the sum insured ($500,000) represents 80% of the actual value ($625,000). Therefore, the claim for a loss of $100,000 will be paid at 80% of that amount, resulting in a payout of $80,000, provided it does not exceed the sum insured.

This question tests the understanding of the legal implications of renewing an insurance policy in Hong Kong. Statement (i) is true because the duty of utmost good faith is a continuous obligation that applies at all stages of the insurance contract, including renewal. Statement (ii) is also true, as a renewal is generally considered the creation of a new contract, not merely a continuation of the old one, meaning new terms and conditions can apply. Statement (iv) is correct 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; while terms can be negotiated, they are not ‘freely’ negotiable in the sense that the insurer can unilaterally change them without notice or agreement. Insurers typically offer renewal terms based on their underwriting experience and risk assessment, and the insured has the option to accept or decline.

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 published 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, strictly regulate such activities. Offering a portion of the commission to an employee of the insured without the insured’s explicit written consent is a direct violation of these regulations, as it bypasses the proper channels and can be seen as an incentive to secure business through illicit means. This practice compromises the integrity of the insurance transaction and the professional conduct expected of intermediaries.

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, irrespective of whether specific questions are asked. Therefore, facts that impact an underwriter’s assessment of insurability or the terms of the policy are considered material.

This question tests the understanding of what constitutes a material fact that an insurance proposer must disclose. According to insurance principles, a material fact is one that would influence a prudent underwriter’s decision to accept the risk or the terms offered. Storing highly flammable materials like kerosene in a residential building, even if not explicitly asked about, significantly increases the fire risk beyond what a prudent underwriter would typically expect for a standard homeowner’s policy. This increased risk would likely affect the underwriter’s decision on insurability and premium. Conversely, common knowledge about typhoons in Hong Kong, the presence of a sprinkler system (which reduces risk), or an insurer’s presumed knowledge of standard occupational hazards are generally not considered material facts that must be proactively disclosed if not specifically asked, as they either reduce risk, are common knowledge, or are expected to be known by the insurer.

This question tests the understanding of the ‘claims-made’ basis for liability insurance, a crucial concept for IIQE candidates. A claims-made policy covers claims that are both made against the insured and reported to the insurer during the policy period, or an extended reporting period. Option (a) describes ‘occurrence-based’ coverage, where the event causing the claim must have occurred during the policy period, regardless of when the claim is made. Option (b) is incorrect as claims made before the policy began are not covered. Option (c) is also incorrect because while settlement is important, the trigger for coverage under a claims-made policy is the making and reporting of the claim, not necessarily its settlement within the policy period.

The 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 commitment to quality and service as a fundamental element. Option (b) is also a common element, focusing on professional standards. Option (c) highlights efficiency and ethical business practices. Option (d) addresses the crucial aspect of claims handling. Option (e) refers to specific details on business conduct. The provided text emphasizes that these declarations serve as both a standard of declared intentions and a measure of performance, and typically include commitments to quality, professional standards, efficiency, ethical conduct, and fair claims handling. Therefore, a promise of efficiency and high business ethics is a key component of such declarations.

This question tests the understanding of how contract terms are classified based on their timing of operation within an insurance contract. A ‘condition precedent to liability’ is a term that, if breached, does not void the entire contract but rather prevents a specific claim from being paid. The scenario describes a policy requiring the insured to report changes in their profession. Failure to do so, as stipulated, would mean the insurer is not liable for any claims arising from that unreported change, directly aligning with the definition of a condition precedent to liability. Option B describes a condition precedent to the contract, which must be met for the contract to even begin. Option C describes a condition subsequent, which, if it occurs, can terminate an existing contract. Option D is a misrepresentation, which is a type of statement made before or at the time of the contract, not a condition related to ongoing obligations or claims.

An insurance broker acts as an agent for the proposer, meaning they are legally identified with the client. Consequently, they are bound by the duty of utmost good faith to disclose all material information concerning the client and the proposed risk. If a broker withholds or misrepresents such facts, it constitutes a breach of this duty, which is imputed to the proposer. This breach can render the insurance contract voidable from its inception, as the insurer relied on the incomplete or inaccurate information for underwriting. Therefore, the broker’s actions directly impact the validity of the contract from the proposer’s perspective.

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 ‘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 audits are part of a system of check, they are typically retrospective rather than the primary mechanism for ongoing control. Option C is incorrect as it focuses on external regulatory compliance, which is a consequence of good internal controls but not the system itself. Option D is incorrect because while employee background checks are a component, they are a pre-employment measure and not the comprehensive system of ongoing checks and balances.

The “step-back system” for No Claim Discount (NCD) in private car insurance, as described in the IIQE syllabus, dictates how a claim affects the accumulated discount. For drivers with an entitlement of four or more claim-free years (equivalent to 50% or 60% NCD), a single claim in the policy period will result in a reduction of the NCD to 20% or 30% respectively upon renewal. This means the discount is not entirely lost but is significantly reduced, requiring subsequent claim-free years to rebuild to the previous level. The other options describe scenarios that would lead to a complete loss of NCD or are not directly related to the “step-back” mechanism for higher NCD brackets.

This question tests the understanding of exclusions in Directors’ and Officers’ (D&O) liability insurance, specifically concerning actions taken by the insured. The scenario describes a director who, prior to the policy’s inception, was aware of a potential issue but failed to disclose it. D&O policies typically exclude coverage for claims arising from circumstances known or that ought to have been known at the policy inception. This is to prevent individuals from obtaining insurance coverage for known risks they have not addressed. Option A correctly identifies this exclusion. Option B is incorrect because while dishonesty is an exclusion, the scenario focuses on the knowledge of a circumstance rather than an act of dishonesty itself. Option C is incorrect as contractual liability exclusions typically relate to the insured’s contractual obligations to third parties, not their disclosure obligations to the insurer. Option D is incorrect because while pollution is a standard exclusion, it is not relevant to the scenario presented.

The question tests the understanding of which vessels are subject to registration in Hong Kong under the relevant legislation. Option (a) correctly identifies vessels regularly employed in trading to or from Hong Kong, unless they are already registered elsewhere. This aligns with the principle of ensuring oversight and regulation of commercial maritime activities within Hong Kong’s jurisdiction. Option (b) is incorrect because pleasure craft are specifically mentioned as being subject to registration. Option (c) is incorrect as fishing vessels regularly operating in Hong Kong waters or using it as a base are also covered. Option (d) is incorrect because vessels registered in Mainland China or Macau that trade with Hong Kong and hold specific certificates are also subject to certain provisions, indicating a broader scope than just vessels registered outside Hong Kong.

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 often in a better position financially due to the improved condition and lifespan of the new components. This improvement is termed ‘betterment’. The insurer is entitled to deduct a contribution from the insured to account for this betterment, ensuring the insured does not profit from the claim. The scenario states the insurer applied a 35% betterment contribution, which the Complaints Panel deemed reasonable for an eight-year-old vehicle, especially since the policy excluded depreciation. Therefore, the insured is responsible for this betterment contribution as it reflects the improved value of the vehicle post-repair.