Paper 2 General Insurance Quiz 68

The question tests the understanding of ‘Agreed Values’ in insurance, specifically for high-value items like jewelry and antiques. Under an agreed value policy, the sum insured is the amount that will be paid in the event of a total loss, irrespective of the item’s actual market value at the time of the loss. This differs from a policy based on indemnity, where the payout would be limited to the actual loss incurred. For partial losses, however, the principle of strict indemnity typically still applies, meaning the payout would be based on the actual loss suffered, not the agreed value. Therefore, the statement that the agreed value is payable for a total loss but strict indemnity applies to partial losses accurately describes this type of cover.

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

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 seen as undermining fair competition and the integrity of the insurance pricing mechanism. The Code of Practice for the Administration of Insurance Agents, along with the Minimum Requirements of the Model Agency Agreement, explicitly prohibits offering commissions or other financial advantages to employees of an insured entity without the insured’s prior written consent. This is to prevent situations where such benefits could influence purchasing decisions, potentially leading to corruption or bribery, and to ensure that the true cost of insurance is transparent. Therefore, offering a portion of the commission to an employee of a corporate client without the client’s explicit written approval is a direct violation of these regulations.

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 related to employee dishonesty causing financial loss to an employer. 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 scenario describes an individual injured while ice-skating. The insurer denied the claim based on an exclusion for ‘winter-sports’. The Complaints Panel, in interpreting this exclusion, considered that ‘winter-sports’ generally refers to sports played on snow or ice. Ice-skating, regardless of whether it’s indoors or outdoors, falls under this broad definition. Therefore, the exclusion for winter sports would apply, and the insurer’s decision to reject the claim is upheld because the activity falls within the policy’s exclusionary clause, even without a specific definition of ‘winter-sports’ in the policy document itself.

A condition precedent to the contract is a term that must be fulfilled for the insurance contract to become effective. Without this condition being met, the insurer has no obligation to provide cover. In this scenario, the policyholder’s failure to provide the requested medical report before the policy’s commencement date means the condition precedent was not satisfied, thus the contract never legally began, and no claim can be made.

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 resolution, its decisions are not binding on the insurer unless accepted by the complainant, and neither party can appeal an award made by the ICCB. 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 scenario describes a situation where an insurer rejected a hospitalization claim based on a pre-existing condition. The insured had consulted for rectal bleeding 15 months before applying for insurance, and the insurer argued that the colon tumor, diagnosed shortly after policy inception, could not have developed in such a short period. The Complaints Panel agreed with the insurer, citing the policy’s exclusion for illnesses presenting signs and symptoms prior to the policy commencement date. The panel reasoned that a tumor of the diagnosed size would likely take time to develop, implying the condition likely existed before the policy began, even if the exact onset date was unclear. This aligns with the principle that insurers can deny claims for conditions that were present, even if undiagnosed, before the policy’s effective date, provided the policy terms exclude such pre-existing conditions.

This question tests the understanding of how changes in the insured risk can impact the policy. The Insurance Companies Ordinance (Cap. 41) and general insurance principles dictate that if the circumstances under which a risk was insured alter for the worse, the insurer may have grounds to cancel the policy. This is because the original assessment of the risk, and therefore the premium charged, may no longer be adequate. Option B is incorrect because while a change in market conditions might influence underwriting strategy, it doesn’t directly grant the insurer the right to cancel based on a worsened risk for a specific policy. Option C is incorrect as the insurer’s marketing philosophy is a business decision, not a contractual right to cancel due to a change in risk. Option D is incorrect because while an insurer might offer a revised premium, the fundamental right to cancel arises from the adverse change in the risk itself, not solely from the insured’s willingness to pay more.

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 and references the proposal form, while the Operative Clause outlines the circumstances under which coverage is active. General Exceptions apply to the entire policy, not just specific sections.

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 typically arises from a breach of their duty of care to provide a safe working environment. This liability is independent of the ECO and can result in claims for damages that may exceed the statutory limits. The question asks about liability that is not covered by the ECO but is still relevant to the employer-employee relationship concerning workplace injuries. This directly aligns with the concept of common law liability for employers, which covers negligence and breaches of statutory duty related to workplace safety, and is often referred to as ‘liability independent of the EC Ordinance’.

