Georgia Property & Casualty Practice Exam

What does the insurer's pro rata share of a covered loss or damage depend on?

1. Number of claims filed

2. The sum of all insured values

3. The applicable limit of insurance relative to total limits

4. Market value of the insured property

The correct answer is: The applicable limit of insurance relative to total limits

The insurer's pro rata share of a covered loss or damage is determined by the applicable limit of insurance in relation to the total limits of all insurers involved. This principle is primarily used in situations where multiple policies cover the same risk. For instance, if an insured property has a total value of $100,000 and is insured under multiple policies, each with its own limit, the share of each insurer in the loss calculation will directly depend on their respective limits relative to the total amount of coverage. This method ensures that claims are fairly apportioned among multiple insurers according to each of their financial commitments to the insured. Thus, when a claim is made, each insurer will pay a portion of the loss that corresponds to their share of the total limits, ensuring that the insured is not over-compensated beyond the actual loss amount and that each insurer pays their fair part based on the coverage they provided.