Question

You placed $50,000 of insurance with company A, $60,000 of insurance with company B and $100,000 of insurance with company C. Suppose the actual loss is $200,000, how much should each company pay you according to pro-rata liability provision and contribution by equal shares provision respectively?

Answer 1

The amount according to pro-rata liability provision is computed as shown below:

Company A Amount is computed as follows:

= [ (Amount place with Company A) / (Amount place with Company A + Amount place with Company B + Amount place with Company C ] x Actual Loss

= [ ($ 50,000) / ( $ 50,000 + $ 60,000 + $ 100,000) ] x $ 200,000

= $ 47,619.05 Approximately

Company B Amount is computed as follows:

= [ (Amount place with Company B) / (Amount place with Company A + Amount place with Company B + Amount place with Company C ] x Actual Loss

= [ ($ 60,000) / ( $ 50,000 + $ 60,000 + $ 100,000) ] x $ 200,000

= $ 57,142.86 Approximately

Company C Amount is computed as follows:

= [ (Amount place with Company C) / (Amount place with Company A + Amount place with Company B + Amount place with Company C ] x Actual Loss

= [ ($ 100,000) / ( $ 50,000 + $ 60,000 + $ 100,000) ] x $ 200,000

= $ 95,238.09 Approximately

In case of Contribution by equal share the amount is computed as follows:

The total loss Amount of $ 200,000 will be allocated equally between A, B and C. But the amount will be restricted to the actual amount placed in these companies

Amount payable by Company A will be as follows:

= $ 200,000 / 3 or $ 50,000 (Whichever is lower)

= $ 50,000

Amount payable by Company B will be as follows:

= $ 200,000 / 3 or $ 60,000 (Whichever is lower)

= $ 60,000

So, the amount payable by Company C will be

= $ 200,000 - $ 50,000 - $ 60,000

= $ 90,000 or $ 100,000 ( Whichever is lower)

= $ 90,000

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