A ‘claims-occurring’ basis policy provides coverage for events that happen during the policy period, regardless of when the claim is actually reported. This means if an incident occurs while the policy is active, the insurer is obligated to cover it, even if the claim is filed after the policy has expired. Conversely, a ‘claims-made’ policy only covers claims that are both made and reported during the policy’s term. The scenario describes a situation where a potential liability event occurred during the policy’s currency, but the claim was lodged after its expiry. Under a ‘claims-occurring’ policy, this would be covered because the event happened within the policy period. The other options describe different types of insurance or policy features that are not directly relevant to the timing of claim reporting in this specific context.

The scenario describes an individual who intentionally intervenes in a violent situation 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 fray. 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.

The question tests the understanding of the insured’s duty to minimize loss after a claim event, as stipulated by common law and often reinforced in policy conditions. The scenario describes a situation where a fire has damaged a commercial property. The insured’s responsibility is to take reasonable steps to prevent further damage or deterioration of the affected property. This includes actions like protecting undamaged goods from smoke and water damage, securing the premises to prevent theft, and taking measures to prevent further deterioration of damaged items. Option A correctly identifies the duty to protect undamaged goods from further harm, which is a direct application of the duty to minimize loss. Option B is incorrect because while reporting the loss is a duty, it’s distinct from minimizing the physical extent of the damage. Option C is incorrect as admitting liability to a third party without the insurer’s consent can prejudice the insurer’s rights, which is a separate duty. Option D is incorrect because while cooperation is a duty, the specific action of securing the premises to prevent further damage is a more direct manifestation of the duty to minimize loss.

Average adjusters are specialized professionals in marine insurance, particularly for General Average (GA) claims. Their expertise is crucial due to the complexity of GA, which involves international maritime law, potentially hundreds of interested parties (like cargo owners), and lengthy investigation periods that can span years. While Lloyd’s Agents and Loss Adjusters are also involved in claims, average adjusters are specifically retained for the intricate calculations and legal considerations inherent in GA, and sometimes for complex hull or cargo losses. The question tests the understanding of specialized roles within marine claims handling, differentiating the unique function of an average adjuster.

A Certificate of Insurance serves as a formal confirmation of the existence of compulsory insurance, particularly in contexts like motor vehicle insurance. It is a standalone document, distinct from the main policy, providing evidence of coverage. While it confirms coverage, it does not typically detail the specific terms and conditions of the underlying policy, nor does it represent a guarantee of future insurability. Its primary function is to satisfy legal requirements for proof of insurance.

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 continuing obligation and is particularly important at renewal when new information may be relevant. Statement (ii) is also correct 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 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 ‘freely’ negotiable in the sense that the insurer still operates within the bounds of the policy contract and regulatory requirements; the insurer may offer revised terms based on risk assessment, but it’s not an open negotiation without constraints. Therefore, statements (i), (ii), and (iv) are the accurate assertions regarding general insurance policy renewals.

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. While other options relate to insurance, they do not specifically address the foundational legal requirement for third-party coverage in motor vehicle use.

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. This is achieved through a ‘specially worded exclusion’ or an endorsement that carves out the problematic element while allowing the rest of the policy to remain in force. This allows the insurer to offer coverage for the standard risk while mitigating losses from the identified adverse factor, rather than outright declining the entire policy. Options B, C, and D describe different concepts: a market exclusion is a general exclusion common across the industry (e.g., war risks), a general exclusion is a broad exclusion applicable to all policies of a certain type, and a policy renewal is the process of continuing an existing contract, not a method of modifying coverage for specific risks within an existing term.

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the expected standards of good insurance practice for personal insurance policies sold to individual policyholders residing in Hong Kong. It covers a broad range of areas including underwriting, claims handling, product understanding, customer rights, and advising/selling practices. While the Insurance Companies Ordinance (ICO) sets out foundational requirements for insurers’ authorization, capital, and solvency, and the Code of Practice for the Administration of Insurance Agents details intermediary conduct, the Code of Conduct for Insurers is the primary document outlining the industry’s self-regulatory standards for direct interactions with individual policyholders regarding the quality of service and practice.

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 truly 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 arising after the breach. ‘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.

