Paper 2 General Insurance Quiz 80

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’s stipulated areas of good insurance practice.

The scenario describes a situation where an insurer has consistently accepted late premium payments without objection. This pattern of behavior, if it leads the insured to reasonably believe that punctuality is no longer a strict requirement, can lead to the insurer being prevented from enforcing the strict contractual term of timely payment in the future. This legal principle is known as waiver, where the insurer, through its conduct, relinquishes its right to enforce a specific contractual provision. Estoppel also applies if the insured reasonably relied on this conduct to their detriment. Therefore, the insurer’s past acceptance of late payments without protest is the most accurate description of the situation that could lead to a waiver of the punctuality requirement.

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 jettisoning cargo as a GA sacrifice. Option B is incorrect because salvage awards are for services rendered to save property, not a sacrifice made by the property owner. Option C describes Sue and Labour charges, which are expenses incurred by the assured to preserve property, not a sacrifice. Option D refers to actual total loss, which is a complete loss of the insured item, not a partial loss compensated by GA contribution.

The scenario describes a situation where the insured delayed notifying the insurer about a claim. The policy requires notification ‘as soon as possible.’ While the insured took immediate action to repair the watch, the act of lodging the claim itself was delayed by two weeks after the repair was completed. This delay, even if the initial damage was accidental, could be considered a breach of the notification condition, potentially impacting the claim’s validity. The insurer has the right to investigate the circumstances of the loss and the repair process. Therefore, the insurer might decline the claim due to the late notification, as it could hinder their ability to properly assess the loss and the cause. The other options are less likely to be the primary reason for denial. The existence of insurable interest is presumed unless proven otherwise. The policy likely covers accidental damage, and the insured’s financial inability to pay for repairs doesn’t automatically invalidate a claim if the damage itself is covered.

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. For partial losses, however, the principle of strict indemnity typically applies, meaning the payout would be based on the actual loss incurred, not the agreed value. Therefore, the agreed value is specifically payable for a total loss.

The scenario describes an individual injured while ice-skating. The insurer denied the claim based on a policy 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 wording and exclusions, where the insurer’s reasonable interpretation, supported by the Complaints Panel’s understanding of common parlance regarding winter sports, prevails. The fact that the insured was a passenger in Case 8 is irrelevant to this case, and the definition of ‘permanent’ disablement is not the primary focus of the exclusion.

This question tests the understanding of the core principle of ‘All Risks’ insurance, which is that it covers all losses unless specifically excluded. The insurer bears the burden of proving that an exclusion applies. Option (a) correctly states this principle. Option (b) is incorrect because ‘All Risks’ does not inherently mean no exclusions; it means coverage is broad but still subject to defined exclusions. Option (c) is incorrect as the insured’s negligence, if it falls under a specific exclusion (like lack of reasonable care), can lead to a claim denial, but the fundamental principle isn’t about the insured proving they weren’t negligent. Option (d) is incorrect because while ‘All Risks’ is broad, it is not unlimited and specific exclusions are a key feature.

The Employees’ Compensation Ordinance in Hong Kong establishes a strict liability framework for employers. This means that an employer is legally obligated to compensate an employee for injuries or death sustained in accidents that arise out of and in the course of their employment, regardless of whether the employer was at fault. The ordinance mandates insurance to cover these liabilities. While the provided text mentions that statutory liability may sometimes fall short of actual losses, the core principle is the employer’s responsibility for compensation under the ordinance, which is covered by the compulsory EC policy. Therefore, the EC policy is designed to cover the employer’s legal obligations arising from the Employees’ Compensation Ordinance, which is a form of statutory liability.

This question tests the understanding of how an excess works in motor insurance. An excess is the amount the policyholder must pay towards a claim before the insurer covers the rest. In this scenario, the damage is HK$12,000 and the voluntary excess is HK$2,000. Therefore, the insured is responsible for the first HK$2,000 of the claim, and the insurer will pay the remaining HK$10,000. The question asks how much the insurer will pay, which is the total claim minus the excess.

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 deemed to have waived its right to demand strict punctuality in the future. 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 if the insurer were to revert to strict enforcement. Option B is incorrect because while a policy schedule is part of the policy document, it doesn’t directly relate to the waiver of premium punctuality. Option C is incorrect as the Motor Insurers’ Bureau of Hong Kong (MIB) deals with compulsory motor insurance effectiveness and insolvency, not premium payment punctuality in general. Option D is incorrect because the Employees Compensation Assistance Scheme (ECAS) addresses compensation for employees, not the insurer’s waiver of premium payment terms.

