Paper 2 General Insurance Quiz 79

The question tests the understanding of the ‘claims-made’ basis for Directors and Officers (D&O) liability insurance, as outlined in the provided syllabus. A ‘claims-made’ policy covers claims that are made against the insured during the policy period, regardless of when the wrongful act occurred. This means that for continuous coverage, the insured must maintain continuous ‘claims-made’ policies. If a company ceases trading or is dissolved, the directors may still be liable for past actions. Therefore, to ensure ongoing protection for directors after they leave the company or if the company ceases operations, it is crucial to consider maintaining cover for a period after these events. This is often achieved through ‘run-off’ cover or by ensuring the policy includes provisions for retroactive cover and extended reporting periods. Option (a) correctly identifies the need to consider maintaining cover for directors after they leave the company and in situations where the company ceases trading or is dissolved, directly addressing the implications of a ‘claims-made’ basis. Option (b) is incorrect because while a flat premium is charged, it doesn’t address the core issue of maintaining cover post-employment or post-cessation of trading. Option (c) is incorrect as it focuses on the premium basis rather than the coverage period and its implications. Option (d) is incorrect because while D&O insurance is written on a ‘claims-made’ basis, the statement about automatic retroactive cover needs to be qualified by exclusions and the need for careful consideration of policy terms, and it doesn’t fully capture the necessity of maintaining cover for directors after they leave the company or if the company ceases trading.

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 not conditional on the submission of a satisfactory proposal form later. While it offers unconditional cover, it typically includes cancellation provisions and is intended for a short duration, often replaced by a formal policy. Its primary role is to provide the insured with documentary proof of existing insurance, which can be crucial for various purposes, such as vehicle registration or satisfying lender requirements.

This question tests the understanding of how travel insurance premiums are determined. While geographical area, duration, and the number of people insured are primary factors, the concept of an ‘annual policy’ is a specific pricing structure designed for frequent travelers. This structure offers a single premium for a defined period, regardless of the number of individual trips taken within that year, making it distinct from per-trip pricing. The other options represent factors that influence premium calculations but are not the specific pricing model described.

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 risk associated with money outside of controlled business environments. Therefore, the insurer’s rejection of the claim is justified based on the policy’s terms and conditions regarding the timing of the loss.

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the standards expected in various aspects of the insurance business. Among these are the fair, efficient, and prompt handling of claims, which is a crucial element of customer service and regulatory compliance. While other regulations might touch upon claims processing, the Code of Conduct for Insurers explicitly details these expectations for personal insurance policies.

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

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 did not disclose it. D&O policies typically exclude coverage for claims arising from circumstances known or that ought to have been known by the insured at the time of policy inception. This is to prevent individuals from obtaining coverage for known risks they have not disclosed. Option A correctly identifies this exclusion. Option B is incorrect because while D&O policies cover wrongful acts, the exclusion for known circumstances overrides this general coverage. Option C is incorrect as the policy generally covers legal expenses for defense, but this is contingent on the claim itself being covered, which it is not in this case due to the prior knowledge. Option D is incorrect because while dishonesty is an exclusion, the primary reason for denial in this scenario is the prior knowledge of the circumstance, not necessarily proven dishonesty at the time of the act.

A General Average Act is defined as an extraordinary sacrifice or expenditure voluntarily and reasonably made or incurred in time of peril to preserve the property imperilled in the common adventure. When a ship’s engine fails and the vessel is adrift in a storm, the captain decides to jettison a portion of the cargo to lighten the ship and regain steerage, thereby saving the vessel and the remaining cargo. This act of jettisoning cargo is a voluntary and reasonable sacrifice made in a time of peril to preserve the entire marine adventure. Therefore, it constitutes a General Average Act, and the loss incurred by the owner of the jettisoned cargo is a General Average Loss.

This question tests the understanding of General Average (GA) sacrifice versus expenditure. A GA Act involves an extraordinary sacrifice or expenditure voluntarily and reasonably made to preserve the common adventure. Throwing cargo overboard is a physical loss, hence a sacrifice. Towing a disabled vessel to a port of refuge is an expense incurred to save the adventure, thus a GA expenditure. The scenario describes a deliberate act of jettisoning cargo to lighten a vessel during a storm, which is a classic example of a GA sacrifice. The other options describe different concepts: salvage award relates to payment for saving property, sue and labour charges are expenses to prevent or minimize loss, and actual total loss refers to the complete destruction or irretrievable loss of the insured subject matter.

