Chapter 7

Personal property and

liability insurances
The liability risk – Basis of legal liability

Source: Rejda, G. E., McNamara, M. (2017). Principles of Risk Management and Insurance, 13 th Edition. Pearson.
  Understanding different types of liability is important in
order to understand liability insurance

Legal Liability  Liability may arise from Statute (law made by the
legislature) and/or in the Common Law
– Tort Law  Tort law is the area of law that is highly related to
liability

Sources: http://www.opentextbooks.org.hk/ditatopic/20558
https://www.ia.org.hk/en/supervision/reg_ins_intermediaries/files/GI_SN_eng_2018.pdf
Legal Liability – Tort Law
 Tort law: A tort is usually defined as a wrong for which the law will provide a remedy,
most often in the form of money damages
 Intentional torts
 Strict liability torts
 Negligence torts

 The person who is injured or harmed (called the plaintiff) by the actions of another
person (called the defendant) can sue for damages

Source: http://www.opentextbooks.org.hk/ditatopic/20558
Legal Liability – Intentional Torts

Intentional torts
Legal liability can arise from an intentional act or omission that results
in harm or injury to another person or damage to the person’s property

Examples include assault, battery, false imprisonment, intrusion of

privacy, harassment

Sources: Rejda, G. E., McNamara, M. (2017). Principles of Risk Management and Insurance, 13 th Edition. Pearson.
http://www.opentextbooks.org.hk/ditatopic/20558
Legal Liability - Strict Liability Torts

Strict liability torts

Strict liability (or absolute liability) means
that liability is imposed regardless of
negligence or fault

Examples include blasting operations,

manufacturing of explosives, owning wild or
dangerous animals
Example of Strict Liability Torts
Legal Liability – Negligence Torts

 Negligence torts
 The law imposes a duty of care on all of us in our everyday lives
 Negligence is typically defined as the failure to exercise the standard of care required
by law to protect others from an unreasonable risk of harm
 The meaning of “standard of care” is based on the care required of a reasonably
prudent person

Sources: Rejda, G. E., McNamara, M. (2017). Principles of Risk Management and Insurance, 13 th Edition. Pearson.
http://www.opentextbooks.org.hk/ditatopic/20558
Legal Liability – Negligence Torts
 Four essential elements of negligence

 Existence of a legal duty

 The first requirement is the existence of a legal duty to protect others from harm
 To be guilty of negligence, there must first be a legal duty or obligation to protect
others from harm

 Failure to perform that duty

 The second requirement is the failure to perform the legal duty required by law; that
is, you fail to comply with the standard of care to protect others from harm

Sources: Rejda, G. E., McNamara, M. (2017). Principles of Risk Management and Insurance, 13 th Edition. Pearson.
Legal Liability – Negligence Torts

 Damage or Injury
 The third requirement is damage or injury to the plaintiff
 The injured person must show damage or injury as a result of the action or inaction of
the defendant

 Proximate Cause Relationship

 The final requirement is that a proximate cause relationship must exist
 A proximate cause is a cause unbroken by any new and independent cause, which
produces an event that otherwise would not have occurred. That is, there must be an
unbroken chain of events between the negligent act and the harm that occurs

Sources: Rejda, G. E., McNamara, M. (2017). Principles of Risk Management and Insurance, 13 th Edition. Pearson.
Example of Negligence Torts
Defenses against Negligence
 Contributory Negligence
 If the injured person’s conduct falls below the standard of care required for his or her
protection, and such conduct contributed to the injury, the injured person cannot
collect damages

Sources: Rejda, G. E., McNamara, M. (2017). Principles of Risk Management and Insurance, 13 th Edition. Pearson.
Defenses against Negligence
 Comparative Negligence
 The contributory negligence law is harsh if rigorously applied. Thus, comparative
negligence law is applied in some cases
 Under a comparative negligence law, if both plaintiff and the defendant contribute to
the plaintiff’s injury, the financial burden of the injury is shared by both parties
according to their respective degrees of fault.
 Question ： Matthew was involved in an auto accident. He was judged to be 40 percent
at fault in the accident, and the other party was judged to be 60 percent at fault.
Matthew’s actual damages were $50,000. Under a pure comparative negligence law,
how much, if anything, will Matthew receive for his injury?
 Answer: Matthew will collect $30,000 for his injury.

