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Pro Rata Liability Clause

Definition of "Pro rata liability clause"

Robert  Schilling
  Gateway Real Estate

Provision in many property insurance policies that spreads the obligation to pay a claim among various insurers covering that claim in proportion to the insurance each has written on the property. For example, there are three different policies covering a $130,000 building. Co. A wrote a $60,000 policy, Co. B a $50,000 policy, and Co. C a $20,000 policy. A fire results in $25,000 damage. The loss would be spread in the same ratio as the coverage: Co. A's share would be $11,750, or 47%; Co. B would pay $9500, or 38%; and Co. C would pay $3750, or 15%. One purpose of this clause is to prevent an insured from capitalizing on a loss. In the case cited, the insured could collect the full amount ($25,000) twice from the first two insurers, and $20,000 from the third, giving him or her $70,000 to cover a $25,000 loss.

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