A warehouse with a $1,200,000 replacement cost is insured for $810,000 under a 90 percent coinsurance clause. A covered fire causes $150,000 of damage and the policy carries no deductible. The insurer pays:
Explanation
The coinsurance formula is the amount carried divided by the amount required, times the loss. The amount required is 90 percent of $1,200,000, or $1,080,000, and $810,000 / $1,080,000 = 0.75, so 0.75 x $150,000 = $112,500. Multiplying the loss by the 90 percent coinsurance figure gives $135,000 and is the most common wrong turn, because the clause compares the limit carried with the amount required, not the loss with the percentage.
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