Paper 2 General Insurance Quiz 74

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 is a key exclusion that limits coverage when a vehicle is used as a piece of equipment for a business operation, unless mandated by compulsory insurance laws. Food poisoning claims related to mobile food vending and damage to stock-in-trade are also specific exclusions for certain commercial vehicle uses. Damage to roads or weighbridges due to the vehicle’s weight or vibration is another distinct exclusion. Therefore, the scenario accurately reflects a situation where a mechanical digger, used as part of its operational function, would fall under the ‘tool of trade’ exclusion for third-party liability, unless compulsory insurance requirements dictate otherwise.

The scenario highlights the importance of the insured’s duty to notify the insurer of a potential claim as soon as reasonably possible. While the insured in the first case reported the claim within 20 days, the repair had already been completed, hindering the insurer’s ability to investigate the cause and extent of damage. The Complaints Panel acknowledged this prejudice but ultimately ruled in favour of the insured due to the simplicity of the circumstances and the availability of repair documentation. However, the second case demonstrates a stricter interpretation. The insured failed to report the accident within the stipulated 30 days, and the Complaints Panel found this delay prejudiced the insurer’s investigation, endorsing the rejection of the claim. The key distinction lies in the insurer’s ability to investigate and the degree of prejudice caused by the delay. The provided text emphasizes that delay in reporting can be detrimental to the insurer’s interests, and whether a breach nullifies the claim depends on the contractual intention and the prejudice caused. The question tests the understanding that while a delay might not automatically void a claim, significant prejudice to the insurer’s investigation, as seen in the second case, can lead to claim rejection, especially when the policy condition is clearly breached.

A ‘Condition Precedent to the Contract’ is a stipulation that must be fulfilled for the insurance agreement to become effective. Failure to meet this condition means the contract never legally commences. In contrast, a ‘Condition Precedent to Liability’ relates to events or actions that must occur or be performed after the contract is in force for a specific claim to be payable. A ‘Condition Subsequent to the Contract’ is a term that, if breached during the policy period, can affect the ongoing coverage or the insurer’s obligations, but the contract itself is already active. ‘Consequential Loss’ refers to indirect financial losses resulting from an insured event, which are typically excluded from property damage policies unless specifically covered under a business interruption policy.

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 and fraud are extreme forms, carelessness, unreasonableness (like inflexibility or opinionated views), and negative social behaviour (such as vandalism) also contribute to moral hazard. The proposal form is a critical document where the prospective insured provides information about the risk. The insurer uses this information to assess the risk and determine terms. Therefore, the insurer’s careful design of proposal form questions is paramount to obtaining accurate information, upholding the principle of utmost good faith, and effectively underwriting the risk. The question tests the understanding of how the ‘human element’ (moral hazard) influences the underwriting process, specifically through the information gathered via the proposal form.

A Performance Bond is a financial guarantee, structured as a bond rather than an insurance policy, designed to ensure that a contractor fulfills their contractual obligations, specifically the completion of construction work within the agreed-upon timeframe. This is distinct from personal accident insurance, which provides benefits for injuries sustained by an individual, or public liability insurance, which covers legal responsibility to third parties for damages. While a policy is a document evidencing an insurance contract, a bond is a separate financial instrument with a different purpose.

The question tests the understanding of how premiums are determined in Personal Accident (PA) insurance, specifically referencing the provided text. The text explicitly states that while individual features like age might have underwriting consequences, the standard premium calculation is primarily based on the insured’s occupation, which is classified according to accident risk. Other factors like gender are mentioned as not affecting the premium if other conditions are equal. Therefore, occupation is the primary basis for premium calculation in this context.

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 the existence of insurance, it does not typically detail the specific terms and conditions of the policy, nor does it act as a contract of insurance itself. Its primary function is to satisfy legal requirements for proof of insurance.