This question tests the understanding of waiver in the context of insurance premium payments. Waiver occurs when an insurer, through its actions or representations, indicates it will not strictly enforce a contractual term, such as the punctuality of premium payments. If an insurer consistently accepts late premium payments without objection, it may be considered to have waived its right to demand strict punctuality for future payments. Estoppel, on the other hand, requires the insured to demonstrate reasonable reliance on the insurer’s conduct or representation, leading to a detrimental change in their position. Option B is incorrect because it describes estoppel, not waiver. Option C is incorrect as it describes a situation where the insurer is enforcing the contract, not waiving a term. Option D is incorrect because it describes a scenario where the insured is at fault for non-payment, which is not directly related to the insurer’s waiver.

This question tests the understanding of the ‘fit and proper’ requirement for insurance brokers, which is a fundamental aspect of their licensing and ongoing supervision. The Insurance Authority (IA) assesses whether an applicant or existing broker meets this standard based on various factors, including integrity, financial soundness, and competence. While qualifications, experience, and professional indemnity insurance are crucial components of the minimum requirements, the ‘fit and proper’ criterion is a broader, overarching assessment of the individual or entity’s suitability to operate in the insurance broking sector, encompassing ethical conduct and a commitment to client interests. The other options represent specific regulatory requirements or potential misconduct, but not the overarching suitability assessment.

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 exclusion is crucial because the policy is meant to cover errors in judgment or execution, not intentional wrongdoing. Options B, C, and D represent situations that might be covered under a PI policy, such as financial loss due to negligent advice, property damage from a professional error, or legal costs associated with defending a claim of professional misconduct. Therefore, liability arising from dishonesty is the most appropriate exclusion.

The question tests the understanding of the specific limitations of motor insurance policies for motorcycles, particularly concerning theft claims. The provided text explicitly states that for motorcycles, theft claims are only admissible if the entire machine is stolen. This means that the loss of accessories alone, even if stolen from the motorcycle, would not be covered under the ‘Own Damage/Accidental Damage’ section of a standard motor cycle insurance policy. Therefore, a policyholder whose motorcycle’s accessories were stolen would not be able to claim for this loss under the theft provision.

This question tests the understanding of the relationship between material damage insurance and business interruption (BI) insurance, specifically the ‘material damage proviso’ in BI policies. This proviso stipulates that a claim under a BI policy is contingent upon a valid claim being payable under the associated material damage policy for the same insured peril. Without physical damage covered by the material damage policy, the BI policy will not respond to losses arising from the interruption. Therefore, if the material damage policy is voided due to a breach of policy conditions by the insured, the BI policy would also be invalidated for claims related to that event.

Domestic helper insurance is designed to cover the employer’s legal liabilities and provide benefits to the domestic helper. While medical expenses, repatriation costs, and personal accident benefits are standard inclusions, public liability refers to the domestic helper’s legal responsibility towards third parties in Hong Kong. This means if the domestic helper, while performing their duties, causes injury or damage to someone else (a third party), the policy would cover the employer’s liability for that incident. The other options are either not typically covered (e.g., employer’s personal financial loss due to helper’s infidelity is an optional add-on, not a core public liability aspect) or are benefits for the helper rather than liability towards third parties.

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 already chosen not to address. Option A correctly identifies this exclusion. Option B is incorrect because while D&O policies cover wrongful acts, the exclusion for known circumstances overrides this general coverage. Option C is incorrect as the policy generally covers legal expenses for defense, but this is contingent on the claim itself being covered, which it is not due to the prior knowledge exclusion. Option D is incorrect because while dishonesty can be an exclusion, the primary reason for denial in this scenario is the prior knowledge of the circumstance, which is a distinct exclusion.

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

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, and its breach might lead to claim denial or policy termination, but it doesn’t prevent the contract from initially commencing. ‘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 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 outlines the rights and obligations of customers, ensuring they are informed and treated equitably. Furthermore, the Code emphasizes the importance of safeguarding customers’ overall rights and interests, which encompasses their financial well-being and access to information. 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 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 the higher 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 (office duties), and the absence of complications. The panel determined that for the latter part of the sick leave, the insured’s condition only met the definition of temporary partial disability, not temporary total disability, as per the policy terms. 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’s definitions and the specific circumstances of the injury and recovery.

