A client has two Personal Auto Policies (PAPs). Policy A has a bodily injury liability limit of $100,000 per person / $300,000 per accident. Policy B has a bodily injury liability limit of $50,000 per person / $150,000 per accident. Both policies have a 'pro-rata' other insurance clause. If the insured causes an accident with $90,000 in bodily injury to a single person, how much will Policy B pay?
- A$30,000
- B$0
- C$50,000
- D$45,000
Show answer & explanationAnswer & explanation
Correct answer: A. $30,000
With a pro-rata clause, each policy pays a proportion of the loss based on its share of the total coverage. Total coverage available is $100,000 (Policy A) + $50,000 (Policy B) = $150,000. Policy B's share is $50,000/$150,000 = 1/3. Therefore, Policy B pays 1/3 of the $90,000 loss, which is $30,000. Note that the per-person limit of $50,000 for Policy B is not exceeded.
Why the other options are wrong
- B. Incorrect; Policy B contributes proportionally.
- C. Incorrect; this is Policy B's per-person limit, not its pro-rata share of this specific loss.
- D. Incorrect; this would be half of the loss, implying equal coverage, which is not the case.
Pro-Rata Other Insurance Clause
A provision in an insurance policy that specifies how losses will be shared when the insured has multiple policies covering the same risk. Each insurer pays a proportion of the loss based on its percentage of the total available coverage.
- Applies when multiple policies cover the same loss.
- Each policy pays based on its limit relative to the total limits available.
- Prevents the insured from collecting more than the actual loss.
Memory trick: Pro-Rata is like splitting a pizza based on how much each friend contributed to buying it – proportional shares.