Two policies cover the same warehouse: Policy A with a $400,000 limit and Policy B with a $600,000 limit, each containing a pro-rata other-insurance clause. A covered $200,000 loss occurs. Policy A will pay:
a.$100,000 because the carriers must split the loss equally
b.$80,000 because Policy A is 40% of the total insurance in force
c.$200,000 because the full loss is within its limit
d.Nothing because Policy B has the higher limit and is therefore primary
Explanation
Under a pro-rata other-insurance clause, each insurer pays the proportion that its limit bears to the total insurance in force. Total = $400,000 + $600,000 = $1,000,000. Policy A's share = $400,000 ÷ $1,000,000 = 40% × $200,000 = $80,000. Policy B pays the remaining 60% = $120,000.
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