Property Insurance FundamentalsQuestion 195 of 215
A building is insured by two property policies covering the same interest: Policy A with a $200,000 limit and Policy B with a $300,000 limit. A covered $50,000 loss occurs. Under a pro-rata other-insurance clause, how is the loss shared?
a.Policy A pays $20,000 (2/5) and Policy B pays $30,000 (3/5), so each pays in proportion to its share of the total available limits
b.Policy A pays the full $50,000 because it was issued first
c.Each policy pays $25,000 because the loss is split equally
d.Policy B pays nothing because Policy A is primary
Explanation
A pro-rata clause shares the loss in proportion to each policy's limit relative to the total of all applicable limits. Total limits = $200,000 + $300,000 = $500,000. Policy A pays 200/500 x 50,000 = $20,000. Policy B pays 300/500 x 50,000 = $30,000. Contribution by equal shares would have each policy pay equally up to the smaller limit, which is a different sharing method.
Law Reference: Other insurance - pro rata clausePractice all 215 questions free — no signup required.
Related questions on this topic
- An insured owns a matched pair of antique candlesticks. One candlestick is destroyed by a covered peril. Under a typical pair-and-set clause, how is the loss settled?
- After paying the insured the full insured value of a damaged commercial freezer, the insurer claims the damaged freezer itself. This right is best described as which of the following?
- A neighbor negligently starts a fire that damages the insured's garage. The insurer pays the insured for the loss and then sues the neighbor to recover what it paid. This step is BEST described as which of the following?
- Under a 'contribution by equal shares' other-insurance method, how do two policies generally share a loss?
- After a fire, a city building code requires the entire damaged structure to be torn down and rebuilt to current standards even though only 40% was burned. A standard property policy WITHOUT an ordinance-or-law endorsement generally responds how to the extra demolition and code-upgrade costs?
- Which group of perils is typically EXCLUDED from a standard property policy on the basic, broad, and special forms unless special endorsements or separate policies are purchased?
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against California Property & Casualty Insurance License Exam · How we review