Property Insurance FundamentalsQuestion 196 of 215
Under a 'contribution by equal shares' other-insurance method, how do two policies generally share a loss?
a.In proportion to their stated premiums
b.Strictly by which policy was issued first
c.Only the policy with the higher limit pays anything
d.Each policy pays equal amounts of the loss until one policy's limit is exhausted, after which the other policy continues to pay alone up to its limit
Explanation
Under contribution by equal shares, each policy pays an equal dollar share of the loss until the lower-limit policy is exhausted; the policy with the higher limit then continues to pay alone up to its remaining limit. This method is common in commercial liability; pro rata by limit is the common method in property insurance.
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Related questions on this topic
- 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?
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- 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?
- 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?
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