A combined liability policy is designed to consolidate various liability coverages into a single document for convenience and potential premium savings. While it typically includes Public Liability, Products Liability, and Employees’ Compensation Liability, clients may also opt for additional coverages like Directors’ and Officers’ Liability or Professional Liability. The key characteristic is the integration of these distinct liability risks under one policy document. Option B describes a combined ‘Umbrella’ type cover, which is broader and can encompass property, pecuniary, and liability risks, often individually designed and not necessarily limited to the core liability types mentioned. Option C refers to property insurance, which covers physical assets, and pecuniary insurance, which covers financial interests, distinct from liability risks. Option D describes a traditional fire policy, which is a form of property insurance and does not encompass the range of liability coverages found in a combined liability policy.

This question tests the understanding of waiver in the context of insurance premium payments. Waiver occurs when an insurer, through its conduct or clear representation, indicates it will not strictly enforce a contractual requirement, such as the punctuality of premium payments. If an insurer has a history of accepting late payments without objection, this behavior could be interpreted as a waiver of the strict due date for future payments. Estoppel, on the other hand, requires the insured to have reasonably relied on this conduct to their detriment. Therefore, the insurer’s consistent acceptance of late premiums, without any objection, demonstrates a relinquishment of their right to demand strict punctuality, which is the essence of waiver.

The question tests the understanding of the legal significance of a certificate of compulsory insurance, particularly in motor insurance. Section 2.2.4 (iv) of the provided text explicitly states that these certificates are issued solely because the law requires them and that failure to issue one is a criminal offense. It further emphasizes the legal importance of the certificate, making it essential for the insurer to recover it upon policy cancellation. Therefore, the primary purpose and legal mandate for issuing such a certificate is to fulfill a statutory requirement, not to detail the specific terms of coverage like ‘Comprehensive’ or ‘Act Only’, which are typically found in the policy document itself, not the certificate.

A combined liability policy is designed to consolidate various liability coverages into a single document for convenience and potential premium savings. While it typically includes Public Liability, Products Liability, and Employees’ Compensation Liability, clients may also opt for additional coverages like Directors’ and Officers’ Liability or Professional Liability. The key characteristic is the integration of these distinct liability risks under one policy document, simplifying administration for the insured. The caution provided in the source material highlights the importance of clear policy wording to ensure each coverage section is treated as a separate contract, preventing a breach in one section from invalidating the entire policy.

The question tests the understanding of the scope of third-party liability cover in Hong Kong motor insurance, specifically concerning passenger injury. While the Motor Vehicles Insurance (Third Party Risks) Ordinance mandates cover for passenger injury, the provided text indicates that for motor cycles, it is not usual to grant cover for the liability of passengers under the standard policy. However, the statutory requirement for passenger injury cover remains. Therefore, a policy that only provides third-party cover for a motor cycle would typically exclude passenger liability, but the law requires this cover to be provided. The question asks about the typical exclusion in a motor cycle policy, which is passenger liability, even though it’s statutorily mandated.

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 payable by the insured. 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.

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 continuing obligation and is particularly important at renewal when new information may be relevant. Statement (ii) is also correct; 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 true as insurers have an obligation 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 ‘freely’ negotiable in the sense that the insurer still operates within the bounds of the policy contract and regulatory requirements; the insurer may offer renewal on existing terms or propose changes, but it’s not an entirely open negotiation without constraints. Therefore, statements (i), (ii), and (iv) are the accurate assertions regarding general insurance policy renewals.

A cover note is a temporary document that provides immediate evidence of insurance coverage, binding the insurer even before the final policy is issued. Its primary purpose is to confirm that insurance exists, often serving as proof for legal or registration requirements, such as in motor insurance. While it offers unconditional cover, it typically includes cancellation provisions and is intended for a short duration, to be replaced by a formal policy. A policy, on the other hand, is the final, formal document representing the completed contract, incorporating all agreed terms and conditions, and superseding any prior cover notes. A certificate of insurance, in its more common understanding, serves as proof of compulsory insurance, like for motor vehicles, and is a separate, permanent document, distinct from the policy itself, though a temporary certificate might be embedded within a motor cover note.

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 already registered elsewhere. Option (b) is incorrect because pleasure craft are specifically mentioned as requiring registration. Option (c) is incorrect as fishing vessels regularly operating in Hong Kong waters or using them as a base are also subject to registration. Option (d) is incorrect because vessels registered in Mainland China or Macau that trade with Hong Kong and hold specific certificates are also within the scope of registration requirements, not exempt by default.