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 B pays nothing because Policy A is primary and must exhaust its limit first
b.Policy A pays the full $50,000 because it was issued first, and Policy B contributes nothing at all until Policy A's entire $200,000 limit has been exhausted
c.Each policy pays $25,000 because the loss is split equally down the middle between the two policies, without regard to their $200,000 and $300,000 limits
d.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
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.
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