This question tests the understanding of exclusions in a Professional Indemnity (PI) policy. PI policies are designed to cover financial losses arising from professional negligence. However, they typically exclude liability stemming from dishonest or fraudulent acts by the insured professional. This is because the policy is meant to cover errors in judgment or execution, not intentional wrongdoing. While other options might be covered under different types of insurance or have specific endorsements, dishonesty is a fundamental exclusion in PI insurance as it represents a breach of professional ethics and is not an insurable risk in the context of professional indemnity.

This question tests the understanding of exclusions in Directors’ and Officers’ (D&O) liability insurance, specifically concerning actions taken by the insured individual. D&O policies typically exclude coverage for claims arising from dishonesty or fraud committed by the director or officer seeking indemnity. While legal expenses for defending such allegations might be covered, the indemnity for the loss itself is excluded. Option (b) is incorrect because while pollution is excluded, it’s not the primary exclusion related to the director’s personal conduct. Option (c) is incorrect as contractual liability exclusions are distinct from personal misconduct. Option (d) is incorrect because while prior knowledge of circumstances can be an exclusion, the core issue here is the director’s own fraudulent act.

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 found in the policy document itself.

The Employees’ Compensation Assistance Scheme (ECAS) is designed to provide a safety net when an employer’s compulsory employees’ compensation insurance is absent or ineffective. It is funded partly by a levy on insurance premiums. Therefore, if an employer fails to secure the mandatory insurance, the ECAS steps in to ensure employees receive compensation for work-related injuries or diseases, fulfilling the spirit of the Employees’ Compensation Ordinance.

The Motor Vehicles Insurance (Third Party Risks) Ordinance mandates compulsory third-party liability insurance for motor vehicles in Hong Kong. This ordinance ensures that victims of motor accidents have a recourse for compensation, even if the at-fault driver is uninsured or unable to pay. The Motor Insurers’ Bureau of Hong Kong (MIB) plays a crucial role in fulfilling the intentions of this compulsory insurance by providing a safety net where such insurance is not available or effective, funded by a levy on motor insurance premiums. Therefore, understanding this ordinance is fundamental to motor insurance practices in Hong Kong.

The scenario describes an individual injured while ice-skating. The insurer declined the claim based on an exclusion for ‘winter-sports’. The Complaints Panel, in interpreting this exclusion, reasoned that ‘winter-sports’ generally refers to sports played on snow or ice, and therefore ice-skating, regardless of whether it’s indoors or outdoors, falls under this category. The key takeaway is that the exclusion is not limited to sports played specifically during winter or only outdoors, but rather by the nature of the activity itself (on snow or ice). Therefore, the insurer’s decision to reject the claim for benefits related to ice-skating is consistent with the policy’s exclusion for winter sports.

This question tests the understanding of what constitutes a material fact that an applicant must disclose to an insurer. 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 chemicals in a general store, where such items are not typically expected, significantly increases the fire risk beyond what a prudent underwriter would anticipate for a standard general store. This directly aligns with the definition of a material fact that renders a risk greater than would otherwise be supposed. Option B is incorrect because while common knowledge of typhoons in Hong Kong is not a material fact to be disclosed for extra perils insurance, the presence of unusual, high-risk items is not common knowledge. Option C is incorrect because while an insurer might know the general dangers of occupations, they wouldn’t necessarily know about specific, undisclosed hazardous materials stored on the premises. Option D is incorrect because while an insurer should inquire about blank or uncertain answers, the proactive disclosure of a fact that fundamentally alters the risk profile, like storing hazardous chemicals, is the proposer’s responsibility.