Sources: Rejda, G. E., McNamara, M. (2017). Principles of Risk Management and Insurance, 13 th Edition. Pearson.
Property and liability insurance
Personal property and liability insurance

 Homeowners insurance

 Motor insurance (Car insurance)

 Travel insurance
Homeowners
insurance
 Home building insurance
(usually called “fire insurance”)

Major types
of Home insurance (or called
household insurance)
homeowners
insurance
Package insurance covering
household contents and building
structure
Home building insurance (“fire insurance”)
 Provides coverage to property damage caused by fire, lighting, explosion, typhoon, flood,
earthquake, landslip, burglary, etc.
 The coverage of different policies may vary
 There are also exclusions stated in the policy
 Two examples of fire insurance:
 https://www.hangseng.com/en-hk/insurance/general-insurance/fire-insurance/
 https://www.hsbc.com.hk/insurance/products/home/fire/#whats-included
Home insurance (“household insurance”)
 Provides coverage to household contents, personal belongings
 Provides personal liability insurance
 The coverage of different policies may vary
 Two examples of household insurance:
 https://www.hsbc.com.hk/insurance/products/home/homesurance/
 https://www.zurich.com.hk/en/individuals/home-insurance/homechoice-insurance-plan
 Comparison between home building insurance (“fi
re insurance”) and home insurance (“household in
surance”)
Package home insurance
 Example of a package insurance covering household contents and building structure
 https://www.aig.com.hk/content/dam/aig/apac/hong-kong/documents/motis/premium-h
ome-plus-brochure-201911.pdf
Cost of homeowners insurance
 As an informed consumer, you should understand how the cost of a homeowners insurance
is determined and underwriting factors that determine if an applicant for a homeowners
insurance is acceptable

 Major rating and underwriting factors include:

 Construction: The more fire-resistant the home is, the lower the rate. Thus wooden homes cost
more to insure than brick homes. However, earthquake insurance costs are substantially less for
wooden homes
 Location: Insured who reside in territories with high losses from fires, storms, natural disasters,
or crime must pay higher rates than insureds who reside in low-loss territories
 Fire-protection class: Accessibility of the home to the fire department and water supply is
important. Homes in rural areas generally have higher rates than homes in large cities
 Construction costs: The higher the cost of repairing or rebuilding your home, the higher your
premium is likely to be
Source: Rejda, G. E., McNamara, M. (2017). Principles of Risk Management and Insurance, 13 th Edition. Pearson.
Cost of homeowners insurance
 Major rating and underwriting factors include (Continued):
 Age of the home: Insurers charge less to insure new homes than older homes
 Type of policy
 Deductible amount
 Insurance score: The applicant’s credit record is used to determine an insurance score. An insurance
score is a credit-based score that is highly predictive of future claim costs
 Loss history report: Insurers use a loss history report that reveals the prior claim history of a home

Source: Rejda, G. E., McNamara, M. (2017). Principles of Risk Management and Insurance, 13 th Edition. Pearson.
Motor
insurance
(car insurance)
Motor insurance
 s. 4 of the Motor Vehicles Insurance (Third Party Risks) Ordinance (Cap. 272):
 Subject to the provisions of this Ordinance it shall not be lawful for any person to use, or to cause or
permit any other person to use, a motor vehicle on a road unless there is in force in relation to the user
of the vehicle by that person or that other person, as the case may be, such a policy of insurance or
such a security in respect of third party risks as complies with the requirements of this Ordinance.
 If a person acts in contravention of this section, he shall be liable to a fine of $10,000 and to
imprisonment for 12 months

 The minimum amount of cover required by law in respect of third party death and injury
liability is HK$100 million any one event

 Liability for property damage to third parties is not required by law

Source: https://www.ia.org.hk/en/supervision/reg_ins_intermediaries/files/GI_SN_eng_2018.pdf
Motor insurance
 Three major types of motor insurance that cover third party liability as is required by
law to be covered

(i) Third party only cover: covers any insured driver (or any passenger) his liability at
law to third parties for their death, injury or property damage that arises out of an
accident caused by or in connection with the insured car

(ii) Third party, fire and theft cover: comprises the cover described in (i), and
property insurance of the insured vehicle covering its loss or damage resulting from
the risk of fire or theft

