In: Finance
Assume that a $400,000 liability claim is covered under two liability contracts. Policy A has a $600,000 limit of liability for the claim, while Policy B has a $145,000 limit of liability for the claim. Both contracts provide for contribution by equal shares.
A) How much will each insurer contribute towards a claim? Explain your answer
B) IF the claim was $50,000, how much would each insurer pay?
A)
Policy B = $145000
Policy A = $255000
For a claim of $400000, the low coverage policy will pay $145000.
Balance loss will be paid by Policy A since it is within its maximum limit of $600000
= 400000 - 145000
= $255000
B)
Policy A = 25000
Policy B = 25000
Since both the policies are covering a higher amount of loss, they will each pay an equal part of the total loss. So both the policies will pay 50% of the total loss = 50%*50000 = 25000
A) $255000
B) 25000