The scenario describes a situation where an insured person, a businessman who travels frequently, sustained a back injury. Initially, he was paid Temporary Total Disability (TTD) benefits. However, the insurer later reclassified his condition to Temporary Partial Disability (TPD) based on a medical examiner’s report indicating an improvement in his trunk movement. The key issue is the conflicting medical opinions regarding his ability to perform his duties. The Complaints Panel, in this case, gave more weight to the attending doctors’ opinions, who stated he was unable to perform any work until a specific date. This implies that the insurer’s unilateral decision to change the benefit classification without conclusive evidence or agreement from the insured’s treating physicians was not upheld. Therefore, the insured should continue to receive TTD benefits as per his attending doctors’ assessment, as the policy’s definition of TTD is based on the inability to perform *any* work, and the panel found the attending doctors’ opinion more credible.

The Code of Conduct for Insurers in Hong Kong is designed to promote good insurance practice and protect policyholders. It addresses various aspects of an insurer’s operations to ensure fair treatment and transparency. Specifically, the Code covers the insurer’s responsibilities towards customers, including their rights and interests, and also sets standards for underwriting and claims handling processes. While an insurer’s public image as a corporate citizen is important, the Code’s primary focus is on the direct conduct of insurance business and the protection of policyholders’ rights and interests within that context. Therefore, the industry’s public image as a good corporate citizen, while a desirable outcome, is not a direct area explicitly outlined as a covered topic within the Code of Conduct itself.

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 within 10 days of policy inception. The Complaints Panel, considering the tumor size, agreed that it likely took time to grow, and since the policy excluded illnesses presenting signs or symptoms prior to commencement, the insurer’s decision was upheld. This aligns with the principle that insurance policies typically exclude coverage for conditions that were already present or manifesting before the policy’s effective date, even if not formally diagnosed. The difficulty in pinpointing the exact onset date is a common challenge in applying pre-existing condition clauses, as highlighted in the provided text.

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 thirteen days. The Complaints Panel’s decision was based on the nature and severity of the injury, the insured’s occupation (self-employed director with mainly office duties), and the absence of complications. The panel determined that after eight days, the insured was capable of performing some of their duties, thus qualifying for temporary partial disability rather than temporary total disability for the remaining five days. This aligns with the principle that personal accident policies often differentiate benefit amounts based on the degree of disablement, and the insurer’s assessment was deemed appropriate given the policy definitions and the insured’s condition.

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 are not merely self-imposed but can also be mandated by industry bodies or legislation, reinforcing their importance in demonstrating transparency and accountability.

The scenario describes a situation where an insurer is determining the premium for a motor insurance policy. The insurer needs to consider various factors that influence the likelihood and potential cost of a claim. The ‘Road Traffic Act 1930’ is foundational legislation for compulsory motor insurance in the UK, but it doesn’t directly dictate the specific factors used for premium calculation. ‘Public Policy’ is a broad legal concept that can invalidate certain agreements but isn’t a direct factor in premium setting. ‘Salvage (Non-Marine)’ refers to the residual value of damaged property after a claim, which is relevant to the claims process, not the initial premium calculation. ‘Rating Features’ are precisely the elements used by insurers to calculate premiums, such as the vehicle’s engine capacity, its intended use, and its value, as mentioned in the provided text.

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, it addresses how insurers should handle underwriting and claims processes to ensure fairness and efficiency. Furthermore, it explicitly outlines the rights and obligations of customers, ensuring they are informed and treated equitably. The Code also emphasizes the broader interests of customers, encompassing their overall well-being and protection within the insurance framework. While an insurer’s role as a good corporate citizen is important, the Code of Conduct’s primary focus is on the direct relationship and transactions between the insurer and the policyholder, and the integrity of the insurance process itself, rather than the industry’s public image in a general sense. Therefore, aspects related to underwriting, claims, customer rights, obligations, and general customer interests are all within its purview.

In the context of insurance contracts, a ‘representation’ is a statement of fact made by the proposer before the contract is concluded. The principle of utmost good faith (uberrimae fidei) requires that such representations, particularly those concerning material facts, must be substantially true. If a representation is found to be untrue, and it relates to a material fact that influences the insurer’s decision to accept the risk or the terms offered, the insurer may have grounds to void the contract. The requirement is for substantial truth, meaning minor inaccuracies that do not affect the risk assessment are generally acceptable, but significant falsehoods can invalidate the policy. Options (b), (c), and (d) present absolute or overly strict conditions that are not aligned with the legal standard for representations in insurance.

