Paper 2 General Insurance Quiz 77

The question tests the understanding of the basis of cover for Public Liability (PL) insurance. The provided text explicitly states that PL insurance is usually on a “claims-occurring” basis, meaning that the policy covers incidents that happen during the policy period, regardless of when the claim is actually made. While “claims-made” policies are not unknown, they are not the common practice for PL insurance. Therefore, a policy that covers claims reported within the policy period, even if the incident occurred earlier, would be characteristic of a “claims-made” basis, which is not the standard for PL.

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.

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 usage, and its value, as mentioned in the provided text.

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 assessment of insurability or the terms of the policy are considered material.

This question tests the understanding of specific exclusions in a Product Liability policy. Option (a) correctly identifies that liability stemming from the inherent design or formulation of a product, such as a TV cabinet failing to support a weight exceeding its specified limit, is typically not covered. This aligns with the exclusion for liability arising from the design, plan, formula, or specification of the goods. Option (b) is incorrect because while product liability can extend to various parties, the scenario focuses on a design flaw, not the scope of defendants. Option (c) is incorrect as liability for faulty installation or repair is generally covered, but the core issue here is the product’s inherent design weakness. Option (d) is incorrect because while product liability policies may have aggregate limits, this is a feature of the policy limit, not an exclusion related to the cause of the loss.

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’ are costs associated with returning a deceased insured’s remains. Therefore, ‘Replacement’ is the most accurate term for the indemnity provided.

The question probes the understanding of prohibited practices in the insurance intermediary sector, specifically concerning rebating. Rebating, in essence, involves offering inducements to policyholders that are not part of the insurance contract itself. This practice is detrimental because it distorts the true cost of insurance, potentially leading to adverse selection and undermining the principle of fair risk assessment. Furthermore, it can be seen as a form of unfair competition, as it incentivizes business based on factors other than the merits of the insurance product or the service provided. The prohibition against rebating is rooted in maintaining market integrity and ensuring that commissions are a fair reward for the intermediary’s services, not a means to improperly influence business acquisition. The Code of Practice for the Administration of Insurance Agents and the Minimum Requirements of the Model Agency Agreement are key regulatory instruments that address these concerns, aiming to prevent practices that could be construed as bribery or corruption by distorting the basis of compensation.

The core principle of an indemnity policy is to restore the insured to their pre-loss financial position. When new parts replace old, worn-out parts, the insured is placed in a better position due to the improved condition and lifespan of the new components. This betterment must be accounted for, and the insured is typically required to contribute to the cost of the new parts to reflect this advantage. The scenario 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. This aligns with the principle of indemnity, as it prevents the insured from profiting from the loss by receiving new parts for an old vehicle without contributing to the difference in value.

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, provided the policy terms allow for it and proper notice is given. This is because the original risk assessment and premium calculation are no longer valid. Option B is incorrect because while an increase in premium might be a consequence, the primary action related to a worsened risk is often cancellation or renegotiation. Option C is incorrect as the insurer’s obligation to pay claims is contingent on the risk remaining within the agreed terms; a significant worsening of the risk can void this obligation. Option D is incorrect because while the insured might be notified, the core issue is the insurer’s right to act upon the changed risk, which typically involves cancellation or adjustment, not simply waiting for a claim.

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 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 ‘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 and the policy’s commencement date falls under the purview of the Schedule.

The scenario describes an individual who, after a period of total inability to work, is deemed by the insurer to be only partially disabled based on an improvement in their range of trunk movement. However, the medical reports from the insured’s attending doctors indicated continued pain and numbness, preventing long-distance walking, and explicitly stated an inability to perform *any* work until a specific future date. The Complaints Panel, in this context, gave more weight to the attending physicians’ assessments, recognizing their direct and ongoing observation of the patient’s condition. This aligns with the principle that the attending physician’s opinion is generally considered more authoritative regarding the patient’s functional capacity and work limitations than an insurer’s medical consultant’s assessment based on a single examination or limited data, especially when there’s a conflict. Therefore, the ruling to continue Temporary Total Disability benefits is justified by prioritizing the attending doctors’ professional judgment.

A cover note is a temporary document that provides immediate evidence of insurance coverage, binding the insurer even before the final policy is issued. It is often used in motor insurance to facilitate vehicle registration and serves as proof of legally required 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. The question tests the understanding of the primary function and nature of a cover note in the underwriting process, distinguishing it from a policy or a certificate.

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 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 or breach of statutory duty related to workplace safety. Employees’ Compensation Insurance (ECI) policies typically cover both liabilities. However, the question specifies a scenario where an employer’s claim was rejected because the injury did not arise out of and in the course of employment, which is a fundamental condition for coverage under the ECO. Therefore, the insurer’s rejection is based on the policy’s intent to cover only liabilities stemming from employment-related incidents as defined by the ECO, and not general negligence unrelated to the employment context.

