Assume that a $400,000 liability claim is covered under two liability contracts. Policy A has a $600,000 limit

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?

Expert Solution

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

Junaid answered 2 years ago

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Question

Assume that a $400,000 liability claim is covered under two liability contracts. Policy A has a $600,000 limit

Solutions

Expert Solution

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