Question

1. Daisha owns a small warehouse that is insured for $200,000 under a commercial property insurance policy. The policy contains an 80% coinsurance clause. The warehouse sustained a $50,000 loss because of a fire in a storage area. The value of the warehouse at the time of loss is $500,000. What is the insurer’s liability, if any, for this loss? Show your work.

2. Daisha also owns a commercial office building that is insured under three property insurance contracts. She has $100,000 of insurance from Company A, $200,000 from Company B, and $200,000 from Company C. Assume that the pro-rata liability provision appears in each contract.
   1. If a $100,000 loss occurs, how much will Daisha collect from each insurer? Show your work or explain your answer.

2. What is the purpose of the other-insurance provisions that are frequently found in insurance contracts?

Answer 1

Part 1)

Amount paid by insurer = (amount of insurance taken/anount of insurance required)×loss

= (200000/80%×500000)×50000

= $25000

Hence loss borne by insurer = $25000

Part 2)

A)

There is $500,000 of total insurance.

Amount payable by insurer = (amount of insurance taken from insurer A/total insurance taken)×loss

Company A has coverage = $100,000 of the $500,000 or 1/5 of the coverage.

Company B and C have coverage = $200,000 of the $500,000 or 2/5 of the coverage each.

Hence Company A covers = 1/5 of the $100,000 or $20,000.

Company B and C each cover 2/5 of the $100,000 or $40,000 each.

B. The purpose of the provision is to eliminate profit making by the claimant and to make sure individuals do not make a gain from a loss. If it happen it will be a violation of principal of indeminity