A commercial building with a replacement value of $1,000,000 carries an 80% coinsurance clause. The insured purchased only $600,000 of coverage. A covered fire causes a $200,000 loss. Ignoring the deductible, how much will the insurer pay?
a.$200,000
b.$160,000
c.$150,000
d.$120,000
Explanation
The coinsurance formula is (Did Carry / Should Have Carried) x Loss. Should have carried = 80% x $1,000,000 = $800,000. Insured carried only $600,000, so the ratio is 600,000/800,000 = 0.75. Payment = 0.75 x $200,000 = $150,000. The insured absorbs the remaining $50,000 as a coinsurance penalty.
Law Reference: ISO Commercial Property — Coinsurance conditionThis topic, taught in full in the California Property & Casualty Broker-Agent guide. California Property & Casualty Broker-Agent Study Guide — 2026 Edition — PDF + EPUB, $24.99 · 14-day refund →
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