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 cargo is jettisoned (thrown overboard) to save the ship and other cargo during a peril, it constitutes a GA sacrifice. The owner of the jettisoned cargo is then entitled to a contribution from the other saved parties to compensate for their loss. The key is that the act must be extraordinary, voluntary, reasonable, and performed in a time of peril for the common safety. Option A correctly identifies the scenario where jettisoned cargo leads to a GA contribution. Option B is incorrect because while salvage awards are a form of compensation, they relate to saving property from peril, not necessarily a sacrifice made by one party for the benefit of all in the same adventure. Option C is incorrect as sue and labour charges are expenses incurred by the assured to preserve their own property, not a sacrifice for the common good. Option D is incorrect because while a total loss of a portion of the cargo might occur, the core concept being tested is the right to contribution from others due to a GA act.

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.

In the context of insurance contracts, a ‘representation’ is a statement of fact made by the proposer before the contract is concluded. According to established insurance law principles, particularly those derived from the Marine Insurance Act 1906 (which heavily influences Hong Kong insurance law), representations must be substantially true. This means that while minor inaccuracies might not invalidate the contract, any misrepresentation of a material fact that influences the insurer’s decision to accept the risk or the terms offered can lead to the contract being voidable at the insurer’s option. The requirement for substantial truth is a cornerstone of the principle of utmost good faith (uberrimae fidei) in insurance. Options (b), (c), and (d) present incorrect interpretations of this principle. Representations do not necessarily have to be in writing unless specifically requested or required by law for certain types of insurance. While absolute truth is the ideal, the legal standard for representations is ‘substantial truth,’ not absolute accuracy. Furthermore, untrue representations of material facts absolutely affect the contract, making it voidable.

The Insurance Claims Complaints Bureau (ICCB) is designed to handle disputes related to personal insurance claims. A key limitation of the ICCB is its jurisdiction limit, which restricts the maximum claim amount it can consider. Claims exceeding this monetary threshold must be resolved through alternative dispute resolution mechanisms such as litigation or arbitration. Therefore, a complaint involving a sum greater than HK$800,000 falls outside the ICCB’s purview.

The question tests the understanding of the specific limitations of motor insurance policies for motorcycles, particularly concerning theft claims. According to the provided text, for motorcycles, theft claims are only admissible if the entire machine is stolen. This means that if only accessories are stolen, the insurer will not cover this loss under the ‘Own Damage/Accidental Damage’ section. Therefore, a motorcycle owner whose side mirror and headlight are stolen would not be able to claim under their policy for these specific losses.

This question tests the understanding of the specific definition of ‘loss of one limb’ within the context of personal accident insurance, as illustrated by Case 12. The scenario highlights that a fracture causing functional impairment, but not physical severance at or above the wrist or total functional disablement, does not meet the policy’s strict definition for this benefit. The explanation clarifies that the Complaints Panel upheld the insurer’s decision because the insured’s condition, while inconvenient, did not align with the policy’s precise wording for ‘loss of one limb’ or ‘total functional disablement’. It also notes the absence of provisions for proportional compensation for partial permanent disability in the policy.

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 are not merely self-imposed but can also be mandated by industry bodies or legislation, reinforcing their importance as a measure of performance and declared intentions.

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, making it an accessible recourse. However, the ICCB’s decisions are binding on the insurer if accepted by the complainant, but the complainant can choose not to accept the award and pursue other legal avenues. The maximum claim amount handled by the ICCB is HK$1,000,000, not HK$800,000. Therefore, only the statements that the complainant is never charged a fee and that the maximum claim amount is HK$1,000,000 are correct.