(iii) Comprehensive cover: includes all the cover in (i) and (ii), with all risks
insurance on the insured vehicle
Source: https://www.ia.org.hk/en/supervision/reg_ins_intermediaries/files/GI_SN_eng_2018.pdf
Motor insurance – No claim discount
 Motor insurance for three major classes of vehicle:
 Private vehicle
 Motor cycle
 Commercial vehicle

 No claim discount (NCD)

 Refers to the practice of granting a progressive discount on the renewal annual premium if
the preceding policy year has been claim-free
 A significant and almost unique feature of motor insurance
 A typical scale of NCD for private vehicle is such that one claim-free year earns a 20% NCD,
the second year 30% NCD and so on, rising to a maximum of 60% after five consecutive
claim-free years

Source: https://www.ia.org.hk/en/supervision/reg_ins_intermediaries/files/GI_SN_eng_2018.pdf
Motor insurance – Common exclusions
Motor insurance will not cover the following circumstances:
 Accidents occurring outside the specified Geographical Area of cover (normally “the
territories of HK”)
 Insured vehicle being used otherwise than in accordance with the specified
Limitations As To The Use Of The Vehicle
 Certain fundamental and high risks
 War
 Act of terrorism
 Nuclear weapon materials and radioactive risks
 Driving by any person other than an Insured Driver
 Driving by any insured driver in violation of the statutory prohibition against drink-driving

Source: https://www.ia.org.hk/en/supervision/reg_ins_intermediaries/files/GI_SN_eng_2018.pdf
Motor insurance – Rating features
Motor insurance premiums are likely to be based upon the following factors:
 Type of cover and any extra benefits
 Engine power/carrying capacity
 Car value
 Use of the vehicle
 Physical features of the car
 Details of the regular drivers
 Individual driving record
 Insurance score

Sources: https://www.ia.org.hk/en/supervision/reg_ins_intermediaries/files/GI_SN_eng_2018.pdf
Rejda, G. E., McNamara, M. (2017). Principles of Risk Management and Insurance, 13 th Edition. Pearson.
Motor insurance
 Summary of motor insurance

Third party, fire and theft

Third party only cover Comprehensive cover
cover

Yes Yes Yes

Third party liability
(minimum HK$100 million) (minimum HK$100 million) (minimum HK$100 million)
Damage to the property Yes Yes Yes
of third party (generally HK$2 million) (generally HK$2 million) (generally HK$2 million)
Coverage for vehicle? No Limited to fire and theft Yes

Accidental cover? No No No

Source: https://www.ia.org.hk/en/supervision/reg_ins_intermediaries/files/GI_SN_eng_2018.pdf
 Travel
insurance
Travel insurance
 To meet unforeseen financial and other problems encountered whilst on holiday outside HK
 The cover provided usually includes:
 Medical expenses and hospital benefit: Private medical treatment, Hospital cash allowance
 Personal accident (PA) benefits: Covers accidental bodily injury
 Luggage and personal effects loss/damage: The cover is on an “all risks” basis
 Loss of deposits or cancellation of trip: When the insured trip has been cancelled because of
the happening of any of the specified perils and some or all of the payments, if any, that
have been made in advance or have become due for a tour, a flight or other travel
arrangements are irrecoverable or unavoidable, such a loss is recoverable under the policy
 Curtailment of trip: Where the insured trip has commenced outside the place of origin but,
because of the happening of any of the specified perils, has to be curtailed unavoidably, the
policy will pay for any loss of pre-paid travel fare or accommodation expenses, and any
additional costs of returning to the place of origin

Source: https://www.ia.org.hk/en/supervision/reg_ins_intermediaries/files/GI_SN_eng_2018.pdf
Travel insurance

 The cover provided usually includes (Continued):

 Loss of personal money
 Travel delays and baggage delays
 Emergency services
 Personal liability
 Loss of travel documents

Source: https://www.ia.org.hk/en/supervision/reg_ins_intermediaries/files/GI_SN_eng_2018.pdf
 The important elements in deciding the
premiums:

Geographical area

Travel Duration
insurance
Number of persons covered

Annual policies

Source: https://www.ia.org.hk/en/supervision/reg_ins_intermediaries/files/GI_SN_eng_2018.pdf
 If your trip is cancelled due to COVID-19, can
you get reimbursed from travel insurance?
 https://www.hkfi.org.hk/covid19/index.html