This question tests the understanding of the specific exclusions in a Product Liability policy. Option (a) is correct because liability arising from the design, plan, formula, or specification of the goods is a common exclusion, as illustrated by the example of a TV cabinet designed for a lower weight capacity. Option (b) is incorrect as while product liability covers a broad range of claimants, the exclusion relates to the *cause* of the liability, not the claimant’s status. Option (c) is incorrect because while contractual liability is a common exclusion, the scenario described in the provided text relates to design flaws, not a breach of contract. Option (d) is incorrect because liability for the repair or replacement of defective goods is typically excluded, but the scenario in the question focuses on the *design* of the product itself.

This question tests the understanding of the specific exclusions within a Product Liability policy. Option (a) correctly identifies that liability stemming from the inherent design or formulation of a product, such as a cabinet unable to support a weight exceeding its specified limit, is typically not covered. Options (b), (c), and (d) describe situations that are generally covered or are common exclusions in other types of liability insurance but not the specific design flaw exclusion mentioned in the context of product liability.

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. The other options represent different insurance concepts: ‘Franchise’ relates to the deductible amount that applies to claims, ‘Fraud’ concerns dishonest acts by the insured, and ‘Fundamental Risks’ are those with potentially catastrophic loss potential, often excluded from standard policies. Therefore, the requirement for forcible and violent entry is directly linked to the conditions for a theft claim.

A warranty in insurance is an absolute undertaking by the insured to the insurer. A breach of this undertaking, regardless of its impact on the claim, can automatically discharge the insurer’s liability from the date of the breach. However, insurers in Hong Kong have provided an undertaking to the Hong Kong Federation of Insurers that they will only refuse a claim due to a breach of warranty if there is a causal connection between the breach and the loss, or if the breach is fraudulent. This means that a breach without a causal link or fraudulent intent would not typically be used to deny a claim under this undertaking, even though technically, a breach of warranty can automatically void liability.

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 policyholders on the quality of service and practice.

The question tests the understanding of specific exclusions in third-party liability cover for commercial vehicles, as distinct from private car policies. The ‘tool of trade’ clause specifically excludes liability arising from the vehicle’s use as a tool of trade, such as a mechanical digger performing its function. While statutory provisions for compulsory insurance might mandate certain cover, the policy exclusion itself remains relevant for other third-party claims. Food poisoning claims are also an exclusion, but the scenario focuses on damage caused by the vehicle’s operation. Damage to stock-in-trade is another exclusion, but the scenario describes damage to property external to the vehicle. Vibration damage is also excluded, but the scenario describes direct damage from the vehicle’s use as a tool.

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, determined that ‘winter-sports’ generally encompass sports played on snow or ice, regardless of the season or whether they are indoors or outdoors. Therefore, ice-skating, even indoors, falls under this category. The key principle here is the interpretation of policy exclusions and the broad definition applied to terms like ‘winter-sports’ by regulatory bodies when specific definitions are absent in the policy wording. This aligns with the understanding that insurers may interpret such clauses to cover activities that are commonly associated with the excluded category, even if not explicitly listed.

The scenario describes a situation where an insurer has consistently accepted late premium payments without objection. This pattern of behavior, if demonstrated clearly and consistently, can lead to the insurer being considered to have ‘waived’ their right to strictly enforce the contractual term requiring punctual premium payment. The doctrine of waiver implies that the insurer, through their conduct, has relinquished their right to insist on strict adherence to the policy’s premium payment schedule. Estoppel, on the other hand, would require the insured to prove they reasonably relied on this conduct to their detriment, believing that late payments would continue to be accepted. While both concepts are related to the insurer’s conduct regarding premium payments, waiver directly addresses the insurer’s relinquishment of a right, which is the core of the insurer’s past actions in this scenario.

This question tests the understanding of exclusions in a Professional Indemnity (PI) policy, specifically concerning financial losses arising from dishonesty. PI policies cover legal liability for ‘wrongful’ or ‘negligent’ acts or omissions. However, they explicitly exclude liability arising from dishonest, fraudulent, criminal, or malicious acts or omissions by the insured. Therefore, if a fund manager’s dishonest actions lead to financial losses for clients, the PI policy would not cover the resulting claims, as this falls under the dishonesty exclusion.

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.