Which term describes sharing a loss proportionally among multiple policies covering the same property?

Which term describes sharing a loss proportionally among multiple policies covering the same property?

• A. Pro Rata Liability
• B. Primary and Excess
• C. Nonconcurrence
• D. Contribution by Equal Shares

Answer: (A)

When multiple policies cover the same property, losses are shared based on each policy’s share of the total coverage. This is called pro rata liability. Each insurer pays a portion of the loss proportional to its policy limit relative to the combined limits. For example, two policies cover a property with limits of 100,000 and 400,000, for a total of 500,000. If a loss of 60,000 occurs, the first policy covers 60,000 × (100,000/500,000) = 12,000, and the second covers 60,000 × (400,000/500,000) = 48,000. If the loss were larger, say 350,000, the first policy would pay 70,000 and the second 280,000, still within their limits. If the loss exceeded total available coverage, the shortfall wouldn’t be paid by these policies. This approach differs from other concepts like primary and excess (which determines order of payment) or equal shares (which would divide the loss evenly regardless of limits).

When multiple policies cover the same property, losses are shared based on each policy’s share of the total coverage. This is called pro rata liability. Each insurer pays a portion of the loss proportional to its policy limit relative to the combined limits.

For example, two policies cover a property with limits of 100,000 and 400,000, for a total of 500,000. If a loss of 60,000 occurs, the first policy covers 60,000 × (100,000/500,000) = 12,000, and the second covers 60,000 × (400,000/500,000) = 48,000. If the loss were larger, say 350,000, the first policy would pay 70,000 and the second 280,000, still within their limits. If the loss exceeded total available coverage, the shortfall wouldn’t be paid by these policies.

This approach differs from other concepts like primary and excess (which determines order of payment) or equal shares (which would divide the loss evenly regardless of limits).