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 the employer-employee relationship as defined by the ECO and common law principles related to employment. Option B is incorrect because while contractual liability is often excluded, it’s not the primary reason for rejection in this specific scenario. Option C is incorrect as the scenario doesn’t mention the employee being a contractor’s employee. Option D is incorrect because the rejection is based on the nature of the injury relative to the employment, not on standard exclusions like war or nuclear risks.

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 compulsory insurance requirement.

The principle of indemnity in insurance aims to restore the insured to the financial position they were in before the loss. When replacing old parts with new ones, there’s an inherent betterment, as the new parts are superior to the old, worn-out ones. The insurer is entitled to deduct a reasonable amount for this betterment to avoid over-indemnifying the insured. The case highlights that for an eight-year-old vehicle, a 35% betterment contribution is considered reasonable, especially when the policy explicitly excludes depreciation. The insured’s argument against betterment is invalid because the new parts inherently provide an advantage over the original, aged parts, and the policy’s exclusion of depreciation reinforces the insurer’s right to account for this improvement.

The question tests the understanding of the ‘claims-made’ basis for Directors and Officers (D&O) liability insurance. Under a claims-made policy, coverage is triggered by a claim being made against the insured during the policy period, regardless of when the wrongful act occurred. This contrasts with an ‘occurrence’ basis, where coverage is triggered by the event causing the loss happening during the policy period. Therefore, if a director leaves a company, they need to consider how to maintain coverage for potential future claims arising from their past actions, which is a key implication of the claims-made basis. Public Liability insurance, on the other hand, is typically written on an ‘occurrence’ basis, meaning claims are covered if the incident causing the liability occurred during the policy period, even if the claim is made later. Marine insurance has its own specific terminology and principles, such as ‘particular average’ referring to partial loss, which is distinct from liability insurance coverage triggers.

Institute Cargo Clauses (A) provides the broadest coverage, insuring against all risks of physical loss or damage to the insured subject matter, except for those specifically excluded. This is often referred to as ‘all risks’ coverage. Clauses (B) and (C) offer more limited protection, covering only specific perils or a named list of risks. Therefore, a shipment insured under Clause (A) would be protected against a wider array of potential damages compared to shipments under Clauses (B) or (C), assuming the cause of damage is not an explicitly excluded peril.

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. 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 not just their contractual rights but also their well-being and trust in the insurance industry. While a good corporate citizen image is desirable, the Code’s primary focus is on the direct relationship and responsibilities between insurers and policyholders, rather than broader societal contributions.

The question tests the understanding of the scope of theft insurance, specifically concerning damage to the premises during an attempted theft. According to the provided text, theft policies typically include coverage for damage caused by thieves to the insured premises when making forcible and violent entry or exit. This damage is not subject to a separate sum insured but is covered under the general policy for stock and specified contents. Therefore, a scenario where a thief damages a shop’s door to gain entry and subsequently steals goods would be covered for both the stolen goods and the damage to the door, provided the entry was forcible and violent.

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

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 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 implies that the policy differentiates between these two states, with potentially different benefit amounts or durations, and the insurer correctly applied these distinctions based on the medical assessment and the insured’s ability to perform duties. Therefore, the insurer’s offer was deemed appropriate because the benefits were allocated according to the specific definitions and criteria for each type of disability outlined in the personal accident policy.

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 employees. Option B is incorrect because while errors can lead to financial loss, fidelity policies specifically cover dishonest acts, not general mistakes. Option C is incorrect as professional indemnity insurance covers negligence and errors in professional services, not employee theft. Option D is incorrect because public liability insurance covers claims for injury or property damage to third parties, which is unrelated to employee dishonesty.

Institute Cargo Clauses (A) provides the broadest coverage, operating on an ‘all risks’ basis. This means it covers all losses unless specifically excluded. Clauses (B) and (C) are more restrictive, covering only specified perils. Therefore, a shipment insured under Clause (A) would be covered for damage caused by a sudden, unexpected event like a rogue wave, provided it’s not an excluded peril. Clause (B) would likely cover this if the rogue wave was considered a peril of the sea, but it’s less certain than (A). Clause (C) would only cover it if ‘perils of the sea’ were explicitly listed and the rogue wave qualified. Since the question asks for the broadest coverage for an unexpected event, Clause (A) is the most appropriate.