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 exclusions in pleasure craft insurance, specifically concerning 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 properly marked, it would be covered under the policy. Therefore, the scenario where the ship’s boat is not marked correctly leads to its exclusion from the policy’s coverage.

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.

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, often termed ‘betterment,’ places the insured in a financially advantageous position post-repair. Therefore, a contribution from the insured towards the cost of these new parts is generally considered appropriate to prevent the insured from profiting from the loss. The scenario highlights that the insurer’s application of a 35% betterment contribution, based on a depreciation rate for an eight-year-old vehicle, was deemed reasonable by the Complaints Panel, especially since the policy explicitly excluded depreciation coverage. This means the insurer is not liable for the depreciation of the new parts, and the insured must cover the portion that represents an improvement beyond mere restoration.

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 just self-imposed but can also be mandated by industry bodies or legislation, reflecting a growing trend towards transparency and accountability in the insurance sector.

Institute Cargo Clauses (ICC) (A) provides the broadest coverage for own damage on an ‘All Risks’ basis. This means it covers all perils except those specifically excluded. ICC (B) covers specified risks, and ICC (C) covers even fewer specified risks. The scenario describes a situation where cargo is damaged due to a peril not explicitly listed in ICC (B) or (C), but which would be covered under the ‘All Risks’ provision of ICC (A). Therefore, ICC (A) is the most appropriate cover for this situation.

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 fraudulent activities by their employees. Option B is incorrect because while reporting is part of a system, it’s not the primary focus of the ‘System of Check’ itself, which is about preventative controls. Option C is incorrect as it describes a reactive measure (investigation) rather than a preventative system. Option D is incorrect because while training is important, it’s a component of a broader system, not the definition of the system of check itself.

The question tests the understanding of exclusions in pleasure craft insurance, specifically concerning 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 properly marked, it would be covered under the policy. Therefore, the scenario where the ship’s boat is properly marked would lead to a claim being accepted for damage to it.

The question tests the understanding of policy conditions, specifically the ‘Average’ condition. The Average clause is a penalty for under-insurance. If the sum insured is less than the value of the property at the time of loss, the insurer will only pay a proportion of the loss, calculated based on the ratio of the sum insured to the actual value. In this scenario, the property’s value is HK$500,000, but it is insured for only HK$300,000. The loss is HK$100,000. Applying the Average clause, the insurer will pay (Sum Insured / Value of Property) * Loss = (HK$300,000 / HK$500,000) * HK$100,000 = 0.6 * HK$100,000 = HK$60,000. Therefore, the insured will bear the remaining HK$40,000.

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.

The question tests the understanding of the ‘Forcible and Violent Entry’ condition in theft insurance. This condition is a standard requirement for a valid claim under commercial theft policies, meaning that for a theft to be covered, there must be evidence of forced or violent entry into or exit from the premises. Without this evidence, the insurer may deny the claim. Options B, C, and D describe other insurance concepts or conditions that are not directly related to the specific requirement for a theft claim under this policy wording.

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

The scenario describes a situation where an insured person sustained an injury and received a certain number of days of temporary total disability benefit and temporary partial disability benefit. The insured was dissatisfied, believing they should have received temporary total disability benefit for the entire duration. The Complaints Panel’s decision was based on the nature and severity of the injury, the insured’s occupation (self-employed director with primarily office duties), and the absence of complications. The panel determined that after eight days, the insured’s condition only met the definition of temporary partial disability, not temporary total disability, making the insurer’s offer appropriate according to the policy terms. This highlights the critical distinction between temporary total and temporary partial disability benefits in personal accident policies, where the latter typically offers a lower benefit amount and is applied when the insured can still perform some, but not all, of their usual duties.

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 is established under the Insurance Companies Ordinance (Cap. 41) and operates to provide a cost-effective and efficient avenue for resolving complaints against insurers. It is crucial to understand the scope of its jurisdiction and the procedures involved. Statement (i) is incorrect because the ICCB handles complaints related to both general and long-term insurance, not just personal insurance. Statement (iii) is incorrect as only the complainant (the policyholder) can appeal an award made by the ICCB; insurers cannot appeal. Statement (iv) is incorrect because the maximum claim limit for ICCB disputes is HK$1,000,000, not HK$800,000. Therefore, only statement (ii) is accurate, as the ICCB service is free of charge for complainants.

The scenario describes an individual intentionally engaging in a physical altercation 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 fight. 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 injured, thus negating the ‘accidental’ nature of the event as required by personal accident policies.