The scenario describes a situation where the insured delayed notifying the insurer about a claim. The policy requires notification ‘as soon as possible.’ While the insured took the watch for repair immediately, they only lodged the claim two weeks later after receiving the repaired watch. This delay in formally lodging the claim, even if the damage occurred earlier and was addressed promptly, could be considered a breach of the ‘as soon as possible’ notification clause. The insurer might argue that the delay in reporting the incident to them, rather than just taking the item for repair, prevented them from potentially assessing the damage or offering alternative repair solutions. Therefore, the insurer could potentially decline the claim based on the late notification, as the insured did not comply with the policy’s procedural requirements for reporting a claim promptly.

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 be deemed to know the normal dangers of occupations for Employee’s Compensation insurance, they are not expected to know about specific, unusual storage practices in a general store. Option D is incorrect because while previous adverse insurance experience is a material fact, the scenario focuses on the nature of the goods stored, not the applicant’s past insurance history.

The question tests the understanding of the insured’s duty to minimize loss after a claim event. While cooperating with the insurer and providing proof of loss are crucial duties, the primary obligation in the immediate aftermath of a loss, as per common law and policy conditions, is to take reasonable steps to prevent further damage or escalation of the loss. This includes actions like protecting damaged property from further harm, which directly relates to minimizing the overall claim amount. Admitting liability to a third party without the insurer’s consent would actually jeopardize the insurer’s rights, not fulfill a duty.

The Employees’ Compensation Ordinance in Hong Kong establishes a strict liability framework for employers. This means that an employer is legally obligated to compensate an employee for injuries or death sustained in accidents that arise out of and in the course of their employment, regardless of whether the employer was at fault. The ordinance mandates insurance to cover these liabilities. While the provided text mentions that statutory liability may sometimes fall short of actual losses, the core principle is the employer’s responsibility for compensation under the ordinance, which is covered by the EC policy. The other options are incorrect because they misrepresent the nature of the liability or the scope of the EC policy. Option B is incorrect as the EC policy covers statutory liability, not just common law negligence. Option C is incorrect because the EC policy is primarily for the employer’s liability to employees, not third parties in general. Option D is incorrect as the EC policy is compulsory for employers, not optional for employees.

The question tests the understanding of the specific limitations of motor insurance policies for motorcycles, particularly concerning theft claims. While private car policies typically cover the loss of accessories due to theft, motorcycle policies, as per market practice, generally only cover the entire machine being stolen. Therefore, a claim for stolen accessories alone would not be admissible under the ‘Own Damage/Accidental Damage’ section of a standard motorcycle policy.

A combined liability policy, as described in the syllabus, typically consolidates coverage for Public Liability, Products Liability, and Employees’ Compensation Liability into a single document. While clients may request additional coverages like Directors’ and Officers’ Liability or Professional Liability, these are often added as extensions or endorsements rather than being fundamental components of the basic combined liability structure. The core intent of such a policy is to provide a comprehensive, single-document solution for common business liabilities.

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, worn-out parts. This improvement in the vehicle’s condition beyond its pre-accident state is termed ‘betterment’. The insurer is not obligated to provide a benefit that exceeds the original condition. Therefore, a contribution from the insured towards the cost of these new parts is justified to account for this betterment, ensuring the insured does not gain an advantage. The case highlights that the insurer’s calculation of a 35% betterment contribution for an eight-year-old vehicle was deemed reasonable by the Complaints Panel, especially when compared to a standard 50% depreciation rate for such a vehicle. The policy’s exclusion of depreciation further supports the insurer’s stance on the insured contributing to the cost of new parts that enhance the vehicle’s value.

A General Average Act is defined as any extraordinary sacrifice or expenditure voluntarily and reasonably made or incurred in time of peril for the purpose of preserving the property imperilled in the common adventure. In this scenario, the decision to jettison a portion of the cargo to lighten the vessel and prevent it from sinking during a storm is a classic example of an extraordinary sacrifice made voluntarily and reasonably in a time of peril to save the entire marine adventure. Therefore, this action constitutes a General Average Act.

This question tests the understanding of the distinction between ‘Specified Perils’ and ‘All Risks’ cover in property insurance, as outlined in the IIQE syllabus. ‘Specified Perils’ cover only losses caused by events explicitly listed in the policy, requiring the claimant to prove the cause of loss. ‘All Risks’ cover, conversely, covers all accidental losses unless specifically excluded, shifting the burden of proof to the insurer to demonstrate an exclusion applies. The scenario describes a situation where a loss occurred, but the exact cause is unknown. Under ‘Specified Perils’ cover, the claimant would need to identify a listed peril that caused the damage. However, under ‘All Risks’ cover, the claimant only needs to prove that an accidental loss occurred, and the insurer would then need to prove an exclusion applies. Therefore, the ‘All Risks’ policy is more advantageous in this situation as it simplifies the claims process for the insured when the cause is uncertain.